Link to Decision Summarized

Enforcement – Markets

In this decision, the AUC considered the application filed by AUC Enforcement staff alleging that Link Global Technologies Inc. (“Link Global”) has been operating a 5-megawatt (“MW”) in Sturgeon County (the “Sturgeon Plant”) and a 3.5-MW power plant near Kirkwall (the “Kirkwall Plant”) without obtaining approval from the AUC as required under Sections 11 and 13 of the Hydro and Electric Energy Act (“HEEA”) and Rule 007 Applications for Power Plants, Substations, Transmission Lines, Industrial System Designations and Hydro Developments. Both power plants supplied electric energy to digital currency processing facilities located on each of the sites. There was also an alleged contravention regarding non-compliance with nighttime permissible sound levels.

Enforcement staff argued that Link Global failed to meet and continues not to meet the applicable conditions for an exemption from the requirement to obtain permission to operate a power plant. As a result, Enforcement staff alleged that Link Global had contravened the regulatory scheme.

Further, as Link Global did not generate electric energy solely for its own-use, Enforcement staff alleged that Link Global acted in contravention of the Fair, Efficient and Open Competition Regulation (“FEOC Regulation”), given that it did not offer all electric energy into the power pool.

In this decision, the AUC accepted the partial settlement reached by Link Global and the Enforcement staff on some of the alleged contraventions and sanctions. The AUC further considered the outstanding issues and found that the partial settlement fell within a range of acceptable outcomes given the circumstances. The AUC accepted the partial settlement, including the following agreed upon contraventions and range of sanctions:

(i)         Contravention 1: Unaware of the statutory and regulatory requirements, the power plant owned and operated by Link Global at the Sturgeon site has been in operation since August 27, 2020, without approval from the AUC, contrary to the HEEA and Rule 007.

(ii)      Contravention 2: The power plant operations at the Sturgeon site have exceeded, prior to Link Global ceasing nighttime operations in response to AUC Order 26379-D01-2021, the permissible sound levels specified in Rule 012.

(iii)     Contravention 3: Unaware of the statutory and regulatory requirements, the power plant owned and operated by Link Global at the Kirkwall site has been in operation since June 26, 2020, without approval from the AUC, contrary to the HEEA and Rule 007.

(iv)     An administrative penalty for contraventions 1-3 collectively, in the range of $50,000 to $75,000 with a reduction of up to 50 per cent, with no additional administrative penalty regardless of the AUC’s determination on the own-use issue.

The outstanding issues were whether Link Global generated electricity for its own-use at all relevant times, whether Link Global violated the enforcement order, and how Link Global may achieve compliance going forward. On those issues the AUC found as follows:

(i)       Link Global failed to meet the definition of own-use for the purposes of obtaining exemption from approval under the HEEA until March 8, 2021, when it acquired ownership of the digital currency processing facilities.

(ii)      Link Global met the definition of own-use for the purposes of exemption from the Electric Utilities Act (“EUA”) and the FEOC Regulation from the commencement of operations at the Sturgeon and Kirkwall plants to present, regardless of its March 8, 2021 acquisition of the digital currency processing facilities, because Section 2(3) of the EUA specifically contemplates and allows the original arrangement between Link Global and Block One Technology Inc.

(iii)     Regardless of the timing of ceasing operations at the Sturgeon Plant, Link Global contravened the AUC’s enforcement order by failing to communicate the Sturgeon Plant’s status to the AUC in a reasonable timeframe.

(iv)     Link Global cannot operate the Sturgeon Plant going forward without applying to the AUC for approval, as it does not meet all the exemption criteria of Rule 007. As the plant is currently operating without approval, the AUC orders Link Global to shut down the Sturgeon Plant.

(v)      The Kirkwall plant does not currently meet the “no adverse effect on the environment” criterion in Rule 007. While the exceedance of the emissions limit appears to be negligible based on the operating parameters described by Link Global, Link Global has not provided the AUC with either approval under the Environmental Protection and Enhancement Act or confirmation from Alberta Environment and Parks that approval is not required for the plant. As the plant is currently operating without approval or without an environmental exemption, the AUC orders Link Global to shut down the Kirkwall plant.

Should the AUC Accept the Partial Settlement?

