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Blockspace: AI & Bitcoin
Applied’s $1.59B Raise, Illinois’s Bitcoin Transaction Tax, Why SaaS Bonds May Be in Trouble
00:48:29
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A
Foreign.
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What's up, y'?
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C
All?
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B
Welcome back to Blockspace Live, brought to you by Clean Spark Fun show lineup today, Charlie we're going to start with Applied Digital closing on a $1,590,000,000 bond offering and also some notes from Moody's Mark Pinto on how we're starting to see a kind of bifurcation in the corporate bond market as it relates to AI infrastructure builds and software companies. Following that, we have Tim Namire on to discuss Illinois's crazy crypto wealth tax. I guess we'll call it a wealth tax.
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D
It's like an everything tax, but we'll get into that.
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B
Yeah, just insane legislation coming out of Illinois today. We'll have that for our interview. For other news, Data Center Dynamics just came out with a story about how construction firms with exposure to AI builds might be under pressure. Now, this is a single source story, but we've got some supplementary data there. Tldr they might be making a lot of money right now, but supply chain constraints could shake their foundations in the year to come. After that, the big story we will be covering gay power. And by that I mean a recent California mandate for utilities to spend 1.5% of their budget on LGBTQ, AZYDBwx, QA businesses.
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D
Oh, man, we gotta be careful there. Colin. BlackSpace goes live 1pm Eastern every weekday. You can find us anywhere. Fine. Podcasts are streamed live at 1pm Eastern on your podcast feed shortly thereafter, wherever podcasts are found. And if you like the podcast, you'll Love our newsletter. Newsletter.blackspacemedia.com make sure to like and subscribe. Drop A review a 5 out of 5 stars, if you will. And this show is brought to you by CleanSpark. Nasdaq listed ticker CLSK. More on them later on in the show. Colin, we have a big raise from apld. Not to be confused with Apple or rather Applied Digital. They're applying the digital to something.
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B
Yeah, I always had to double take because the ticker is so close to Apple. But this is coming off of SEC filings. This actually hit yesterday and Applied Digital is has just secured A formerly announced $1.59 billion senior secured note offering due 2031. The coupon for this note is set at 7% and Goldman Sachs acted as the lead purchaser. Few other headline notes on this. This will be backed by equity in an applied subsidiary for the specific data center, which is their ELN04 project in Ellendale, North Dakota. 150 megawatt data center. This is the specifically this is Applied Digital's Polaris Forge 1 AI factory campus, and it is serving Coreweave in a contract that kicked off in August 2025. A few other key notes here. The cost will be used for the construction associated with the remainder of the 150 megawatt campus. We'll also repay a $300 million Goldman Sachs Bridge loan and also fund an $81 million debt services reserve just to give them a little bit of cash cushion and also closing transaction expenses. There are a few other details. Amortization, as we've seen with other of these senior secured notes, will begin once the Dana center lease commences and once there's actually revenue being generated by that. So up until that point, I believe they will only be paying interest on the loan. But full amortization of the principal won't begin until they start earning cash from this latest build out. Charlie, any thoughts?
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D
Yeah, I have here. Sometimes I like to put like, an actual, like, face to the. To the deal itself. So I have here Ellendale, North Dakota, where this facility actually will be dropped. Town of 1500, zooming out. It's on the south side of North Dakota, right on the border. But yeah, I mean, looking at a $1.59 billion note being deployed somewhere around this town. Kind of wild when you think about it. And again, we report on, like, the data center pushback a lot, but I feel like there's a. There's a lot of space up here.
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B
Yeah, yeah. Especially in North Dakota. I mean, it's been one of the corridors. It's been part of a corridor in the Midwest or. I know this is the Great Plains, but you know what I mean, for building out some of these larger data centers, MERA has a. Or had this facility before. I believe they sold it to Applied Digital. One quick thing to know, this is specifically for Building 4 at Polaris Forge. And that building is 150 megawatts. They have other capacity there as well. Before we move on to our interview, Charlie, I wanted to highlight this Bloomberg interview with Mark Pinto at Moody's, because as we're seeing all of these data center build outs draw in private credit and we're seeing these massive notes being issued, Mark Pinto here is saying we're starting to see a, quote, tale of two cities with regards to these corporate bonds where there's a boom in the AI infrastructure business and then the related corporate bonds for those. There are questions given AI's proliferation, about the credit worthiness, or rather the. The attraction of software as a service businesses and their bonds. So I'LL play this really quickly, we'll unpack it, and then we'll get Tim on here.
