Blocktree Properties LLC et al v. Public Utility District No. 2 of Grant County Washington et al, No. 2:2018cv00390 - Document 52 (E.D. Wash. 2019)

Court Description: ORDER DENYING 25 PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION. Signed by Judge Rosanna Malouf Peterson. (LR, Case Administrator)

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Blocktree Properties LLC et al v. Public Utility District No. 2 of Grant County Washington et al Case 2:18-cv-00390-RMP 1 4 5 6 7 8 9 10 11 filed 03/29/19 PageID.1499 Page 1 of 40 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 2 3 ECF No. 52 Doc. 52 FILED IN THE U.S. DISTRICT COURT EASTERN DISTRICT OF WASHINGTON Mar 29, 2019 BLOCKTREE PROPERTIES, LLC, a Washington limited liability company; CORSAIR INVESTMENTS, WA, LLC, a Washington limited liability company; CYTLINE, LLC, a Delaware limited liability company; 509 MINE, LLC, a Washington limited liability company; MIM INVESTORS, LLC, a Washington limited liability company; MINERS UNITED, LLC, a Washington limited liability company; TELCO 214 WHOLESALE SOFTWARE, INC, a Washington corporation; MARK VARGAS, an individual; WEHASH TECHNOLOGY, LLP, a Washington limited liability company; SEAN F. MCAVOY, CLERK NO: 2:18-CV-390-RMP ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION Plaintiff, 12 v. 13 14 15 16 17 18 19 20 PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY WASHINGTON, a Washington municipal corporation; TERRY BREWER, individually and in his official capacity; BOB BERND, individually and in his official capacity; DALE WALKER, individually and in his official capacity; TOM FLINT, individually and in his official capacity; LARRY SCHAAPMAN, individually and in his official capacity; DOES 1-10, managers and employees of Grant PUD, individually and in their official capacities, 21 Defendants. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 1 Dockets.Justia.com Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1500 Page 2 of 40 1 BEFORE THE COURT is Plaintiffs’ Motion for Preliminary Injunction, ECF 2 No. 25. Plaintiffs, a group of technology firms primarily engaged in the business of 3 cryptocurrency mining, asked this Court to enjoin Grant County PUD No. 2 from 4 implementing its “Evolving Industries” electricity rate class, which substantially 5 increases the cost of electricity supplied to “evolving industries,” including 6 Blocktree and other Grant County cryptocurrency miners. The Court finds that 7 Blocktree has failed to show that they will suffer irreparable harm unless a 8 preliminary injunction is imposed. Further, Blocktree is not likely to succeed in 9 showing that Rate Schedule 17 is discriminatory or arbitrary, that their classification 10 as an evolving industry was made without due process, or that the District’s actions 11 violated Blocktree’s right to carry on a business under the Washington State 12 Constitution’s Privileges and Immunities Clause. Therefore, the Court denies 13 Blocktree’s request for a preliminary injunction. 14 15 16 BACKGROUND Cryptocurrency Mining and Blockchain Technology Plaintiffs Blocktree Properties, LLC; Corsair Investments WA, LLC, Cytline, 17 LLC; 509 Mine, LLC, MIM Investors, LLC; Miners United, LLC; Telco 214 18 Wholesale Software, Inc.; Mark Vargas; and WeHash Technology, LLP 19 (collectively, “Blocktree”) are a group of technology firms that provide verification 20 and security services for blockchain-based cryptocurrencies. ECF No. 25 at 11. 21 Cryptocurrencies are digitally-based currency that exist solely on the internet and are ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 2 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1501 Page 3 of 40 1 unregulated and unmanaged by third parties, such as banks or governments. ECF 2 No. 1 at 7–8. The blockchain is the data structure through which cryptocurrency 3 transactions are identified, tracked, and shared across networks of computers, 4 working as a digital ledger. Id. Supporters of cryptocurrencies claim that the 5 blockchain allows for more secure and transparent monetary transactions than 6 traditional payment methods. Id. 7 For the blockchain to track cryptocurrency transactions, the transactions must 8 be verified by independent blockchain participators. ECF No. 1 at 7–8. Blockchain 9 verifiers, also known as cryptocurrency miners, are given the chance to verify 10 cryptocurrency transactions by solving complicated mathematical problems. Id. 11 The first miner to solve the problem, and then verify the transaction on the 12 blockchain, is rewarded with a small amount of cryptocurrency. Id. Miners rely on 13 advanced and specialized computer hardware to successfully mine cryptocurrency 14 before others can secure the cryptocurrency reward for themselves. Id. 15 Because cryptocurrency mining is technologically complex and requires 16 advanced equipment, one of a miner’s biggest expenses is electricity. ECF No. 1 at 17 9. Cryptocurrency miners work to reduce their power bills by locating their 18 operations in areas with inexpensive and reliable access to high amounts of 19 electricity. ECF No. 37-6 at 99. 20 Grant County PUD No. 2’s Relationship with Cryptocurrency Miners 21 Defendants are Grant County Public Utility District Number 2, its ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 3 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1502 Page 4 of 40 1 Commissioners, and staff (collectively, “the District”). ECF No. 1 at 6–7. The 2 Public Utility District is established under Title 54 of the Revised Code of 3 Washington and operates as a municipal corporation at the direction of elected 4 Commissioners, who are assisted by hired staff. ECF No. 37 at 9. The District 5 boasts one of the least expensive power rates in the country due to its close 6 proximity to reliable energy sources, such as the Grand Coulee Dam. ECF No. 32-1 7 at 656. Blocktree, drawn to the District by the affordable and reliable electricity, set 8 up operation centers in the District over the previous five years. ECF No. 25 at 11. 9 The District charges its customers for power based on the customers’ 10 operations and power consumption. ECF No. 37 at 9. Customers of similar 11 industries and operations are grouped into rate classes and are charged for power 12 under the rates imposed on each class. Id. Currently, Blocktree is charged under 13 Rate Schedule 7 (“RS-7”), which is the rate for large general service customers who 14 use between 200 kW1 and 5,000 kW of power a month. ECF No. 37-6 at 4–5. 15 The District contends that it received unprecedented interest from 16 cryptocurrency miners in the summer of 2017. ECF No. 37-6 at 7. Since 2017, the 17 18 19 20 21 1 The measuring unit “kW” refers to “kilowatt,” which is used to measure power. A kilowatt is 1,000 watts (the basic measuring unit of power) and a megawatt (“MW”) is 1,000 kilowatts or 1,000,000 watts. Billing rates are calculated using “kilowatt hours” (“kWh”), a unit for measuring power consumption. A device that consumes one kW of constantly-supplied power for one hour consumes one kWh. ECF No. 25 at 8. Outputs of power from electrical systems owned and operated by utility districts are calculated using average megawatts (“MWa”). Id. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 4 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1503 Page 5 of 40 1 District states that it has received interest from over 125 cryptocurrency mining 2 companies, which the District equates to 1,500 MW of power, more than double the 3 District’s average load of 600 MWa. Id. The District became worried that the large 4 number of cryptocurrency miners would overload the District’s power systems and 5 inhibit the District’s ability to supply power to all of its customers. Id. at 8. 6 Additionally, the District was worried about the risks imposed by the uncertainties in 7 the cryptocurrency mining industry and whether the miners’ failure to profit from 8 the activity would result in a failure to pay high power bills, leaving the rest of the 9 District’s customers responsible for the unpaid electricity. Id. at 10. 10 To address the issues generated by the growing interest from cryptocurrency 11 miners, the District developed two different strategies. The first was known as a 12 two-queue approach. ECF No. 37-6 at 13. Under the two-queue approach, 13 “traditional” customers are placed in one queue for electricity, and those belonging 14 to an “evolving industry,” such as cryptocurrency miners, are placed in another 15 queue. Id. The District would service the traditional customers before servicing 16 those in the evolving industry queue. Id. The second strategy developed by the 17 District was the evolving industry rate class, whose electricity bills would be 18 calculated under the newly-developed Rate Schedule 17 (“RS-17”). Id. at 16. 