Crypto miner open to legal action against Pine Bluff

The person who bought the old Pine Bluff Commercial building with plans to turn it into a cryptocurrency mining operation — and who was shut down in that effort by the city’s Planning Commission — said he was leaving open the possibility of taking the city to court over the denial.

Joe Delmendo, owner of Commonwealth Real Estate of El Segundo, Calif., who bought the building in November for $619,500, called the thumbs-down from the Planning Commission “a joke,” adding that the city was missing out on the opportunity he was providing.

“My reaction? That’s politics for you,” he said during a recent phone interview. “Pine Bluff is losing out on quite a bit of economic development. I was trying to bring value to a dying city.”

Delmendo announced plans in April to renovate the building, located at 300 S. Beech St., which, for decades, was the home of the Pine Bluff Commercial newspaper. Since September 2020, the building had been vacant. Delmendo said in April that he had plans to invest $10 million to $15 million in the building and to create up to 75 jobs through various ventures, including the crypto mining operation.

But as much as Pine Bluff needs good-paying jobs and business development, the proposal for the crypto operation was not well-received. Major Shirley Washington said she began looking into such operations that had been started in other cities and was not impressed.

“I told the planning staff to keep an eye on this,” she said. “We need economic development, but we don’t need something that is going to take away from the things we’ve accomplished.”

The problems, as determined by planning and city officials, are that crypto mining operations are noisy and that they can siphon off a disruptive amount of electricity.

Cryptocurrency mining uses computers, known as nodes, to verify blockchain transactions of cryptocurrency by way of solving computational problems. The process is said to virtually guarantee the validity of the transaction, and for solving the problems, the operator of the nodes receives a certain amount of cryptocoin in payment.

The computing power — think in terms of hundreds of computers — in the race to verify the transactions requires an enormous amount of electricity, which is one reason Delmendo became interested in the Pine Bluff property, given that the electrical feed to the building was large enough to run the newspaper’s press. And because computers create heat and need to be kept cool, giant fans, which can be noisy, are used.

Larry Reynolds, executive director of Southeast Arkansas Regional Planning, said his first objection to Delmendo’s application was that the paperwork said the building would be a computer operation office.

“OK, computers. You’re a bank,” said Reynolds, who does planning analyzes for the city but is not technically employed by the city. “But it’s not just computers. It’s the exhaust fans. No one discussed this with anybody.”

Reynolds said the application gave sparse details about what a crypto mining operation actually was, leaving him to do his own research.

“Once we learned more about what these things are, we determined that this was not a permitted use,” said Reynolds.

The area where The Commercial building sits is zoned B-4 or general commercial, Reynolds said, adding that the most intense use of the area would be a convenience store. That meant that for Delmendo to receive permission to operate a crypto mining operation in that area, he would have to apply for a “use permitted on review” or UPOR. Such requests are fairly routine, but they all boil down to a handful of criteria, the main one being that the intended purpose won’t upset what’s already established in that area.

“You have to show that what you are doing won’t change the character of the neighborhood, and they didn’t show that,” Reynolds said. “That’s an industrial operation.”

In June, which was the first time the UPOR was considered by the Planning Commission, no one was there from Delmendo’s operation to defend the request. The commission then gave Delmendo’s group another month.

But during the June meeting, the die seemed to have been cast, with Reynolds saying the fans were loud and that such operations take too much electricity from the grid, causing power shortages in some areas and higher electricity bills for everyone because of the increased demand . Reynolds said he wasn’t against crypto mining in general but that such an operation needed to be in an industrial park.

Reynolds said he not only did online research but he also went out to the site to do his own in-person investigation. He said he had asked for decibel readings from Delmendo but never received anything. In addition to the people nearby who would likely find the noisy fans to be a nuisance, Reynolds said he also noted that the Urban Renewal Agency is trying to establish downtown housing, “which would be relatively close” to the crypto operation.

In July, the UPOR request came up again. This time, members of the neighborhood were there to complain, saying the fans were noisy and never stopped and that they disturbed the peace of the area, which includes residents, a school and a church. Not surprisingly, the Planning Commission voted unanimously to turn down the request.

Delmendo defended his application and planned use for the building.

“They said the fans are too loud,” Delmendo said. “But the building sits next to the railroad tracks, and the fans are nowhere near as loud as that, so that’s a joke.”

As for the electrical needs of his proposed operation, Delmendo said the 1 megawatt that is supplied to the building is sufficient.

“That’s all we are currently interested in,” Delmendo said. In an earlier story, one of Delmendo’s employees said the company would eventually like to have 15 megawatts of power. According to various online sites, 1 megawatt of power is enough to power about 800 homes for a year.

In addition to the cost of the building, another company official said close to another $1 million had been spent to bring the structure up to code and to install some of the crypto mining equipment.

Asked what his plans were for the building, now that his crypto operation had been denied, Delmendo said he could “still open an office building” but that it would have “little to no revenue.”

He also said he would leave open the possibility of filing suit against the city.

“I’m not going to say I am,” he said, “but it’s a possibility.”

Reynolds said this is not the first time that someone has invested in a project only to find that the intended purpose does not qualify for that area.

“Ninety percent of people find it easier to ask for forgiveness rather than ask for permission,” he said. “I base my decisions on the ordinance and any research I did.”

Asked if Delmendo could make alterations to his proposal, such as agreeing to put in a baffling system to reduce the fan noise, Reynolds said yes, but that because the proposal was denied by the Planning Commission, an applicant has to wait 12 months to reapply or has to submit a “significantly altered application.”

As for Delmendo’s legal avenues, Reynolds said he could appeal to the Pine Bluff City Council, and if Delmendo was denied there as well, he could take the matter to court.

“But I think he’d lose,” Reynolds said. “Typically the courts allow cities the right to govern such things.”

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