118.03.24 Ark. Code R. 005 - General Rule K- Digital Asset Mining Business Requirements
Rule K-1 Applicability, General Provisions and Definitions
a) Applicability
1) This rule shall apply to any digital asset
mining business, as defined by this rule.
b) General Provisions
1) A digital asset mining business in
operation before the effective date of this rule shall be in full compliance
with the noise provisions enacted in Ark. Code Ann. §
14-1-604(b)(3) no
later than ninety (90) days after this rule is effective.
2) No digital asset mining business created
after the effective date of this rule shall operate in Arkansas without first
obtaining a permit in accordance with the provisions of this rule. An existing
digital asset mining business shall not operate in Arkansas without first
applying for a permit with the Oil and Gas Commission within ninety (90) days
of the date this rule is promulgated. A digital asset mining business shall
operate in accordance with Rules K-1, K-2, and K-3, and shall not operate if
its digital asset mining permit application or transfer request is denied or
its digital asset mining permit is revoked by the Commission.
3) A digital asset mining business may
operate in Arkansas if the digital asset mining business:
A) Is issued a permit from the Commission in
accordance with Rules K-2 or K-3;
B) Establishes that the business is not a
prohibited foreign-party-controlled business as defined by and in accordance
with Ark. Code Ann. §
14-1-606;
C) Maintains compliance with all local
government ordinances;
D) Maintains
compliance with any rule or rate for utility service provided by or on behalf
of a public entity;
E) Maintains
compliance with all applicable state and federal laws, including but not
limited to, Ark. Code Ann. §
14-1-601
et seq. and §
23-119-101
et seq.;
F) Pays all applicable taxes and government
fees in acceptable forms of currency; and
G) Operates in a manner that will not cause
any stress on the electric public utility's generation capabilities or
transmission network.
c) Definitions
1) "Applicant" means an entity who makes an
application to the Oil and Gas Commission to operate a digital asset mining
business.
2) "Blockchain network"
means a group of computers operating and processing together to execute a
consensus mechanism to agree upon and verify data in a digital record for the
purpose of generating digital assets.
3) "Digital asset" means cryptocurrency,
virtual currency, and natively electronic assets, including without limitation
stable coins, nonfungible tokens, and other digital-only assets, that confer
economic, proprietary, or access rights or powers.
4) "Digital asset miner" is an individual who
mines for digital assets and holds the digital asset mining business permit
issued under this rule.
5) "Digital
asset mining" means use of electricity to power a computer for the purpose of
securing or validating a blockchain network.
6) "Digital asset mining business" means a
group of computers working at a single site that consumes more than one
megawatt (1 MW) of electrical energy on an average annual basis for the purpose
of generating digital assets by securing a blockchain network.
7) "Director" shall mean the Director of
Production and Conservation of the Oil and Gas Commission.
8) "Home digital asset mining" means mining
digital assets in areas zoned for residential use.
9) "Legislative body" means the quorum court
of a county or the city council, board of directors, board of commissioners, or
similar elected governing body of local government.
10) "Local government" means a county, a city
of the first class, a city of the second class, or an incorporated
town.
11) "Mining facility" means
the building or other portable building structure where the digital asset
mining computers are located.
12)
"Node" means a computational device that contains a copy of
blockchain-distributed ledger technology and includes a series.
13) "Ordinance" means an ordinance,
resolution, or other appropriate legislative enactment of a legislative
body.
14) "Person" means an
individual or legal entity.
15)
"Regulated entity" means a:
A) Digital asset
miner;
B) Person owning or
operating a mining facility or a digital asset mining business;
C) Mining facility; or
D) Digital asset mining business.
16) "Residence" means a permanent
dwelling place, unit, or accessory structure.
