A hearing to determine the financial penalty and possible sanctions for the company ordered to shut down its unregulated bitcoin mining facility in Sturgeon County has been delayed for over a year due to the company facing a second investigation, and because the company has been unable to file audited financial statements with the provincial utility regulator.
After receiving multiple noise complaints from residents of Greystone Manor in Sturgeon County through the fall of 2020, an investigation was opened by the Alberta Utilities Commission's (AUC) enforcement staff into a nearby bitcoin mining facility operated by Vancouver-based Link Global Technologies, which changed its' name to Green Block Mining Corp. in 2022.
The AUC is an independent agency mandated by the provincial government to regulate Alberta's utilities sector.
No regulatory approval
In 2021, AUC investigators found that Green Block hadn't acquired regulatory approval for the Sturgeon County facility, which was powered through a natural gas well owned by MAGA Energy; hadn't notified nearby residents or completed a noise assessment; and hadn't completed an environmental impact assessment prior to operating — which lead to the AUC ordering the facility, as well as another owned by Green Block in Kirkwall, Alberta, to shut down in August, 2021.
Following the cease order, the commission was scheduled to take the next step in their enforcement proceeding process — hold an oral hearing between Green Block and the AUC to determine exact penalties and sanctions — in November 2021, but that hearing has been delayed ever since due largely to Green Block being unable to file audited financial statements with the AUC, as well as the AUC completing another investigation into Green Block for a third unregulated facility located in Westlock, Alberta.
In September 2021, CBC reported that Green Block could face a $7.1-million fine for the Sturgeon County and Kirkwall facilities. However, that fine, called a disgorgement penalty, was based on the estimated economic gain Green Block realized through operating the facilities, which was determinable only through un-audited financial statements the company filed with the AUC in the fall of 2021.
The commission's enforcement staff took issue with the un-audited financial statements Green Block filed because the company claimed to have no crypto-mining revenue between December 2020 and May 2021.
"The absence of reported crypto-mining revenues calls into question the completeness of the revenue reported for the six months ended May 31, 2021," enforcement staff wrote in a September 2021 proceeding filing.
Enforcement staff suggested the commission should assign little weight to the interim financial statements, nothing that unless Green Block produces audited financial statements, the proposed disgorgement penalty of $7.1 million should be considered by the AUC as reasonable.
In response, Gavin Fitch, Green Block's legal representative in the proceeding, wrote a letter to the AUC saying that enforcement staff made a "very serious allegation" by claiming the company's financial statements were potentially incomplete, although Fitch did not give an explanation as to why the company had no reported mining revenue during the time period, despite the company reporting $854,962 in mining revenue in 2019 and 2020 combined.
Between Dec. 2020 and May 31, 2022, Green Block's un-audited financial statements say the company generated about $1.5 million through hosting, which is when a company rents a bitcoin mining facility like the one that operated in Sturgeon County to another company to actually mine bitcoin. In many cases the company that rents a facility pays for the energy used to operate the computers, while the company that owns the facility services and maintains the operation.
The Westlock facility and hearing delay
Part of the reason why the hearing to determine the penalties for Green Block's operations in the county and Kirkwall has been substantially delayed is because just three weeks after enforcement staff presented their case to the commission, staff had opened a second investigation into Green Block and another facility the company was operating in Westlock, Alberta.
In an Oct. 29, 2021, letter to the AUC, Fitch requested that the second investigation be included in the original, as it was Green Block's opinion that both investigations were for the same issues, and should be tried in one proceeding.
In response, the AUC agreed, and the final hearing was delayed indefinitely so as to incorporate the second investigation into the first, and to allow enforcement staff and Green Block to each file written evidence submissions regarding the Westlock facility.
As part of AUC enforcement proceedings, the commission takes into consideration submissions from the relevant parties before issuing what's called a phase one ruling, which is then used as part of the hearing when fines and sanctions are imposed.
On May 25, 2022 the AUC released the phase one ruling in the case of Green Block's Westlock facility, which said Green Block contravened the Hydro and Electric Energy Act by operating the facility without regulatory approval, just as the company did with their Sturgeon and Kirkwall facilities.
"Green Block acknowledged that it did not conduct a noise impact assessment before starting up the Westlock Power Plant, nor did it take steps to determine the environmental effects of the Westlock Power Plant before operating," the ruling says adding the company didn’t take any steps to ensure the Westlock Power Plant was in regulatory compliance.
Following the ruling, the AUC tentatively scheduled a hearing for Sept. 21-23, 2022, with the provision that Green Block file audited financial statements beforehand so that enforcement staff can recommend an updated disgorgement penalty for the AUC's consideration. Green Block was given a deadline of July 18, 2022 to file the financial statements.
But Fitch requested an extension to file the audited financial statements, which said the company’s auditors had finished the work but a third party company was now auditing Green Block’s power consumption and cryptocurrency wallets.
The ACU approved the original extension, and a Fitch went on to request multiple other extensions for filing financial documents to the AUC. An extension in August 2022 was requested as the audit of Green Blocks’ crypto-mining activity was nearly complete, but they had yet to audit former Green Block CEO Stephen Jenkins' cryptocurrency 'wallet'.
Put simply, a cryptocurrency wallet can be thought of as a digital software that stores and protectors the owner's cryptocurrency.
"Mr. Jenkins is, for the most part, cooperating with this audit but perhaps not surprisingly does not share Green Block’s sense of urgency in relation to the completion of the audit," Fitch wrote.
The AUC said it would reschedule a hearing for the company after the audited financial statements have been submitted.
In an email to The Gazette on Jan. 16, Fitch said the company was expecting the statements "shortly."
"Green Block expects to receive its audited financial statements shortly, following which the AUC proceeding will re-activate," Fitch said.
In turn, AUC spokesperson Geoff Scotton told The Gazette an update from Green Block had not been received since Nov. 7 last year.
"However, according to the commission’s October 6, 2022 ruling ... Green Block is under an ongoing obligation to keep the commission updated about the status of the auditing of the financials," Scotton said.
On Jan. 20, the AUC sent a letter to Green Block requesting an update on the audited financial statements, and implemented a requirement for Green Block to provide an update once a month, regardless of whether or not the situation has changed.
Fitch responded to the AUC in a letter dated Jan. 25 saying that Green Block had no updates to provide, and that the auditors had recently told the company they "need a couple more weeks."
Through the commission's online filing system The Gazette accessed all of the files in the enforcement proceeding, which includes letters and reports sent by the AUC, enforcement staff, and Green Block.
According to the Government of Canada, cryptocurrency is a type of virtual asset that is protected using cryptography. It typically uses a system called a blockchain to record and keep a history of transactions. Cryptocurrencies like Bitcoin are independent, meaning they do not rely on governments, central banks, or other central authorities for backing. cryptocurrencies can be used for a wide range of activities, like buying goods, paying bills, or investing.
Bitcoin mining is the process by which new bitcoins are entered into circulation and it is also the way the network confirms new transactions and is a critical component of the blockchain ledger's maintenance and development. "Mining" is performed using sophisticated hardware that solves an extremely complex computational math problem, which requires a lot of energy. The first computer to find the solution to the problem receives the next block of bitcoins and the process begins again.
