Crypto miner seeks to export US electricity for Canadian servers

In what has been called "a maiden effort by an energy-hungry cryptocurrency-mining industry to import electricity from the United States to Canada to meet its significant power demands", a Canadian company has applied to the U.S. Department of Energy for authority to export power from the U.S. into Canada to power blockchain-related computer servers -- but a nonprofit advocacy group has warned that federal approval of this "first-ever application to export power by a cryptocurrency miner" may result in a rush of similar applications.

Under U.S. federal law, the Department of Energy regulates exports of electricity from the United States to a foreign country, which require authorization under section 202(e) of the Federal Power Act. On May 21, 2020, DMG Blockchain Solutions Inc. filed an application with the U.S. Department of Energy, seeking authority under the Federal Power Act to transmit electric energy from the United States to Canada for a term of five years.

According to the website dmgblockchain.com, "DMG is a diversified cryptocurrency and blockchain platform company that is focused on the two primary opportunities in the sector – mining public blockchains and applying permissioned blockchain technology. DMG focuses on mining bitcoin, providing hosting services for industrial mining clients, earning revenues from block rewards and transaction fees, developing data analytics and forensic software products, working with auditors, law firms, and law enforcement to provide technical expertise, DMG’s permissioned blockchain technology is focused on developing enterprise software for the supply chain management of controlled products."

DMG's application to the Department of Energy describes the company as "a consumer of power, whose primary business is to host servers whose primary function is to ensure the security of public blockchains as well as other high-performance computing applications." DMG's application notes, "This business requires large amounts of power, which DMG is currently consuming approximately 15 megawatts on a steady load basis and has plans to grow to up to 60 megawatts in the next year with potentially larger amounts in the future as DMG may add new facilities." The application requests DOE export authorization over any of a long list of cross-border transmission facilities with Presidential Permits, in states including Maine, Vermont, New York, Pennsylvania, Michigan, Minnesota, North Dakota, Montana, and Washington.

But at least one entity has weighed in to urge the Department of Energy to proceed with caution, as it considers this request to export electricity to power foreign blockchain servers and computers. A Motion to Intervene and Comment filed with the Department of Energy on June 25, 2020, by watchdog organization Public Citizen, Inc. frames that organization's concern:

Despite cryptocurrency mining’s status as a relatively immature industry, its alarming power consumption footprint raises concerns about its sustainability and suitability in localized power markets, resulting in moratoria on new cryptocurrency mining operations issued by select U.S. utility districts and government agencies.

Citing language in Section 202(e) of the Federal Power Act requiring applications to export electricity to neither “impair the sufficiency of electric supply within the United States” nor “impede the coordination in the public interest of facilities subject to the jurisdiction of the Commission", Public Citizen commented:

Cryptocurrency mining is extraordinarily energy-intensive and can lead to major strains on local U.S. power supplies. At the same time, the process of mining is designed in a manner that wastes the overwhelming majority of the energy it consumes. U.S. cryptocurrency miners are struggling to meet their own power demands. This appears to be the first-ever application to export power by a cryptocurrency miner, and approval may result in a rush of similar applications.

Public Citizen's comments assert that this "maiden effort by an energy-hungry cryptocurrency-mining industry to import electricity from the United States to Canada to meet its significant power demands... raises serious, potentially fatal concerns under section 202(e)." Public Citizen concludes that the Department should proceed with extreme caution and "likely should deny the application or, if granting it, place conditions on it."

The pending export authorization proceeding before the U.S. Department of Energy is OE Docket No. EA-482, DMG Blockchain Solutions Inc. Application To Export Electric Energy.

Cross-border infrastructure and presidential permits

A recent report casts doubt on whether proposed federal legislation would actually accelerate decisions on the siting of cross-border energy infrastructure.

Cross-border pipelines and electric transmission lines play an important role in the North American energy industry.  Under U.S. law, cross-border energy infrastructure projects require a presidential permit and a finding of consistency with the national interest.  Executive orders give the State Department jurisdiction over cross-border oil pipelines, the Department of Energy jurisdiction over electric transmission lines, and the Federal Energy Regulatory Commission jurisdiction over natural gas pipelines. 

Recent projects like the Keystone XL pipeline have focused attention on the presidential permit process, as that project's presidential permit application has remained pending for years.  Some have raised questions about the scope of agency review and perceived differences in the approaches taken by the State Department, Energy Department, and FERC.

As a result, several members of Congress have proposed legislation designed to accelerate the permitting process.  These bills include:

• the Keystone XL Pipeline Approval Act (S. 1): passed in Congress but vetoed by President Obama
• the American Energy Renaissance Act of 2015 (S. 791 and H.R. 1487)
• the North American Energy Infrastructure Act (S. 1228)

These bills take various approaches, including limiting agency jurisdiction over cross-border energy infrastructure or the scope of agency review, or setting strict deadlines for agency action following completion of environmental review.

Could federal legislation like this speed up the process for reviewing proposed cross-border pipeline and electric transmission projects?  A recent report by the Congressional Research Service suggests that overall timelines for project review are driven by the scope of the environmental review process, not by delays following that environmental review or agency idiosyncrasies.

In particular, the report found that agency review is "driven largely by the National Environmental Policy Act (NEPA)", which requires federal agencies to consider the environmental impacts before acting.  Moreover, the report notes that the same NEPA requirements apply to all three:

Faced with Presidential Permit applications for energy projects of similar physical scope, the agencies appear to perform NEPA reviews of similar proportion. Very short, smaller projects are generally reviewed more narrowly and quickly, whereas multi-state projects of large capacity are subject to more expansive environmental review and tend to face much greater public scrutiny and comment—regardless of which agency has jurisdiction. 

The report also found that NEPA review is the key driver of overall permitting decision timelines:

As long as agencies apply NEPA to Presidential Permitting decisions, changes to the delineation of, or jurisdiction over, the border-crossing portion of large projects for permitting purposes may not change the scope of project environmental review. The imposition of decision deadlines on the permitting agencies after NEPA review is complete, either for national interest or public interest determination, could provide greater process certainty to stakeholders. However, the overall project review would still be contingent on the completion of NEPA review. Thus, the effects of legislative proposals to change cross-border infrastructure permitting on the review or approval of future border crossing energy infrastructure projects are open to debate. 

It's unclear how the Congressional Research Service report will affect pending legislation.  Likely more influential may be any final action by the State Department on the Keystone XL project's application for a presidential permit.  Nevertheless, interest in cross-border energy trade will likely continue to grow.