FERC Assessed Civil penalty of $741,365; disgorgement of $678,635; and compliance monitoring

Summary:

The Commission approved the Stipulation and Consent Agreement (Agreement) between the Office of Enforcement (Enforcement) and Stronghold Digital Mining, Inc., (Stronghold) and Scrubgrass Reclamation Company, L.P. f/k/a Scrubgrass Generating Company LP (Scrubgrass) (collectively, the Companies). The Agreement resolves Enforcement’s investigation into whether the Companies violated PJM Interconnection, LLC’s (PJM) Tariff or Commission regulations in connection with operating their co-located 85 MW coal refuse plant and behind-the-meter Bitcoin mining facility located in northwestern Pennsylvania during the period of June 2021 to May 2022. The Companies stipulate to the fact section set forth in Section II of the Agreement and admit to the violations in Section III of the Agreement. The Companies agree to: (a) pay a civil penalty of $741,365 to the United States Treasury; (b) disgorge $678,635 to PJM; and (c) be subject to compliance monitoring as provided in the Agreement. PJM Tariff, Attachment K, Appendix, Section 1.7.4(f) states: Each Market Participant shall operate, or shall cause to be operated, any generating resources owned or controlled by such Market Participant that are within the PJM Region or otherwise supplying energy to or through the PJM Region in a manner that is consistent with the standards, requirements or directions of the Office of the Interconnection and that will permit the Office of the Interconnection to perform its obligations under this Agreement; provided, however, no Market Participant shall be required to take any action that is inconsistent with Good Utility Practice or applicable law. Enforcement determined that Scrubgrass violated this section during the Relevant Period when it: (1) offered the Plant into PJM’s energy markets with EcoMax and EmerMax values that understated the amount of power the Plant was capable of producing and actually did produce; and (2) bought power from PJM at wholesale rates under the guise of Station Power but did not use the power for Station Power. Scrubgrass’s actions were inconsistent with the standards, requirements, and directions of the Office of Interconnection and hindered PJM from effectively performing its obligations. PJM Tariff, Attachment K, Appendix, Section 1.10.1A(d) states in pertinent part: Market Sellers owning or controlling the output of a Generation Capacity Resource that is committed as a Capacity Resource under Tariff, Attachment DD or RAA, Schedule 8.1, and that has not been rendered unavailable by a Generator Planned Outage, a Generator Maintenance Outage, or a Generator Forced Outage shall submit offers for the available capacity of such Generation Capacity Resource, including any portion that is self-scheduled by the Generating Market Buyer. Enforcement determined that Scrubgrass violated this provision by not submitting offers for the Plant’s available capacity. Enforcement determined that the offering behavior observed in the data was not the result of an outage or other operational issue. Rather, Enforcement determined that when prices were favorable, considering both PJM energy market prices and Bitcoin market prices, Scrubgrass directed the Plant’s output towards its Bitcoin mining operations.

Additional Discussion:

Stronghold is a vertically integrated crypto asset mining company focused on mining Bitcoin. It is incorporated in the state of Delaware. Stronghold’s business model is to purchase power plants, install Bitcoin mining operations, and then profit by alternating between the more profitable of selling power wholesale or mining Bitcoin.

Stronghold is the upstream owner of Scrubgrass.

Under the Appendix to Attachment K of PJM’s Tariff, Section 1.10.1A(d), the Plant was required to: (1) offer its Installed Capacity (“ICAP”) equivalent of the Plant’s cleared Unforced Capacity (“UCAP”)1 into the PJM energy markets every day if not on outage or derated; and (2) be available for scheduling and dispatch unless the unit designates its offers as a “Maximum Emergency” offer (requiring it to fall under at least
one of four tariff-defined categories).

As part of submitting energy offers into PJM’s energy markets, the Plant submitted energy offers with various parameters, including Economic Maximum (“EcoMax”) and Emergency Maximum (“EmerMax”). Both parameters are required for supply offers. Under the PJM Tariff, EcoMax is “the highest incremental MW output level, submitted to PJM market systems by a Market Participant, that a unit can achieve
while following economic dispatch.” The EmerMax parameter represents the maximum output of energy the unit can produce and still maintain a stable level of operation. When a unit is also a capacity resource, PJM’s Tariff requires the unit to offer EmerMax in the amount equal to its must offer requirement unless the unit is on outage or derated.

During the Relevant Period, the Plant submitted energy offers into PJM’s energy markets with EcoMax and EmerMax values that were lower than its must offer requirement, adjusted for outages and derates. Specifically, the plant failed to offer its available capacity into the PJM market 67 percent of the day-ahead hours and in 69 percent of the real-time hours during the Relevant Period.

During this same period, the Plant produced more energy than it offered into PJM’s energy markets. It did so for approximately 57 percent of day-ahead hours and 59 percent of real-time hours during the Relevant Period. The Plant used portions of its generated energy, which it did not offer into PJM’s energy markets, to run its Bitcoin mining rigs. Further, the Plant purchased power from PJM at wholesale rates
approximately 24 percent of the time during the Relevant Period, with some of that power incorrectly categorized as Station Power.

Associated Files: 20250130-190FERC61059-IN24-14-000-Stronghold-Scrubgrass-Settlement Agreement