Chad Everett Harris Helped Build the Most Inefficient Mining Operation in America

Summary  

• Riot Platforms is leading the polluting Bitcoin boom in Texas. The company operates the largest, and one of most energy and carbon-intensive, Bitcoin mines in the U.S. at their Rockdale facility and now plans to build an even bigger and dirtier mine in Corsicana. 
• Riot’s massive fossil fuel-generated energy use contributes to the climate crisis, while the company also profits from extreme weather. During heatwaves and cold snaps, Riot makes millions of dollars by simply doing nothing and selling energy back to the grid – often more than they earn mining Bitcoin. 
• Texans are footing the bill with higher energy prices due to increased electricity demand from Riot, and tax incentives and subsidies going to Riot and other Bitcoin miners. 
• Big financial companies including BlackRock, JP Morgan Chase, and Vanguard are helping bankroll Riot’s carbon emissions and water consumption. 

Introduction 

As the saying goes, everything is bigger in Texas, including Bitcoin mines. And that means big carbon emissions. Texas has become a hub for Bitcoin mining and since 2021, 2,234 megawatts (MW) of Bitcoin mining facilities have been built in the state by around 30 companies. [1] Standing out in this Bitcoin boom is Riot Platforms’ sprawling facility near Rockdale, Texas that is estimated to be the most energy and carbon-intensive Bitcoin mine in the U.S. [2] Riot now plans to grow that facility and while building an even bigger mine in the state, one that could be the largest in the world. This all means even more carbon emissions and local air, water, and noise pollution. [3]  

Through its large Texas operations, Riot, a publicly traded company based in Castle Rock, Colorado, has grown into one of the largest Bitcoin mining companies in the U.S. Riot’s facilities also rely primarily on fossil fuel generated electricity leading to massive carbon emissions. [4] While the company contributes to the climate crisis, it makes money during extreme weather events, like heat waves and cold snaps, by getting paid to simply shut down and sell power back to the grid. [5] Meanwhile, everyday Texans are suffering from sweltering temperatures, paying higher energy bills, and dealing with the consequences of a strained electricity grid.  

Environmental and Community Impacts 

Riot Platforms operates the most energy and carbon-intensive Bitcoin mines in the United States out of an abandoned aluminum smelting plant in Rockdale, Texas. The facility is estimated to use 450 MW of power, equivalent to the amount of electricity used by the nearest 300,000 homes. [6] And almost all of that electricity comes from dirty fossil fuels, producing annual CO2 emissions of 1.9 million tons. Yet, according to Riot, the facility has even greater power capacity, 750 MW, and the company is in the process of expansion. [7] That would mean more GHG emissions and more electricity drained from the grid rather than going into people’s homes and offices. 

Meanwhile, Riot is constructing a new facility in Corsicana, Texas, about 60 miles south of Dallas in Navarro County, that would be even larger, potentially using 1 gigawatt of energy. [8] That could make it the largest Bitcoin mine in the world. The facility would generate even more carbon emissions and increase demand on the already-strained Texas electrical grid. [9] The added energy demand could push fossil fuel plants to keep operating and expand production.  

Riot’s approach to criticism is to either deny creating carbon emissions or greenwash its operations by claiming to support renewable energy. In response to an extensive New York Times investigation revealing the company’s huge energy use and GHG emissions, Riot released a video claiming the company’s mines have no emissions – a ridiculous argument that ignores how carbon emissions are calculated. [10] The company also issued a scathing statement in response that denied the company’s climate impacts. [11] 

Yet, Riot’s environmental record is concerning. The company does not disclose GHG emissions or other environmental data which would provide vital transparency and accountability. It has a dismal ESG Score of 1.06 out of 10 from Bloomberg, and a 0 on environmental factors since the company does not disclose any environmental data, aside from discussing potential risks of climate change to its business. [12] In January 2022, a group of U.S. Senators and Congresspeople, including Elizabeth Warren and Edward Markey, wrote a letter to Riot and five other Bitcoin mining companies, over concerns about high energy use and requested more reporting and data including about the companies’ energy consumption and emissions. [13]  

Beyond the climate and air pollution implications of Bitcoin mining, these operations also create noise pollution that is harmful and disruptive to surrounding communities. Bitcoin mines are very loud largely due to the fans needed to cool the equipment. Facility noise can reach and remain at 95 dB, which some nearby residents have compared to having a jet-engine in your backyard. [14] All that noise has led to complaints and protests from affected communities in Texas and around the United States who are upset about the constant din from these industrial facilities that operate around-the-clock. [15] Riot’s Rockdale mine uses a mix of the loud air cooling method and some immersion cooling – submerging computers in liquid to keep them cool and clean, which reduces the need for fans. [16] The company has a water reservation agreement to pay approximately $2.1 million annually to get water from a nearby lake for use in cooling. [17] Riot says that the Corsicana mine will use immersion cooling. [18] However, it remains to be seen whether Riot actually uses this technology, which is more expensive. 

