FERC says North Dakota utility can’t charge different rate for crypto centers

Basin Electric Power Cooperative sought a different payment structure from companies operating data centers that serve cryptocurrency mining operations compared to non-cryptocurrency companies with other huge power demands in a rates request before the Federal Energy Regulatory Commission (FERC). The request ultimately was shot down in August.

Bismarck-based Basin is an electric generation and transmission cooperative that provides power to 3 million customers across 141 member co-ops in nine states. A company spokesman declined comment.

The utility says that power demands in the regions it serves are set to skyrocket in the coming years with an additional 5,000 megawatts of “load” — industry language for demand — looking to come online. That is roughly equivalent to its 2022 peak demands, according to Basin.

Basin’s filings said its member co-ops are in discussion with 22 “large load” projects. These are not limited to, or even mostly related to, cryptocurrency data centers.

Many of the potential demands come from proposed projects related to direct air carbon dioxide capture, hydrogen hubs and green ammonia. The first is a very nascent, power-intensive process to pull CO2 from the ambient air where the greenhouse gas otherwise contributes to climate change. The latter two use electricity to separate molecules in water, producing cleaner fuels that are traditionally made through processing natural gas.

These technologies are receiving heavy federal incentives, along with some significant assistance from North Dakota’s state government, though Basin’s service territory is much more expansive than just the state.

Data centers that serve other purposes, such as artificial intelligence and cloud computing, are also set to grow along with crypto.

All potential new industrial loads would likely require a lot of energy and major financial investments in power production and transmission infrastructure to match. The co-op would have to rely on market purchases to serve the increased demand until it decides whether to make the infrastructure investments. The rates it proposed would have passed these market purchases on to the major power users for a higher rate, which would deal with administrative costs for handling the connection.

Basin wanted to make the large power users pay on the market because of concerns that if the utility committed to infrastructure investments to serve the demand, but projects using new technologies never came to fruition, then the utility’s customers would ultimately be left to foot the bill for power plants and transmission lines that serve no economic purpose.

Most large loads would be able to transition off the higher rate within five years, but crypto would not under the proposed policy.

The co-op argued the risk of stranded assets is higher for facilities where cryptocurrency is mined because of its view that the facilities do not require a high level of infrastructure investment or workforce development and companies can easily relocate if market conditions change. The utility also expressed concerns that crypto data centers’ actual power use may fluctuate depending on swings in crypto markets, resulting in less money going back to the utility. This different rate would kick in for crypto loads larger than 25 megawatts — except in one region where it would be 27 megawatts.

In filings, Basin said that other large loads for new industries also have speculative qualities — often because many rely on the promise of large federal subsidies which can be pulled if negotiations with companies and the feds break down. But the concern, Basin argued, is smaller once the projects are fully built out since the infrastructure investments and workforce requirements are larger. This higher rate would be applied to loads larger than 75 megawatts.

Some of Basin’s member co-ops and one crypto company filed in support of the utility’s FERC request.

One of its larger members and two crypto companies, however, countered Basin’s assertions about the nature of crypto companies’ investments and operations, along with some other aspects Basin proposed as part of the rates.  The founder of Aurum, a cryptocurrency company, testified that miners invest upwards of $1.1 million per megawatt they use and often enter into long-term leases.

FERC’s order said that Basin had failed to provide enough evidence to demonstrate that treating crypto demands different from others would be just and reasonable.

The commission dismissed the case “without prejudice,” meaning the utility can make the request again with new arguments and evidence.

“We acknowledge that there are increasing utility and stakeholder concerns related to the growing number of large loads seeking electric service,” the FERC order reads.

Growing demands

Basin’s crypto demand was 200 megawatts in 2023 and is set to grow to 1,000 megawatts in the coming years, according to its filings. The current demands have already caused some grid issues.

Earlier this year, Montana-Dakota Utilities filed a complaint in a separate FERC case alleging an unfair market mechanism from a regional grid operator, charging MDU customers millions for strain that a Basin-supplied crypto data center near Williston is putting on the grid due to a lack of power infrastructure in northwest North Dakota. The utilities and grid operators have since implemented a market mechanism that they say is addressing the problem for now by cutting off power to the data center if transmission lines get overloaded.

Grid issues from data centers and other large power demands are not inevitable. Where companies build them is an important factor, some experts say.

A crypto data center in southeastern North Dakota is contributing to lower utility rates because it puts local wind power to use that would otherwise be stranded at times because there is not enough transmission to bring it all to market. The phenomenon causes utilities to lose money and raise rates. 

The potential for the North Dakota Public Service Commission to have a role in regulating the siting of data centers was floated at a meeting it convened on data centers earlier this month, though the state Legislature would need to authorize that and there was some pushback at the meeting. The PSC regulates the siting of power supply infrastructure in the state. It also regulates rates for investor-owned utilities like MDU, but not co-ops such as Basin.

Rates for co-ops are set by their boards elected by their members. Basin’s rates had largely been unregulated by an outside body until about five years ago when it started to sell enough power to fall under FERC jurisdiction.

Basin CEO Todd Brickhouse spoke to creating rates that incentivize large power users to put their demands in areas with adequate generation and transmission at the co-op’s annual meeting last month, according to the Western Dakota Energy Association’s newsletter. The WDEA advocates for coal-, oil- and gas-producing counties and cities in North Dakota. The western part of the state includes a large portion of Basin’s North Dakota footprint.

The region of northwest North Dakota more broadly has experienced increased power demands for years relating to the state’s oil boom and the influx of population and industry that followed.

The oil industry is one of North Dakota’s largest tax payers and state officials hope to incentivize an industrial buildout — including, but not limited to data centers — as one way to put the growing levels of natural gas that get produced as a secondary product in its oilfields to use, as opposed to burning it off. There are heavy pressures on the oil industry to better address gas-related pollution from the federal government and segments of the public concerned about the role of gas in climate change and local pollution. Officials have said companies may choose to focus more on oil reservoirs in other states if handling gas pollution there is easier than in North Dakota.

Brickhouse said the co-op plans to build a 1,200-1,400 megawatt natural gas power plant in northwest North Dakota to help meet growing demands. If built, it would be North Dakota’s largest power plant.