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It really is a Tale of Two Cities, right? It's the best of times, it's the worst of times. So to your first point about infrastructure, asset based lending is becoming bigger and big bigger and private credit, the OG Mag 7 are meeting up with the private credit Mag 7. They're doing a dance and they're financing and helping each other finance this big build out of data centers. But they're doing private credit is also doing other types of infrastructure as well, whether it be energy or types of things like that.
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C
So AI is the sword that cuts both ways basically in private credit. I mean it's, it's how they're making their money now. But also on the software side, a lot of them are taking a hit because they, I guess, overinvested in software, right?
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A
Yeah. So that's the worst of times in The Tale of Two Cities. So if you look at the BDCs, on average they have, it's well documented, about 25% exposure to software companies. And you know, since Claude Kohlrick walked into the room, people are scratching their heads and wondering, is this going to be a growth enabler or will this be an existential threat? And we probably won't know that until 2028 when we see the first refinancing wall. A lot of these companies were underwritten or debt was provided to them. Loans were provided them in 2021 when you had zero interest rates, great growth. And there was a lot of tight credit spreads because there was a huge amount of demand for this stuff.
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B
So the TLDR there, basically he's talking about, you know, the boom post Covid when ZIRP kicked back in, you know, the Fed raised rates in 2018, dropped them to zero in response to Covid. And so you had all of this cheap credit frothing around. And so these business development companies, which are basically funds that are stood up to invest in higher credit risk businesses, they were loaning to these software and services companies at a time when the stock market was ripping software as a service, was a great play. And now AI has come into the picture and the question is, do these companies have moats or advantages anymore in the market when anyone and their grandmother can spin up a homespun version, a home brewed version of, you know, name your pick. Peter McCormick was just on Twitter a few months ago talking about how he stood up his own website in like a week and he didn't have to use squarespace anymore. So that's a good example of that. And the idea here basically being some of these bonds will mature or there will be covenants that kick in in 2028. And the question then becomes what will they actually be worth? Will there be a credit crisis with software service companies specifically? Especially considering now the corporate bond market for these AI builds is much more attractive.
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D
Yeah, it's like you, it's like roll back the clock a couple hundred years and you're writing checks both to automobiles and to horse stables. You know it, it's you, you're supplanting the own industry that you're, that you have a bunch of obligations towards. The great irony. We'll see. You know, there is this narrative that we're just demanding net more software. The question is, does that software accrue value to the companies that you lent to? Right.
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B
And then I think the other question, and this is like quite the bitcoiner angle, like were those companies worth lending to in the first place? In the sense that in a 0% interest rate environment you have all of this misalignment of credit. You know, it's money is so cheap it has to chase some sort of return. Some of these companies probably didn't need to raise that much money anyway.
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D
Look, it sounded like a great idea when Covid hit and everybody and their dog became a SaaS company and Zoom ripped like 20x overnight.
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B
Zoom's a great, a great example. Like why, why did. Was that ever. It was valued at some point. Multi billion dollars at some point.
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D
Well, it's because all the boomers did not use Discord at the time. The far superior video conferencing technology. Okay, we got to keep rolling. We have a decent little show for you. We've got Tim Niemeyer of the Illinois Bitcoin Council talking about this wild new tax in Illinois. We're talking about the data center construction blip on the horizon or currently in the the middle of it. And then let's just gay power in California. We're going to hit on that too at the end. So let's hear from our sponsor CleanSpark and then we'll talk to Tim.
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We are CleanSpark, America's Bitcoin miner. A publicly traded company with the largest operating hash rate powered entirely by self operated infrastructure across four states. This is our proof of work. We are setting the standard for what's next. Learn more about the intersection of energy and bitcoin@cleanspark.com
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D
if Bitcoin's actually The best
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money and it's the thing that people should accumulate and it's the best risk adjusted asset.
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C
I lose zero sleep about whether or
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not that's gonna happen. I just ask the question of when
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C
is literally matrix math that you're running on. Large pieces of the bitcoin miners can absorb that energy.
