Solutions to Wyoming’s evolving energy needs Wyoming Infrastructure Authority / 2018 Fall Conference Aaron Carr and Chris Kilpatrick
Agenda • Black Hills Energy overview • Wyoming history • Changing electricity landscape • Large Power Contract Service • What is blockchain • What is cryptocurrency mining • Block Chain Interruptible Service tariff • Next steps • Questions? 2
Black Hills Energy Overview We're based in Rapid City, South Dakota at Horizon Point, our corporate headquarters. We serve more than 1.2 million electric and natural gas utility customers in nearly 800 communities. Utilities Gas Electric Arkansas South Dakota Colorado Colorado Iowa Wyoming* Kansas *Utility supplies electric and Nebraska gas service to Cheyenne, Wyoming and vicinity and Wyoming* gas service to northeast and northwest Wyoming Non-regulated Energy Power Coal Generation Mining Black Hills Electric Wyodak Generation Resources 3
Black Hills Energy - Wyoming Operations Wyoming 172,000 customers 57 communities served 429 employees 5,879 miles of gas system infrastructure Natural Gas and Electric Utilities Natural Gas Utilities Electric Utilities Power Generation Coal Mine 4
Dedicated to Wyoming • Black Hills Energy has 135 years of operating history • Oldest continuously operating coal mine in the United States • Introduced North America’s first air - cooled condensing technology installed at the Neil Simpson I plant • Constructed and operate the first combined cycle power plant in the state at Cheyenne Prairie Generation Station • Total investment in the state of Wyoming well in excess of $1 billion 5
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Changing Electric Landscape 7
Changing Generation Fuel Mix Over Time Generation fuel pricing has shifted from coal and hydro to natural gas and wind in the West 8
Historical pricing Fluctuating price per MWh 2007-2016 9
Changing Electric Landscape RTO’s and market access to new Global competition for technology participants has led to the rise in based companies products accessible to large • Data center locations and commercial and industrial customers cryptocurrency mining can more • Nodal Hedges readily locate anywhere • Sleeved Renewable PPA’s • Proxy Revenue Swaps Black Hills Energy has to be creative and agile to serve our existing and potential customers’ changing needs Lack of RTO in Rocky Mountain region • Lacks efficient market price signals to large industrials/hedging opportunities. • Requires creativity to offer similar market based products 10
Large Power Contract Service (LPCS) 11
Black Hills Energy’s Large Power Contract Service Approved by the Wyoming PSC- July 2016 • Designed to attract large scale electric users • 13,000 kW or greater capacity • Requires generation behind the meter • High Reliability • System Integrity • Economic purchases may dictate- Company or customer takes price risk 12
Microsoft Partnership Overview Protect current retail customers • Microsoft directly assigned costs associated with this new concept Allow Microsoft to grow their business on their timeline • Microsoft typically has tariff service with the local utility for the capacity and energy to supply their data centers and also builds their data centers with backup generation behind the fence (Microsoft owned) to provide 99.999% (5- 9’s) reliability Black Hills Energy partnership • Opportunity to offer a similar partnership to other large customers through the new tariff 13
Protecting Current Retail Customers Correctly allocating costs Transmission Costs Microgrid Customer (Load Ratio Share Charge $/kW-mo and $/kW-mo) Energy Charge - $/kWh based on Administrative Costs actual market $/kW-mo purchased energy costs Data Center 14
Data center Business Model Proposed partnership Typical business model 40 MW 40 MW 40 MW 40 MW + + Black Hills Energy Data center owns Black Hills Energy meets need through Data center owns backup generation to builds generation or market purchases to backup generation to maintain reliability contracts with IPP to avoid costly generation maintain reliability meet new load redundancy. Partnership benefits • Eliminates the need for both Microsoft and Black Hills Energy to both build and own capacity • Black Hills Energy will manage the Microgrid energy needs through customer owned generation 15
Award Winning Solution 2018 Smart Energy Decisions Innovation Award, nominated by Microsoft Quote from the award: “Our judges were particularly impressed with the openness and flexibility Black Hills demonstrated to make this complex undertaking work.” 16