19 Rate Schedule 17 20 The District’s hired staff began the creation of RS-17 in late 2017 as an 21 approach to handle the sudden interest from cryptocurrency mining companies. ECF ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 5 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1504 Page 6 of 40 1 No. 37-6 at 11. On April 24, 2018, the staff, in a public presentation, recommended 2 that the Commissioners establish a new rate schedule for industries like 3 cryptocurrency mining that face certain viability risks while simultaneously 4 consuming a relatively large portion of the District’s power load. Id. at 64. On May 5 8, 2018, the Commissioners approved the creation of an evolving industry class by 6 passing Resolution No. 8885. Id. at 75. 7 Following Resolution No. 8885, the District’s staff drafted a memorandum 8 describing the problems presented by the rapidly-growing cryptocurrency mining 9 industry and how the new rate class, authorized by the Resolution, could potentially 10 solve those issues. ECF No. 37-6 at 90. The staff recommended that customers 11 would be placed into the “evolving industry” category, and therefore subjected to the 12 secondary queue and RS-17, if the industry in question showed certain risks. The 13 District classified the risks into three categories, as quoted from the memorandum: 14 Regulatory Risk – Risk of detrimental changes to regulation with the potential to render the industry inviable within a foreseeable time horizon. 15 16 17 18 19 20 Business Risk – Potential for cessation or significant reduction of service due to a concentration of business risk, in an evolving or unproven industry, in the value of the customer’s primary output. Concentration Risk – Potential for significant load concentration within Grant PUD’s service territory resulting in a meaningful aggregate impact and corresponding future risk to Grant’s revenue stream. Evaluation would begin to occur when industry concentration of existing and service request queue customer loads exceeds 5% of Grant PUD’s total load. 21 Id. at 91. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 6 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1505 Page 7 of 40 1 The staff recommended that an industry be categorized as an evolving 2 industry if the industry showed a concentration risk and one of the other two risks, 3 and that the District evaluate an industry’s placement in the evolving industry 4 category on an annual basis. ECF No. 37-6 at 91. For regulatory risk, the District 5 would consider pending state and federal legislation, regulatory rulings from state 6 and federal agencies, and feedback from investment banks. Id. For business risk, 7 the District would consider trends in the price volatility of the industry’s primary 8 product, the financial strength of market participants, and the viability and 9 competitiveness of the industry based on the threat of new entrants, threat of 10 substitutes, bargaining power of customers, bargaining power of suppliers, and 11 industry rivalry. Id. For concentration risk, the District would consider whether all 12 customers within the industry use 5% or more of the District’s power load. Id. 13 After another public meeting on June 26, 2018, the Commissioners adopted RS-17 14 by passing Resolution No. 8891 on August 28, 2018. Id. at 111. Thereafter, 15 cryptocurrency mining was classified as an evolving industry, subject to the 16 secondary queue and RS-17. ECF No. 32-1 at 490. 17 The rate charged for electricity under RS-17 is significantly higher than the 18 rate charged under RS-7. As a result, the District decided to incrementally 19 implement RS-17. ECF No. 37-6 at 113. The District will begin charging RS-17 20 rates to evolving industry customers on April 1, 2019. Id. The rate will increase on 21 April 1, 2020, and then increase again to its full rate on April 1, 2021. Id. Rates are ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 7 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1506 Page 8 of 40 1 calculated on a monthly basis by totaling three separate charges: a Basic Charge, 2 which is a flat monthly fee; an Energy Charge, which is a fee calculated based on the 3 amount of power used by the customer in the billing month; and a Demand Charge, 4 which is a fee calculated based on the most amount of power that the customer 5 needed at the customer’s peak power consumption over a 15-minute period. ECF 6 No. 37-6 at 4–5. The following chart shows the increase in electricity prices that 7 Blocktree must pay as RS-17 is incrementally implemented: 8 9 10 11 12 RS-7 RS-17B (April 2019) Basic Charge $148.32/month $500/month Energy Charge $0.02100 per $0.02219 per kWh for the firs kWh 50,000 kWh; $0.01875 per kWh thereafter Demand $4.96/kW $8.00/kW Charge RS-17B (April RS-17B (April 2020) 2021) $750/month $1,000/month $0.02465 per $0.03518 per kWh kWh $19.00/kW $30.00/kW 13 Id. at 113. According to Blocktree, once RS-17 is fully implemented, their 14 electricity expenses will increase between 295% and 400%. ECF Nos. 26–31; 36-1. 15 The Miners’ Objections to the Evolving Industry Classification and RS-17 16 Throughout the development and implementation of the evolving industry 17 class and RS-17, Blocktree voiced its objections. Blocktree submitted written 18 comments to the District, arguing that the classification was unnecessary and that 19 cryptocurrency miners should not be placed within that classification. ECF No. 37-6 20 at 99–106. They also appeared at several public presentations to voice their 21 ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 8 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1507 Page 9 of 40 1 objections to RS-17. Id. at 16–18. Blocktree argued that the District developed the 2 evolving industries classification and RS-17 based on misconceptions and 3 misunderstandings about the cryptocurrency mining industry. Id. at 99–106. 4 Blocktree also voiced concerns that the District was using the evolving industries 5 classification and RS-17 to discriminate against cryptocurrency miners based on 6 public opposition to the mining operations. See ECF No. 32-1 at 389–393. 7 After RS-17 was implemented and cryptocurrency mining was classified as an 8 evolving industry, Blocktree filed the present lawsuit against the District. ECF No. 9 1. Blocktree claims that the District violated the dormant Commerce Clause, the 10 Due Process Clauses of the United States and Washington State Constitutions, the 11 Federal Power Act, Washington’s utility laws, the District’s own internal policies, 12 and the Washington State Constitution’s Privileges and Immunities Clause. Id. at 13 37–47. 14 In the present Motion for Preliminary Injunction, Blocktree asks this Court to 15 enjoin the implementation of RS-17, set to begin on April 1, 2019, throughout the 16 litigation. ECF No. 25. Blocktree argues that they are likely to succeed on the 17 merits of their claims. Id. at 21–35. Blocktree also argues that they will suffer 18 irreparable harm because RS-17 will raise their power costs sufficiently to cause 19 them to go bankrupt; that the equities are in their favor; and that a preliminary 20 injunction will further the public interest. Id. at 35–40. 21 ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 9 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1508 Page 10 of 40 1 LEGAL STANDARD 2 To succeed in securing a preliminary injunction, the moving party must 3 demonstrate “that he is likely to succeed on the merits, that he is likely to suffer 4 irreparable harm in the absence of preliminary relief, that the balance of equities tips 5 in his favor, and that an injunction is in the public interest.” Winter v. Nat. Res. Def. 6 Council, Inc., 555 U.S. 7, 20 (2008). In the Ninth Circuit, courts weigh these factors 7 “on a sliding scale, such that where there are only serious questions going to the 8 merits—that is, less than a likelihood of success on the merits—a preliminary 9 injunction may still issue so long as the balance of hardships tips sharply in the 10 plaintiff’s favor and the other two factors are satisfied.” Short v. Brown, 893 F.3d 11 671, 675 (9th Cir. 2018) (internal quotations omitted) (emphasis in original). 12 As with any equitable relief, a preliminary injunction or temporary restraining 13 order generally is not appropriate where adequate legal remedies are available. See 14 Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982) (“The Court has repeatedly 15 held that the basis for injunctive relief in the federal courts has always been 16 irreparable injury and the inadequacy of legal remedies.”). A preliminary injunction 17 is an “extraordinary and drastic remedy” that may be granted only upon a “clear 18 showing” that the movant is entitled to such relief. Mazurek v. Armstrong, 520 U.S. 19 968, 972 (1997); see also Nat’l Steel Car, Ltd. v. Canadian P. Ry., Ltd., 357 F.3d 20 1319, 1324 (Fed. Cir. 2004) (“A preliminary injunction is a drastic and extraordinary 21 remedy that is not to be routinely granted.”) (internal quotation omitted). ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 10 Case 2:18-cv-00390-RMP 1 2 3 ECF No. 52 filed 03/29/19 PageID.1509 Page 11 of 40 DISCUSSION Likelihood of Success on the Merits Blocktree argues that they are likely to succeed with three different claims 4 against the District. First, they argue that RS-17 violates both Washington State and 5 federal law because it discriminates against cryptocurrency miners. ECF No. 25 at 6 21. Second, they argue that the process by which the District implemented RS-17 7 and determined that cryptocurrency mining was an “Evolving Industry” violated 8 Blocktree’s due process rights. Id. at 29. Third, Blocktree argues that RS-17 9 violates the Privileges and Immunities Clause of the Washington State Constitution. 10 Id. at 33. 11 Washington Public Utility Rate-Setting Laws 12 The parties dispute whether Blocktree is likely to succeed on the merits of 13 their rate discrimination claim under Washington law. ECF No. 25 at 21; ECF No. 14 37 at 17. 15 The District is a municipal corporation established pursuant to Washington 16 statutes. Wash. Rev. Code § 54.04.020. Municipal corporations are limited in 17 powers “to those necessarily or fairly implied in or incident to the powers expressly 18 granted, and also those essential to the declared objects and purposes of the 19 corporation[s].” Port of Seattle v. Wash. Utils. And Transp. Comm’n, 597 P.2d 383, 20 386 (Wash. 1979). A municipal corporation may not act contrary to express 21 statutory or constitutional limitations. City of Tacoma v. Taxpayers of City of ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 11 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1510 Page 12 of 40 1 Tacoma, 743 P.3d 793, 801 (Wash. 1987). If a utility operates within its statutory 2 and constitutional boundaries, judicial review of a utility’s action is limited to 3 whether the action was arbitrary, capricious, or unreasonable. Id. An action is 4 arbitrary or capricious when it is “willful and unreasoning and taken without regard 5 to the attending facts or circumstances.” Hillis v. State Dep’t of Ecology, 932 P.2d 6 139, 144 (Wash. 1997). Further, an action is arbitrary and capricious when “there is 7 no support in the record for the action.” Dorsten v. Port of Skagit Cty., 650 P.2d 8 220, 224 (Wash. 1982). 9 As a municipal corporation, the District retains the “full and exclusive 10 authority to sell and regulate and control the use, distribution, rates, services, and 11 price” of providing electricity to inhabitants of the District. Wash. Rev. Code § 12 54.16.040. Those rates and charges must be fair and nondiscriminatory. Wash. Rev. 13 Code § 54.24.080(1). 14 Blocktree presented six different arguments as to why RS-17 violates 15 Washington’s utility laws. ECF No. 25 at 21. First, they argue that the District 16 staff’s ability to classify a group of customers as an “evolving industry” violates the 17 text of section 54.24.080(1). Id. at 24–25. According to Blocktree, the District 18 staff’s determination that an industry qualifies as an “evolving industry” for the 19 purposes of imposing RS-17 amounts to an unconstitutional delegation of 20 lawmaking authority to the staff. ECF No. 25 at 25. The District argues that they 21 have “broad authority” to make decisions on ratemaking. ECF No. 37 at 17–18. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 12 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1511 Page 13 of 40 1 In Washington, legislative power may be delegated to other governing bodies 2 if (1) the legislature provides standards or guidelines which define, in general terms, 3 what is being delegated and what body holds the delegated authority; and (2) 4 procedural safeguards exist to prevent arbitrary action or abuse of discretionary 5 power by the body receiving the delegation. Barry & Barry, Inc. v. State Dep’t of 6 Motor Vehicles, 500 P.2d 540, 542–43 (Wash. 1972). The Barry test was first 7 formulated to prevent abuse of delegation by unelected executive branch officials. 8 See id. The Barry test equally applies to public utility commissions. Earle M. 9 Jorgensen Co. v. City of Seattle, 665 P.2d 1328, 1333 (Wash. 1983). 10 Blocktree argues that they are likely to succeed on both prongs of the Barry 11 test. ECF No. 25 at 24–25. Under the first prong, Blocktree argues that section 12 54.24.080(1) delegates the authority to set rates to the District, rather than the 13 District’s staff, and that the District failed to follow the statutory directives when 14 cryptocurrency mining was classified as an evolving industry. Id. Under the second 15 prong, Blocktree argues that their placement into RS-17 as an evolving industry 16 lacked procedural safeguards intended to control arbitrary action. Id. 17 18 19 20 21 Regarding the first prong of the Barry test, section 54.24.080(1) reads as follows: The commission of each district which shall have revenue obligations outstanding shall have the power and shall be required to establish, maintain, and collect rates or charges for electric energy and water and other services, facilities, and commodities sold, furnished, or supplied by the district. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 13 Case 2:18-cv-00390-RMP 1 2 ECF No. 52 filed 03/29/19 PageID.1512 Page 14 of 40 Wash. Rev. Code § 54.24.080(1). While a significant amount of work was done by the District’s hired staff in 3 developing and implementing RS-17, the decisions to create and adopt the rate 4 schedule were ultimately made by the Commissioners. After a public presentation 5 by the staff to the Commissioners, the Commissioners directed the staff to develop 6 an evolving industry classification and RS-17. ECF No. 37-6 at 75 (Resolution No. 7 8885). 8 The Commissioners later officially adopted and implemented RS-17 by 9 unanimously passing Resolution No. 8891. Id. at 111. The Commission knew that 10 cryptocurrency miners would be placed in RS-17, because RS-17 was the solution to 11 the perceived problems presented by the cryptocurrency mining industry. See ECF 12 No. 32-1 at 457. The Commissioners used their power to establish rates and charges 13 for electric energy supplied by the District to address a perceived problem. Wash. 14 Rev. Code § 54.24.080(1). Therefore, the Court finds that Blocktree is not likely to 15 succeed in proving that the District acted beyond its statutory authority in adopting 16 RS-17 and classifying cryptocurrency mining as an evolving industry. 17 Regarding the second prong of the Barry test, Blocktree argues that no 18 procedural safeguards prevented the District staff from arbitrarily classifying 19 cryptocurrency mining as an “evolving industry” under RS-17. ECF No. 25 at 24– 20 25. Washington courts have upheld ratemaking procedures that contain sufficient 21 safeguards protecting those that the new rate might affect, including statutory ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 14 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1513 Page 15 of 40 1 directives setting standards for the rates or regulating utility financing; judicial 2 review of rates that could be discriminatory or unreasonable; and the right to public 3 comment. See King Cty. Water Dist. No. 54 v. King Cty. Boundary Review Bd., 554 4 P.2d 1060, 1066–67 (Wash. 1976). If the delegating statute provides no procedural 5 safeguards, procedural safeguards may be provided by the administrative body 6 instead. Earle M. Jorgensen Co., 665 P.2d at 1333. 7 The only standard that Washington’s electricity ratemaking laws provide is 8 that electricity rates must be fair and nondiscriminatory; they impose no procedural 9 requirements. See Wash. Rev. Code § 54.24.080(1). Nonetheless, Blocktree was 10 provided several procedural safeguards, preventing their classification as an 11 evolving industry from being arbitrary. First, judicial review of the rates is available 12 as evidenced by this ongoing lawsuit. Second, Blocktree participated in the public 13 comment sessions during the development of RS-17. ECF No. 37-6 at 60–73 (first 14 public presentation on April 24, 2018); 77–88 (second public presentation on June 15 26, 2018); 99–106 (Cryptocurrency miners’ written comments from July and August 16 of 2018). 17 While Blocktree may disagree with the outcome of these procedures, their 18 disagreement does not make the District’s decision to classify cryptocurrency 19 mining as an evolving industry an arbitrary decision. The procedural safeguards 20 here are adequate and prevent arbitrary action by the District. King Cty., 554 P.2d at 21 1066–67. Therefore, Blocktree’s challenge under the second prong of the Barry test ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 15 Case 2:18-cv-00390-RMP 1 2 ECF No. 52 filed 03/29/19 PageID.1514 Page 16 of 40 is not likely to succeed on the merits. Blocktree’s second argument on why they are likely to succeed on the merits 3 of their Washington utility law claim is that RS-17 is discriminatory because it treats 4 cryptocurrency miners differently from customers with similar service requirements 5 and risk factors, such as large data centers, polysilicon manufacturers, or agricultural 6 businesses. ECF No. 25 at 25. The District argues that Blocktree fails to recognize 7 the unique features of the cryptocurrency industry that differentiates miners from 8 other customers. ECF No. 37 at 24. 