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Minn. Lawmakers Seek to Switch Troubled 'Clean Coal' Project to Natural Gas

Lawmakers who support the 'clean coal' project are trying to toss it a lifeline, by building a gas plant on the site and retaining all of its perks

By Dan Haugen, Midwest Energy News

Apr 5, 2011
Conceptual drawing of the Mesaba Energy Project

HIBBING, MINN.—When a former high school hockey star proposed to develop a $2 billion "clean coal" power plant outside this northeastern Minnesota city, the news couldn't have come at a better time.

The region had just lost 1,400 jobs from a major taconite plant shutdown, the worst economic news to hit the Iron Range in two decades. The prospect of replacing those jobs was celebrated by citizens, politicians and newspaper editorials with the enthusiasm of a March tournament bid.

A decade later, after having spent nearly $41 million in taxpayer money, the Mesaba Energy Project still has yet to secure key environmental permits; it hasn't found a buyer for the electricity it wants to produce, and without a power-purchase agreement, it can't find investors to fund construction.

The project's backers are now changing their approach, seeking approval from the state's legislature to shelve the "clean coal" component — temporarily, they say — and move forward instead with a conventional natural gas power plant.

That has opponents changing their cries from "boondoggle" to "bait-and-switch" and some speculating whether the apparent change in strategy might be a Hail Mary attempt to salvage something from the long controversial energy project.

Or, in keeping with hockey analogies:

"They are pulling their goalie, because they need to score a goal now," said Aaron Brown, an author and newspaper columnist who has followed the project since 2001, first as a reporter and then as editor of the Hibbing Daily Tribune.

The First Period

Brown faults himself for not asking tougher questions early on.

At the time, the level of community support was just about "euphoric," he said. The closure of LTV Steel's plant in Hoyt Lakes had cast a sense of desperation across the region. When Tom Micheletti — who comes from a well-known family of local hockey royalty — and his wife, Julie Jorgensen, proposed developing a 600-megawatt coal-gasification power plant on the site of the vacated taconite plant, it won immediate support.

Micheletti played hockey for Hibbing in the mid-1960s and later at Harvard. Three of his brothers were drafted by pro hockey teams, but Micheletti went to law school instead, graduating from the University of Minnesota in 1972. Since then, he's held top leadership positions of some of the largest regional and national power companies, including Duluth-based Minnesota Power, Northern States Power (now Xcel Energy), and NRG Energy, where he met Jorgensen, who is a former NRG general counsel.

Micheletti and Jorgensen now live in Minnetonka, a Minneapolis suburb. They incorporated Excelsior Energy with a $60,000 personal investment in August 2001.

Later that year, the Iron Range Resources & Rehabilitation Board (IRRRB), an economic development agency funded by taconite production taxes, awarded Excelsior a $1.5 million unsecured loan, which was approved by then Gov. Tim Pawlenty. The board later increased the loan amount to $9.5 million.

A state lawmaker and fellow former hockey star, Sen. David Tomassoni, DFL-Chisholm, sponsored legislation in 2003 that granted the project another $10 million from a state fund that was set up to support the development of renewable electricity resources.

The legislation also gave the "innovative energy project" authority to use eminent domain, exempted it from having to study and prove the need for additional power generation, and mandated Xcel Energy to buy the electricity, pending approval from the state's public utilities commission.

The project's momentum carried into the following year, when the U.S. Department of Energy announced $36 million in financing under President Bush's Clean Coal Power Initiative. Supporters in Washington also inserted language into the Energy Policy Act of 2005 that authorized the energy department to offer loan guarantees to the project.

The Gloves Come Off

This was about the point where Excelsior's smooth skating came to an end and referees started to intervene.

In 2006, a group of citizens in nearby Trout Lake Township, concerned about potential health, environment and property impacts, started to organize opposition to the project. They formed Citizens Against the Mesaba Project, or CAMP, and quickly broadened their scope to include economic and financial issues.

The group's data practices requests uncovered documents that raised questions about the company's use of public money. That eventually prompted an investigation by the state's legislative auditor, which criticized the Iron Range economic development board in a 2007 report for not adequately overseeing the use of its loan proceeds, some of which appeared to be used for lobbying and other "inappropriate, duplicate, or unsupported costs."

Meanwhile, opponents were lining up before the state's public utilities commission, which was charged with determining whether it was in the public's interest for Xcel Energy to purchase the power.

Xcel, along with other utilities in the state, argued the gasified-coal technology proposed by Excelsior was not the most cost-effective and would lead to rate increases for customers if it was forced to purchase the electricity. The utilities commission sided with Xcel, ruling that a purchase agreement wasn’t in the public’s interest.

After a series of appeals, the case was dismissed in 2009.

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