Stronghold Fined for Breaching Power Market Rules to Mine Bitcoin

Stronghold Digital has agreed to pay over $1.4 million in penalties and refunds after a U.S. federal agency investigation found that it violated energy market rules while prioritizing its Bitcoin mining operations.

Stronghold Digital and its subsidiary, Scrubgrass Reclamation Company, operate the 85-megawatt Scrubgrass Generating Plant in Northwestern Pennsylvania as a capacity resource in the PJM Interconnection’s energy market from 2018 to 2022.

According to a settlement agreement released on Jan. 30 by the Federal Energy Regulatory Commission (FERC), Stronghold had a contractual obligation to offer its available electricity to PJM’s power grid to help ensure grid reliability.

However, FERC’s Office of Enforcement determined that Stronghold failed to meet this obligation from June 2021 to May 2022 by diverting power to its Bitcoin mining operations instead. The news was first reported by energy media Utility Dive.

According to FERC’s investigation, Scrubgrass underreported its available power capacity in the market offers 67% of day-ahead hours and 69% of real-time hours. It diverted power to Bitcoin mining instead of offering it to PJM for 57% of day-ahead hours and 59% of real-time hours.

Additionally, Stronghold purchased power from PJM at wholesale rates 24% of the time, with some of that power misclassified as “Station Power” instead of being used for essential plant operations, the FERC stated in the settlement order.

As part of the settlement, Stronghold and Scrubgrass will repay $678,635 in improperly earned capacity revenues to PJM and pay a $741,365 civil penalty to the U.S. Treasury. It is also required to submit compliance reports for at least two years and provide market rules training for personnel.

FERC launched a non-public preliminary investigation into Scrubgrass’s compliance with PJM tariff rules in May 2022. Following the probe, Stronghold exited PJM’s capacity market in June 2022 via a bilateral transaction but may still be required to participate in future capacity auctions unless it formally applies for an exemption or converts to an energy-only resource. As of the date of the settlement, the company has not yet taken these steps.

Stronghold is currently undergoing an all-stock merger with Bitfarms as the Canadian mining peer eyes to expand its footprint in the U.S. Stronghold went public in 2021 as a vertically integrated Bitcoin mining firm that operates by owning power plants and shifting between selling power to the grid and using it for Bitcoin mining, depending on market conditions.