9 Any analysis of utility rates under Washington law starts with the presumption 10 that the rates are reasonable, and courts will only overturn the rates if they are 11 excessive and disproportionate to the services rendered or arbitrary and capricious. 12 Lincoln Shiloh Assocs., Ltd. v. Mukilteo Water Dist., 724 P.2d 1083, 1087 (Wash. 13 Ct. App. 1986). Those challenging the rates must prove that the rates are 14 unreasonable. Id. 15 Blocktree submits, through an expert witness, that “[b]ased on actual 16 consumption characteristics, the segregation of Evolving Industry customers into a 17 separate rate class is not well justified.” ECF No. 26 at 13. Mr. Kemp identifies 18 other industries, such as data centers, polysilicon manufacturers, and agribusinesses, 19 that display similar regulatory, business, and consumption risks that would justify 20 classifying them as “evolving industries.” Id. at 18. According to Blocktree, the 21 District’s failure to classify these other industries as evolving industries proves that ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 16 Case 2:18-cv-00390-RMP 1 2 ECF No. 52 filed 03/29/19 PageID.1515 Page 17 of 40 RS-17 is discriminatory. ECF No. 25 at 25. Blocktree fails to recognize one of the main aspects of the District’s 3 justification for classifying cryptocurrency mining as an evolving industry: the 4 sudden influx of interest from cryptocurrency mining companies in the District’s 5 area of service. According to the District, since the summer of 2017, they have 6 received 125 requests for service totaling 2,000 MW of new load, 75% of the new 7 load being from cryptocurrency mining operations. ECF Nos. 32-1 at 457; 37-6 at 8 7–8. Further, the District states that they received actual applications from 9 cryptocurrency miners requesting 313 MWs of power since the summer of 2017. 10 ECF No. 32-1 at 549. 11 The District identified the unique traits of the cryptocurrency mining industry 12 that distinguishes the industry from others, including that its operations require few 13 natural resources and employees, making their operations easy to transfer from one 14 location to another. ECF No. 32-1 at 458. Blocktree disputes the mobility of its 15 industry, arguing that they have made significant investments in Grant County that 16 are not mobile. ECF Nos. 41 at 13; 44 at 3–4; 45–49. The District also argued that 17 the volatility of cryptocurrency prices exposes the District to the risk of unpaid 18 power bills by Blocktree and other cryptocurrency mining operations. ECF No. 32-1 19 at 659. Further, the District has stated that RS-17 also will apply to future industries 20 that present the same traits as cryptocurrency mining. ECF No. 37-6 at 19–20. 21 Blocktree’s arguments can be summarized as picking and choosing traits from ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 17 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1516 Page 18 of 40 1 different industries and combining them together, resulting in the District’s 2 discrimination against them. See ECF No. 26 at 13–18 (Mr. Kemp’s conclusions); 3 ECF No. 42 at 61 (price volatility chart of polysilicon). However, the Court finds 4 that combining the traits from several different industries together does not show, at 5 this point in the litigation, a likelihood that the District intentionally discriminated 6 against Blocktree or that their decision to classify cryptocurrency mining as an 7 evolving industry was made in the absence of evidence. Blocktree ignores the main 8 reason motivating the District’s classification decision: the sudden influx of interest 9 from cryptocurrency miners in the District’s power services. ECF No. 32-1 at 457. 10 The cryptocurrency industry’s sudden interest in Grant County and the unique traits 11 of the industry, all of which were considered by the District in creating and 12 implementing RS-17, show that Blocktree has failed to overcome the presumptive 13 reasonableness of RS-17. See Lincoln Shiloh, 724 P.2d at 1087. The Court finds that 14 Blocktree is not likely to succeed on their second utility rate statutory argument. 15 Blocktree’s third argument under Washington’s ratemaking laws is that the 16 District did not rely on “scientific statistical analysis” to create RS-17, and instead 17 relied on subjective determinations. ECF No. 25 at 26. Blocktree argues that rates 18 must be established with “scientific statistical analysis” based on Lincoln Shiloh, 724 19 P.2d at 1087. In that case, the Washington Court of Appeals held that a utility fee 20 was reasonable in part because it was generated with “scientific statistical analysis.” 21 Id. However, the court did not hold that “[d]ifferent rates can be charged to different ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 18 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1517 Page 19 of 40 1 customer classes only if ‘scientific statistical analysis’ shows substantial differences 2 in the costs of serving those different customer groups,” as Blocktree argues here. 3 ECF No. 25 at 23. While scientific statistical analysis could be one way to show that 4 the charged rates are reasonable, Lincoln Shiloh does not state that a utility district is 5 required to use scientific statistical analysis to prove the reasonableness of charged 6 rates. Lincoln Shiloh, 724 P.2d at 1087. This argument also implies that the burden 7 is on the District to prove that its rate is reasonable by showing that the rate is based 8 on scientific statistical analysis. However, as Lincoln Shiloh holds, the burden falls 9 on Blocktree to prove that they are likely to succeed in proving that the rate is 10 unreasonable. See Lincoln Shiloh, 724 P.2d at 1087. Therefore, the Court finds that 11 Blocktree’s third argument as to why RS-17 violates Washington rate-setting laws is 12 not likely to succeed on the merits. 13 Blocktree’s fourth argument is that RS-17 is not cost-based. ECF No. 25 at 14 26. According to Blocktree, because RS-17 is not cost-based, the rate is 15 unreasonable because it charges costs that are “excessive and disproportionate to the 16 services rendered.” Id.; Teter v. Clark Cty., 704 P.2d 1171, 1179 (Wash. 1985). The 17 District argues that the costs imposed on RS-17 customers offset the additional costs 18 that would be incurred by the cryptocurrency industry’s power demands on the 19 District. ECF No. 37 at 23. 20 21 The concept of ratemaking is discriminatory by design, as the process involves classifying customers into different groups and charging those groups ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 19 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1518 Page 20 of 40 1 different prices based on the characteristics of the customers in each group. 2 Nonetheless, Washington law requires the rates and charges for electrical services to 3 be fair and nondiscriminatory. Wash. Rev. Code § 54.24.080(1). Recognizing this 4 dichotomy, Washington courts have held that “[d]ifferent classes of customers may 5 be charged different rates as long as the classifications themselves are reasonable.” 6 Hillis Homes, Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty., 714 P.2d 1163, 1170 7 (Wash. 1986). “Absolute uniformity in rates is not required.” Teter, 704 P.2d at 8 1179. If the utility district can show “how and why the rate was devised,” then the 9 rate is considered reasonable, nondiscriminatory, and not arbitrary. Id. at 1180. 10 Further, if the increase in the charges for one group pays for improvements 11 necessitated by that new group, the rates are not discriminatory. Lincoln Shiloh, 724 12 P.2d at 1087. “[O]nly a practical basis for the rates is required, not mathematical 13 precision.” Teter, 704 P.2d at 1179 (emphasis in original). 14 Blocktree argues that customers served under RS-17 in the District pay 31% 15 above the cost of providing electricity to the RS-17 customers, whereas residential 16 customers pay 30% below their cost of service, which works as a “transfer of wealth 17 from Plaintiffs to Grant’s favored ‘traditional’ customers.” ECF No. 25 at 26; ECF 18 No. 26 at 21. According to Blocktree, the 31% premium can be attributed to an 19 “adder,” or an additional charge for a specific purpose, to pay for an upgraded 20 transmission system by 2021, an extra charge for the extra wear on the District’s 21 distribution systems caused by cryptocurrency miners, and an extra charge to protect ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 20 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1519 Page 21 of 40 1 the District from abandoned facilities if the cryptocurrency miners cease operations. 