In determining whether to accept a settlement in the context of this enforcement proceeding, the AUC took guidance from the principles developed in the criminal law context with respect to sentencing and noted that the principles are described in Decision 3110-D03-2015. These principles and applicable jurisprudence clarify that the question is not whether the AUC would have issued the same decision. Rather, the question is whether the partial settlement is reasonable and falls within a range of acceptable outcomes.

The AUC considered that the nature of the harm suffered because of Link Global’s contraventions was primarily in noise disturbances suffered by residents in the areas of the power plants and was transitory and limited in temporal scope.

Having considered the nature of the harm, the administrative penalties proposed in the settlement, and applicable guidance from Rule 013, criminal law jurisprudence, and previous decisions, the AUC considered that the partial settlement [contraventions (i) to (iii) above, together with the administrative penalty set out at (iv)] falls within a range of acceptable outcomes and accepts the partial settlement.

Issues Outstanding from the Partial Settlement

The AUC considered areas and issues not agreed upon by the parties in the partial settlement.

Do Link Global’s Operations Fall Within the Definition of “Own-Use”?

Pursuant to Section 11 of the HEEA, no person may construct and operate a power plant without AUC approval. However, Section 13 provides that Section 11 does not apply if the generated energy is solely for the person’s own-use. Rule 007 sets out that a person who generates electricity for their own-use must still meet exemption criteria to operate the plant without express permission from the AUC. Neither the Kirkwall nor the Sturgeon Plant is connected to the Alberta Interconnected Electrical System, and the energy is consumed on site. The issue is whether the consumption of the electric energy by the currency (bitcoin) mining equipment originally owned by Block One meets the “own-use” definition for the purposes of the HEEA and Rule 007.

Enforcement staff argued that the original arrangement between Link Global and Block One, which included a section specifying that the parties are independent contractors to each other, whereby Link Global produced and sold electric energy to Block One under the master service agreement did not fall within the meaning of Section 13 of the HEEA. Enforcement staff submitted that Link Global was a person generating power not solely for its own-use as is defined in the HEEA.

The AUC noted that “person” is defined in the HEEA and the Interpretation Act. Neither definition includes a partnership or joint venture. In Decision 2008-121, the AUC discussed and found that the legislature had chosen not to include partnerships in the definition of “person” in the HEEA. The AUC found no reason to depart from the finding here. Accordingly, until the relationship between Link Global and Block One changed under an arrangement agreed to on March 8, 2021 (the “March 8 agreement”), Link Global’s operations did not fall within the own-use exemption in Section 13 of the HEEA.

The March 8 agreement provided for the transfer of ownership of the digital processing facilities at both sites from Block One to Link Global. The AUC reviewed the March 8 agreement and determined that it resulted only in the transfer of ownership of the facilities, the nature of the facilities did not change. As of the March 8 agreement, Link Global has been “a person generating or proposing to generate electric energy solely for the person’s “own-use”” at both sites.

The AUC noted that the period during which Link Global acted in contravention to the HEEA is covered by the already agreed upon contraventions 1 and 3. While the AUC accepted the agreement regarding no additional administrative penalty, the AUC noted that this would not preclude its consideration of whether to require economic disgorgement from Link Global as a result of any of the contraventions, as the parties did not agree on that point.

Own-Use for the Purposes of the EUA

Section 2(1)(b) of the EUA creates an exemption from the application of the EUA itself, which establishes the duties and obligations of utilities and the Alberta Electric System Operator to provide service to customers in the context of a deregulated electricity market, and includes regulations governing the conduct of participants in that market.

The AUC found that sections 2(1)(b) and 2(3) of the EUA apply directly to the operations of Link Global before March 8, 2021, as Section 2(3) states that exemption of Subsection (1)(b) of the EUA applies whether the owner or tenant is the owner of the generating unit producing the electric energy. The AUC was satisfied that the requirements of the EUA Section 2(1) exemption are met by the operations prior to March 8. After March 8, the generating activity falls directly under Section 2(1)(b).

Because the AUC found that the Sturgeon and Kirkwall plants met the own-use criterion for both the purposes of HEEA and the EUA after March 8, 2021, the determining factor for whether Link Global may operate under an exemption on an ongoing basis is whether the Sturgeon and Kirkwall plants meet the remaining criteria in Section 1.4.3 of Rule 007.

