Calgary

$7M fine proposed for Alberta bitcoin mine that set up power plant without permission

The Alberta Utilties Commission's enforcement team has proposed a more than $7.1-million penalty for a bitcoin mining power plant that set up shop without permission at two sites in the province. 

Alberta Utilities Commission will weigh arguments at a hearing next month

Neighbours complained about this bitcoin mining operation, which is run off generators powered by a natural gas well, to the Alberta Utilities Commission. Now, the company behind it could face millions of dollars in penalties. (David Bajer/CBC)

Alberta's provincial utilities commission has proposed a more than $7.1-million penalty for a bitcoin mining power plant that set up shop without permission at two sites in the province. 

Vancouver-based Link Global set up four 1.25 MW gas generators at a site in Sturgeon County last year, about 10 kilometres from the northwest outskirts of Edmonton.

The generators drew power from a dormant natural gas well (owned by Calgary-based company MAGA Energy) to run computers that mine digital currency.

The company did so without notifying neighbours, the county, or the Alberta Utilities Commission — which allows power plants to be set up without approval if they meet several conditions in advance, including proving the plant has no adverse effects on people or the environment.

It set up a second site near Kirkwall in Special Area 3, without meeting AUC conditions, and one in Westlock that was compliant with the rules.

The operation was flagged to the AUC when neighbours in Sturgeon County complained about the noise of the plant's generators. Once a complaint is investigated, the AUC's enforcement team puts together a case, which is reviewed by the AUC commission panel. 

According to AUC's enforcement team, the Sturgeon plant operated for 364 days and the Kirkwall plant for 426 days without approval. 

The company is relocating the Sturgeon plant north, which prevents further disruptions for the plant's neighbours but has resulted in the loss of jobs at the site. It has filed paperwork to resume operations near Kirkwall.

The AUC's enforcement staff have argued the company should pay an economic disgorgement of nearly $2 million for what it says were the economic gains from generating electricity, and more than $5 million for the economic gains from mining bitcoin, along with two other potential penalties totalling of $81,000.

Stephen Jenkins, the company's CEO, said in an email that his team is working to file a submission in response and at that point more details can be provided.

Jenkins said the company is currently working to bring three new 10 MW cryptocurrency mining facilities online in western Alberta, and that once they go through the proper regulatory channels and finish the process of receiving feedback from neighbours, the sites will hopefully be brought online later this year. 

On Thursday, after this article was published, Jenkins issued a statement. 

"We have acknowledged we made some mistakes and have worked hard to rectify those; however, we have followed the orders of AUC since being notified of issues in early 2021. Our business works to respect the laws, the people and the environment, and we believe that our submission to the AUC will make this apparent," he said. 

Only 2nd penalty like this in AUC history

Riley Georgsen, with the AUC, said disgorgement penalties like these are intended to act as a deterrence — which is why they are based on a company's proceeds — but that they're uncommon. 

"Disgorgement penalties are not common. This is only the second time the AUC has issued a penalty of this type," said Riley

The enforcement team said Link Global hasn't produced evidence of the revenue the plants generated between March 8 and Aug. 26, 2021, when the plants shut down after being ordered to do so by the AUC.

Enforcement investigators instead estimated the plants' earnings based on news releases that stated the company's bitcoin mining capacity, as well as CBC's reporting on that publicly available information. 

It calculated the profit based on the site's hours of operations and the daily closing price for bitcoin (which can fluctuate largely in value). 

A mysterious noise frustrating an affluent Alberta community sparked the discovery of a secretly set up bitcoin-mining operation. CBC Calgary’s Sarah Rieger explains.

"Link Global received a significant economic benefit by immediately commencing operations at both power plants without taking any of the measures required to receive approval from the Commission or to qualify for an exemption," the enforcement team said in its submission, filed Sept. 24. 

"Operating the Sturgeon plant without approval resulted in direct harm to [nearby] residents," staff added, explaining that residents had complained of lack of sleep due to the persistent noise from the plant. 

"Link Global's willful disregard for the existence of regulatory requirements prior to commencing operations and its persistent operation in contravention … heightens the seriousness of the contraventions. Such conduct undermines the integrity and efficacy of the regulatory framework," the enforcement staff argued. 

'Serious allegation'

The enforcement staff also submitted that they don't believe the financial statements Link Global has issued publicly are a reliable source of the company's revenue because despite adding new bitcoin mining machines the company reported no crypto-mining revenue during the six month period ending May 31 of this year, among other inconsistencies. 

Link Global's legal team said in a letter, filed in response to the AUC enforcement staff's submission on Monday, that it appears as if the enforcement team is suggesting the company issued misleading financial statements — which it said is a "very serious allegation." 

Further, the company's lawyer said it needs until Oct. 8 to file a response, especially given that the penalty would "constitute a 'fatal blow'" to Link Global. 

Link Global has said it wasn't aware of the regulatory requirements — but enforcement staff argue that ignorance to the rules should not bear on whether someone is penalized for operating outside of them. 

"Link has followed the orders issued by the AUC and believes that what enforcement staff is proposing is punitive … I apologize to our shareholders who do not deserve this. We will work tirelessly to ensure the outcome is positive," Jenkins said in a release later on Thursday.

A hearing on whether the disgorgement is warranted, and if so, what it will cost, was set for Oct. 14.

On Thursday, the AUC said it had considered the company's request for more time to respond and has postponed the hearing until a yet-to-be-decided date in November. 

ABOUT THE AUTHOR

Sarah Rieger

Former CBC digital reporter

Sarah Rieger worked with the digital team at CBC Calgary from 2017 to 2021. She previously worked at HuffPost Canada.

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