Rule K-2 Digital Asset Mining Business Permitting Requirements
a) No digital asset
mining business created after the effective date of this rule shall operate in
Arkansas without first obtaining a permit in accordance with the provisions of
this rule.
b) An existing digital
asset mining business shall not operate in Arkansas without first applying for
a permit with the Oil and Gas Commission within ninety (90) days of the date
this rule is promulgated.
c) A
digital asset mining business shall operate in accordance with this rule and
shall not operate if its digital asset mining permit application is denied, its
digital asset mining permit is revoked by the Commission, or its digital asset
mining permit is expired.
d) Any
Digital Asset Mining Permit issued by the Commission shall not exceed a term of
5 years from the date of issuance.
e) The applicant shall file a completed
initial permit application or renewal application, utilizing a form prescribed
by the Director, which shall contain the following:
1) A completed Organization Report on a form
prescribed by the Director;
2)
Documentation establishing that the digital asset mining business is currently
in good standing status with the Arkansas Secretary of State;
3) A survey plat of the property boundaries
on which the mining facility will be located that shows the location of the
mining facility, and the location of all power and water lines and other
utility services providing service to the mining facility;
4) A current topographic map, aerial or
satellite imagery, or other type of map that shows the location of the mining
facility and the distance of all surrounding residences within a two (2) mile
radius of the mining facility;
5) A
copy of an agreement with the entity supplying the electric power to the mining
facility which certifies that the electric usage by the mining facility will
not negatively impact the local electric grid or increase electric costs to the
local customers;
6) A copy of an
agreement with the local water utility or private water well owner supplying
water to the mining facility which certifies that the water usage by the mining
facility will not negatively impact the local water supply and water rates of
the local customers;
7) A notarized
affidavit certifying that the digital asset mining business operating the
mining facility is not a prohibited foreign-party-controlled business and is in
compliance with Ark. Code Ann. §
14-1-606; and
8) A technical description, including
schematics and engineering specifications of the system proposed to be utilized
or the local government location approvals necessary to comply with
noise-reduction techniques in accordance with Ark. Code Ann. §
14-1-604(b)(3), including without limitation schematics or specifications that
demonstrate:
A) The digital asset mining
business will use a liquid cooling or submerged cooling process for the mining
facility;
B) The mining facility
shall be fully enclosed around all sides, including above and below the
equipment producing the noise, with material that is reasonably calculated by
industry standards to reduce noise emissions to a level that is acceptable to a
reasonable person under similar circumstances; or
C) Upon approval by the local government, the
mining facility may use a passively cooled pre-manufactured container without
additionally enclosing the container in a complete envelope if the mining
facility is located or relates to an area:
i)
That is at least two thousand (2,000) feet away from the nearest residential or
commercial use structure; or
ii)
That is zoned for industrial use or an otherwise approved use.
f)
Additionally, the digital asset mining business shall:
1) Publish general public notice of the
application no more than ten (10) days prior to filing the application with the
Commission in a newspaper having a general circulation in the county, or in
each county, if there shall be more than one, within a one (1) mile radius from
the proposed mining facility is located. In addition, the public notice should
be large font and surrounded by a printed border to highlight the published
notice; and
2) Provide notice by
mailing, no more than ten (10) days prior to filing the application with the
Commission, via certified mail, FedEx, UPS, or other method that provides proof
of mailing and delivery to the following persons and entities:
A) Any local government having jurisdiction
over the area where the mining facility is proposed to be located;
B) The Division of Environmental
Quality;
C) All surface owners of
record within one (1) mile of the mining facility; and
D) Any other persons as determined by the
Director of the Commission.
3) The notice given by the digital asset
mining business shall contain the following:
A) The name and address of the
applicant.
B) A brief description
of the nature and purpose of the application.
C) A description of the land on which the
mining facility will be constructed.
D) A statement which explains that a copy of
the application and exhibits may be obtained from the Commission or the digital
asset mining business. When the Commission receives a request for a copy of the
application from an interested party, the Commission may direct the digital
asset mining business to deliver the application to the interested party. The
cost of such notice and mailing of the application shall be paid for by the
digital asset mining business.
E) A
statement which explains that all comments or objections regarding the
application must be in writing and submitted to the Commission prior to the
expiration of the forty-five (45) day notice period specified in subparagraph
g) 1) below.
g) Objections
1) Objections to the application must be
received by the Director within forty-five (45) days after the publication date
of the notice specified in subparagraph f) 1) above or the postmark date of the
notice specified in subparagraph f) 2) above, whichever date is later. If an
objection is received, the application shall be referred to the Commission for
determination without imposition of a filing fee, and a hearing shall be
conducted in accordance with General Rules A-2 and A-3 and all other applicable
hearing procedures.