The new Corsicana mine could use large amounts of water which is a major concern in an area enduring a historic drought. [19] The City of Corsicana plans to sell water to Riot which is projected to be up to 1.5 million gallons of water per day. [20] Meanwhile ranchers have recently been forced to sell cattle due to the lack of water in the region. [21] 

 Running on Public Money  

Riot’s polluting facilities benefit from a range of public subsidies and tax incentives, despite the anti-government rhetoric from the Bitcoin industry. [22] In particular, Riot receives payments from the Texas grid operator, ERCOT, to reduce and shut-down operations during periods of high demand and high energy prices. Thus, large energy users like Riot contribute to the climate crisis and strained energy grids while benefiting from extreme weather and an overloaded grid. [23] Riot has been paid millions by reducing usage and selling back electricity during periods of peak demand, like the record-setting deadly heat waves in summer 2023 when the company made $31.7 million in August alone. [24] Meanwhile, everyday Texans were asked to turn down their air conditioning and suffer through hot temperatures with no compensation.  

The demand response program (in Texas called Responsive Reserve Service) that Riot participates in pays companies, with funds from ratepayers, for agreeing to cut back energy use. Yet residential customers cannot participate in the program and are asked to voluntarily cut back their use during energy crises. [25] Through the demand response program, Riot gets paid by promising to stop using electricity if ERCOT asks, even though ERCOT rarely requests them to do so. [26] Plus, miners might have shut-down at those times anyway given the high price of energy. Thus, miners like Riot can make millions of dollars for essentially doing nothing.  

Another way Riot makes money is by selling electricity back to the grid which, in 2022, earned the company $18 million. [27] Miners like Riot secure long-term energy contracts with low prices and then can sell energy back at the higher market prices during periods of peak demand. [28] Price fluctuations are particularly extreme in Texas given the state’s independent and deregulated energy market. In 2022, the New York Times found that Riot saved around $27 million in potential fees by cutting back usage during periods of high demand. [29] At times Riot can make more money by shutting down and selling energy back to the grid than mining Bitcoin. [30] In August 2023, Riot made nearly four times as much money by selling energy than the company made mining Bitcoin.   

When winter storm Uri hit Texas in 2021, millions went without electricity for days during subzero temperatures and at least 246 people died, some freezing inside their homes. [31] And Texans who did have power faced astronomical electricity bills due to huge electricity price spikes. [32] Yet, miners like Riot were getting paid to scale back their operations and sell energy to the grid at high prices. Riot made $125 million selling energy during the storm. [33]  

While heat waves and winter storms have exposed vulnerabilities in the Texas energy grid, more and more energy demand from Bitcoin mining is being proposed, like Riot’s Corsicana facility. ERCOT is reviewing applications from Bitcoin miners to bring nearly 42 GW of electricity demand online by 2027, even a fraction of that would be a tremendous growth from the already substantial 3,000 megawatts used by the industry. [34]  

Texans are also paying more to keep their lights on than Riot pays to guess numbers in the race to win Bitcoin. Riot told investors in an August 2023 report that the company paid 2.8 cents per KwH compared to the average price of 7.2 cents for other industrial users and 13.5 cents for residents. [35] And miners like Riot are even making those electricity bills higher for residents. Analysis by energy research and consulting firm Wood Mackenzie finds that Bitcoin mining in Texas will lead to a 5% increase in electricity costs and cost an additional $1.8 billion per year. [36] 

Riot benefits from other tax incentives and subsidies as well. The company’s Whinstone mine in Rockdale is exempted from many state sales taxes through a Texas program for data centers that exempts companies from state sales and use tax on equipment and electricity. [37] The company that originally built the facility, Whinstone, also received public incentives and tax abatements. [38] Riot receives an abatement on improvements to the facility for an estimated taxable value of $151 million. [39] However the promise of 300 jobs at Riot’s Rockdale mine were overblown as only 14 new hires have been confirmed. [40]   

Meanwhile, Riot’s executives are making large sums of money. In 2022, CEO Jason Les and Chairman Benjamin Yi both made over $21 million in compensation while four other top executives all made between $2 and $3 million. [41] That was a year in which the company reported nearly $510 million in losses. [42]

