The problem boils down to: What is a fair electricity price to charge a company that adds very little benefit to the local economy? Two approaches would be:
1) charge the going local rate and treat them like any other business.
2) Charge the export rate to recover the lost revenue from outside electricity sales.
1) This is unfair, because it drives up local costs for everyone without providing local economic benefit.
2) I argue this is still unfair, because the export rate alone does not capture the value and revenue of the ability to provide backup power services (i.e. load shaping+ and firming generation++).
Across the northern border, BC Hydro has also been flooded with miners asking to purchase power. The province is powered ~98 % by hydro and residential electricity rates are ~0.07 – 0.09 $US/kWh. Power export services subsidize local rates. Revenue from export services (~15 %) & revenue from local rate payers are set to recover utility costs, while maximizing economic benefit to the province. The export rate (i.e. the price of electricity that physically flows across the border) represents only a fraction of the revenue from export services. Hydro exports have the ability to shape load+ and firm contracts for power++. The key is that power doesn’t necessarily flow across the border when load shaping and firming contracts are in place. But customers pay good money for the ability to call upon that power when it is needed. That ability is diminished by the additional electricity demand of miners. The value of that ability is not captured in the raw export rate.
+load shaping service: Import/export power so that the net-load a customer sees matches that customer’s contracted or self-generation.
++firming generation: Provide backup power to a customer who has agreed to provide power to a third party at a certain time. Should the generators of the customer fail, the exporter will quickly ramp up production to fill the gap.
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To those calling for “free markets”:
Determining a fair rate to charge miners is difficult, because the economics of hydro power systems work differently than most other liberalized electricity markets. In liberalized markets, all generators bid how much electricity they are willing to supply at which cost, for the next hour or so. Then you stack all the cheapest generators until your demand is satisfied and, voila, that last dispatched generator dictates your market price for that hour. Large consumers can buy electricity at that fluctuating market rate, or choose to shut down. Here, miners would pay the marginal cost, fair enough.
Markets with large hydro power stations can’t work like that. Withholding a large dam from generating electricity gives the operator enough “market power” to be the price-setting generator every hour year round, which gives that operator the ability to dictate prices.
(edits: formatting)