Changing Customer Needs 17
Blockchain & Cryptocurrency Mining New large customer class • Similar to data centers-cryptocurrency miners have high energy density and large energy demands. • Several requests for service of 100+ MW • Blacks Hills Energy total average load is <200 MW • Unlike LPCS tariff-no need for high reliability • Interruptible service is acceptable for the appropriate economics • Opportunistic & transient load • Shop globally for low cost and abundant energy 18
Prior Wyoming Legislation New Wyoming laws centered around blockchain and cryptocurrency passed in 2018 B. 0019: This bill removes a significant hurdle by amending the Wyoming Money Transmitter Act exempting virtual currency from licensing requirements. B. 0070: House Bill 0070, known as the “Utility Token Bill,” provides exemptions from state securities and money transmissions laws for developers, sellers and persons who facilitate the exchange of “open blockchain tokens.” if exchangeable for goods, services or content. F. 0111: This bill exempts virtual currencies from property taxation. B. 0101: House Bill 0101 amends the Wyoming Business Corporations Act to authorize corporations to use a blockchain or other distributed electronic database to create, record and store corporate records. 19
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Bitcoin Price and Mining Business 22
Cryptocurrency Economics Key drivers: • Cheap and abundant electricity • Readily available system capacity • Fast fiber • Quickly able to start mining • Hash rates of processors 23
BCIS Lessons Learned Chelan County PUD, Chelan, County Washington Inundated with requests for several hundred megawatts due to area’s cheap hydroelectric generation. Influx of new load has strained the system and used up the existing and inexpensive baseload resources causing price increases. • Struggle with unauthorized mining at residential level • Moratorium on new high density load (cryptocurrency) • While new rate design is being proposed-larger component of which is driven by market prices • PUD board goals: • Keep existing customer neutral to potential impact • Avoid impacts on other forecasted load growth • Consider rate increases to reflect purchasing market energy 24
BCIS Lessons Learned Continued New York Power Authority • Several municipal power systems were inundated with cryptocurrency miners using up all available allocated low cost hydroelectric electricity resulting in price increases to all customers. • Plattsburgh, for example, monthly bills for average residential customers increased nearly $10 in January because of the two cryptocurrency companies operating there. • In the Village of Akron, a cryptocurrency mining operation requested a 5 MW increase in electricity delivery. "If Akron were to comply with the request at existing rates, Akron’s annual average bulk power supply costs would have increased 54 percent with a direct impact on retail rates 25
BCIS Lessons Learned Continued • New Your Public Service Commission recently ruled that these municipal power companies could charge higher electricity rates. • As part of the new plan, cryptocurrency mining operators will be able to negotiate with municipal power authorities in the area. By so doing, utility companies can review the energy demands of miners individually to come up with suitable contracts for each cryptocurrency mining facility. 26
Black Hills Energy’s BCIS Tariff Details Filed with Wyoming PSC-Sept 28, 2018 • Designed to attract large scale miners • 10,000 kW or greater capacity • Transmission level service • Requires Interruptible service- • System Integrity • Economic purchases may dictate- Company or blockchain customer takes price risk • Blockchain customers responsible for their own electrical infrastructure costs 27
Black Hills Energy’s BCIS Tariff details Continued • Short-term rate offering • Better matches power market liquidity and pricing • Market based supply (not BHE) • Will not require new generation build • Avoids stranded assets • Non-participant in PCA-keeping existing customers neutral to new purchased power costs • Blockchain customers assigned highest purchased power costs and separated from PCA • $2/MWh given back to existing customers for use of transmission and 28
Next Steps Drafting Legislation • Continue last year’s momentum with Blockchain Economic Development Provide support for the Wyoming Public Service Commission 29
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