The evolving energy regulatory landscape for cryptocurrency mining businesses: opportunities and risks

January 2025  |  EXPERT BRIEFING  | SECTOR ANALYSIS

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Major political, regulatory and policy changes are afoot in the US, with significant implications for cryptocurrency mining businesses. Breakthroughs in generative artificial intelligence (GenAI), combined with cryptocurrency mining growth, electrification and industrial repatriation, have led to explosive growth in the demand for electricity that threatens to outstrip the available supply of power, leaving regulators and utilities scrambling for solutions. In July 2024, Basin Electric Power Cooperative, an electric cooperative spanning nine states in the Midwest, filed the first crypto-specific rate proposal aimed at discriminating against cryptocurrency miners. On 1 November 2024, the US Federal Energy Regulatory Commission (FERC) held a ‘Technical Conference’ to discuss the co-location of large data centres with power plants, signalling that new rules were likely to be proposed in 2025. Hours after the conference, FERC rejected a contract needed to expand Amazon’s data centre co-located with the Susquehanna nuclear plant in a surprise ruling that sent stocks poised to benefit from co-location arrangements tumbling. A few days later, Donald Trump’s victory in the 2024 presidential election rocketed Bitcoin prices to an all-time high. These and many other factors comprising the federal energy regulatory landscape in the US present cryptocurrency miners with opportunities and risks.

FERC and the markets it oversees

FERC is a relatively little-known federal agency with an influence on the multitrillion-dollar US power market that belies its roughly $500m budget. As it pertains to the electricity markets, FERC regulates the interstate transmission and sale of wholesale electric energy under its Federal Power Act (FPA) jurisdiction. Its jurisdiction extends to facilities and contracts used for the interstate transmission and sale of electric energy, the interconnection of generators to the grid, and interstate transmission and wholesale power rates, but the FPA reserves regulation of retail sales and local distribution to the states. FERC’s primary statutory mandate is to balance the reliability of the electric grid with its responsibility to ensure that utilities making wholesale power sales and providing interstate transmission service do so at rates, and on terms and conditions, that are ‘just and reasonable’ and not unduly discriminatory or preferential.

Broadly speaking, FERC carries out this mandate in the context of a US electric system comprised of a regional patchwork of traditional, vertically integrated utilities on the one hand and reorganised market-based systems on the other. In traditional markets, the state grants the utility a franchise and the utility must serve all customers in that territory and submit itself to state regulation of its rates, investments and other activities. In fully reorganised markets, grid operators oversee competitive markets for wholesale power products pursuant to rules authorised by FERC that are designed to ensure just and reasonable rates and grid reliability.

Economic and policy factors driving regulation

Concerns over rapidly growing power demand coupled with serious limitations on the ability to bring new generation online to keep up with supply needs permeate US energy policymaking. Electrification, breakthroughs in GenAI, cryptocurrency mining and the repatriation of manufacturing are lead causes of the first sustained power demand growth in the US in more than 20 years. The International Energy Agency expects data centre load alone to account for more than one-third of new demand through 2026. At the same time, environmental rules have hastened the retirement of fossil fuel generators, organised markets have not spurred sufficiently robust construction of new generation to meet projected long-term demand, existing transmission infrastructure is inadequate, transmission buildout is difficult to coordinate across jurisdictions, and long lines to interconnect new generation to the grid further constrain supply.

In 2024, FERC focused two of its most significant rulemakings in at least a decade on many of these challenges. The 1363-page Transmission Planning and Cost Allocation Final Rule, known as Order No. 1920, adopted myriad reforms to expand the transmission planning horizon, coordinate regional planning and fairly distribute costs to enhance the likelihood that needed transmission is built. The 1481-page Final Rule on Improvements to Generator Interconnection Procedures and Agreements, known as Order No. 2023, seeks to streamline and enhance the generator interconnection process to allow new generation to come online more quickly. In each rule, reliability and resource adequacy – the concept of maintaining adequate headroom of generation supply to meet power demand at all times – are key underlying considerations. The jury is still out on whether the rules will have the desired effect.