Did Link Global Violate the Enforcement Order?

The AUC issued enforcement order 26379-D01-2021 on March 19, 2021. This Order required Link Global to immediately and in a safe manner cease operation of the [Sturgeon] power plant during the nighttime period defined by Rule 012 until the AUC orders otherwise; and to file with the AUC as soon as reasonably practicable a letter confirming that operations have been ceased during the nighttime period.

In dispute was whether the shutdown and communication of such by Link Global were enough to comply with the enforcement order. The AUC was satisfied that Link Global made efforts to shut down the Sturgeon Plant between March 19 and March 24, with a full shut down on March 25, 2021, during the required nighttime period. However, the AUC found that the efforts made by Link Global, in combination with the lack of correspondence with the AUC during that period, were not enough to comply with the enforcement order.

The AUC’s order included some flexibility on the timing of the shut down, by noting that the shut down occur “immediately and in a safe manner.” Link Global’s gradual shutdown was due to fuel being supplied by MAGA’s operations onsite. However, the AUC found that Link Global failed to take basic action to inform the AUC of its activities, despite multiple directions. Unnecessary time and resources were expended by the AUC while attempting to retrieve information on the status of the facility.

Link Global did not file a letter confirming that operations were shut down until April 8, 2021, which was 21 days after the AUC issued the enforcement order. While there was some delay in Link Global obtaining representation, Link Global had multiple opportunities to file a confirmation of the shut down with the AUC. The AUC did not consider 21 days to be within the meaning of “as soon as reasonably practicable” in the enforcement order. Accordingly, the AUC found that Link Global was in contravention of Order 26739-D01-2021 from March 23 to April 8, 2021.

Can Link Global Operate the Sturgeon and Kirkwall Plants Under an Exemption Going Forward?

The partial settlement agreement of the parties included provisions that the Sturgeon Plant should be allowed to recommence nighttime operation subject to conditions, and to do so, Link Global stated that it would submit a “compliance plan” to the AUC. However, Enforcement staff agreed to this requested relief “provided that the AUC issues an approval to operate.” Based on clarifying submissions, the AUC considered that the parties did not agree to any requested relief in the partial settlement.

The AUC considered whether the Sturgeon and Kirkwall plants meet the remaining criteria in Section 1.4.3 of Rule 007 and therefore may operate under an exemption going forward, failing which, they must shut down pending an application to the AUC for approval to operate.

Sturgeon Plant

a)     Is any person directly and adversely affected?

The noise complaint that initiated the Enforcement staff’s investigation was made by members of the Greystone Manor Residents Association, none of which were consulted with respect to potential concerns before the Sturgeon Plant began operating.

The AUC noted the importance of participant involvement programs to address and resolve possible concerns raised by people whose rights may be directly and adversely affected. Link Global suggested that the Sturgeon Plant complies with Rule 012 as the plant no longer operates with noise levels exceeding the limits of Rule 012. Link Global relied on the record of this enforcement proceeding to argue that there was no evidence of any other “externality” associated with the Sturgeon Plant that could give rise to direct and adverse effects on stakeholders. The AUC found that it is not enough to substitute an enforcement proceeding for an approval process in which stakeholders would have an opportunity to be informed about a proposed development and voice their concerns to the proponent and, if those concerns remain unresolved, to the AUC. The Sturgeon Plant may have direct and adverse effects on a person and does not meet this exemption criterion.

b)     Is there an adverse effect on the environment?

Regarding the potential for an adverse effect on the environment, the AUC considered two main concerns. First, the generators used at the Sturgeon Plant slightly exceed the limits established in the Alberta Air Emission Standards for Electricity Generation and the Alberta Air Emission Guidelines for Electricity Generation. Second, the Sturgeon Plant is operating without approval under the Environmental Protection and Enhancement Act (“EPEA”).

Regarding the first issue, the AUC acknowledged Link Global’s assertion that the rated NOx emissions from the generators used are higher than the actual emissions. This is because the ratings assume the generators are used at 100 per cent capacity. However, Link Global indicated that the generators optimally run at 80 to 93 per cent capacity. The rated emissions are 0.675 kilograms/megawatt-hour, slightly above the applicable emission limit of 0.6 kilograms/megawatt-hour.

