Published Sept. 28, 2008 in the Hibbing
Daily Tribune
A bad idea that got way too big
By Aaron J. Brown
This column has a simple message. Just after the turn of this 21st
century, the Iron Range bought into the hype of a startup company
called Excelsior Energy and its Mesaba Energy Project. As a result,
today more than $20 million in Iron Range, state and federal tax
dollars may have been wasted. Most involved had the noblest of
intentions. Many had no idea what was going on. Lobbyists, free steaks,
booze and other incidentals were paid for by money that could have just
as easily paved streets, fixed sewers or helped dozens of local small
businesses. Now there’s very little that can be done to restore the
funds and the chances of the original project succeeding remain
dubious. While supporters of the project will surely disapprove of my
choice of words, the people of the Iron Range should be outraged over
this wasteful failure.
Recent newspaper stories described an audit released Thursday by the
Minnesota Office of the Legislative Auditor. That audit reviewed three
specific complaints about the spending of $9.5 million in loans by Iron
Range Resources to Excelsior Energy issued in 2001 and 2003. Among
them: inappropriate use of loan funds, the arbitrary extension of loan
payment deadlines by the commissioner and potential double dipping
between state and federal loans.
The latter two charges were dismissed by the auditor, but the first –
that Excelsior used Iron Range Resources loan funds inappropriately –
was deemed true. About $40,000 was reimbursed for meals, alcohol, hotel
stays and other administrative misdirections. News accounts focused on
this small amount of money, but most in the local media missed the big
picture. Another large amount, at least $126,000 was used for lobbying
expenses, a direct violation of the loan agreement’s intention. The
actual amount of lobbying was probably much higher because several key
members of Excelsior’s staff and leadership are registered lobbyists.
There’s just no way to know how much lobbying was done by Excelsior,
except to note that the company engaged in a massive amount of
influence-peddling paid for by unknown sources. Today, 18 lobbyists are
registered for Excelsior Energy in Minnesota, all working for the past
four to five years for a company that has never produced any energy.
These lobbyists were paid more than $1 million, according to reporting
data.
Here’s why it’s so bad to use public money for lobbying. They took your money and used it to ask your
representatives in St. Paul and Washington, D.C. for more of your money. That, and to
encourage the passage of a state law that would force another power
company to buy overpriced electricity from Mesaba under a prescribed
set of conditions. Along the way, Excelsior officials used loan funds
to pay for their steaks, alcohol, Ikea furniture and subscriptions to
the Wall Street Journal. As
near as anyone outside the company can
determine, including the auditors, the only private money invested in
this project so far was the original $60,000 investment from the
Excelsior’s co-CEOs Tom Micheletti and Julie Jorgensen. That $60,000
begat the $9.5 million in loans from Iron Range Resources, which begat
tens of millions more in clean energy grants from the federal
government and millions more from the state or state-mandated private
funds.
The Mesaba Project is a very large proposed coal-fired power plant that
would be located near Taconite in Itasca County. The plant, according
to the company, would use new cleaner coal gasification technology.
This technology has yet to be proven in large scale power plants and,
according to Excelsior’s proposal, would not be able to immediately
capture the carbon as promised without massive additional financing
above the project’s already monumental $2.3 billion price tag.
Accordingly, the state PUC has all but killed the project by denying it
a mandatory power purchase agreement with Xcel Energy, though Excelsior
continues to fight this battle (again with the vociferous use of
lobbying and public relations).
Five years ago the Iron Range was reeling from steel company
bankruptcies, mines were closing all around us and people felt like the
bottom was dropping out. Iron Range Resources, its GOP
governor-appointed staff and its DFL elected board, shared a sense of
urgency to create new jobs. And without much independent research about
the company, its structure, the technology involved or the construction
of the loan agreement, leaders of both parties gambled $9.5 million of
one-time taconite revenue on the longest of long shots.
There are three options for a way forward: two of them bad, the other
probably impossible. 1) Iron Range Resources can call in the first
payment for Excelsior’s first loan this December. If Excelsior doesn’t
have it, the company declares bankruptcy; 2) Iron Range Resources
extends the deadline for the first payment again, and potentially again
and again, forever and ever and ever; or 3) Excelsior Energy produces a
customer, permits and private investors. Unfortunately, with the
national trend toward renewable energy, clean coal technology’s shaky
footing in the marketplace, and this company’s inability to function
without public subsidy, that last one is the least likely of the three.
Officials at Iron Range Resources seem appropriately chagrined at these
findings. Commissioner Sandy Layman has vowed to correct their loan
granting process for projects like these in the future. That’s good,
but doesn’t help us get our money back or create a single job. Unless
you’re a lobbyist.
Aaron J. Brown is a columnist for the Hibbing Daily Tribune.
Contact him or read more at his blog, MinnesotaBrown.com.
His new book “Overburden: Modern Life on the Iron Range” is
in stores now.
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