State controls on crypto needed, Rep. Meeks says

A co-chair of the Arkansas Legislature’s Joint Committee on Advanced Communications and Information Technology said that he would like to see a special session called to address issues stemming from digital asset mining — also known as crypto mining — in the state, and said that he has drafted legislation to set noise limits and address power grid concerns.

“I think it’s risen to the level that I would be in support of a special session,” state Rep. Stephen Meeks, R-Greenbrier, said.

Meeks’ remarks came after a nearly five-hour meeting Tuesday of his advanced communications committee and the Joint Committee on Energy, which heard testimony from the Arkansas Blockchain Council’s Tom Harford, Arkansas Secretary of Commerce Hugh McDonald, a representative of Entergy Arkansas and other members of state agencies related to cryptocurrency mining.

In a phone interview following the committee meeting, Meeks said he’d had meetings with members of Gov. Sarah Huckabee Sanders’ staff about the potential for a special session, but he said he had been told that the current view of the staff is that the mining issue is better handled at the local level. Act 851 of 2023, which went into effect Tuesday, restricts local governments’ regulatory powers when it comes to digital asset mining businesses.

(The Arkansas Democrat-Gazette contacted Sanders’ spokesperson for comment regarding a special session. Sanders was traveling to an Arkansas LEARNS town hall in Mountain Home and her spokesperson was unable to provide a comment Tuesday evening.)

“Several counties have passed ordinances to try and address these issues, the counties don’t — they can do some enforcement, but they ultimately would not have the same enforcement capacity as the state does,” Meeks said, adding that the state needs to take a greater regulatory role for digital asset mining.

“I’m not opposed to crypto mine facilities coming to the state, but I think it needs to be regulated such that if and when they do come to the state, that it makes sense for that local community; that the local community has a say. And I think that [Act 851] probably prevents that to a certain degree, so that must be addressed so that it makes sense to that community for that mine to go there,” Meeks continued.

In addition to the featured speakers, many attendees from last week’s Children and Youth Committee meeting in Harrison made the drive to the state Capitol for the meeting, and some spoke during the public comment period at the end of the meeting, criticizing Act 851 and cryptocurrency mining in general.

State Sen. Bryan King, R-Green Forest, who has also called for a special session to address cryptocurrency mining legislation, was also in attendance.

Legislators in attendance raised questions about a variety of concerns, from money laundering and difficulties taxing cryptocurrency, to the effects of cryptocurrency mining’s draw on power supplies, to whether foreign state actors could use digital asset mining sites to damage the power grid.

State Sen. Ricky Hill, R-Cabot, the senate’s majority whip, was one of many who expressed concerns about the lack of financial regulations related to cryptocurrency.

“From the treeline view of what I see looking at this: Banks have regulations that they all have to follow and go by … looking at this, it looks to me like this is an easy way to launder money,” Hill said during Harford’s testimony. In response, Harford said that money laundering is a problem with all currency.

“Technology’s been evolving faster than the federal government can come up with ways to regulate it,” Harford said later in the meeting.

Harford said he believes there needs to be codification at the state level of noise ordinances to combat what he refers to as “bad actors” whose operations generate disruptive noise.

John Bethel, Entergy Arkansas’ director of public affairs, also spoke at the meeting, noting that based on conversations he had, all cryptocurrency mining operations in the state, to his knowledge, were Entergy customers.

Bethel said that the rate schedule passed by the Arkansas Public Service Commission for digital asset mining customers created service that was “interruptible,” meaning that the utility company could tell the mining businesses to shut off their power if supplies became strained, in order to provide for other customers.

State Rep. Rick Beck, R-Center Ridge, asked Bethel if Entergy could force a mining operation to shut off its power if Entergy told it to turn off and the mining operation refused.

“I’m not 100 percent certain that as far as what happens when a customer refuses to interrupt — I know that there are financial penalties in the event that they fail to do that,” Bethel said. “My answer is, I don’t know.”

McDonald, the Commerce Secretary, clarified when responding to lawmakers’ questions that it would take a “unique set of circumstances” for a digital asset mining business to qualify for the tax incentives created for data centers in Act 819 of 2023, which allows for sales tax exemptions for electricity, computer equipment and other purchases if a business is able to meet certain criteria.

McDonald said it would be hard for a digital asset mining company to meet the criteria.

“One of the things that’s a real impediment qualifying is, I don’t think they have customers. They’re participating in an ecosystem, but in order to receive these incentives you gotta have customers,” McDonald said, noting that data centers and cryptocurrency mines are two different things.

McDonald said that, unlike with digital asset mining companies, the state encourages traditional data centers to come to Arkansas, since the amount of job creation and investment generated by them are so much bigger.

“[Digital asset mining] is not a targeted industry,” McDonald said. “The low cost of power is probably the biggest driver of that industry coming to the state. Now, data centers — traditional data centers — that’s a different deal. We would certainly support and promote large data centers.”

Earlier in the meeting, Harford said that data centers and digital asset mining companies were like “first cousins” and that the two were structurally very similar. Harford noted this similarity as a support for language in Act 851 that prohibits local governments from imposing “a different requirement for a digital asset mining business than is applicable to any requirement for a data center.”