{ "docId": "019dd923-622c-750b-8b98-35d42f5356ae", "docSlug": "17a1b24c3cc8", "documentTitle": "Riot Platforms, Inc. (RIOT)", "authorId": "53_Kerrisdale_Capital", "authorName": "Kerrisdale Capital", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-06-01 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 11, "pageCount": 19, "prevPage": 10, "nextPage": 12, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 1, "notes": "The slide functions as a critique of Riot's business model, framing it as regulatory arbitrage rather than legitimate market participation.", "elementsJson": [ "paragraph" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-35d42f5356ae/11", "deckHref": "/decks/019dd923-622c-750b-8b98-35d42f5356ae", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-35d42f5356ae.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-35d42f5356ae#slide-11", "components": [ { "bbox": null, "kind": "callout", "text": "If incentives can be used by a company with a flawed business model to offset substandard operations, we think it is time to rethink the incentives.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee37-76cb-8470-23fbf8e12187", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.215, "w": 0.77, "x": 0.117, "y": 0.325 }, "kind": "paragraph", "text": "Riot is not breaking any rules by participating in demand response, but it is taking advantage of them in a way they were not originally designed. Every day, well-run bitcoin mining facilities are presented with a remarkably simple, market-based economic decision based on the price of power and the price of bitcoin: mine bitcoin or shut down. This is precisely why Texas mining industry lobbyists call bitcoin miners \"economically perfect consumers of electricity.\" The ability to respond to prevailing power prices allows the majority of mines in Texas to operate without a fixed-price power contract (timestamp: 1:15:09). Riot is an anomaly. For Riot, the economic decision is even easier because shutting down during a heat wave can net the company tens of millions in value from not mining bitcoin based on the terms of their power contract.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "25072b6b-0ff9-4ee7-b9e6-c203d441e386", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.115, "w": 0.77, "x": 0.117, "y": 0.855 }, "kind": "paragraph", "text": "Last March, Texas state senators Lois Kolkhorst, Donna Campbell, and Robert Nichols, all Republicans, sponsored S.B. 1751 (dubbed by critics as the \"anti-bitcoin mining bill\") which would cap miner participation in demand response programs to 10% and eliminate property tax abatements on certain mining property. The bill was passed unanimously by the Senate Committee on Business and Commerce. The Chair of that committee is Senator Charles Schwerner. Riot's Rockdale facility is in his district. Though the bill eventually failed in the House, lawyers who keep close tabs on the body have advised us that something similar to S.B. 1751 is likely to be revived in the next legislative session beginning January 2025. We have sent letters to Senators Schwerner, Kolkhorst, Campbell, and Nicols with the findings of our research given their continuing interest in the matter (visit our website to see a copy of our letter).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "4a618f29-b61b-4f38-81cb-cf29870443f4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.045, "w": 0.77, "x": 0.117, "y": 0.765 }, "kind": "paragraph", "text": "If incentives can be used by a company with a flawed business model to offset substandard operations, we think it is time to rethink the incentives. Thankfully, so do some Texas state senators.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8145037c-126d-4192-bec8-85ae6e62b8d0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.085, "w": 0.77, "x": 0.117, "y": 0.235 }, "kind": "paragraph", "text": "In sum, because Rockdale's shoddy infrastructure doesn't always allow it to fully and/or responsively curtail, particularly during times of extreme heat, Riot took the approach of bidding aggressively into programs it knew would not get called often, figuring \"if we're going to be stuck online, we might as well get paid.\"", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "88bceefc-59bb-4c11-8d36-8a7c31838b10", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.135, "w": 0.77, "x": 0.117, "y": 0.093 }, "kind": "paragraph", "text": "severe winter storm. What management left out was according to our source, the pipes in question were dry cooler pipes which froze and then burst because they were not properly drained during sub-freezing temperatures. 25% of the company's capacity and equipment worth tens of millions was affected by this operational incompetence.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d3aaf3c1-9fa8-4119-a7f3-804a9bbf2c48", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.215, "w": 0.77, "x": 0.117, "y": 0.545 }, "kind": "paragraph", "text": "Riot's participation in the ancillary market and receipt of millions in Texas payor dollars to be unresponsive to soaring power prices rewards the company for the inefficiency of its operations. And none of it is necessary. At the end of a Texas Senate Committee of Business and Commerce hearing last March, a representative from ERCOT unequivocally stated a reduction in bitcoin miner participation in demand response would have no bearing on procuring ancillary services and limiting their involvement would not put the grid at risk (timestamp: 1:15:09). The only reason Riot can engage in this form of regulatory arbitrage is because the rules were written well before bitcoin miners ever flocked to Texas and the legislation's original drafters never contemplated the unique business models of bitcoin miners.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f252b95a-862f-4354-b158-7b1c116b59db", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.12, "x": 0.117, "y": 0.82 }, "kind": "title", "text": "S.B. 1751", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ffef73b0-f87c-4eb7-a844-a1c5ff86a71e", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "9bbfcdf0-bbcc-4e4a-8f7a-9f68328c9cfe", "evidence": "The slide frames the company's business model as 'regulatory arbitrage' and 'operational incompetence' to justify legislative intervention.", "confidence": 0.8 } ], "arcBeats": [ { "to": 12, "from": 8, "beatId": "b50b0eda-2b1d-4747-8258-aa2f18a24db0", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Agitate (Make it worse)", "beatSlug": "problem-agitate-solution-agitate-make-it-worse", "evidence": "The document agitates the problems by highlighting Riot's poor EBITDA profitability, high ATM issuance, and comparison to peers.", "position": 1, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }