BrightRidge offered Bitcoin mine operator $100,000 incentive, said noise wouldn’t be issue

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BrightRidge, partner actively seeking noise fix, commissioner says power provider wasn’t transparent when asking for rezoning

NEW SALEM COMMUNITY, WASHINGTON COUNTY, Tenn. (WJHL) – Since mid-spring, a newly established Bitcoin mine in Washington County’s rural New Salem community has drawn criticism from neighbors, who say the noise from fans used to cool its computer equipment is excessively loud, especially at night. The mine uses electricity — enough to power more than 10,000 homes — from an adjacent BrightRidge substation. BrightRidge and the mine’s owner, Red Dog Technologies, say they are working to solve the noise issue and will present findings at July’s county commission meeting. News Channel 11 requested and reviewed BrightRidge documents related to the power distributor’s bid to land the operation, which became its largest power customer nearly overnight. Here is what we found, and what neighbors and elected officials have to say about an issue over which they remain highly concerned.

Noise from a Bitcoin mine several hundred yards away continues to disturb the former peace and quiet at Preston Holley’s home on Lola Humphreys Road.

“It’s still worst at night,” said Holley, a middle school band teacher who lives with his wife and five children at the house surrounded by acres of farmland and woods.

Preston Holley of New Salem community stands in his front yard with the Bitcoin mine in the background.

The noise, which New Salem Baptist Church pastor Craig Ponder likened to a jet spinning up getting ready for takeoff, comes from fans. Those fans cool graphics processing units and other computer equipment — millions of dollars worth — that’s solving complex mathematical problems in a race to earn the cryptocurrency Bitcoin.

Holley and surrounding neighbors want a solution. BrightRidge and Red Dog released a statement Thursday saying they’re working toward one and “regret that this project, which benefits all BrightRidge customers and the community, has caused concern among neighboring residents.”

But as BrightRidge courted Red Dog (GRIID at the time) with offers of a $100,000 economic development incentive and the cheapest power of any BrightRidge customer, it kept details of its plans for the substation — and 22 surrounding acres it had bought in January 2020 — rather vague.

BrightRidge approached the Washington County Commission requesting a rezoning at the 1444 Bailey Bridge Road substation, plus its new property, but never mentioned a Bitcoin mine.

‘(P)etitioner has advised that the noise is considered small and will not impact or be heard from adjoining properties.’

BrightRidge rezoning request, Feb. 24, 2020

Instead, the rezoning request referenced “addition of block chain data center & solar farm.” And that Feb. 24, 2020 request — made when BrightRidge was already courting GRIID hard — said any noise from “small fans on the data centers” would “not impact or be heard from adjoining properties.”

Instead, people can hear the fans over a broad area. And officials from State Rep. Rebecca Alexander (R-Jonesborough) to County Commissioner Kent Harris aren’t happy about it.

“In my mind, I felt like this was all going to be just a BrightRidge facility, something that BrightRidge was doing for BrightRidge,” said Harris, who represents the district New Salem is in.

“Never was I told that it was going to be Red Dog and looking back now, I made a mistake. I should have asked more questions that night myself. But I just took their word for it and nothing mentioned.”

The BrightRidge February 2020 rezoning request didn’t mention a partner or Bitcoin mining.

The mention of a solar farm didn’t faze Harris. BrightRidge just opened its second such operation. As for the blockchain data center reference, Harris said that brought to mind BrightRidge’s fiber broadband internet services.

“Nobody was totally up front with us,” Harris said. “And that bothers me.

“I hear blockchain data center; I was thinking, ‘Well, BrightRidge has this internet they’re doing now; I know they’re outbuilding it.’ So, that was what was going through my mind — never anything with dealing with Bitcoin or Red Dog.”

Citizens upset about the noise, and others who had gotten wind BrightRidge might put forward a substation in Lamar community for a second Red Dog mine spoke during the public comment period of the county commission’s May meeting.

That spurred Harris and other commissioners to request BrightRidge representatives appear for a formal Q and A about the noise issues at its June 28 meeting. When BrightRidge told him more details would be available in July, commission chairman Greg Matherly pushed that appearance to the July meeting, but he, too, isn’t satisfied with the current status quo.

“I think all the commission wants is a little explanation,” Matherly said. “And the main thing is we need to know going forward how we’re going to fix it.”

BrightRidge has declined interviews since CEO Jeff Dykes spoke to News Channel 11 in mid-May. Red Dog has not responded to multiple interview requests.

