October 4, 2025 - An increasing urgency permeates the national dialogue around data centers, generative AI and the critical role of energy to fuel these industries. A recent AI action plan from the White House, for example, warns of the “need to build and maintain vast AI infrastructure and the energy to power it.” Absent from much of this dialogue has been the potential enforcement ramifications in this new digital rush. But the energy sources and technologies needed to power data centers and AI can involve highly regulated markets and technical rules that can lead to significant compliance issues and penalties for new market entrants looking to navigate this complicated field.

Earlier this year, the Federal Energy Regulatory Commission (FERC) approved a settlement agreement resolving an enforcement investigation of Stronghold Digital Mining and Scrubgrass Reclamation Company regarding their operation of the Scrubgrass coal refuse plant in PJM Interconnection markets from June 2021 through May 2022. Although this case involved another type of emerging large load — a crypto-mining business — it raises similar enforcement implications for entities interested in co-locating data centers and generation plants in organized electric markets.

Investigation and Settlement

According to the settlement agreement, Stronghold is a crypto asset mining company that employs a business model of purchasing power plants, installing Bitcoin mining operations and earning profits by alternating between selling power wholesale or mining Bitcoin. Following this model, Stronghold owns Scrubgrass, which operates a coal refuse generation plant in Pennsylvania and, from 2018 to 2022, participated as a capacity resource within PJM, subject to a must-offer requirement of approximately 85 MW as calculated under the PJM Tariff.  Specifically, under the PJM Tariff, Scrubgrass was required to offer this amount into the PJM markets daily, unless on outage or derated, and was required to be available for scheduling and dispatch unless the unit designated its offers as “Maximum Emergency.”

Following a referral from PJM’s Independent Market Monitor in March 2022, FERC’s Enforcement staff initiated an investigation and found that the Scrubgrass plant failed to offer its available capacity into the PJM market during 67% of the day-ahead hours and 69% of the real-time hours from June 2021 to May 2022. At the same time, the Scrubgrass plant produced more energy than it offered into PJM’s energy markets for 57% of the day-ahead hours and 59% of the real-time hours, instead using portions of its generated energy for Bitcoin mining. In addition to the plant’s offers, FERC Enforcement staff found that Scrubgrass purchased power from PJM, which the plant categorized as “Station Power.”

Enforcement staff found, and the companies admitted, that Scrubgrass’ conduct violated the following PJM Tariff requirements:

• Must-Offer Requirement (Attachment K, Appendix, Section 1.10.1.A(d)): The Scrubgrass plant did not “submit offers for the available capacity of” the resource and, instead, directed the plant’s generation output toward its Bitcoin mining operations when prices were favorable.

• General Requirement to Operate Consistent With PJM Rules (Attachment K, Appendix, Section 1.7.4(f)): The Scrubgrass plant did not “operate . . . or otherwise supply energy . . . in a manner that is consistent with the standards, requirements or directions of” PJM when it (1) submitted offers with values that understated the amount of power the plant was capable of producing and actually did produce; and (2) purchased power from PJM at wholesale rates under the guise of “Station Power.”

Although Scrubgrass’s strategy of alternating between selling power and using power for Bitcoin mining based on price may be a lawful approach in a pure energy market, there is risk employing it in a capacity market with a must-offer requirement. With respect to Scrubgrass’ purchase of power from PJM, the settlement agreement suggests that this was problematic because Scrubgrass purchased it “under the guise of Station Power but did not use the power for Station Power.” Although the settlement agreement and FERC order do not describe what constitutes “Station Power,” the PJM Tariff defines it as the “energy used for operating the electric equipment on the site of a generation facility located in the PJM Region or for the heating, lighting, air-conditioning and office equipment needs of buildings on the site of such a generation facility that are used in the operation, maintenance, or repair of the facility.” 

In resolving the investigation, Scrubgrass agreed to pay a civil penalty of $741,363 and disgorgement of $678,635 in capacity revenues to PJM. The companies also agreed to provide annual compliance training to relevant personnel for five years and submit two annual compliance monitoring reports to FERC Enforcement staff, with a third report at the staff’s discretion.

Implications for Data Centers and Large Loads

Although this case involved a crypto-mining business, it illustrates potential enforcement issues that entities interested in co-locating data centers and generation plants might face. FERC enforcement cases frequently arise in groups when there is some combination of new technology, new products and new market participants (e.g., FTRs, demand response, recent battery cases). The increasing prevalence of co-located generation to serve large load has many of these same elements, so market entrants looking to seize opportunities should exercise caution and due diligence.

This case serves as a reminder that any arrangement involving energy generation co-located with data centers, AI facilities or other large loads, where the generator also will be participating in energy markets, will require familiarity with the significant regulatory requirements associated with, and the technical rules governing, those markets. Beyond the specific PJM Tariff provisions implicated in the Stronghold settlement, other compliance requirements may be implicated in this data center and AI boom, highlighting the need for careful and deliberate regulatory compliance. Attention to such compliance should be considered at all stages, beginning with structuring the project and negotiating any contracts between the load and the generator, through operations. The McGuireWoods Energy Industry Team is monitoring this evolving area and is available to assist with any questions regarding FERC enforcement and compliance issues. For advice on this issue, contact the authors.