2 ECF No. 25 at 27–28. 3 The District argues that RS-17 is based on both direct and indirect costs to the 4 District in servicing cryptocurrency miners. ECF No. 37 at 25. In calculating the 5 rates charged under RS-17, the District assumed 200 MW of new load from 6 cryptocurrency miners, which is far less than the potential load of the interested 7 miners (1,500 MW) or miners that had actually applied for services from the District 8 (313 MW). ECF Nos. 32-1 at 549; 37-6 at 16. The District then calculated RS-17’s 9 rate based on the effects estimated from 200 MW of new load, including: a need to 10 upgrade transmission systems by 2021 instead of 2026; projected wear on the 11 distribution system from the new customers; and the risks involved in losing a 12 cryptocurrency mining customer without warning. ECF No. 37-2 at 5. 13 While Blocktree disagrees with the method with which RS-17 was calculated, 14 the District has provided justifications for every element of RS-17. The District 15 argues that the transmission adder is necessary because the current load of 16 cryptocurrency customers, along with the projected new 200 MW of load, will 17 require an equipment upgrade quicker than the previously-planned upgrade in 2026. 18 ECF Nos. 37-2 at 7; 37-4 at 7; 37-5 at 14–15. Further, customers charged under RS- 19 17 are only paying a portion of the costs for the new equipment and are not 20 subsidizing the new equipment for the benefit of the entire district. ECF No. 37-5 at 21 7. While it is true that cryptocurrency miners’ current electricity load has not caused ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 21 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1520 Page 22 of 40 1 wear on the District’s equipment yet, RS-17 was calculated based on the costs 2 associated with the projected wear from an increased 200 MW of load from 3 cryptocurrency miners, including additional equipment and crew. ECF No. 32-1 at 4 518 (excerpt from public presentation explaining that a portion of RS-17 payments 5 “[a]llocates additional equipment and crew time to deal with overheating and 6 additional wear.”) and 602 (“Have not experienced residential equipment failure due 7 to cryptocurrency mining.”). Additionally, the District states that the upgrades 8 would not be needed if they did not receive a large amount of interest from the 9 cryptocurrency mining field, necessitating the extra charge that protects the rest of 10 the District’s customers from paying for upgrades that they do not need. ECF Nos. 11 37-2 at 8–9; Lincoln Shiloh, 724 P.2d at 1087 (“If [additional] charges pay only for 12 those improvements necessitated by new customers they are not discriminatory.”). 13 While Blocktree may argue that calculating a utility rate based on projected costs is 14 unsound ratemaking, Blocktree has not pointed to any case law or statute that 15 prevents this practice. ECF No. 26 at 26. 16 The District’s calculations all condense into one simple justification: but for 17 the increased interest from cryptocurrency miners in the District, the future upgrades 18 and protection against abandoned facilities would not be necessary. Based on the 19 evidence provided to the Court, the Court cannot conclude at this time that Blocktree 20 is likely to succeed in showing that RS-17 is “excessive and disproportionate to the 21 services rendered.” Teter, 704 P.2d at 1179. Blocktree has not overcome the ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 22 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1521 Page 23 of 40 1 presumption of reasonableness given to utility rates in Washington, and the District 2 has offered ample evidence of how and why the rates were devised. Id. 3 Accordingly, the Court finds that Blocktree has not shown that it is likely to succeed 4 on their cost-based arguments under Washington’s utility laws. 5 Blocktree’s fifth argument is that RS-17 improperly ascribes costs to 6 cryptocurrency miners. ECF No. 25 at 28. Specifically, Blocktree argues that they 7 are not responsible for the increased costs driving RS-17’s creation because they 8 have been the District’s customers long before the sudden influx in cryptocurrency 9 mining companies requesting access to the District’s power. Id. The District 10 considered “grandfathering” Blocktree into its electricity rates under RS-7 and 11 imposing RS-17 only on new cryptocurrency mining companies but concluded that 12 the grandfathering would be “legally untenable.” ECF No. 32-1 at 537. 13 The District’s initial conclusion that grandfathering Blocktree into RS-7 14 would be “legally untenable” has merit. “The rates for each class must be internally 15 uniform, but different classes may be charged different rates.” Teter, 704 P.2d at 16 1179. “In considering the validity of [a utility rate], we must first consider the 17 question of whether there is a proper classification of customers and areas. The test 18 is whether the city had a reasonable basis for the classification and whether the 19 customers within the class are treated equally.” Silver Shores 555 P.2d at 996. If 20 the District excluded Blocktree and other Grant County cryptocurrency miners from 21 the emerging industries class subject to RS-17’s rates, but subjected new ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 23 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1522 Page 24 of 40 1 cryptocurrency mining companies to RS-17, the District likely would violate the 2 requirement that customers within each rate class be treated equally. See Teter, 704 3 P.2d at 1179. Additionally, as will be discussed further in this opinion, the District 4 could have subjected itself to potential liability under Washington’s Privileges and 5 Immunities Clause if the District gave preferential treatment to Blocktree over new 6 mining companies. Blocktree essentially argues that the District’s alleged 7 discrimination against Blocktree would be cured if the District placed Blocktree on 8 the side benefited by the alleged discrimination. The Court finds that Blocktree’s 9 fifth argument is not likely to succeed on the merits. 10 Blocktree’s sixth and final argument under Washington utility laws is that RS- 11 17 is arbitrary because it violates “well-accepted utility ratemaking principles of 12 gradualism, avoidance of rate shock, and predictability.” ECF No. 25 at 28. They 13 argue that the District is required to follow these principles because of the District’s 14 Resolution No. 8768, passed in May of 2015, which states that the District’s rate 15 schedules should follow these principles. Id.; ECF No. 32-1 at 616. 16 In support of their sixth argument, Blocktree relies on a case from Division II 17 of the Washington Court of Appeals that held that the Pierce County Council acted 18 arbitrarily and capriciously because it “did not follow its own procedures and did not 19 disagree with any findings [from the proceedings below].” J.L. Storedahl & Sons, 20 Inc. v. Clark Cty., 180 P.3d 848, 854 (Wash. Ct. App. 2008). But that case turned on 21 a county council’s application of the county code as opposed to a Resolution that ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 24 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1523 Page 25 of 40 1 was subject to change at any time by a vote of the commissioners. Id. Further, the 2 District argues that the principles of gradualism, rate shock avoidance, and 3 predictability only apply when a customer’s rates are adjusted within the same class, 4 rather than when a customer is moved from one class to another, as in this case. 5 ECF No. 37-5 at 6. 6 While the Resolution does state that the District should avoid rate shock when 7 it adjusts its rates, the Resolution only decrees that the District should “limit impact 8 to customers.” ECF No. 32-1 at 616. Blocktree’s rates will rise as a result of RS- 9 17’s implementation, but Blocktree cannot show at this time that the District did not 10 attempt to “limit impact to customers” when it calculated and approved RS-17. 11 Therefore, Blocktree has not shown a likelihood of success on the merits of this 12 sixth argument. 13 Based on the Court’s review of the evidence, Blocktree has not made a “clear 14 showing” that they are likely to succeed on the merits of their Washington utility law 15 claim. Winter, 555 U.S. at 20; Mazurek, 520 U.S. at 972. Blocktree is not likely to 16 overcome the presumptive reasonableness of RS-17. Therefore, Blocktree has failed 17 to show that it is likely to succeed in proving that the District acted arbitrarily or 18 capriciously or discriminated against them and other cryptocurrency miners by 19 implementing RS-17. The Court concludes that Blocktree is not likely to succeed on 20 the merits of its Washington utility laws claim. 