This Texas Town Was Deep In Debt From A Devastating Winter Storm. Then A Crypto Miner

Last February, a disastrous winter storm pummeled Texas with ice and snow, threatening to topple the Texan energy grid. In the city of Denton, neighborhoods blinked off and on as the local power provider tried to conserve electricity. Places like assisted living facilities were momentarily excluded from the blackouts, but those eventually went dark too. Then the gas pipelines froze, and the power plant stopped working. Over the next four days, the city bled more than $200 million purchasing energy on the open market. It would later sue the Electric Reliability Council of Texas, the grid operator also known as ERCOT, for saddling Denton with inflated energy prices that caused it to accrue $140 million in debt.

“While we were in an emergency, ERCOT allowed prices to go off the scale,” Denton City Council Member Paul Meltzer told BuzzFeed News. “We were forced to pay. We were approached Tony Soprano–like to empty our reserves.”

So when a faceless company appeared three months later, auspiciously proposing to solve Denton’s money problems, the city listened. A deal was offered. In exchange for millions of dollars in annual city revenue, enough to balance its ledgers and then some, Denton would host a cryptocurrency mine at its natural gas power plant. And not just any mine — a massive data center that would double Denton’s energy footprint so that rows upon rows of sophisticated computers could mint stockpiles of bitcoin, ether, and other virtual currencies. To officials who had simply tried to keep the lights on when conditions became deadly, the unexpected infusion seemed a relief.

But the thought of becoming a crypto town was a bitter pill for some to swallow.

“It was super shady just the way it all came about because none of the elected officials around here have ever talked about crypto, and suddenly we’re renting out space near the power plant that’s gonna use as much energy as the whole city consumes,” said Denton resident Kendall Tschacher, who told BuzzFeed News that by the time he learned about the crypto project, it was all but a done deal.

During preliminary discussions with Denton, the crypto miner was simply referred to as the “client,” its name conditionally withheld from the public on the order of Tenaska Energy, a natural gas marketer that negotiated the multimillion-dollar deal. Its name was finally disclosed in local government meetings in August: The miner moving into Denton was Core Scientific, a company cofounded in 2017 by one of the lesser known creators of Myspace, Aber Whitcomb. Headquartered in Austin, the company went public in January through an estimated $4.3 billion SPAC merger.

“The very existence of crypto seems totally stupid to me.”

A bitcoin farm on a natural gas plant is a fitting metaphor for Texas. From Austin to Abilene, crypto prospectors are staking claim to the electrical grid, hungry for cheap power and unique incentives that can effectively pay them to be there. Republican lawmakers have declared the state “open for crypto business,” gambling the industry will in turn buttress a failing fossil fuel economy and meet demands for more clean energy production. Crypto enterprises are now amassing vast amounts of energy that, they claim, can be redistributed to the grid when power reserves are needed most. Companies with valuations 100 times greater than the revenue of local cities are funding schools, sustainability projects, and discretionary spending coffers. And at the smallest levels of government, crypto operations are somehow charming communities who don’t really seem to want them there.

In Denton, the deal’s secretive nature and concerns about the mine’s colossal energy requirements inspired some council members to openly oppose the facility — at least at first.

“The very existence of crypto seems totally stupid to me,” Meltzer said.

Yet after months of deliberation in open and closed-door meetings, the deal was near-unanimously approved. Officials like Meltzer, who’d previously challenged the project’s environmental commitments, began assuring residents that it was the right choice for Denton.

Denton’s story is a tale of how a small town government embraced something to which it first seemed ideologically opposed. It’s a schematic for how the burgeoning crypto industry — which promises to solve climate change, repair crumbling infrastructure, and fix all manner of societal issues by putting them on the blockchain — is literally remaking communities, hedging their futures on its own unforeseeable success.

When put to a vote last August, Denton’s city council approved the mine, which quietly came online last month. Only one council member, Deb Armintor, voted against it. Denton Mayor Gerard Hudspeth said in an October press release that the city is “honored to have been selected as the site of Core Scientific’s first blockchain data center in Texas.” He did not respond to a request for comment; ​​Core Scientific declined to answer a detailed list of questions.

Crypto is a polarizing subject, either the genesis of “world peace” or the thing that’s going to ruin the world, depending on who’s talking. But those prevailing narratives ultimately fell flat in Denton, where crypto is a means to various ends. Like the industries of yore that shaped countless small towns across the nation, crypto companies are hoping to secure their futures by fulfilling the needs of the communities they invade. What happened in Denton, a smallish city of nearly 140,000 people, remains one of the clearest examples of how those communities are sometimes compelled to answer when crypto comes knocking at their door.

Getty Images

The courthouse in Denton, Texas.

Terry Naulty stood at a dais in Denton’s city hall during an August city council meeting. “Without approval, these funds will not be available,” he told Denton’s city council, public utilities board, and planning and zoning commission in an attempt to convince them that Denton would be better off taking the money the Core Scientific deal offered.

As the assistant general manager of Denton Municipal Electric (DME), the city’s owned and operated power utility, Naulty was part of an ad hoc project team advocating for the Core Scientific deal. By the first of these hearings in June, the team had already been in talks with Tenaska for a month about selling the mine to city officials.

Core Scientific pledged a capital investment of $200 million to the project, according to recordings of city council meetings. Dozens of modular mining containers, roughly the shape and size of a semitrailer truck, would connect to the gas plant’s existing power infrastructure, a driving factor in why the company chose Denton.

On a presentation slide, rows of six-figure numbers listed the revenue that Denton could reap should council members greenlight the project. At full buildout in 2023, DME stands to earn between $9 million and $11 million annually from taxes and fees. A portion of that revenue would be transferred to the city’s general fund to be used at council members’ discretion, allowing them to pursue sustainability initiatives currently out of reach.

For DME, said Naulty, this net income “would offset the cost of Winter Storm Uri,” offering Denton the opportunity to get back in the black after accumulating $140 million in debt.

“People have their power shut off just for being too poor to pay their bills.”

Last February, millions of Texans lost power for days after freezing temperatures brought on by the winter storm pushed the ERCOT grid within minutes of total collapse. At least 750 people died as a result, according to a BuzzFeed News analysis. Neglected energy infrastructure, a lack of power reserves, and the repercussions of a deregulated market were blamed in the aftermath. Republicans like Gov. Greg Abbott cried “green energy failure,” though in truth all production was curtailed, and natural gas suffered catastrophically. Since Texas’s grid is an island, unable to draw power from neighboring states, both customers and utilities were literally left in the dark.

Montinique Monroe / Getty Images

A sign states that a Fiesta Mart is closed because of a power outage in Austin, Texas, on Feb. 17, 2021.

That week, DME spent approximately $210 million purchasing electricity from ERCOT, almost as much as it had paid in the previous three years combined. Whereas energy rates in February 2020 were $23.73 per megawatt hour, they spiked as high as $9,000 during the storm. The city had no choice but to buy power at jaw-dropping wholesale rates.

The alternative to approving the Core Scientific deal, Naulty said, would be to raise rates for DME customers by 3%. Without the crypto mine to cover the blackout’s costs, the city’s residents would have to pay for ERCOT’s failures, amounting to an additional $3.75 per month on the average customer’s bill.

Armintor remarked that even a small rate increase can be a real burden for struggling locals. “People have their power shut off just…

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