Hopping on the Bitcoin Bandwagon   

Riot Platforms was not always in the mining Bitcoin business and used to develop veterinarian products and tools for diagnosing diseases. [43] In October  2017, amidst a wave of hype about blockchain and Bitcoin, the company made an abrupt shift after 17 years in biotech into the crypto industry. The company announced a name change from Bioptix to Riot Blockchain and told investors the company was getting into Bitcoin mining and other cryptocurrency services. [44] The company’s stock price soared and attracted lots of new buyers. But the sudden change was met with some criticism for following the hype about Bitcoin. Some large shareholders sold off large numbers of shares, making a lot of money, and several annual meetings were abruptly canceled. [45] This all led to several shareholder lawsuits and an SEC investigation. Ultimately, the lawsuits were dismissed and the SEC investigation ended without any recommendation of charges. [46] Still, the company continues to have weak governance practices. Bloomberg’s ESG scores give Riot a 4.68 out of 10 on governance issues which includes issues like executive compensation, board oversight, and the strength of auditing practices. [47]  

Since rebranding as a crypto company, Riot has acquired companies to grow its Bitcoin mining operations. In May 2021, under the leadership of the new CEO Jason Les, a former professional poker player, Riot made one of its largest acquisitions – a $651 million deal to buy Whinstone US, the company that built the Rockdale mining facility. [48] Riot has also sought vertical integration by expanding into industries that supply equipment services for Bitcoin mines. Also in 2021, Riot purchased ESS Metron, an electrical component engineering and manufacturing firm that caters to Bitcoin miners, for $50 million. [49] This gives Riot ownership over a company that provides essential infrastructure for its growing mining facilities. Riot also has a majority ownership stake in TessPay, a fintech company that offers a blockchain payment platform for telecom companies. [50]  

In January 2023, the company changed its name again from Riot Blockchain to Riot Platforms to signal diversification from Bitcoin and cryptocurrency to other business streams, like high performance and cloud computing, amidst a period of economic turmoil for Bitcoin miners. [51] Riot’s share price had dropped 85% in 2022 as the price of Bitcoin slumped and the industry’s reputation struggled after numerous high-profile scandals. [52]

Political Ties and Lobbying 

Riot, along with Bitcoin industry groups, has used its political muscle to secure and protect policies and subsidies favorable to miners’ bottom line. Riot has engaged in federal and state lobbying, and hired staff, often with ties to government agencies and conservative groups, to promote the companies’ interests.  

Publicly available data shows that Riot began spending on state and federal lobbying in 2022. In 2022, Riot (then named Riot Blockchain) reported spending $280,000 on federal lobbying through a contract with Holland and Knight, a Florida-based law firm that has a large federal lobbying operation. [53] As of August 2023, Riot has spent $220,000 on federal lobbying, which included paying $160,000 for lobbying services to Holland and Knight while the rest was done in-house by Riot staff. [54] Agencies that the company lobbied include the Commodity Futures Trading Commissions (CFTC) that oversees Bitcoin futures trading, the Department of Energy, Environmental Protection Agency (EPA), and Securities Exchange Commission (SEC). As of September 2023, Riot has spent between $70,000-$151,000 on hiring lobbyists in Texas for the 2024 election cycle. [55] 

There is also a revolving door between former government officials and Riot’s staff and board, especially people with ties to right-wing politicians. In 2023 Riot hired a head of public policy, Brian Morgenstern, who is a former Trump Whitehouse official. Morgenstern served as deputy communications director and deputy press secretary for Trump starting in July 2020, and before that was a deputy assistant secretary for external affairs at the Department of the Treasury where he served as a senior aide and chief speechwriter to Trump-appointed Treasury Secretary Steven Mnuchin. [56] Morgenstern was named in an investigation by the U.S. Office of Special Counsel as one of the officials who violated the Hatch Act by promoting Trump’s reelection campaign during official interviews and media appearances. [57] After working for Trump, Morgenstern was a Senior Advisor at the America First Policy Institute – a group founded by ex-Trump administration officials to continue promoting Trump’s conservative policy agenda. [58] Morgenstern has a long career in Republican politics including working on Rudy Giuliani’s presidential campaign in 2008. [59] The company also hired Samuel Lyman as Director of Public Policy who also has ties to conservative politicians and powerful corporate interests who worked at the Orrin G. Hatch Foundation after being a speechwriter for Republican Senator Hatch, and was a speechwriter for the U.S. Chamber of Commerce – the wealthy corporate lobby group that has opposed action on climate change and environmental regulations. [60]  

In May 2023, Riot announced that Brad Jones, the former Interim President and CEO of the Energy Reliability Council of Texas (“ERCOT”), was appointed to its advisory board. [61] Riot makes millions of dollars through various ERCOT programs and lobbies for those policies to continue in order to protect a key source of revenue. 