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D
And in many ways this feels like a second bite at the apple to build a new Internet. Okay. I'm tired about talking about AI. Colin, we talk too much about AI and AI stocks. Let's get back to bitcoin. This is what I'm even here for. We have in the wings Tim Neyer, and I'm going to bring him on up here. Tim, welcome to the show. Okay, just for the audience. I kind of like hit up Tim last minute because this story dropped this morning and I was like, who's the first person to call? Google. Google.
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Google.
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D
Got to find out who's president of the local bitcoin chapter there. And Tim was the first to answer the call. So thank you for coming. Tim, give me a little TLDR on the Illinois Bitcoin Council first. Right.
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C
Thank you. We are a 501C6. We're a trade organization focused on education, advocacy and collaboration. We're trying to paint the state. Illinois. Illinois. The color orange. And we're having some difficulties right now, as you can tell.
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B
Yeah, it looks like Pritzker is, you know, hell bent on painting it red by taxing all of these transactions. Can you give us a TL, Dr. Tim, of what this legislation actually does?
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C
Okay, so it's a 0.2% tax and it's not on holdings. It's on broker business activity for Illinois customers. So it's not on owning crypto, it's not on gains. It's focused on exchanges, custodians, wallet transfer providers.
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Right.
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And the crazy thing about it is it carries a Class 3 felony for unregistered or non compliant brokers.
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D
Whoa. What it is? I. First of all, I didn't know there were different classes of felonies. Yeah, I don't know. Do you know what that means?
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C
Not really. But I do know that they're trying to gain what they think is like $60 million a year from crypto for a budget of $56 billion. So 0.1% of the budget. But they don't even believe. They believe it's going to be Tarver. Tarver's own words. He believes they're is not going to go through. They believe there's going to be litigation. So they're not even expecting any revenue off the first year. So in the nation, no other state taxes digital assets in this way.
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B
And just for more context here, a Class 3 felony includes things like aggravated battery, unlawful use of weapon, forgery, and theft between 300 and $1,000.
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D
Holy.
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B
So, you know, so. Okay, sorry, I just follow up question, Tim.
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C
Yeah.
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B
You said this is targeted towards brokers, but, like, if I'm just buying bitcoin in Illinois, let's say I go to an exchange, I buy it, and then I transfer it out. Are both of those things taxed? Do I pay that tax? Do the custodians and brokers pay that tax?
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C
It would be paid through them. It'd be paid. Okay, so like, my Strike account, you know, strike would be pain, but, you know, there's downstream ripples, of course. But, no, it definitely hits Illinois firms like Strike, DRW Jump, Coin Flip, ATM company, which is funny because just four years ago, Pritzker is on stage saying crypto. He's open for business and gave a $1.7 million state tax credit to keep coin flips headquartered in Chicago.
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D
That.
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C
That's wild.
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D
Okay, so, like, I think the big question is. Well, there's a bunch of big questions. Was this on anybody's radar? Because, look, I'm. I'm familiar with how it's gone in Oklahoma. Like, these. These. These bills are really difficult to stay on top of. And it sounded like this was kind of thrown into, like, the omnibus, like, budget bill, right?
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B
Yeah.
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D
Like, walk this through for me.
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C
So it wasn't legislated. It was inserted about 1600 pages. You know, party line, no consultation. And that's kind of the story itself.
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B
The process of the story.
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It wasn't its own bill. It was buried. Final. Final moments before the vote. No stakeholder consultation. So we met with the Illinois House Republicans back in February for a bitcoin workshop, and nobody heard anything about. Nobody mentioned anything about it. I mean, everybody was blindsided.
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D
And so you mentioned that this could be, like, challenged. I'm kind of curious. I don't expect you to be an expert on the legal process here about, like, how it gets challenged.
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B
Okay, well, is there anything outstanding already? Like, is there already. Is there anything lined up right now? I know it's pretty fresh, but it is fresh.
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C
There's already discussions on how and how. And, you know, how to fight back, basically. But we're still gathering the facts. As of right now, it doesn't seem enforceable either. You can't.
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D
Yeah. Like, how does this. How do you even do this because I know, okay, you're supposed to log and pay your state tax. But like the enforcement is just as important as the, the law itself here.