Cryptocurrency miners can be a valuable grid resource

In this evolving landscape, cryptocurrency miners have emerged as a distinctive type of flexible demand-side resource that can help to balance the supply and demand equation and improve reliability by quickly curtailing energy consumption, a saleable grid service generally known as demand response. Cryptocurrency miners routinely offer such services in times of extreme strain on the grid. In Texas, for example, miners responded to grid events during 2022’s Winter Storm Uri, 2023’s summer heatwaves and 2024’s Winter Storm Heather, by rapidly reducing electric use during times of power scarcity. In August 2023, the Texas regional market operator, ERCOT, paid a Bitcoin miner $24.2m in power curtailment credits plus an additional $7.4m from ERCOT’s demand response programme.

While demand response programmes such as they exist are well-established, their rules are subject to change. For example, questions concerning whether demand response resources may participate in and receive the economic benefits of power capacity markets – the market that compensates the availability of a resource to contribute to balancing supply and demand as opposed to the sale of actual energy – are still being resolved. The same is true with respect to how, whether and when grid operators compensate cryptocurrency miners for demand response. One major market operator issued guidance just a few months ago explaining how it will determine compensation for cryptocurrency mining operations that curtail their operations in response to high market prices that signal heightened increased demand.

Cryptocurrency miners may need to enhance advocacy efforts

Despite the valuable grid services that cryptocurrency miners can and do provide, miners face risks as FERC regulations evolve. And, as utilities struggle to serve growing demand, miners face the risk of discriminatory rate treatment.

In March 2024, Basin Electric Power Cooperative proposed three rate schedules applicable to all cryptocurrency and blockchain-related loads in its service territory. Basin argued that because cryptocurrency miners can easily move their operations to more attractive locations, Basin could be left with stranded assets built to serve miners that become unnecessary. To mitigate that risk, Basin proposed rules and rates for services provided to miners that would burden them with increased costs. Voltus, Inc, a distributed energy resource aggregator, and Aurum Capital Ventures, Inc. protested, arguing that the new rate schedules would unduly discriminate against cryptocurrency load and could negatively impact grid reliability. FERC has a statutory responsibility under the FPA to prohibit undue discrimination.

FERC rejected Basin’s proposal, finding the proposed discrimination to be undue – that is, Basin failed to show that its proposal to treat cryptocurrency mining loads differently from other loads of similar size had a well-reasoned basis and was just and reasonable. Although FERC determined that, based on its filing, Basin failed to justify the proposed discriminatory rates, FERC expressed sympathy for Basin’s concerns and left the door open for Basin to refile its request with better evidence or a revised approach. The Basin filing is unlikely to be the last word on discriminatory cryptocurrency mining rates, but the next such filing likely will be better supported and call for a stronger response from the crypto mining community.

FERC’s recent technical conference on colocation of data centres with power plants revealed further risks of discrimination against cryptocurrency miners. During the discussion, conference participants emphasised the importance of maintaining US dominance in AI and data centre-dependent businesses. Momentum in the discussion appeared to build toward the idea that FERC should adopt or encourage rules to facilitate a faster path for data centres important to national security to receive service. The conversation included comments from FERC commissioners that dismissed the idea that cryptocurrency miners should be included in any rule that provides data centres a fast-path to service. No participating voice emphasised the critical role that miners can serve for reliability and resource adequacy purposes.

Conclusion

The US regulatory landscape is rapidly changing as regulators and utilities seek to keep pace with the growing rate of innovation that demands ever more megawatts. FERC’s statutory mandate in navigating these challenges will remain, ensuring a reliable grid with adequate resources offering services at just and reasonable rates without undue discrimination or preference. Although the significance of AI and other data centre load to national security appears to be top of mind for federal regulators, more education and advocacy is needed to persuade regulators that cryptocurrency miners also deserve priority for their valuable contributions to reliability and resource adequacy. Miners should be on the lookout for opportunities to advocate for their interests and seek recognition and compensation for their contributions to the grid. Doing so could yield opportunities for greater revenues or at least avoid discriminatory rates and policies.

Tom Millar is a partner and Gwendolyn A. Hicks is an associate at Winston & Strawn LLP. Mr Millar can be contacted on +1 (202) 282 5334 or by email: tmillar@winston.com. Ms Hicks can be contacted on +1 (202) 282 5021 or by email: ghicks@winston.com.

BY

Tom Millar and Gwendolyn A. Hicks

Winston & Strawn LLP