By The Texas Senate Committee has just approved Bill 1751, which places a limit on the participation of Bitcoin miners in demand response initiatives and bars them from tax abatements.
The bill was sponsored by Lois Kolkhorst, Donna Campbell, and Robert Nichols, three influential Republican state senators. It was passed unanimously, without a single vote in opposition, which Satoshi Action co-founder and CEO Dennis Porter believes was due to members of the committee being “swayed by the influence of the powerful bill sponsor.”
How Does the Bill Affect Bitcoin Mining in Texas
Bill 1751 affects Bitcoin miners in 3 key ways:
- Miners are limited to 10% of the total participation in ERCOT’s demand response initiative.
- Miners are no longer eligible for tax abatements.
- Mining operations exceeding 10 MW must register with Texas as a large flexible load centre.
Demand Response Cap
Demand response is a service employed by the Electric Reliability Council of Texas (ERCOT) in which power customers can reduce their electricity consumption in exchange for credits to be applied to future electricity bills.
In this way, load centres can help balance the power grid and reduce consumption during high-demand or low-supply periods.
Bitcoin miners are flexible load centres (i.e. those who can turn off or turn down their electricity consumption on demand).
An ERCOT study found that flexible load centres don’t just help balance the power grid by participating in demand response, but also facilitate new renewable energy build-out and reduce greenhouse gas emissions.
The rationale behind capping Bitcoin miners to 10% of the total participation is not well understood. Satoshi Action had the following to say:
“We do not know the logic behind the arbitrary 10% number other than that miners are so good at participating in this program that it may be out-competing other industries to the extent that they may be lobbying the government to limit our industry’s ability to participate.”
Satoshi Action also stressed that ERCOT should be looking to add more flexible load to its grid, not less, on the basis that it improves the reliability and reduces the cost of maintaining the grid, saving ratepayers money.
When asked how this 10% limit helps the Texas grid or Texas as a whole, Dennis Porter responded, “It doesn’t benefit the grid or Texans.”
Bitcoin Miners Barred from Tax Abatements
Cities, counties, and special districts in Texas are allowed to offer tax abatements to industries in order to “attract new industries and to encourage the retention and development of existing businesses through property tax exemptions or reductions.”
There is no legislation on which industries can be awarded these tax abatements or not. If Bill 1751 passes the next stages and becomes law, that will change, as Bitcoin miners will no longer be eligible for them.
Considering Bitcoin mining operations are not the largest benefactors of these tax abatements, and there are currently no plans to bar any other industries from receiving them, Dennis Porter considers the bill to be “clearly targeted, discriminatory, and anti-competitive.”
When asked why miners should be ineligible for tax abatements enjoyed by other industries, Dennis Porter commented, “That is what we are saying. There should be equal treatment.”
About the rationale behind why miners are being unfairly targeted, he said, “We do not know, we can only assume that other industries want to see miners restricted from competing because we are eating their lunch.”
A New Registry for Large Flexible Load Centres
The bill will require all flexible load centres above 10 megawatts to register with the state. They must also provide the location of their facility and the expected electricity demand over the next 5 years from the registration.
This doesn’t appear to apply only to Bitcoin miners, but to all flexible load centres above 10 MW, making this the only part of the bill that isn’t discriminatory.
Other than adding a layer of bureaucracy, it’s unclear what this part of the bill aims to achieve.
What’s Next for the Bill?
Because it was passed unanimously, Bill 1751 is extremely likely to pass swiftly through the Senate and onto the House of Representatives.
Dennis Porter and Pierre Rochard of Riot Platforms spent 8 hours at the capitol in Austin, Texas to speak to 18 offices, educating them on the problems associated with the proposed legislation.
The Satoshi Action Fund is currently on a mission to educate lawmakers and representatives to ensure that they know what questions to ask in the next round of discussion.
The Fund is also preparing to lobby the governor to veto the bill should it get that far.
Why is There Opposition to Bitcoin Mining
Bitcoin mining comes under a lot of flack because it uses a Proof of Work (PoW) consensus mechanism, which uses an ever-increasing amount of electricity to provide security to the Bitcoin blockchain.
PoW continues to be a hot subject for legislators and campaigners surrounding the Bitcoin industry. Its energy-intensive nature has made it a target for environmentalists, and many are calling for a move to Proof of Stake (PoS), which uses a tiny fraction of the electricity of Proof of Work.
However, there are no plans for Bitcoin to move from PoW to PoS as Ethereum did. Considering Bitcoin is far more decentralized than Ethereum, with no clear leaders in programming or coding developments, it’s not even clear that such a switch would be possible. It certainly wouldn’t be easy.
As for whether or not it would even be a good idea, there are good reasons to believe Bitcoin is better off with PoW. The PoW consensus mechanism:
- Creates diseconomies of scale that limit the centralization of mining operations.
- Secures the blockchain with computational power, making bitcoin “energy-backed money.
- Disincentivizes fraudulent activity, such as forking, through game theory.
Many so-called “experts” (usually finance and economics experts, not blockchain or Bitcoin experts) have called on Bitcoin to move to PoS. However, these “experts” never provide any indication that they understand the benefits of the PoW mechanism.
Dennis Porter told me, “We should always be educating, especially on the benefits of Proof of Work.”
Punitive Legislation Will Not Stop Bitcoin
When asked if miners will move out of Texas if the bill is passed, Dennis Porter assured me, “Miners won’t move, but it could dramatically cool off future growth.” As for whether miners might cool off the U.S. as a whole if other states pass similar legislation, “No, it will just slow growth in Texas. There are many other opportunities in the USA.”
Andrew Myers of Satoshi Energy states that, if passed, “these bills will not end bitcoin production in ERCOT because demand response revenue is only one part of reducing total energy costs.”
Reducing energy costs is essential for bitcoin miners because “the profitability of bitcoin production is driven by the value of bitcoin produced relative to the all-in cost of energy.”
“We continue to see growing demand for projects that can utilize low-cost excess renewable energy from wind and solar.”
Myers is clearly hopeful that Bill 1751 will not put much of a damper on mining operations. “We look forward to ongoing work with ERCOT market participants to enable a reliable, low-cost Texas power grid.”
It seems that whether the bill passes or not, bitcoin mining in Texas will live on. Currently, Texas is the jewel in the American crown when it comes to bitcoin mining. However, it could well be that new mining operations start looking at other states if the bill does become law.
Whether in Texas or elsewhere, the march towards bitcoin dominance continues.