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C
So it leans on brokers to track who's an Illinois customer, value every bit of activity and report monthly. So for example, like an out of state platform serving a small market, that's a heavy build, some will just geofence Illinois out. So it's kind of opposite of the goal of what they want.
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B
Yeah, you might actually see a kind of bit license X scenario like in New York where just crypto businesses decide we're not going to even go to this jurisdiction because the legislation is just too onerous and for the ones that stay, they're just going to end up. I don't know if they could do this, but I would imagine they would just increase the spreads for Illinois buyers so they can make up the difference. Right?
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C
Yeah. So we have a member here in Illinois, Orange Rising wealth. And I mean they're even part of the Rockford Chamber of Commerce. You know they're going to have to. So basically the clients are going to bear the, that pass through cost. You know it's just going to, so to say it's just for brokers, that's. We all know that's not true.
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D
What's your initial sense on. I mean because Chicago is a huge financial capital, if not New York, it's Chicago financial capital of the US So you have a bunch of bitcoin and broader crypto Digital Asset Companies HQ'd in Chicago, Illinois. Therefore, what is your sense? Do you think any. They're gonna think twice about or figure like figure out how to either challenge this or plan and exit. I'm kind of curious what your, what your take is.
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C
I, I think this is less about crypto policy, if you will and it's kind of like a revenue grab on a group too small to fight back. You know, right now it's us. It's interesting. It's happening right before any Clarity act or any, you know, potential strategic bitcoin reserve. There's always politics being played. So I'm sure there's more to it, but I'm, you know, I'm not inside the mind of them, so.
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B
Sorry, Charlie. Can I, can I hop in?
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D
Yeah, go ahead. Yeah.
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B
Why do you think they're doing this? Do you get the sense that this is politically motivated? Is this just, you know, Pritzker is, has been one of the bigger, never Trumpers, I think on the in within state executives and.
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C
Yeah, yeah.
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B
So what do you think? I mean, is this what. This seems so forced. And like you said, it was kind of a pork barrel type amendment to this, to this.
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C
So if I could kind of, I can't really speak to their intentions right now, but if I look back at when a while back, John Cabello put forth. Representative Cabello, he put forth a strategic bitcoin reserve for Illinois, as you know, many states haven't done. And he even had some bipartisan support until Governor Pritzker got wind of it. And that got shot down. And the, the, the thought is anything that's pro bitcoin is deemed pro Trump. Therefore, in this Governor Pritzker, it's just dead in the water. And that's unfortunate that that game is played. And I've even talked to Democratic legislators who have, you know, agreed with that framing.
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D
So maybe like to try to, you know, think optimistically here because this bitcoin's down, the whole market is down, vibes are down. You got this happening in your home turf. What's like an optimistic scenario for the next few years? I know the Illinois Bitcoin association or Illinois Bitcoin Council has put proposals together. You've gotten like a bill sponsored and out there. What do you, what do you hope to see happen in an optimistic scenario the next few years?
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C
So I've been a Bitcoiner since 2018. It's very grassroots. It's very bottom up. I think we're going to continue that. Seemingly top down is not the solution. For example, the Illinois Bitcoin Council, we're supporting different educational types of, you know, projects going out there. We have the Bitcoin scholarship foundation happening. A man, Andrew Tillman's running that $500 scholarships to underprivileged children and providing education along the way, financial literacy education. We're supporting the Alt Gale Bitcoin Reserve. So Alt Gale Gardens on the south side. Tobias shepherd is trying to get that to where the neighborhood themselves. It's the first community bitcoin reserve. So they're going to store bitcoin time, lock it, and then put forth projects, put forth the gains over the years towards their own projects. So it seems like, you know, bitcoins think globally, act locally. We're just going to have to keep rolling with that and keep building from the bottom up.
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B
I don't really have anything else. I just, I don't really have anything else. I just hope that we see a legitimate legal challenge and that pushed up into, you know, this could, you know, I don't think it'll go to the Supreme Court. I mean, I don't know, legal.
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C
I mean, fact risker has been discussed for running for president. So you know, you might.
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B
I just think the last, I guess the last thing I'll say is like if this sticks, this sets a very unfortunate precedent for the rest of the country. I mean, I'm in Oregon, man. If they get wind to something like this, they'll probably actually try to do a wealth tax on crypto. I mean, bro, you're doomed in Oregon.