2) If a timely
objection is not received by the Director and the application is deemed
administratively complete, the permit shall be issued unless the Director deems
it necessary to refer the application to the Commission for determination for
the purpose of protecting public health and safety, protecting the environment,
or preventing damage to property. No filing fee shall be assessed by the
Commission for any hearing set pursuant to this referral by the
Director.
h) If the
applicant satisfies the requirements of all applicable statutes and this rule,
a permit shall be issued, unless:
1) The
applicant has falsified or otherwise misstated any material information on or
relative to the permit application;
2) The applicant is or was an owner, officer,
director, partner, member, or manager of digital asset mining business, or
other person with an interest in the entity exceeding five-percent (5%), that
has failed to abate any outstanding violations of statutes or rules, or comply
with orders of the Commission as specified in a final administrative decision
of the Commission in accordance with the provisions of this rule;
3) The applicant is a current permit holder
that has failed to abate outstanding violations of any statutes or rules, or
comply with orders of the Commission as specified in a final administrative
decision of the Commission in accordance with the provisions of this rule;
or
4) If the Director determines
that the applicant or permit holder, or an owner, officer, director, partner,
member, or manager or other person with an interest exceeding five-percent (5%)
in the digital asset mining business, has a history of violating any applicable
statutes, Commission rules, permit condition or order of the Commission, the
Arkansas Pollution Control and Ecology Commission, or any other state or
federal regulatory agency, the permit shall be denied.
i) If a permit is denied pursuant to
subparagraph h) above, the applicant may request a hearing with the Commission
on this determination, in accordance with General Rules A-2, A-3, and other
applicable hearing procedures.
j)
Digital Asset Mining Permit Revocation Procedures
1) The Director may revoke a digital asset
mining permit if:
A) The permit holder fails
to meet permit conditions as specified in the digital asset mining
permit;
B) The digital asset mining
permit was issued in error;
C) The
permit holder fails to meet any applicable statute or law; or
D) The permit holder falsified or otherwise
misstated any material information in the application form.
2) The Director shall notify the
permit holder in writing of the revocation of the digital asset mining permit.
Following the notice of revocation, the permit holder shall have thirty (30)
days from the date of the digital asset mining permit revocation notice to
appeal the Director's decision to revoke the digital asset mining permit. If
the permit revocation is appealed, a hearing contesting the permit revocation
shall be conducted in accordance with General Rules A-2, A-3, and other
applicable hearing procedures. Operation of the mining facility may not
commence or continue during the appeal process. A revocation of a digital asset
mining permit for which an appeal has not been timely filed shall become a
final administrative decision of the Commission.
Rule K-3 Digital Asset Mining Business Permit Transfer Procedures
a) Definitions
1) "Current permit holder" means the person
required to hold the permit or to whom the permit was issued and who is the
owner of the digital asset mining business and possesses the full rights and
responsibilities for operating the business in accordance with applicable
Arkansas law, rule, or order of the Commission.
2) "New permit holder" means the person
acquiring the digital asset mining business and who obtains the full rights and
responsibilities for operating the business and possessing the permit in
accordance with applicable Arkansas law, rule, or order of the
Commission.
3) "Transfer" means any
voluntary or involuntary assignment, devise, release, transfer, takeover,
buyout, merger, sale, conveyance, or other transfer of any kind.
b) The provisions of this rule
apply to all transfers of the interest of the permit holder, including but not
limited to:
1) A change of ownership of the
right to operate the digital asset mining business;
2) A change of ownership or membership in the
corporate entity that operates the digital asset mining business or a change in
the designation of the owner or operator under an operating agreement or other
similar agreement;
3) An action of
the owners of separate interests who designate a new owner to be permit holder;
or
4) A change required by the
appointment, by a court of competent jurisdiction, of a trustee or a receiver
to exercise custody and control over the digital asset mining
business.
c)
Notification of a transfer shall be given to the Director, or his or her
designee, by the current permit holder on a form prescribed by the
Director.
d) The notification shall
be signed by the current permit holder and the new permit holder, or by
authorized representatives specified on the Commission Organization Report
filed in accordance with Rule K-2 e) 1).
e) Prior to the Director, or his or her
designee, approving the transfer request, the new permit holder must:
1) Be authorized to do business within the
State of Arkansas; and
2) Comply
with all applicable provisions of state law and Rule K-2.