The BrightRidge-Red Dog statement said Red Dog had “retained a nationally recognized acoustical engineering firm to scientifically determine sources and composition of sound at the site.”

Another company with a Washington County presence is going to “deploy (its) relevant expertise” as Red Dog works to mitigate sound.

And the statement said the parties expect a “concrete action plan” by late July and that they are “confident off-site sound can be eased” in a way that will “reduce neighbor concern.”

Commissioners and Alexander are pressing the issue despite a clear financial upside that drove BrightRidge to work long and hard to land the Red Dog facility.

Courting the big dog — a different kind of economic development

‘GRIID is looking to invest in excess of $100 million over the next five years to locate its second HDDC site…’

GRIID 2.0 Site Selection request for proposal

‘The least they can do is take some of those what are probably going to be pretty massive profits for both and fix the issue they created.’

washington county commissioner kent harris

The Bitcoin bid represents a major departure from old-school economic development work by power distributors.

The BrightRidges of the world still cooperate in pursuit of manufacturers such as ebm Papst. The German maker of refrigeration equipment will break ground in the Washington County Industrial Park soon and become a significant customer. 

But even industrial users require less power than in the old days. And Kennametal, one big user, closed up shop at its Johnson City operation last year. The fire at Jonesborough’s Hexpol was another blow to BrightRidge sales. 

No wonder, then, that Red Dog and its like attract the attention of people like BrightRidge CEO Jeff Dykes as they look toward the future. 

“Everyone is seeing a reduction in kilowatt hour sales,” Dykes told News Channel 11 in a May interview. “Since 2004, we have just seen it continually go down and down.” 

The projects are light on job creation — Red Dog estimated one job for every two megawatts of demand, or about a dozen for its current 25MW phase — but heavy on purchasing and potentially on what’s known as personal property tax. 

That’s the local property tax paid on equipment. Dykes mentioned about $10 million worth and said that equates to nearly $300,000 a year. That will decrease over time due to depreciation, but represents a decent payday for county government. 

A section of the Red Dog Technologies Bitcoin mine.

Dykes hasn’t provided further comment since the May interview. He said then that the power distributor and all its customers benefit from Red Dog Technologies’ massive power consumption.

In an era of increasing energy efficiency, Dykes said the revenue Red Dog’s five-and-a-half year contract generates can help keep rates low for residential customers. It can also help fund ongoing infrastructure needs so BrightRidge can maintain a high level of reliability.

“That has a great impact for our existing customers,” Dykes said. “When you have new revenue coming in, of course that helps you with your financials, with your budget. As we have reduced usage and we have lower revenues coming in, then this helps offset that and reduces rate pressures later.” 

A Feb. 12, 2020 rate analysis BrightRidge provided GRIID showed several projected annual power usage totals and projected bills. The gross amounts dwarf BrightRidge’s incentives and investment and provide some insight into the net profits that attracted them in the first place.

Even at a 10 megawatt “contract demand,” GRIID would have used almost 6.5 million kilowatt hours a month —almost every bit of it during “off-peak” hours. Total annual billing for that scenario was projected at just shy of $1.75 million.

An option for a 25 megawatt contract, which is what the parties ended up signing, had an annual bill of almost $4.5 million. The average charge per kilowatt hour was 2.313 cents.

Specific rates are governed by TVA’s fuel cost adjustment, but at one point in early 2020, BrightRidge Chief Financial Officer Brian Bolling let GRIID’s Ed Medford know that as long as the bulk of its usage was during off-peak hours, GRIID would have a very attractive rate.

“When GRIID begins its operations at the site, there is no question that GRIID will be paying the lowest rate of any customer we have, (even those on the exact same rate),” Bolling wrote. “As long as GRIID can avoid operating in the onpeak period, these low rates are possible.”

BrightRidge declined to offer a ballpark range of its projected net profits from the project, citing client confidentiality.

But in May, Dykes said BrightRidge isn’t alone in its desire to increase sales. When GRIID began talking about a second location, “a lot of the utility managers were looking at opportunities to really gain revenue and kilowatt hour sales,” he said.

Those prospects spurred BrightRidge to respond in early 2020 to a GRIID request for proposals. GRIID had opened its first mining operation at a Union County substation in collaboration with Knoxville Utilities Board and was looking to grow.

By Jan. 15, 2020, BrightRidge had a bullet-pointed list laying out the scenario for a mine at Bailey Bridge Road “based on mutual and individual discussion.”

The goal was to gain agreement and execute a contract.

BrightRidge offered a $100,000 economic development incentive and $240,000 in standard incentives tied to the size of the project. The latter grew to $270,000 when Red Dog’s project scaled up.

