On Episode 18:Crypto Mining in Alberta – Mark Fancourt-Smith and Alix Stoicheff speak with Shailaz Dhalla and Lewis Manning about the AUC's rules and regulations around the use and production of electric energy and how that will affect Bitcoin mining machines and processors hosted in Alberta.
On Episode 18:Crypto Mining in Alberta – Mark Fancourt-Smith and Alix Stoicheff speak with Shailaz Dhalla and Lewis Manning about the AUC's rules and regulations around the use and production of electric energy and how that will affect Bitcoin mining machines and processors hosted in Alberta.
Mark Fancourt-Smith 00:08
Welcome to LawsonInsight. I'm Mark Fancourt-Smith, I use the pronouns he and him. I'm a partner in Lawson Lundell’s Vancouver office, practicing in the firm's Dispute Resolution group.
Alix Stoicheff 00:18
And I'm Alixandra Stoicheff and I use the pronouns she/her. I am an associate in the firm's Calgary office and I practice in the Dispute Resolution Group as well as the Regulatory Group. Thank you for joining us on our podcast brought to you by Lawson Lundell. On this episode, we'll be speaking with Shailaz Dhalla and Lewis Manning about the AUC's rules and regulations around the use and production of electric energy and how that will affect Bitcoin mining machines and processors that are hosted here in Alberta.
Mark Fancourt-Smith 00:42
Shai is a partner based in our Calgary office and practices regulatory law with a focus on energy, environmental, public utility and indigenous law matters. And Lewis is senior counsel also based in our Calgary office, and his practice focuses on regulatory, administrative law, energy matters involving both electricity and the oil and gas sectors. Shai and Lewis it's great to see you It's been a long time in lockdown. And thanks so much for coming to the podcast.
Shailaz Dhalla 01:07
Thanks for having us.
Alix Stoicheff 01:08
So the use of electricity for Bitcoin mining has been getting a lot of buzz in the news lately. And so we wanted to have the two of you, our resident experts on the issue, come on to the podcast to chat a little bit about how energy regulators in this province are approaching this relatively new area. And so my first question is really a general one but how does Bitcoin mining end up before energy regulators in Alberta?
Lewis Manning 01:30
Alix, that's a great question. You know, I don't profess to know or understand what Bitcoin actually is; but I'm very able to tell you why the Alberta Utilities Commission has an interest in at all has to do with electricity. In Alberta, as elsewhere, Bitcoin miners need to consume a fair bit of energy in order to mine for Bitcoin. That leads us to how we regulate the use of electricity, and more particularly how we regulate people's ability to build, operate and own generation plant in Alberta. Some Bitcoin miners are coming to Alberta because it is a deregulated generation jurisdiction. And on a relative basis, the cost of producing electricity is somewhat less expensive than other jurisdictions. And so the regulator has an interest in making sure any generation that's built is done so in accordance with its rules. The neat part about Bitcoin mining in Alberta is that if you are planning to use generation under 10 megawatts for your own use on a site that you control, you can be exempt from some or all of the regulatory requirements that the AUC imposes on generation owners. So that's made it quite a unique and interesting market. Some have called it the wild wild west, we'll have to wait and see how that turns out.
Mark Fancourt-Smith 03:10
So in terms of navigating the Wild West, or being aware of what regulatory requirements there are, or even how to bring oneself under some of these exemptions, what are the requirements that a Bitcoin mining company who is thinking of generating their own electricity should be aware about?
Shailaz Dhalla 03:29
As Lewis mentioned, the regulatory tribunal that issues electricity and utility related approvals here in Alberta is the Alberta Utilities Commission. Now at a high level in order to construct connect or operate a power plant here in Alberta. To power any operation including a cryptocurrency mining operation, you require an application to the AUC, and that's required pursuant to a piece of legislation called the Hydro and Electric Energy Act. The requirements to file an application applies regardless of the generation source so it can be for a natural gas, plant, wind, solar, or a hydro plant. The requirements associated with filing an application are all outlined in the AUC’s rules in particular AUC rule seven, and all of the information that you need to file an application is available through the Commission's website, and then there's actually a form letter that you can fill out. So as Lewis mentioned, the Hydro and Electric Energy Act does allow for an exemption for power generation facilities that have a nameplate capacity under 10 megawatts. And what an exemption means is that you don't have to file an application and this can be attractive for operators that want to set up shop relatively quickly, and want to avoid any procedural steps that are often associated with filing a full application. And a full application can require public notice and even a potential regulatory hearing. The exemption requirements that an applicant has to fulfill in order to qualify for an exemption and there's about five of them. So the first of these, as I mentioned, is having a capacity under 10 megawatts. The second is that the electric energy must be for the operator's own use. So whether you meet this own use requirement, it can often hinge on the corporate or the business arrangement that's in place for the Bitcoin mining activities, and in particular, who owns the digital processing facilities. The third requirement is that no person is directly adversely affected. The AUC here has a public interest mandate to ensure that operations that go ahead here in the province, are in the public interest, and they want to make sure that there's no stakeholders or nearby landowners that might negatively be impacted by the presence of a facility. The fourth requirement is that the power plant be compliant with noise related rules. So in the context of a power generation plant, often, the issue that land owners that are located near the plant will have is a noise related issue. They're worried that the plant is going to be too noisy. And so the AUC has a rule that outlines what the daytime and nighttime permissible sound levels are. And the AUC wants to ensure that in order to be exempt, you meet the requirements under Rule 12. And finally, the AUC wants to make sure that there's no adverse effects on the environment. And so in that respect, you have to ensure that all environmental legislation is complied with. Now our job is legal counsel, is to ensure that operators will either pursuing a full application or potentially considering exemption that whatever route, they do decide to take that they are compliant with the AUC's requirements.