The AUC found that an analogy to decisions 2009-276 and Decision 2010-037, in which the AUC approved power plants that exceeded the air emission limit, was not persuasive. However, the AUC acknowledged that the generators used by Link Global only slightly exceed the NOx emission limit when operated at full capacity and that the generators used by Link Global for the specific purpose at the Sturgeon site are expected to be operated at a reduced capacity during optimal operation. The AUC considered that the adverse effect on the environment associated with the emissions from the generators is likely to be negligible if Link Global operates in the low NOx emission configuration and at reduced capacity.

Regarding the second issue, the EPEA prohibits any person from commencing or continuing an activity that requires approval under the Activities Designation Regulation (“ASD”). The ASD required approval for any “power plant,” defined as a “plant that produces steam or thermal electrical power and has a rated production output of greater than one megawatt under peak load, subject to limited exceptions”. The Sturgeon Plant falls within this definition.

Notwithstanding the AUC’s finding regarding the generator emissions, the AUC refers to provincial standards and other approvals issued by the relevant regulators when assessing the environmental impacts of proposed facilities as part of its overall public interest mandate. The EPEA, in combination with the ASD, indicates that regardless of the generators’ NOx emissions, Link Global should have sought approval or confirmation that approval is not required from Alberta Environment and Parks (“AEP”). Without this confirmation, the AUC cannot find that the Sturgeon Plant meets this exemption criterion.

As a result, the AUC found that the Sturgeon Plant is not eligible for an exemption and was found to be operating without approval from the AUC at the time of this decision. Accordingly, Link Global was ordered to:

• immediately and in a safe manner cease operation of the Sturgeon Plant;

• file with the AUC a letter confirming the status of its efforts to cease operations at the Sturgeon Plant within three days of the release of this decision; and

• file with the AUC a letter confirming that operations have been ceased within seven days of the release of this decision.

Kirkwall Plant

As a result of the Kirkwall plant’s isolated location and because no complaints have been made by landowners or other stakeholders, the AUC found that no person appears to be directly and adversely affected by the operation of the Kirkwall plant.

There was no evidence suggesting that the Kirkwall plant failed to operate in compliance with Rule 012. The AUC noted that Link Global had not commissioned a comprehensive sound level survey at the Kirkwall plant. Without this survey, the risk that the plant meets the exemption criteria lies with Link Global. In the case of a complaint arising or the AUC becoming concerned with the sound levels at the Kirkwall plant, Link Global may be asked to demonstrate that it meets applicable Rule 012 permissible sound levels.

The Kirkwall plant consists of several of the same gas-powered generators used at the Sturgeon Plant. The AUC had the same issues regarding adverse effects on the environment with regards to the Kirkwall plant as it did regarding the Sturgeon Plant. The AUC came to the same conclusions in both instances. Accordingly, while the adverse effects may be negligible, that AUC could not find that the Kirkwall plant meets this exemption criterion without a confirmation from AEP.

As a result, the Kirkwall plant is not eligible for an exemption and is currently operating without approval from the AUC. Link Global was ordered to:

• immediately and in a safe manner cease operation of the Kirkwall plant;

• file with the AUC a letter confirming the status of its efforts to cease operations at the Kirkwall plant within three days of the release of this decision; and

• file with the AUC a letter confirming that operations have been ceased within seven days of the release of this decision.

Remedy for the Contraventions Found in this Decision

In this decision, the AUC only made findings regarding whether the alleged contraventions have been proven. Only in the second phase will the AUC determine appropriate remedies for the alleged misconduct. However, the AUC accepted the partial settlement and the inclusion of:

• The agreed upon administrative penalty range for contraventions 1 to 3.

• The potential reduction of the penalty by up to 50 per cent in consideration of Link Global’s admission of contraventions 1 to 3 and recognition that the partial settlement has reduced the need for a protracted hearing.

• The lack of an additional administrative penalty for the own-use violation under the HEEA.

The AUC will begin the second phase of this proceeding to consider specific sanctions to be imposed because of its contraventions of the HEEA and Rule 007, considering its acceptance of the partial settlement.