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D
I know.
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B
I'm, I'm screwed, man. And I just think it's really unfortunate, especially how politically colored and coded bitcoin has become. The Democrats were already pretty staunchly against a lot of the bitcoin and crypto industry. We saw that with chokepoint 2.0 with Elizabeth Warren's anti crypto army. But it seems like now it's really reached a new level with frankly with the way that the Trump family has embraced it. I'm hesitant to say that it's all their fault. But when the President of the United States is launching shitcoins on the eve of his inauguration, it just makes it really easy to punch down on that.
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C
Right. Yeah, there's always a. I do see a lot of negatives coming from that. But I also am optimistic enough to believe on the other side is going to be more freedom money, more understanding of bitcoin and its values. When you see censorship happen, that's when it's easier to see the solution of bitcoin.
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D
So,
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C
you know, fourth turning vibes, let's go.
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D
Fourth turning vibes, let's go. Tim, thank you so much for hopping on this car, Blanche. I really appreciate, appreciate your time. Best of luck. Would love to come to Illinois and spend bitcoin in your, in your state and not incur that 0.2% tax.
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B
Hey, see if you can get pequods to accept bitcoin.
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C
Yeah, on it.
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D
Okay, thanks Tim.
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C
Thanks. Take care.
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B
Illinois, probably the gastronomic or Chicago, the gastronomic capital of the Midwest. Yeah, beautiful, beautiful restaurants, beautiful city by
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D
the way and beautiful president of the Illinois Bitcoin Council. So yeah, I feel like this is story will probably hit on a few times and touch base on it. Like I want to get like some like bit nomial folks, maybe a strike person or two.
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B
It'd be great to get some of the brokers and exchanges and I also think there will be plenty of supplementary reporting for this or follow on reporting. Excuse me, when we will certainly see legal challenges to this. I would imagine yeah, because I'm not aware of a precedent for this in other forms of finance. Like, could you imagine the uproar if a state signed a bill into law where it's like every single transaction through Charles Schwab or Fidelity had to be taxed?
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D
I mean, well, we already have the de minimis tax, but, like, this would be in addition to that. Okay, we got to keep rolling. We were going to talk about data center construction woes and equitable power in California here shortly. But before that, a word from our sponsor, Luxor.
- [25:48]
B
This episode is brought to you by Luxor's Commander Bitcoin miner management software for enterprise operations. Luxor's Commander gives you real time fleet monitoring, bulk remote commands across your fleet. And Intelligent Miner, which is a profitability engine that runs every five minutes and tests your power settings against live power markets and hash rate markets. Ercot backtest show 10% improved profitability with intelligent mining over binary mining. Commander Pro is $100 per megawatt or a 25 basis point pool fee adder, roughly half the cost of competition. And you can try it for free for 60 days. So go to Luxor Tech Commander if you'd like to get started and learn more. All right, Charlie, before we hop on over to a segment that will get us canceled, let's go ahead and take a look at some reporting coming out of Data Center Dynamics in which they asked the question, are US construction supply chains buckling under the weight of the AI revolution? Now, what's that axiom where if a headline starts with a question, the answer is always Benford's Law?
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D
I think, yes, Benford's Law of headlines.