f) A transfer to a new permit holder shall be
denied by the Director, or his or her designee, if:
1) The new permit holder has not fully
satisfied all applicable statutory and rule requirements;
2) The Commission has not approved the
transfer in accordance with paragraph e) above;
3) The new permit holder has falsified or
otherwise misstated any material information on or relative to the transfer
application; or
4) No further
permits or authorities may be issued in accordance with paragraph e)
above.
g) The new permit
holder shall assume compliance with all existing permit obligations and be
responsible with complying with all regulatory requirements associated with the
permit.
h) If the digital asset
mining business or mining facility is in violation of any rules, statutes, or
orders of the Commission at the time of the transfer request to the new permit
holder, the transfer request shall be denied pending abatement of all
violations by the current permit holder. However, if the new permit holder,
after being notified of the violation(s), agrees in writing to the transfer
approval including conditions to abate all violations, the transfer may be
approved by the Director, or his or her designee, in accordance with this rule.
Failure to abate the violations within the time-period specified by the
Director, or his or her designee, may result in revocation of the transfer
approval and other applicable enforcement actions in accordance with General
Rule A-5.
i) The current permit
holder is not responsible for any regulatory violation caused by the actions of
the new permit holder during the permit transfer process. However, if the
transfer is denied by the Director, or his or her designee, the current permit
holder will assume all responsibility for any violations caused by the new
permit holder. Nothing in this subparagraph shall affect the contractual rights
and obligations between the person or entity transferring the permit and the
person or entity acquiring the permit.
j) The transfer request shall not affect the
rights of the Commission, or any obligation or duty of the current permit
holder arising under any applicable Arkansas law, rule, or order of the
Commission.
k) The Director shall
notify the current and new permit holder of the transfer approval or denial in
writing. Following the approval or denial of the transfer approval request, the
current or new permit holder shall have thirty (30) days from the date of the
approval or denial to appeal the Director's decision in accordance with General
Rules A-2, A-3, and other applicable hearing procedures. A transfer request
approval or denial, for which a timely appeal has not been filed, shall become
a final administrative decision of the Commission.
l) Permit Transfer Revocation Procedures
1) The Director may revoke a digital asset
mining business permit transfer approval if the permit holder fails to comply
with conditions as specified in the permit transfer approval, the permit
transfer approval was issued in error, or the permit holder falsified or
otherwise misstated any material information in the application form.
2) The Director shall notify the permit
holder of the digital asset mining business permit transfer revocation in
writing. Following the revocation notice, the permit holder is required to
cease operation of the mining facility. The permit holder shall have thirty
(30) days from the date of the permit transfer revocation to appeal the
Director's decision to revoke the transfer approval in accordance with General
Rules A-2, A-3, and other applicable hearing procedures. Operation of the
mining facility may not commence or continue during the appeal process. A
revocation of a permit transfer approval for which an appeal has not been
timely filed shall become a final administrative decision of the
Commission.
Rule K-4 Digital Asset Mining Business Enforcement Procedures
a) Any regulated
entity operating a digital asset mining business is subject to the enforcement
provisions of this rule and the Arkansas Data Centers Act of 2023, Ark. Code
Ann. §
14-1-601
et seq. and the digital asset mining
provisions of Ark. Code Ann. §
23-119-101
et
seq.
b) Notice of
Non-Compliance
1) A Notice of Non-Compliance
may be issued when any regulated entity is not in compliance with any
requirement of this rule, Ark. Code Ann. §
14-1-601
et
seq., or §
23-119-101
et seq., and:
A) The non-compliance was not caused by the
regulated entity's deliberate action;
B) Any action necessary to abate the
non-compliance was commenced immediately, and was or will be completed within a
specified date, as established by the Director, or his or her designee, not to
exceed thirty (30) days from the date that the regulated entity was determined
to be out of compliance; and
C) The
non-compliance has not caused and cannot reasonably be expected to cause
significant harm to public health and safety or damage to property.
2) The Notice of Non-Compliance
shall be documented in writing and delivered via first class mail to the
regulated entity or to the regulated entity's representative as reported on the
Commission Organization Report. The written notification shall indicate the
nature and circumstances of the non-compliance, and the time within which and
the means by which the non-compliance is to be abated.
