Published August 12, 2007 in the Hibbing Daily Tribune
When it comes to “job creation” projects in this region, most Iron Rangers take a well-worn wait and see attitude. After all, big shots have promised economic diversification since the beginning of our economy. We’ve seen a defunct chopsticks factory, tech centers that became defunct telemarketing centers and a decade-long attempt to turn our local peat bogs into fuel. Our hopes have been raised, dashed, raised and dashed again.
We’ve seen some success, yet today natural resources like taconite and wood products still provide the backbone of our local economy. No one has figured out how to solve that problem. We’ve survived because our unique state agency – Iron Range Resources – draws many millions each year in taconite taxes (in lieu of the property taxes that mines used to pay to our towns and schools) to build our communities and stimulate economic development.
The leaping and lurching nature of our economy produces either great victories or great failures. In 2001 and the years after, many leaders were almost in despair over the shutdown of several local mines, including the permanent closure of LTV. It was at this time that local officials on the IRR board gave or loaned almost $10 million to a group of lawyers and lobbyists calling themselves Excelsior Energy. It was an act of unmitigated trust in a company that has never produced a single kilowatt of power.
On Aug. 2, the Minnesota Public Utilities Commission voted to reject the power purchase agreement needed by this startup company to build Excelsior’s Mesaba Energy Project. The project is a large proposed power plant near Taconite that promises experimental new coal technology that would burn cleaner than traditional coal-fired plants. While commissioners endorsed the technology, they declared the proposal to be far too expensive and risky. They ordered Excelsior to continue negotiating with the big utilities to fix the problems, but those utilities have no reason to change their longstanding opposition.
Excelsior Energy gambled – almost successfully – that authorities would blindly accept a project that brought jobs and the promise of cleaner energy production to the Iron Range. But, in reality, this project failed the people.
Excelsior and many local, state and federal leaders of both parties failed to make a plan that would produce energy at a competitive price. They failed to honestly explain or question the logistical difficulties of building a large experimental coal gas plant in a place hundreds of miles from the necessary coal mines, carbon sequestration sites, and markets that need the power right away. Worse yet, Excelsior took subsidized loans and grants from the Iron Range people and used it to cover nearly all of their corporate spending.
Public documents from Iron Range Resources show how Excelsior is spending the $9.5 million Iron Range Resources loan from 2003 to present. It would appear that for years the loan funded nearly every aspect of the business – payroll, offices furnished with expensive décor, right down to their subscription to the “Wall Street Journal.” It seems there’s very little private money in this project at all. In addition, both the IRR and federal government have given millions in grants while the state provided many unprecedented shortcuts in environmental and regulatory laws.
The outcome of Excelsior’s spending of public funds is murky. Hundreds of thousands of dollars from the IRR loan went to consulting firms and legal offices in the Twin Cities – literally too many to list here. Certainly, much of that paid for legitimate expenses, but we have no accounting for how that money was spent or who exactly benefited from the spending. Or for that matter, who pays for the many Excelsior lobbyists who patrol the halls of the State Capitol each session.
I know who this spending doesn’t benefit: the people of the Iron Range. This project is a combination of the worst parts of socialism and capitalism. It relies on public money to survive while protecting a private company from market forces.
Excelsior officials will say that the IRR loan has a high interest rate and that they intend to pay it back. But the actual loan agreement is the legal equivalent of Swiss cheese, full of delicious holes. Furthermore, Excelsior is banking on getting PUC approval this year to receive generous federal tax credits. They also need the agreement to open federal loan guarantees so they can continue spending money. In reality, Excelsior probably won’t get PUC support this year for an Iron Range plant, despite what their officials say in the media. The whole project is and always was a long shot. Our state leaders should have created more protections for the money and the possibility of the company’s failure or alteration of their original proposal. Instead many accepted legal campaign donations from Excelsior’s lobbyists while giving the green light to any shortcut, regulatory change or funding request they were presented.
We Iron Rangers allowed the desperation of the early 2000s create this ugly, expensive mess. This “company” has spun the many virtues of coal gasification while, from day one, lacking the money necessary to build the super-clean, super-efficient plant implied. Everybody’s power bill goes up a little if the plant works, a lot if the plant fails (another risk in this new technology). My biggest fear is not a new power plant on the Iron Range, but a failed project. This project was always a tremendous risk. Anyone with Google could have found that out for themselves in 2002.
I know this is a complicated issue. We need jobs. We will, eventually, need more energy production in northern Minnesota. We shouldn’t do it this way. The Mesaba project, while claiming innovative technology, is actually just an innovative way to shield entrepreneurs from risk. Government should regulate and, when appropriate, aid private industry; they shouldn’t provide nearly all the startup capital. In short: Excelsior Energy’s proposal remains a risky boondoggle.
The people of the Iron Range deserve better. With a new, focused effort on homegrown economic diversification and infrastructure improvements, we can show the world what the word “innovation” really means. It’s up to the people who live here to take renewed interest in making the Iron Range open and competitive in the modern economy. We’ve just learned a very expensive lesson in what not to do ever again. I hope.
Aaron J. Brown is a columnist for the Hibbing Daily Tribune.