The first major regulatory hurdle has been crossed for a California-based company trying to convert the shuttered Ponderay Newsprint mill in Northeast Washington into one of the nation’s largest cryptocurrency operations.

A hearing examiner approved a conditional use permit allowing Allrise Capital Inc., which formed Merkle Standard and a half dozen other subsidiaries, to run a large computer bank on the 927-acre site of the former paper mill in Usk, which closed due to bankruptcy in 2020.

The land is technically zoned R-5 Residential, which only allows a home on 5 acres.

The new owners needed the conditional use permit to allow it to run up to 30,000 servers, which are expected to consume about 100 megawatts of electricity as they processed data to earn cryptocurrency.

In his May 27 decision, hearing examiner Christopher Anderson gave the green light to company plans despite concerns raised by some local residents about potential impact to wildlife.

Anderson ruled that Pend Oreille County considered environmental factors “in a manner which amounted to prima facie compliance with” the requirements that did not require further environmental review.

“Based on the findings and conclusions above, it is the decision of the Hearing Examiner to approve the proposed (conditional use permit) subject to the following revised conditions,” Anderson wrote.

But Ed Styskel, who filed an appeal based on the State Environmental Policy Act, complained that Anderson denied documentation that he and his colleagues provided but allowed Merkle Standard’s detailed reports, including a sound study, that also came after a deadline to provide information.

Pend Oreille Planning Director Greg Snow “did not have this extra information when the (determination of nonsignificance) was made. That was my beef from the very beginning,” Styskel said. “The county-responsible official is the last person who is the gate keeper for the environment for Pend Oreille County. If they don’t dig a little bit to find more information, I feel that person is derelict of duty.”

One of the major concerns raised during the May 12 hearing, and from published reports of neighbors to other cryptocurrency computer operations around the country, is the noise from thousands of computing machines running around the clock.

As part of his approval, Anderson wrote that Merkle Standard will not allow noise to “intrude into any property where human beings reside and sleep at a level higher than 60 (decibels) between the hours of 7 a.m. and 10 p.m.”

He also limited the noise to no higher than 50 decibels between 10 p.m. and 7 a.m. Anderson required the company add “sound-deadening technology” if the sound leaving the property exceeds 75 decibels.

Merkle Standard CEO Ruslan Zinurov, who was born in Russia before becoming a U.S. citizen, has told trade publications that he expects the company to expand and need 500 megawatts within a year.

Company officials have already sought even more electricity.

They initially asked for as much as 600 megawatts from the Bonneville Power Administration.

Anderson noted, however, that the current permit allows for 100 megawatts and about 30,000 servers.

He also wrote that “an amended (conditional use permit) will be required to reflect any expansion of the current proposal.”

Only after the permit was requested did the company disclose it was using the water-cooled units, in addition to air-cooled machines, provided by Bitmain, a major Chinese tech company.

That raised a new round of questions about how much water would be pulled from the Pend Oreille River and the condition of discharge water, that may have chemicals added to it, before released back into the river.

As part of his findings, Anderson wrote that “any fluids, hazardous chemicals, batteries or other waste potentially generated in the operation of the business must be disposed of to the satisfaction of” the Washington Department of Ecology and Pend Oreille County solid waste.

Merkle Standard would also need to obtain a “waste discharge permit” from Ecology if it intends to pump the used cooling water into the river.

Todd Behrend, general manager for Pend Oreille Real Estate LLC, one of several companies formed as part of the venture, did not immediately respond to a request for comment.