Mark Fancourt-Smith 06:40
I understand there was a very recent decision in this very area from the Alberta Utilities Commission, and addressing some of the issues you've just mentioned, such as own use, wasn't there.
Shailaz Dhalla 06:50
Yes, that's right Mark. There was. There's a recent decision from August of this year, it's called the Link Global decision. And that one actually directly dealt with a Bitcoin mining operation, they were operating under an exemption and they didn't meet the exemption criteria that I just went through. So in essence, that decision Link Global was operating two plants. One was a 5 megawatt plant one was a 3.5 megawatt plant and they were in the Kirkwall in Sturgeon areas. Both plants were natural gas plants. Now, while the Kirkwall plant was sort of in a remote area, so landowner concerns wasn't a big issue. The Sturgeon plant, about half a kilometer away, there was a row of houses called Graystone Manor. And the reason this came to the Commission's attention was that residents of this Graystone Manor area complained to the commission about the noise that was being generated from this plant. And when the commission receives the noise related complaint, what they'll do is they have an separate group of people that will go out and investigate the issue, the staff of the AUC, when they investigated and they came forward with a number of contraventions that they put before a hearing panel. One of the central issues that came out of that decision was whether a Bitcoin mining operation and specifically the sale of electric energy to a separate third party or to these Bitcoin miners, constituted own use as required under the exemption criteria. And the commission in that case, determine that the own use criteria was not satisfied, and that the same person or the same entity was required to own the generation units and also the digital processing facilities. So the corporate structure or the business arrangement that's in place can greatly impact whether you meet the criteria or not. In that case, they did not and they faced a compliance issue and were issued an administrative penalty.
Alix Stoicheff 08:52
And Shai, if we sort of put ourselves in the shoes of cryptocurrency mining company that is looking to set up shop in Alberta? What are some of the key takeaways that they should take from that decision?
Shailaz Dhalla 09:03
Well, I think the biggest takeaway, or the largest takeaway is that the Commission has a clear expectation that operators that are looking to set up shop here in Alberta, they should understand the regulatory framework in which the utility sector and electricity sector operates. And they need to have a solid understanding of what the Commission's approval requirements are, you know, in the Link Global decision, the commission specifically remarked that, you know, they don't take these situations lightly. You know, where an entity is operating without familiarity of the jurisdiction and the regulatory requirements, the commission is going to take that very seriously, especially where there's the potential that nearby land owners or the environment can be impacted. Now, from our perspective, there's numerous ways that a company can ensure compliance and in fact even work together with the AUC and ensuring that they are proceeding in accordance with regulatory rules and requirements. They don't want to stand in the way of development. But they want to ensure that there is adequate oversight, I would suggest that working proactively with the commission being transparent with the commission that can actually be very advantageous to an operator. The other thing is that cryptocurrency operations in Alberta, they're very new, like the new industry. So there's a learning curve here for everyone and the legislative framework that they use he operates in Well, it's largely catered towards the traditional power generation facilities that we've seen. And so as time goes on, there may be new amendments to existing legislation that accommodates this new industry. But until then, you know, we're operating within the bounds of the current framework, and having legal counsel to assist you in navigating that regulatory world, it can be very helpful.
Mark Fancourt-Smith 10:47
Just in terms of the learning curve you spoke about, and in terms of familiarity with Bitcoin anyway, Lewis, there's a great little podcast called LawsonInsight. You may have heard of them, they did an episode recently on cryptocurrency with Scott Lucyk, of our Vancouver office. Charming hosts of the podcast by the way, so I commend that to you.
Alix Stoicheff 11:07
Not to plug our podcast too much on our own podcast.
Mark Fancourt-Smith 11:12
So we've talked about the takeaway from the companies. But Lewis, maybe I can put it to you this way. What's the moral of the story from what we've seen in this recent decision?
Lewis Manning 11:20
Yeah, well, it's really interesting question. We're charting new territory, in so far as we're dealing with Bitcoin mining operations, trying to take advantage of the under 10 megawatt exemption for the need to apply to the regulator for approval to build own and operate a power plant in Alberta. So perhaps the best takeaway we can give to anybody who's interested in this area is make sure you know what the framework is and what the requirements are, in order to be eligible for the exemption. And understand that if you decide to proceed, and build your own plant, without letting anybody know, you will run the risk that someone will come along and complain for one reason or another. And you will have to go before the Alberta Utilities Commission, and justify every action you've taken all along the way. And if it turns out, unfortunately, that you did not meet the criteria for the exemption you thought you were operating under, you may face serious consequences in the form of stop work orders, fines, or other legislative sanctions.
Alix Stoicheff 12:45
Sounds like there's going to be some interesting decisions coming out on that very issue in the next few months or years. So we'll have to have you guys back on to chat about that. Perfect. Thanks for having us.
Mark Fancourt-Smith 12:56
Thank you for joining us on Lawson insight. Thanks again to Shai and Lewis for joining us today. You can find their blog post on the topics we discussed today on the Lawson Lundell website.
Alix Stoicheff 13:05
And you can also stay up to date by connecting with us on social media using the handle at Lawson Lundell. And by subscribing to the podcast on Apple, Spotify or Google podcasts. Thanks so much for listening.