21 ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 25 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1524 Page 26 of 40 1 Federal Power Act 2 Blocktree argues that the District also violated the Federal Power Act, 16 3 U.S.C. § 813, because RS-17 is unreasonable and discriminatory. ECF No. 25 at 4 23–24. The District argues that the Federal Power Act does not apply to them. ECF 5 No. 37 at 26. 6 The Federal Power Act provides that the “rates charged and the service 7 rendered” for power provided by municipalities subject to the Federal Power Act’s 8 jurisdiction “shall be reasonable, nondiscriminatory, and just to the customer and all 9 unreasonable discriminatory and unjust rates or services are prohibited and declared 10 to be unlawful.” 16 U.S.C. § 813. However, the Federal Energy Regulatory 11 Commission previously concluded that “Sections 19 and 20 [of the Federal Power 12 Act] do not apply to [the District]” because Washington expressly granted Grant 13 County self-regulatory authority over electricity ratemaking. The Yakima Nation v. 14 Pub. Util. Dist. No. 2 of Grant Cty., Wash., 101 FERC 61793, 61796 (F.E.R.C. 15 2002). The nondiscrimination provision of the Federal Power Act, 16 U.S.C. § 813, 16 is a part of Section 20, so it does not apply to the District. 16 U.S.C. § 813. 17 Even if section 813 applied to the District, the Court finds that the 18 discrimination analysis under the Federal Power Act is not substantially different 19 from the discrimination analysis under Washington’s utility rate laws. Therefore, 20 the Court finds that Blocktree is not likely to succeed on the merits of its Federal 21 Power Act claim for the reasons stated in the above section. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 26 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1525 Page 27 of 40 1 Due Process 2 The parties dispute whether Blocktree is likely to succeed on the merits of its 3 due process claims under both the United States and Washington Constitutions. 4 ECF No. 25 at 29; ECF No. 37 at 26. 5 Federal Due Process 6 The Fourteenth Amendment to the United States Constitution prohibits the 7 deprivation of “life, liberty, or property without due process of law.” U.S. Const. 8 amend. XIV § 1. To succeed on a federal procedural due process claim, a party must 9 prove two elements. First, a person must show that he or she was deprived of a 10 protected liberty or property interest. ASSE Int’l, Inc. v. Kerry, 803 F.3d 1059, 1073 11 (9th Cir. 2015). Second, the person must prove that the deprivation of the protected 12 interest was caused by a denial of adequate procedural protections. Id. 13 Before due process rights attach, a person must show that the deprivation 14 occurred as a result of an adjudicatory process rather than a legislative process. See 15 Harris v. Cty. of Riverside, 904 F.3d 497, 501 (9th Cir. 1990). If the matter is one in 16 which “all are equally concerned,” the matter is a legislative process and due process 17 rights do not attach. Bi-Metallic Inv. Co. v. State Bd. Of Equalization, 239 U.S. 441, 18 445 (1915). If the matter is one in which a “relatively small number of persons [are] 19 concerned, who [are] exceptionally affected, in each case upon individual grounds,” 20 then the process is adjudicatory and due process rights attach. Id. at 446; see also 21 Londoner v. City & Cty. of Denver, 210 U.S. 373, 385–86 (1908) (holding that a ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 27 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1526 Page 28 of 40 1 small number of people who were disproportionately affected by a tax were entitled 2 to a hearing before that tax was enacted). 3 The parties dispute whether the process by which RS-17 was enacted was 4 legislative or adjudicatory under federal due process standards. ECF No. 25 at 32; 5 ECF No. 37 at 27. Blocktree argues that the process was adjudicatory. ECF No. 25 6 at 32. When RS-17 is implemented on April 1, a select number of the District’s 7 customers will be affected by the heightened rate, and the District weighed three 8 subjective factors to determine whether cryptocurrency mining was an evolving 9 industry. However, the District argues that the process was legislative. ECF No. 37 10 at 28. RS-17 affects the entire cryptocurrency industry, not just Blocktree, and RS- 11 17 potentially will affect other new and unproven industries in the future. The Court 12 finds that the disposition of this motion does not turn on this difficult determination, 13 so the Court assumes arguendo that cryptocurrency mining’s classification as an 14 evolving industry was adjudicatory. 15 Blocktree claims that it has two protected property interests that are deprived 16 by the District’s decision to implement RS-17. ECF No. 25 at 29. First, they argue 17 that their “tens of millions of dollars” that they have invested in their mining 18 operations in Grant County will be rendered useless by RS-17’s “crippling rates.” 19 Id. at 29–30. Second, they argue that they have a protected interest in their current 20 power rate. Id. at 30. 21 “[T]he range of interests protected by procedural due process is not infinite.” ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 28 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1527 Page 29 of 40 1 Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 570 (1972). Accordingly, to 2 have a property interest in something, a person “must have more than an abstract 3 need or desire for it. He must have more than a unilateral expectation of it. He 4 must, instead, have a legitimate claim of entitlement to it.” Id. at 577. Property 5 interests are created by “existing rules or understandings that stem from an 6 independent source such as state law.” Id. 7 Blocktree claims that it has existing property rights in its investments in Grant 8 County. However, their investments were not created by “existing rules or 9 understandings that stem from an independent source such as state law.” Roth, 408 10 U.S. at 577. Rather, the investments were the result of Blocktree’s own decision 11 making. Plaintiffs’ theory would require that any time a government entity causes a 12 person’s investment to become less valuable, that person would be entitled to notice 13 and an opportunity for a hearing before the devaluation occurs. This would 14 essentially make anything of monetary value a property interest protected by the due 15 process clause, a conclusion foreclosed by Supreme Court precedent. Id. The Court 16 finds that Blocktree is not likely to succeed in proving that it has a protected 17 property interest arising from its investments alone. 18 Blocktree additionally argues that it has a protected property interest in its 19 existing utility rate, RS-7. ECF No. 41 at 16. At oral argument, counsel for 20 Blocktree pointed the Court to a case from the Mississippi Supreme Court that holds 21 that a person has a right to notice and a hearing when the person is subjected to a ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 29 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1528 Page 30 of 40 1 “confiscatory” utility rate. In that case, the Mississippi Supreme Court held that the 2 Mississippi Power Company violated Mississippi law by failing to give proper 3 notice of the rate increase to the ratepayers. Miss. Power Co., Inc. v. Miss. Pub. 4 Serv. Comm’n, 168 So. 3d 905, 913–15 (Miss. 2015). However, the Mississippi 5 Supreme Court decided the issue in that case without an analysis of whether a 6 certain utility rate is a property interest protected by the Due Process Clause. See id. 7 at 913. In fact, that Court held that “ratepayers have no property interest in a certain 8 rate.” Id. (emphasis in original). 2 The United States Supreme Court case on which 9 the Mississippi Supreme Court relied, Memphis Light, Gas & Water Div. v. Craft, 10 held that a ratepayer has a due process right to present objections to utility bills 11 before the cancelation of services, not that a ratepayer has a property interest in a 12 particular utility rate. See Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1 13 (1978). Neither the Mississippi Supreme Court case, nor the authority on which the 14 Mississippi Supreme Court relied, holds that a ratepayer has a protected property 15 interest in a certain utility rate. 16 The Court declines to analyze whether RS-17 is a “confiscatory” rate, because 17 even if it was, there has been no citation to Washington State or Federal case law 18 holding that Blocktree would have a protected property interest in any non- 19 2 20 21 Further, the Mississippi Supreme Court relied heavily on procedural requirements in Mississippi utility laws to conclude that the Mississippi Power Company denied ratepayers due process. See Miss. Power Co., 168 So. 3d at 914 n.13 (citing Miss. Code Ann. §§ 77–3–13(3), 77 –3–37(1) and (9)). ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 30 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1529 Page 31 of 40 1 confiscatory rate. Without an “independent source” protecting Blocktree’s’ rates 2 charged under RS-7, the Court finds that Blocktree is not likely to succeed in 3 proving that the District deprived them of a protected property interest by charging it 4 under RS-17.3 Roth, 408 U.S. at 577. 5 Washington Due Process 6 The Washington State Constitution prohibits any deprivation of “life, liberty, 7 or property, without due process of law.” Wash. Const. Art. I § 3. Similar to a 8 federal due process claim, a party must first show that the process through which its 9 alleged right was deprived was adjudicatory rather than legislative, as due process 10 rights attach to the former but not the latter. Earle M. Jorgensen Co., 665 P.2d at 11 1330–31. The Washington Supreme Court has “consistently held [that] rate setting 12 is a legislative act, even with respect to rate allocation and design.” Id. at 1332. 13 Because ratemaking is legislative, there is no right to notice or an opportunity to 14 comment. Id. “In reviewing ratemaking decisions of legislative bodies, we have 15 looked only to whether the rates were fair (i.e., reasonable, nondiscriminatory, not 16 arbitrary or capricious).” Id. Because the Court already has found that Blocktree is 17 not likely to succeed on the merits of its discriminatory and arbitrary rates claim, 18 19 20 21 3 Blocktree also argues that they were denied due process because they were denied an opportunity to be heard regarding whether they should be included in the “Evolving Industries” class. There may be merit to Blocktree’s argument about being classified without being heard. However, at this point in the litigation, the Court finds that such an issue would not be dispositive. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 31 Case 2:18-cv-00390-RMP 1 ECF No. 52 filed 03/29/19 PageID.1530 Page 32 of 40 Blocktree is not likely to succeed on the merits of its Washington due process claim. 2 Privileges and Immunities Clause of the Washington Constitution 3 The parties dispute whether Blocktree is likely to succeed on the merits of 4 their Washington State privileges and immunities challenge to RS-17. ECF No. 25 5 at 33; ECF No. 37 at 29. 6 In Washington, “[n]o law shall be passed granting to any citizen, class of 7 citizens, or corporation other than municipal, privileges or immunities which upon 8 the same terms shall not equally belong to all citizens, or corporations.” Wash. 9 Const. Art. I § 12. The Supreme Court of Washington has construed article I section 10 12 as “substantially similar” to the federal equal protection clause, but at certain 11 times it “differed from and was more protective than the federal equal protection 12 clause and required a very different analysis.” Schroeder v. Weighall, 316 P.3d 482, 13 485 (Wash. 2014). For example, Washington’s privileges and immunities clause 14 prohibits so-called special interest legislation, which are laws that confer a benefit to 15 a privileged or influential minority. Grant Cty. Fire Prot. Dist. No. 5 v City of 16 Moses Lake, 42 P.3d 394, 408 (Wash. 2002), overruled on other grounds. 17 Washington courts use a two-part test to determine whether a legislative act 18 violates Washington’s privileges and immunities clause. First, the court determines 19 whether the law in question involves a privilege or immunity. Ass’n of Wash. Spirits 20 & Wine Distribs. v. Wash. State Liquor Control Bd., 340 P.3d 849, 857–58 (Wash. 21 2015). Second, the court determines whether the legislative body had a “reasonable ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 32 Case 2:18-cv-00390-RMP 1 2 ECF No. 52 filed 03/29/19 PageID.1531 Page 33 of 40 ground” for granting the privilege or immunity. Id. Blocktree claims that RS-17 implicates two privileges: the right to carry on a 3 business and the right to nondiscriminatory utility rates. ECF No. 25 at 33–34. 4 Further, Blocktree argues that there are no reasonable grounds justifying the 5 District’s differentiation between Blocktree and other similarly situated “politically 6 favored” customers. Id. at 34. 7 The privileges and immunities clause applies to “fundamental rights which 8 belong to the citizens of the state by reason of such citizenship.” State v. Vance, 70 9 P. 34, 41 (Wash. 1902). One long-recognized fundamental right in Washington is 10 the right to carry on a business. Id. As it relates to the right to carry on a business, a 11 privilege is “an exception from a regulatory law that benefits certain businesses at 12 the expense of others.” Ass’n of Wash. Spirits & Wine Distribs., 340 P.3d at 858. 13 For example, the Washington Supreme Court struck down a municipal ordinance 14 that required non-resident photographers to pay substantial licensing fees and 15 prohibited photography solicitation, while exempting resident photographers from 16 the licensing fees. Ralph v. City of Wenatchee, 209 P.2d 270, 272–74 (Wash. 1949). 17 But Washington courts have been hesitant to broadly apply the right to carry 18 on a business in any legislative act that happens to harm a single aspect of a 19 business. In one instance, the Washington Supreme Court held that a prohibition on 20 smoking in a place of employment did not violate the right to carry on a business. 21 Am. Legion Post #149 v. Wash. State Dep’t of Health, 192 P.3d 306, 325–26 (Wash. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 33 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1532 Page 34 of 40 1 2008). In another, the Washington Supreme Court held that a licensing fee scheme 2 for vendors of liquor and spirits did not implicate the right to carry on a business. 3 Ass’n of Wash. Spirits & Wine Distribs., 340 P.3d at 859. The key inquiry for 4 determining whether the right to carry on a business is implicated by an act is 5 whether the act “unfairly discriminate[s] against a class of businesses to the benefit 6 of another class of the same businesses.” Id. at 859. 7 Blocktree argues that the evolving industry classification and RS-17’s rates 8 will reduce the profits of running a cryptocurrency mining operation in the District. 9 However, as Am. Legion and Spirits & Wine both show, mere harm to a business’s 10 profits caused by a change in the laws does not implicate the right to carry on a 11 business. Am. Legion, 192 P.3d at 326; Ass’n of Wash. Spirits & Wine Distribs., 340 12 P.3d at 859. A violation of the right to carry on a business is only implicated by 13 government actions that “unfairly discriminate against a class of businesses to the 14 benefit of another class of the same businesses,” such as what happened in Ralph, 15 when city ordinances discriminated against non-city-resident photographers to the 16 benefit of resident photographers.4 Ass’n of Wash. Spirits & Wine Distribs., 340 17 18 19 20 21 4 As mentioned earlier, this line of cases explains why Blocktree’s contention that it should have been “grandfathered in” to RS-7’s rates is “legally untenable.” Subjecting one class of cryptocurrency miners to the rates charged under RS-7 while subjecting another class of cryptocurrency miners to the rates charged under RS-17, based solely on when those miners established operations in the District, arguably would discriminate unfairly within the class of the same business. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 34 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1533 Page 35 of 40 1 P.3d at 859 (emphasis added); Ralph, 209 P.2d at 272–74. Blocktree’s right to carry 2 on a business allegations are more like the allegations in Spirits & Wine or Am. 3 Legion rather than Ralph, because Blocktree essentially alleges that the District 4 violated its right to carry on a business of its choosing, rather than alleging 5 discrimination against a class of businesses to the benefit of another class of the 6 same business. The Court finds that Blocktree has not shown a likelihood of success 7 of proving a violation of the right to carry on a business. 8 9 The other fundamental right that Blocktree claims RS-17 violates is the fundamental right to nondiscriminatory utility rates. ECF No. 25 at 33–34. 10 However, no Washington court has found that such a fundamental right exists. See 11 Faxe v. City of Grandview, 294 P.2d 402, 495 (Wash. 1956) (“We will therefore 12 assume, without deciding, that such a duty exists by virtue of Art. I, § 12, of the state 13 constitution.”); Geneva Water Corp. v. City of Bellingham, 532 P.2d 1156, 1160 14 (Wash. Ct. App. 1975) (quoting the same passage from Faxe). Even if there is a 15 fundamental right to a nondiscriminatory utility rate protected by the privileges and 16 immunities clause, the Court already concluded that Blocktree is not likely to 17 succeed in proving that RS-17 is unlawfully discriminatory. Therefore, the Court 18 finds that Blocktree is not likely to succeed on the merits of their privileges and 19 immunities claim. 