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B
So that being said, I say that because, not because I think that the source here doesn't make some good points, but because this is a single source raising concerns in this article. I wasn't able to find anything else substantive to, you know, material or to back up what's being said here,
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D
so
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B
take it with a grain of salt. That being said, I think there are some good points in this article. So the TLDR here is that CEO of Rapid Ratings, a firm that does financial health analysis on supply chains, Charlie Minutella. So I'm imagining a very small jar of Nutella talking about data center supply
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D
with my face on it
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B
says that manufacturers and builders are, quote, not in a position to support the increased expectations of them to build these data centers. Part of the reason why I wanted to bring this up, Charlie, is we actually talked about this yesterday. I mentioned that one of the, I think, unspoken risks or threats to the AI capex cycle is the fact that you might actually have a labor shortage. Because how many firms can actually be reliably tapped to build these things? But you also have supply chain kinks that may start rearing their head more in the years to come, especially as more companies rush to build these data centers. And that's something that Munutella here notes. But rapid ratings numbers specifically point to 20% of companies that support data center construction are already at, quote, high risk of bankruptcy. And this is also across non residential construction, utility construction, semiconductor, electronics manufacturing, and electric power and transmission generation. That roughly 20, 30% of those companies are in significant financial distress. Again, single source, take it with a grain of salt. But the reason I bring it up is just to raise the question,
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C
are
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B
these companies actually in a good position to capitalize on the AI capex boom? And I think that when you hear that they're under stress, but you also hear that there's probably more demand for their services than ever, that might not square very well. And that was my first question with this. But the key point I think that he's making is this. That quote, there's definitely kinks in the supply chain when the data centers get built, the full switch on isn't happening, end quote. You know, that seems like a little bit like a shoe salesman trying to tell you that, you know, you need better soles on your shoe even though they're not falling apart. I mean, they, they look at these companies and they assess their financial health. Perhaps he's trying to push their services. But one thing that I think that he does highlight here that is worth mentioning is that supply chain kinks could actually be detrimental to some of these companies. If these data centers are delayed and the construction teams are not getting paid on time, if they're already in financial distress, they could end up going bankrupt. And I think that's probably the most charitable reading of ways in which this could actually be a problem. Before I say more, Charlie, I want to kick it to you for second thoughts.
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D
Yeah. As much as the President ran on a platform to leverage tariffs to go toward China and re industrialize domestically, when all of this specific type of steel I'm looking at, it's like what fine grain steel comes out of like a single factory in like Cleveland or something, and that's what we use to make transformers, like that becomes a domestic industry supply choke point. And another, like, I was reading through this and like, and cross referencing other data points here. Like there's one which is the additional Transformer lead times, like so new transformers. But what I was. I had not really thought about. I think this may be hitting a lot of people like a freight train here, is that you have to consider the existing transformer supply chain and the fact that I think over 50% of transformers in America are past or nearing their full life cycle. And so you have a replacement in addition to new transmission and transformation that has to be produced. So maybe this is. I mean, we've known that the supply chain crunch and the actual like turning the megawatts on crunch has been a barrier, but I feel like that was kind of the narrative four to six months ago. And maybe we're headed into another round of that as the. As the rubber hits the road, as these facilities do actually have to turn online and go from least power to generated power at a data center.
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B
Yeah, I think that the supply chain crunch question has been one that's been looming for a while. And we've seen headlines every now and then. You just highlighted a great one. One of the key choke points here is that lead times for a normal transformer is like more than two years as of 2024, with large transformers anywhere from four to five years. And that was one of my takeaways too, Charlie. This idea that roughly 50% of nation's transformer portfolio needs to be refreshed on top of all of this historic demand with AI data centers is crazy. And we don't make these things in the US and over 80% of transformers into this country. So that is a huge bottleneck if it actually ends up becoming tight enough to create issues. But I think that you'll probably start seeing these issues next year or in 2028, if they do materialize. You know, they cite core weave in this article about them having a delay, I believe, I'm not totally sure because it was hard to verify. I think they were talking about the delay at the Core Scientific site. We actually reported on that, I believe either at the beginning of this year, at the end of last year, and that was actually related to reportedly a transformer fire.
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D
Right.
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B
So that's hard to say that that was, you know, a supply chain issue. I think that was more of an accident on site, from what my understanding of it. But if we do see supply chain kinks show up and actually delay these data centers, I think that you'll start seeing it next year and into 2028 when these data centers, a lot of these, the first wave of the CapEx cycle, when they're scheduled to be energized and come online and start servicing tenants. I want to wrap up with just a quick quote here that just to crystallize this because this is also important.
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D
Quote.
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B
While private credit has come in and offered financing to these companies, the ones, you know, the data center operators and the Neo clouds and the actual LLM providers, a lot of those financing terms are based on milestones and covenants. So while some of these companies are getting capital to get off the ground, everything needs to line up. Otherwise there could be instances where they might lose the company, lose a significant portion of the company or the funding would dry up, which would then cause pressure on these construction companies because they just lost their source of income.
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C
Right.
