Mining cryptocurrency requires immense amounts of electricity to power high-capacity computers that perform complicated mathematical calculations, securing online transactions of virtual currencies such as Bitcoin. (Photo by Mario Tama/Getty Images)

Kentucky’s utility regulator has approved more than $4 million in electricity cost discounts over several years for a Bitcoin mining operation being run by Kentucky’s largest coal producer.

The Kentucky Public Service Commission (PSC) in its Monday order said the economic development incentives offered by Louisville Gas and Electric and Kentucky Utilities (LG&E and KU) to Bitiki-KY, a Bitcoin mining subsidiary of coal company Alliance Resource Partners, would be unlikely to harm LG&E and KU’s ratepayers, and the costs of the discounts would likely be covered.

The commission opened a case last year investigating the reasonableness of the electricity discounts, known as an economic development rider, given to Bitiki-KY and two other cryptocurrency mining operations after environmental and renewable advocacy organizations raised concerns about the incentives.

The groups — including Kentuckians for the Commonwealth, Kentucky Solar Energy Society and the Kentucky Resources Council — questioned whether the jobs created by cryptocurrency mining were worth the discounts and whether the discounts should be saved for other industries that employ more Kentuckians.

Alliance promised to create five jobs and invest $25 million as part of the agreement for the discounts. During a commission hearing, one LG&E and KU employee said the utility didn’t have a way to ensure employees aren’t being double-counted from another part of Alliance’s business.

Alliance is operating high-powered computers on top of a former coal mine in Union County, not far from the sprawling coal company’s largest underground mine that produced more than 10 million tons of coal in 2022. Alliance’s CEO is Joseph Craft III, whose wife Kelly Craft lost an expensive race to become the Republican nominee for governor earlier this year.

Mining cryptocurrency requires immense amounts of electricity to power high-capacity computers that perform complicated mathematical calculations, securing online transactions of virtual currencies such as Bitcoin. Mining operations are compensated for solving the calculations with Bitcoin itself, valued at nearly $30,000 as of early August.

The environmental and renewable energy groups argued before the commission that LG&E and KU had not provided evidence of job creation by Alliance through its Bitcoin mining operation, nor had LG&E and KU offered evidence Alliance would have relocated its operation without the discounts.

In its Monday order, the commission said LG&E and KU is not required under existing state regulations “to demonstrate minimum levels of investment or job creation” as a part of the economic development incentives.

“Bitiki has asserted that it plans to make $25 million in capital investments and its project will create five jobs,” the commission order stated. “The Commission has no reason to doubt the veracity of Bitiki’s assertions.”

LG&E and KU spokesperson Natasha Collins said the utility was “pleased” with the commission’s decision to approve the discounts and that it determines whether to offer economic development incentives based on, in part, if a company also receives incentives from state government. Bitiki-KY in March 2022 received $250,000 in tax benefits from the Kentucky Economic Development Finance Authority.

“This helps ensure that our EDR candidates have bona fide economic development projects in the view of the Commonwealth. We rely on that vetting process as well as the plausible representations of prospective EDR customers with regard to potential job creation,” Collins said.

Alliance did not respond to a request for comment on the order.

Thom Cmar, a senior attorney for Earthjustice representing the environmental and renewable energy groups in the PSC case, said the groups were “disappointed” in the commission’s decision to approve the discounts. He also said the regulator’s order didn’t address the fact that Alliance was operating its Bitcoin mining operation with the electricity discounts suspended during the commission’s investigation.

“If the company in particular is already operating without those discounts, there really ought to be compelling evidence in the record as to why they need them,” Cmar said. “Kentucky Utilities did not attempt to provide that type of evidence, and the commission made a judgment that it wasn’t necessary to dig into that issue.”

An LG&E and KU employee said in past commission testimony that the Bitcoin mining operation’s electricity usage hinged on receiving the discounts: Alliance would likely not increase its power usage at its Bitcoin mining site from 10 megawatts to 13 megawatts without the discounts.

Cmar said he hopes the commission in separate investigations it is conducting will deny economic development incentives given by utility Kentucky Power to two other cryptocurrency mining operations. One of those operations would likely be the state’s largest cryptocurrency mining facility and have the capacity to use up to 250 megawatts of electricity.

“We just think it’s important that the commission give all of these contracts close scrutiny and make sure that these economic development discounts are being used for actual meaningful economic development, and [we] don’t believe that the cryptocurrency facilities for which they’ve been proposed are providing that,” Cmar said.