20 Even if Blocktree is successful in showing a violated fundamental right, it still 21 would need to prove the second element of a privileges and immunities claim, which ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 35 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1534 Page 36 of 40 1 is that a reasonable ground does not exist to grant the privilege or immunity. Ass’n 2 of Wash. Spirits & Wine Distribs., 340 P.3d at 857–58. Under the reasonable ground 3 test, “the court will scrutinize the legislative distinction to determine whether it in 4 fact serves the legislature’s stated goal.” Schroeder, 316 P.3d at 486 (emphasis in 5 original). This standard is more exacting than rational basis review. Id. 6 As explained above, the District faced legitimate concerns over the amount of 7 interest that cryptocurrency mining companies expressed in the District’s low power 8 costs. Considering these concerns, the District developed the evolving industry 9 classification and RS-17 to ensure that the electricity needs of all of its customers 10 would be fulfilled. Specifically, RS-17 helps the District manage the high level of 11 interest from the cryptocurrency field and prepare its infrastructure for any sudden 12 influx of new cryptocurrency businesses. There is significant evidence that The 13 District did not implement RS-17 “in an arbitrary selection,” as Blocktree claims. 14 The District developed and implemented RS-17 over a long period of time from the 15 summer of 2017 until its approval on August 28, 2018, with several opportunities 16 for public comment and input. State ex rel. Bacich v. Huse, 59 P.2d 1101, 1105 17 (Wash. 1936), overruled on other grounds. Therefore, even if Blocktree can prove a 18 violation of a fundamental right, the Court finds that Blocktree is not likely to 19 succeed on proving the second element of a privileges and immunities claim. 20 21 The Court finds that Blocktree is not likely to succeed on the merits of any of its claims presented in its motion for preliminary injunction. Additionally, Blocktree ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 36 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1535 Page 37 of 40 1 has not demonstrated serious questions on the merits of its claims. 2 Irreparable Harm 3 The parties dispute whether the implementation of RS-17 starting on April 1, 4 2019, will cause irreparable harm to Blocktree. ECF No. 25 at 35; ECF No. 37 at 5 31. 6 A plaintiff seeking a preliminary injunction must demonstrate that irreparable 7 injury is likely in the absence of an injunction. Winter, 555 U.S. at 20. Monetary 8 injury, alone, does not meet this standard. L.A. Mem’l Coliseum Comm’n v. Nat’l 9 Football League, 634 F.2d 1197, 1202 (9th Cir. 1980). A legitimate threat that a 10 company might become bankrupt or be driven out of business because of a 11 plaintiff’s action does show irreparable harm. Doran v. Salem Inn, Inc., 422 U.S. 12 922, 932 (1975); Am. Passage Media Corp. v. Cass Commc’ns, Inc., 750 F.2d 1470, 13 1474 (9th Cir. 1985). A mere possibility of harm, however, will not meet this 14 standard. Enyart v. Nat’l Conference of Bar Exam’rs, Inc., 630 F.3d 1153, 1165 15 (9th Cir. 2011). 16 Blocktree argues that the rate increases from RS-17 would render its 17 operations “uneconomical” and force Blocktree to end its business in Grant County. 18 ECF Nos. 27–31, 36-1. They state that they “might even be forced into bankruptcy” 19 by such a rate increase. Id. Blocktree argues that RS-17’s rate increases will 20 increase their rates by anywhere between 295–400%; however, because RS-17 is 21 being implemented over several years, Blocktree will not immediately feel the full ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 37 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1536 Page 38 of 40 1 effects of RS-17’s rate increases. See ECF Nos. 27–31, 36-1, 37-6 at 113. Even if 2 the rate increase occurred all at once, a mere possibility of bankruptcy does not meet 3 the irreparable harm standard. Enyart, 630 F.3d at 1165. Therefore, the Court finds 4 that Blocktree has failed to show that it will suffer irreparable harm if RS-17 is 5 implemented. 6 Balance of Equities 7 8 The parties dispute whether the balance of equities weighs in Blocktree’s favor. ECF No. 25 at 36; ECF No. 37 at 32. 9 Before granting an injunction, “courts must balance the competing claims of 10 injury and must consider the effect on each party of the granting or withholding of 11 the requested relief.” Winter, 555 U.S. at 24 (internal quotations and citations 12 omitted). 13 Here, Blocktree argues that the balance of equities tips in its favor because 14 RS-17 will impose burdens on Plaintiffs but preventing RS-17’s effects will not 15 harm the District. ECF No. 25 at 36. The District argues that enjoining RS-17 will 16 hamper the District’s ability to collect revenues for utility bills in their district. ECF 17 No. 37 at 32. Because some harm will occur to Blocktree immediately, the Court 18 finds that this factor favors Blocktree. 19 Public Interest 20 21 The parties dispute whether an injunction would be in the public interest. ECF No. 25 at 37–38; ECF No. 37 at 33. ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 38 Case 2:18-cv-00390-RMP 1 ECF No. 52 filed 03/29/19 PageID.1537 Page 39 of 40 A plaintiff seeking a preliminary injunction must demonstrate that the public 2 interest favors the injunction in light of the likely consequences. Hernandez v. 3 Sessions, 872 F.3d 976, 996 (9th Cir. 2017). When constitutional rights are 4 implicated, the public has an interest in ending the violation of those rights. Id. 5 Blocktree argues that a preliminary injunction is in the public interest because 6 it will remedy the District’s constitutional and statutory violations. ECF No. 25 at 7 37–38. Further, Blocktree argues that, in absence of a preliminary injunction, they 8 will have to relocate their operations and cease paying the District millions of dollars 9 in revenue, which will trickle down to harm the District’s other ratepayers. Id. The 10 District argues that their actions underlying the claims in this case were taken in 11 pursuit of the public interest by protecting the District’s ability to provide service 12 long-term, showing that the public interest favors their position. ECF No. 37 at 33. 13 While Blocktree might have to relocate their operations in response to RS- 14 17’s implementation, the Court finds that the balance of equities tips in the District’s 15 favor. The District, as a government entity, is serving the public by protecting the 16 public’s need for long-term power while addressing the immediate needs and 17 concerns generated by the cryptocurrency’s interest in Grant County. See ECF No. 18 32-1 at 387–403. 19 CONCLUSION 20 The Court recognizes the uniqueness of the factual scenario presented by this 21 case. The Court’s research did not find a case similar to the case at hand, in which a ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 39 Case 2:18-cv-00390-RMP ECF No. 52 filed 03/29/19 PageID.1538 Page 40 of 40 1 utility district implements a new rate schedule and rate classification through public 2 comment and participation, but then classifies a group of customers thereafter using 3 subjective factors. However, the Court’s task in deciding whether to issue a 4 preliminary injunction is to weigh the four Winter factors and determine whether 5 Blocktree is likely to succeed on the merits of its claims; whether Blocktree will 6 suffer irreparable harm absent an injunction; whether the equities tip in its favor; and 7 whether an injunction would be in the public interest, based on the case law and 8 standards currently available for the Court’s consideration. Winter, 555 U.S. at 20. 9 The Court finds that Blocktree has failed to make a clear showing that it is 10 likely to succeed on the merits of any of its claims. In addition, the Court finds that 11 Blocktree has not shown that it will suffer an irreparable injury without the 12 imposition of a preliminary injunction. Therefore, the Court denies Plaintiffs’ 13 motion for preliminary injunction. 14 15 16 17 18 Accordingly, IT IS HEREBY ORDERED that Plaintiffs’ Motion for Preliminary Injunction, ECF No. 25, is DENIED. IT IS SO ORDERED. The District Court Clerk is directed to enter this Order and provide copies to counsel. DATED March 29, 2019. 19 20 s/ Rosanna Malouf Peterson ROSANNA MALOUF PETERSON United States District Judge 21 ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION ~ 40

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