- [34:18]
B
That's another point they make in this article that all of these backstops and financial guarantees are for the data center providers themselves. Most of them do not flow upstream or, excuse me, downstream to the actual construction firms. And that's something that Minutello notes here that might be necessary for some of these firms going forward if they want to protect against downside during this capex boom. And you've already mentioned Cleveland Cliffs as the sole US producer of grain oriented electrical steel, which is what's needed for these data centers. And that is just one example of the ways in which all of the supply chain risk is concentrated in China. As we've covered on the pod before, they have most of the critical mineral refining capacity. Depending on what the mineral is, it's anywhere from 60 to 90% for all global supply. And so that is a huge concentration risk. So as far as I can understand the arguments here, Minutao is basically saying should we see supply chain kinks play out and then become real disasters for this whole industry, the construction firms will then be hurting as a result. But as far as I can tell from this, it doesn't seem like there's any immediate risk. It's more of if these supply chains break down, we could see a cascade that affects not only the data centers but the contractors as well.
- [35:53]
D
I will say I feel like doing the show every day is just preparing me to, to have a bunch of very obscure information loaded in my head for like family meals whenever. I mean like. Yeah, well, there's an, you know, there's a manufacturing facility in Cleveland that produces the, you know, the only fine grain oriented electric steel which is the entire, you know, supply chain for domestic transformers.
- [36:17]
B
Who.
- [36:18]
D
That's a mouthful. I'm excited to drop that and impress my wife someday. I think we got to keep going. We have one of our, my favorite fun stories about a California electrical grid coming up here. But before that, a word from our sponsor, Lygos.
- [36:44]
B
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- [37:38]
D
All right, so it's June, we made it halfway through without covering like an angled piece on the theme of the month. But here it is. It's power in California. And for context, this is a story from City Journal, which is a conservative think take journal. So while it is fact based, there is an angle here and here is the story. So inside California's gay certification program byline, the state is pressuring utilities to award 633 million in contracts to LGBTQIA plus businesses. So what does this mean? California's publicly owned utility, CPUC is the regulator that oversees privately owned electric, gas, water, telecom and they are pressuring utilities to award 1.5% of procurement. These utilities have to buy, they have to do studies, they got to hire people, they got to, you know, subcontract stuff out. CPUC has been pressuring the privately owned utilities to award 1.5% of procurement to LGBTQIA plus certified businesses which if done if that if they hit their total target amounts at the peak would be 633 million. For context, the California utilities spent collectively over 43 billion on contractors in 2024. And this is part of, you know, multi decade like diversity equity and inclusion initiative that dates back to the 80s for like, mainly like women owned businesses. And there are some takes here and we're going to try to be tactful and toe the line. I'll say it, the Average power price in California is two times that of anywhere else, of the average, two times out of the national average. It's very expensive to do anything in California. Why is that? Is that because they have geological geographic disadvantages? Could it be that they spend their time focusing on these types of initiatives rather than trying to get the power grid? Is their goal to have equally distributed expensive, shitty power to everybody or is their goal to have good power everybody? This is a, this is a, this is a, these are utility companies and a grid that regularly lights the forest on fire and causes forest fires. Colin, I'll throw it to you.
- [40:28]
B
So yeah, just to get out front of it, we have no problem obviously with, you know, LGBTQ businesses providing services to the grid and to utilities. Mandating that these utilities have to spend their money, even if it's a sliver, Even if it's 1.5% on these companies, when the California grid has a host of other problems that are much more pressing, is just patently absurd and it's very unserious. Part of the reason why California is so expensive and to give you all those numbers, the cost of electricity for residents as of March 2026 is 33.35 cents per kilowatt hour, up 3% from 32.48 cents the year prior. Again, it is the single most expensive state in the contiguous United States for electricity. It's behind only Hawaii which is in the middle of the Pacific Ocean and is has no access to any other power other than what it can generate from solar or import through nat gas. Right. So the fact that, that, that, that alone to me says, look, you have so many other problems here that trying to create carve outs for specific businesses based on the business owner's identity to me is almost offensive to the majority in California that faces eye watering power prices. Part of the reason why those power prices are so expensive by the way. California has decommissioned three nuclear power plants since 1963 and they've also prioritized renewable build out while decommissioning natural gas and coal. They have zero coal firepower as of probably a few years ago. But you can see if you go to the eia, they have great data on this. You can see the breakdown for consumption here. Electrical power sector consumption by source, 0% from coal, 50% from natural gas, 0% from petroleum, 34% from renewable and 60, 16.2% from nuclear power. The funny thing about this too, Charlie, is California doesn't even lead the nation in solar. That's Texas of Texas. They produce I think this is 2024. So this is actually outdated. But even in 2024, it was only 15% of the grid. But in terms of trillions of British thermal units, in terms of the actual power Produced, it was 569.5 for Texas versus 402.5 for California. One other amazing note here. Texas is less populous than California. California is the most populous state at nearly 40 million. Texas at 31. But California produces 57% of all of Texas's energy. Texas produced as of the summer of 2024, 168.3 megawatts versus California's 96.8. That is an absurd statistic. Obviously not all of that is going towards residences. But the fact of the matter is that's why data centers and bitcoin miners have been building there, because Texas actually builds generation. California does not build generation. They have been a degrowth sector for energy over the last few decades.
- [44:13]
D
Yeah, and we can see kind of the mecca for data centers. The new, the new Arab data center is obviously Texas, the Northeast corridor, also pretty big. Tennessee, smaller sites, Georgia. But look over here where the cpuc, the California Public Utilities Commission, presides. None. And it's fun. You know, I would say that, like, someone who hates data centers would look at that and be like, that's great. But at the same time, I would ask that person, what do you actually care about? Do you actually care about cheap, affordable energy? Do you care about being able to buy a home and like, save for things that you want? Because you don't get those things in California. California is famous for making those things prohibitively expensive.
- [44:58]
B
So I mean, everything. Gas. I mean, gas in California in some areas was up to $8.50 a gallon recently. Two reasons for that. One, I believe they tax it extremely highly. Two, there's only one refinery in California. There used to be several refineries, which makes a lot of sense because you have the most populous state in the U.S. so there's a massive transportation cost to get it from Middle America, from Texas, from Kansas, from Colorado and Oklahoma. I believe all of those states have refineries. I assume that they're shipping it.
- [45:33]
D
We have refineries. The majority of the majority of the refineries that are actually going to be along the Texas, Louisiana coast.
- [45:40]
B
But yeah, right. So, you know, and then you couple that, like you said, with the high power prices, with the fact that they don't build anything from power plants to houses. I mean, this. I've said this multiple times on the show I think, or maybe just in my private life, California should be the best state in the US They've got all the advantages. It is gorgeous. It is like every climate zone, every. Every recreational activity. They're flush with resources. There's actually a lot of oil and gas still in LA in that area, but they don't drill for it for environmental reasons. It's got beautiful beaches, it's got mountains that you can ski on. It's got the Napa Valley for wine. You can grow a shit ton of stuff in California within the green belt. It is an amazing state and it is absolutely kneecapped by the most deranged policies you could ever imagine.
- [46:35]
D
You know? Yeah, this is California. If they just simply drill for oil and gas.
- [46:40]
B
I mean, honestly, unironically, I believe that. Which is funny because if you talk to people who think that all the regulation, etc. Is good, they'll point, well, we don't want to be like Texas. It's like, oh yeah, you don't want to be like the state that's actually drawing in everyone who's leaving your state. California lost like 200 or 300,000 people from its population, I think, during one of the most recent censuses. Do you know how crazy that is? Do you know how many people have to leave to have a net loss in your population?
- [47:13]
D
Yeah. So if you hadn't already gathered, this is a Promethean show, not a Malthusian show. We, we believe that equity is better distributed when there is net. More providence for all people. If I can make a general statement, we're going to get off the hot mic, we're going to get off the hot seat and if we make it to tomorrow without being canceled, then, then we've. Then we might get a little too overconfident. Big for our bridges. But otherwise, thank you for listening to the show. Like and subscribe. You can find us streaming anywhere. Podcasts are found shortly after show wraps. We are live every weekday, Monday through Friday at 1pm Eastern. Featuring quick hits on AI data centers, Bitcoin, crypto assets, markets and sometimes bitcoin. Even though I said it already again, make sure to like and subscribe to the newsletter.blogspace media and this show is brought to you by CleanSpark. NASDAQ listed ticker CLSK more on CleanSpark tomorrow when we go live at 1pM Eastern. See you all.