When Riot’s valuable ERCOT incentives were threatened by proposed state legislation, the company and allied industry groups pushed hard to block the bill. In spring 2023, Republican Texas state senator Lois Kolkhorst introduced Senate Bill 1751 that would cut back some incentives used by Riot and other miners. [62] The bill would cap miner’s enrollment in ERCOT’s emergency response services programs to 10% of all participants, require miners to register with ERCOT as “large flexible load,” and prohibit property tax breaks to Bitcoin mining facilities. The bill was passed by the Senate with bipartisan support, but didn’t make it out of a House committee in part due to mobilization by Riot and Bitcoin industry groups  including the Texas Blockchain Council (TBC), the Satoshi Action Fund, and the Chamber of Digital Commerce. [63] Riot worked to stop the bill by issuing statements criticizing the legislation, telling legislators to vote against it, and having company leaders testify against the bill. [64] TBC was also a vocal opponent and has deep ties to Riot, which is an executive partner, the highest level of support for the group. Riot’s head of public policy is also a board member of the TBC. TBC has ties to powerful Texas Republicans like Governor Gregg Abbott. For example, the TBC’s VP for Public Policy and External Affairs, Reed Clay, was the Chief Operating Officer for the State of Texas under Governor Greg Abbott and helped advance Abbot’s far-right wing political agenda. [65] The industry celebrated killing the bill which they framed as an attack on the industry. [66] 

Meanwhile Riot has worked with Bitcoin mining and crypto industry groups to push favorable legislation. For example, the U.S. Congressman Pete Sessions, a Republican from Texas representing the district that covers Riot’s Rockdale mine, proposed House Resolution 238 that asserts proof-of-work mining is a boost for national energy goals and economic growth. [67] Sessions has appeared at events sponsored by the industry alongside representatives of Riot and praised the company. [68]

Big Financial Backers  

Riot’s pivot to Bitcoin mining and continued expansion relies on investments from big financial companies and support from the traditional finance sector. Riot has funded its expansion in part by selling more shares in the company to large institutional investors. Currently, the two largest shareholders of Riot are asset managers Vanguard and BlackRock who control 9.68% (valued at $196 million) and 6.5% (valued at $131.58 million) of outstanding shares respectively. Other large banks and investment companies also control shares of Riot, including State Street with 2.68% of shares, Morgan Stanley with 1% of shares, JPMorgan Chase with 0.66% of shares, and Goldman Sachs with 0.35%. [69] These six big financial companies collectively hold nearly 21% of Riot’s shares which are valued at $421.54 million. Thus, Wall Street serves as a major source of capital for Riot and its polluting Bitcoin mines. 

Issuing new shares, or equity, relies on support from investment banks to facilitate the sale and take on the risk of buying the new stock and then selling it to investors. In May 2019, Riot issued additional shares in a deal managed by investment bank HC Wainright which raised $18.9 million that Riot said would be used for working expenses and capital. [70] In 2022, Riot again issued additional shares raising $267 million in a deal managed by B Riley along with BTIG LLC, Cantor Fitzgerald, DA Davidson & Co, Macquarie Capital USA, Northland Securities, and Roth Capital Partners. [71] Riot said this equity offering would be used for general corporate purposes which could include investments in current and future projects and strategic acquisitions. [72]

On August 9, 2023, Riot announced another share offering that is expected to raise $750 million. B Riley is the manager along with several other co-managers including BTIG LLC, Cantor Fitzgerald, Compass Point Research, Moelis & Co, Northland Securities, Roth Capital Partners, and Stifel Nicolaus & Co. [73] The deal is still in process and is presumably being used to help fund construction of the Corsicana site. 

Bitcoin miners like all companies also need banking services to manage money flows, make payroll, and make payments. Riot reported having operating accounts with Signature Bank, which catered to the crypto industry, before it failed and was shut down by regulators in March 2023. [74] Riot has subsequently transferred deposits to other banks which have not been reported publicly.   

Community Resistance  

Riot’s large polluting and noisy facilities have sparked the ire of nearby residents and led to community resistance to the company’s expansion. As people become aware of the noise, strain on the energy grid, and large water usage from Bitcoin miners, opposition to Riot’s and other companies’ facilities around Texas has grown.  Construction of the new Corsicana facility has met resistance from nearby residents. The Concerned Citizens of Navarro County, led by Jackie Sawicky, mobilized to oppose the project, voicing concerns about noise, water usage, increasing electricity bills, and public subsidies. [75] Concerned Citizens led a protest at the groundbreaking ceremony for the 265-acre site and continues to push for more public input and scrutiny into the opaque permitting and approval processes for the facility. [76] Residents are worried that Riot’s mine would use large amounts of water and drive up electricity prices which is a major concern for people who already pay a lot to cool their homes during the long, hot summers. [77] This is in an area where many people struggle to make ends meet. In 2020, Navarro County has a 15.5% poverty rate and a median household income of $47,574 which is below the national average. [78]  

In summer 2023, Concerned Citizens joined with other advocates in Texas to form the Texas Coalition Against Cryptomining to coordinate communities across the state in addressing the environmental, economic, and social impacts of the rapidly growing Bitcoin mining industry. Texas activists are also connecting with a national network of groups working to stop expansion of Bitcoin mining in their backyards, often with little public input but large drains on public infrastructure. [79]

End notes