3) If abatement is not completed as specified
in the written notification, the Director, or his or her designee, may issue a
formal Notice of Violation in accordance with subparagraph (c) below.
4) The provisions of this subparagraph shall
not apply to the following types of incidents, which may require a Notice of
Violation to be issued in accordance with subparagraph (c) below:
A) Conducting any regulated activity prior to
issuance of the appropriate Commission permit;
B) Failure to bring an existing mining
facility into compliance with Arkansas law or Rule K-2.
c) Notice of Violation(s)
1) A Notice of Violation may be issued by the
Director, or his or her designee, when any regulated entity is in violation of
any requirements of Ark. Code Ann. § 14-1601 et seq.,
§
23-119-101
et seq., or rules, orders, or any permit
conditions of the Commission. Unless otherwise determined by the Commission
after notice and a hearing, a regulated entity shall not be compelled by the
Commission to abate violations of the Arkansas law or rules, orders, or any
permit conditions of the Commission in the absence of the issuance of an
underlying Notice of Violation.
2)
The Notice of Violation shall be in writing and contain:
A) A statement regarding the nature of the
violation, including a citation to the specific section of Ark. Code Ann.
§
14-1-601
et seq., or §
23-119-101
et
seq. or rules, orders, or any permit conditions of the Commission
alleged to have been violated;
B)
The suggested action needed to abate the violation, including any appropriate
remedial measures to prevent future violations;
C) The time within which the violation shall
be abated; and
D) A notice of any
civil penalties, as specified in subparagraph e) below, that the Director will
request the Commission issue.
3) The Notice of Violation may include a
cessation requirement, or a separate cessation order may be issued for the
following types of violations:
A) Operating a
digital asset mining business or mining facility without a Commission
permit;
B) Improper disposal or
discharge of cooling fluids;
C)
Failure to comply with the violation abatement timeframe established in a
Notice of Violation.
4)
The Director, or his or her designee, shall send, via certified mail, the
Notice of Violation to the regulated entity charged with the violation(s), or
the regulated entity's representative as reported on the Commission
Organization Report, or provide personal delivery of a copy of the notice to
the regulated entity, or the regulated entity's representative.
5) The regulated entity charged with the
violation(s) may request a Director's review of the Notice of Violation and
provide the Director, in writing, any information in mitigation of the
violation(s) within thirty (30) calendar days of the mailing or personal
delivery of the original Notice of Violation, unless a shorter time period is
specified in the Notice of Violation for instances where there is a condition
that creates an imminent danger to the health or safety of the public or
threatens significant environmental harm or damage to property. Such written
information may include a proposed alternative to the required action needed to
abate the violation(s). Upon timely receipt of such documentation from the
regulated entity, the Director shall conduct a review.
6) During the review, the Director may
consider any of the following criteria in reaching a final Director's decision
regarding the violation(s):
A) The regulated
entity's history of previous violations, including violations at other
locations and under other permits;
B) The seriousness of the violation,
including any irreparable harm to public health and safety, the environment, or
damage to property;
C) The degree
of culpability of the regulated entity; and
D) The existence of any additional conditions
or factors in aggravation or mitigation of the violation, including information
provided by the regulated entity.
7) Upon completion of the review, the
Director shall issue a final Director's decision to:
A) Affirm the violation;
B) Vacate the violation;
C) Amend or modify the type of violation and
abatement requirements specified in the violation;
D) Establish probationary or permanent
modification or conditions to any underlying permit related to the violation,
which may include special monitoring or reporting requirements; or
E) Enter into a settlement agreement to
extend the amount of time provided to complete remedial actions necessary to
abate the violations or reduce the amount of the requested assessed civil
penalty.
8) The final
Director's decision shall be delivered to the regulated entity, or the
Regulated entity's representative, as reported on Commission Organization
Report, via first class mail. The final Director's decision may be appealed to
the Commission by filing an application in accordance with General Rule A-2,
A-3, and other applicable hearing procedures. The Director must receive the
application to appeal the final Director's decision within thirty (30) days of
the mailing of the final Director's decision. The application shall state the
reason for the appeal and the application shall be scheduled to be heard by the
Commission in accordance with General Rule A-2, A-3, and other applicable
hearing procedures.