In its final RFP response, BrightRidge said it had “purchased the property, completed a survey, and … started the rezoning process.”

Property records show Johnson City Energy Authority (BrightRidge) bought two tracts of land totaling 23 acres on Jan. 6, 2020 — greatly expanding the ability to site a solar farm, data center or other use that would complement the substation.

Dykes told News Channel 11 the substation was one of just three or four in its portfolio that had enough excess capacity to supply what Red Dog hopes may eventually become a 40 megawatt operation.

Throughout 2020, BrightRidge and GRIID representatives communicated back and forth about everything from electricity costs and ground lease arrangements to construction schedules and incentive amounts.

The company has a five-year lease on 2 acres at $1,200 a year, with an option to buy 7.7 acres after two years.

Noise and other concerns complicate the calculus

Set over and against the benefits are several areas of concern. One is the speculative nature of cryptocurrency. Investors take a risk when they back blockchain data centers. 

GRIID wrote of additional possible uses of the Bailey Bridge location, including artificial intelligence, but right now the model almost surely relies on Bitcoin mining being profitable. 

And on that front, recent news is probably good news.

A crackdown on the practice in China, where more than half the world’s mining has been centered, could actually prove a boon for North American mining operators.

A Forbes article published June 28 said that due to the Chinese policy actions last month, “mining is set to become a whole lot easier (and profitable) for North American crypto miners…”

The article states that Chinese Bitcoin mining had comprised up to three-quarters of the global total. Market dominance is expected to shift to North America, though, after an estimated 90% of China’s Bitcoin mining capacity has been ordered to shut down due to concerns over its environmental impact.

But concern over those environmental consequences of an evermore energy intensive model certainly could bleed over into the North American market.

Dykes told News Channel 11 the Red Dog model doesn’t impact use of non-renewables much. That’s because it’s costly and difficult to “cycle off” gas-fired plants at night and then fire them up in the morning. 

Off-peak customers like Red Dog can increase the efficiency of keeping plants running at minimum levels overnight. They do it by using some of that already available power — thus TVA and BrightRidge’s willingness to sell it cheap. 

That leaves the final area of concern — the one BrightRidge leadership went to Maynardville in order to clear from its own list of possible downsides. 

What they hear now if they visit New Salem community late enough at night is much louder than what they bargained for. It’s louder than what they told county commissioners would occur when the blockchain data center fired up. 

The situation is not unique. Colorado Springs and a community in Labrador, Canada are just two others that have faced similar noise issues from Bitcoin mines. 

BrightRidge representatives had visited another GRIID facility and left satisfied noise wouldn’t be an issue.

Dykes said he didn’t anticipate the noise level the Bailey Bridge operation, where construction continues, would create. He and other leaders visited a GRIID data mine in Maynardville.

He said the sound wasn’t the same at the operation that partners with Knoxville Utilities Board (KUB).

“I would say not at the level that it’s at,” Dykes said.

“If you went to the KUB one (it) had more wood structures around it; this one is more of a metal thing and I think that is something that may have caught them off guard too as far as the creating more noise.”

Whether or not it’s louder than the maximum decibel level allowed by A-3 (industrial) zoning approved by county commissioners in early 2020, it’s louder than Preston Holley, his neighbors and their state representative are willing to tolerate. 

Holley said those folks want answers and they want a two-way dialogue with BrightRidge and — preferably — with Red Dog as well. 

“It would be great for them to do that, because they’re the ones making the decision on how they’re going to change the sound issue,” Holley said. “And BrightRidge and the community are kind of waiting to see what they say. So what they decide is going to be very important to know.”

State Rep. Rebecca Alexander visited homeowners who live near the substation in late May. She said the noise was more than property owners should have to endure.

Last week Alexander told News Channel 11 she’s continued communicating with neighbors and with BrightRidge. Like others, she praised BrightRidge’s overall benefit to the community but said she plans to continue pressing for a solution.

Representatives “have told me they’re working on several possible solutions to mitigate the noise,” Alexander said.

She said she’s going to stay on BrightRidge until the New Salem residents get some relief. 

And unless something changes in her current outlook on Bitcoin mines, she said she’ll oppose any efforts to bring additional such operations to her district. 

If he found himself face-to-face with an investor in the mine, Holley said he’d have a question handy.

“I would ask them to think of our community,” he said. “If you want to be a benefit to our community, you’ve got to be present; you’ve got to communicate and you’ve got to prove to us that you are an asset to our community and not … this kind of an issue.”

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