9) A Notice of
Violation for which a Director's review has not been requested shall become a
final administrative decision of the Commission thirty (30) days following the
mailing of the Notice of Violation.
10) A final Director's decision not appealed
to the Commission within thirty (30) days of the mailing of the final
Director's decision shall become a final administrative decision of the
Commission.
11) All violations
specified in a Notice of Violation which have become a final administrative
decision in accordance with subparagraph c) 9), included in a final Director's
decision which has become a final administrative decision of the Commission in
accordance with subparagraph e) 10), or included in an order of the Commission,
shall be fully abated within the time frame specified in the original Notice of
Violation, final Director's decision, or order of the Commission. No further
permits or authorization shall be issued to the regulated entity until all
outstanding violations specified in a Notice of Violation which has become a
final administrative decision in accordance with subparagraph c) 9), a final
Director's decision which has become a final administrative decision of the
Commission in accordance with subparagraph c) 10), or by order of the
Commission have been fully abated.
d) In addition to the issuance of a Notice of
Violation, the Director and the Commission may initiate investigative or
enforcement proceedings upon receipt of a complaint by:
1) Initiating a referral to the Attorney
General for enforcement in accordance with Ark. Code Ann. §
14-1-606;
2) Making reasonable
investigations and inspections;
3)
Examining properties, leases, papers, books, and records;
4) Holding hearings;
5) Requiring the keeping of records and the
making of reports;
6) Taking such
action as may be reasonably necessary to enforce state law and Commission
rules, including compliance with Ark. Code Ann. §§
14-1-601
et seq. and 23-119-101
et seq.
e) Civil Penalties
1) The Director shall determine whether to
request the assessment of civil penalties based on failure to comply with the
applicable abatement requirements for violations issued under subparagraphs (e)
(2), (3), and (4) below. If a civil penalty is requested by the Director, the
regulated entity may voluntarily agree to the assessment and pay the civil
penalty as requested or modified by the Director, or the Director or his
designee may file an application, in accordance with General Rule A-2, A-3, and
other applicable hearing procedures, to request the issuance of the requested
civil penalty by the Commission. The maximum amount of the Director's requested
civil penalty shall be computed as provided in subparagraphs (e) (2), (3), and
(4) below. However, the Commission is not bound by the Director's request, or
the amounts provided below, and may impose civil penalties of up to five
thousand dollars ($5,000.00) per day per violation as permitted by
statute.
2) Administrative
violations are defined as failure to file required reports and forms and to
provide required notices. The Director may request the assessment of up to two
thousand five hundred ($2,500.00) dollars per administrative violation, plus up
to five hundred dollars ($500.00) per day for each day the violation remains
unabated after the specified compliance date. The per-administrative-violation
civil penalty request shall be calculated as follows:
A) No previous violation of the same rule:
one thousand dollars ($1,000.00). One previous violation of the same rule: one
thousand five hundred dollars ($1,500.00). Two or more previous violations of
the same rule: two thousand five hundred dollars ($2,500.00).
B) The time frame used for determining
previous violations shall be limited to the regulated entity's violation record
for the preceding five (5) full calendar years before the issuance of the
violation.
3) Operating
violations are defined as failure to maintain compliance with Commission
digital asset mining rules. These violations include, but are not limited to,
regulated activities such as operating a mining facility without the proper
permit or transfer of ownership and failure to maintain a mining facility in
compliance with these rules. The Director may request the assessment of up to
five thousand dollars ($5,000.00) per operating violation plus up to two
thousand five hundred dollars ($2,500.00) per day for each day the violation
remains unabated after the specified compliance date, with the exception that
operating violations as specified in statute are limited to a maximum of five
thousand dollars ($5,000.00) per day per operating violation. The
per-operating-violation civil penalty shall be calculated as follows:
A) No previous violation of the same rule:
two thousand five hundred dollars ($2,500.00). One previous violation of the
same rule: five thousand dollars ($5,000.00).
B) The time frame used for determining
previous violations shall be limited to the regulated entity's violation record
for the preceding five (5) full calendar years before the issuance of the
violation.
f)
All civil penalties assessed and paid to the Commission in accordance with this
subpart shall be deposited in the Commission operating fund.
Notes
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