Legalectric

You may ask why they’re so insecure… but you would know if you’ve been paying attention. This project is a “boondoggle” (and we know what that’s the code word for!). But here’s the rest of the story that you aren’t getting in the paper.

There are a lot of heavies opposing this project, of course there’s Xcel, but there’s also Minnesota Power, and even the Minnesota Chamber of Commerce. Minnesota Power’s VP of Utility Operations fired off this missive when word got out that IEDC might endorse the Mesaba Project:

To the Members of the Itasca Economic Development Council:

I do not support the position being proposed by the Itasca Economic Development Corporation for the Mesaba Energy Project.

As Senior Vice President of Utility Operations for Allete/Minnesota Power I have strong opinions on this project based my personal experience in the power generation industry.

Minnesota Power has publicly shared its analysis of the Mesaba Project in testimony filed on September 5th in the current State proceeding on Excelsiorâ??s petition to make Xcel Energy buy the Projectâ??s output. Minnesota Power feels the business and public policy issues with the Project are significant.

A synopsis of our concerns follows in the paragraphs below for your review and thoughtful consideration.

Thank you,

Warren Candy

The Mesaba Project is a proposal without the necessary fundamentals to ensure an economically successful outcome.

It has no rail or coal contracts (~50% of a plantâ??s operating costs) and as we all know it is very difficult to obtain competitive rail delivery and coal supplies to Northeastern Minnesota.

Mesaba would use technology unproven on its fuel of choice and on a major plant scale up, so operating reliability cannot be taken for granted. Its output would be sold through a forced purchase power agreement, and one that, based on the utilityâ??s filed testimony, inappropriately shifts business risks from its developer to utility ratepayers and adds significant financial risk to the utility itself.

Furthermore, Mesabaâ??s environmental promises are not equal to environmental reality. Its emissions essentially are equal to a modern pulverized coal power plant. It has no realistic plan for CO2 capture and storage. Even if Mesaba had a plan for CO2, it could not be executed without permitting and building a pipeline to North Dakota and spending hundreds of millions of additional dollars.

Located in Northeastern Minnesota, Mesaba is not a project with natural, logical economic advantages to support its success. Mining and timber, as examples, have natural resources for production at hand versus Mesaba importing coal to produce power to be used outside of the region.

Additionally, Mesaba would use up already scarce and economically valuable air shed needed to meet permit requirements for viable NE MN natural resource based projects.

Approval of Mesabaâ??s proposed but unexecuted purchase power agreement would subvert the Stateâ??s energy resource planning process, a process which has led Minnesota historically to have competitive, reliable electric supplies that also meet or exceed air and water quality standards.

Approval of the unexecuted Mesaba agreement would favor a specific and speculative generation project with an unknown ultimate cost. Excelsior is seeking to sell Mesabaâ??s power to a utility with no corresponding need. This would be an improper use of the Stateâ??s energy policy for purported economic development purposes, instead of basing a decision on proven resource planning criteria.

Well, that’s telling it like it is. So of course, Tom Micheletti, Mr. Reactive (he should be in nuclear, not coal gasification) couldn’t let Candy have the last word.

Tom Micheletti (stolen from MPR)
Here’s Tom’s letter to the IEDC attempting to counter Candy’s concerns:

September 25, 2006

Peter McDermott
Itasca Economic Development Corporation
12 Northwest 3rd Street
Grand Rapids, Minnesota 55744

Dear Peter:

Warren Candy of Minnesota Power recently sent a letter opposing the Itasca Economic Development Corporationâ??s proposed endorsement of the Mesaba Energy Project. I write to correct some factual inaccuracies contained in Mr. Candyâ??s letter and to provide some background as to MPâ??s stance towards the project. Minnesota Power is the only IEDC member that opposed endorsement of the Mesaba Energy Project. Minnesota Powerâ??s now public opposition to the Project is a disappointment to all Northeastern Minnesotans who care about job creation, economic development, a cleaner environment, stable gas and electric prices and national energy security.

Minnesota Power has also intervened in our case seeking approval of our power contract, as contemplated by state law, before the Minnesota Public Utilities Commission. MP is taking the side of Xcel Energy and others who are opposing the implementation of the 2003 legislation enabling the Mesaba Project to proceed. Minnesota Power has no â??dog in that fight,â? but puts the interests of its utility brethren ahead of those of its customers, the Arrowhead Region, and its public service obligations. This is particularly troubling behavior in the context of a project that furthers critical national energy security goals, and has been awarded significant federal benefits to ensure the project comes to fruition.

Even before this public opposition, MP has been working hard behind the scenes to try to kill the project. These efforts have included an extraordinary attempt to prevent the Project from securing Federal clean-coal funding.

This might be understandable behavior if the project somehow threatened MPâ??s existing plants or core business. The truth is that MP forecasts a significant need for new additional power generating capacity in the coming decade, and will need a lot more power to meet the regionâ??s needs when the new industrial projects on the Range come online. Excelsior is not a competitor for MPâ??s retail customers, but rather will supply wholesale power to the utilities in the State. The utilities in the State all have monopoly territories to serve customers. A new source of wholesale supply is not a threat to that monopoly.

On October 10, Excelsior Energy will be formally responding to Minnesota Powerâ??s September 5, 2006 testimony. I will be happy to send you our entire filing once it is available. In the meantime, the rest of this letter sets the record straight on the allegations made by Mr. Candy.

Coal and Rail Transportation

The Mesaba Energy Projectâ??s innovative technology and physical location provide unique opportunities to hedge against high fuel and transportation costs. The Projectâ??s IGCC technology allows the plant to use a variety of fuels, so it will be able to select the cheapest fuel when the appropriate time to form a fuel contract arrives. Similarly, the Project will be able to use different rail carriers, so it will have much more flexibility in arranging transportation. MPâ??s response is that because they have â??friendlyâ? relations with the BN railroad, this can overcome the advantages our technology and site have to use different rail carriers and different coals. Apparently in stating that two rail lines do not offer a competitive benefit to the project, MP also forgot that in 2001 they themselves were threatening to build a new non-BN rail spur into their Boswell site in order to secure this same advantage. MPâ??s position is also contrary to those it has taken in the past when it lobbied in favor of restrictions against monopoly rail carriers.
Thanks to its technology and carefully selected location, the Mesaba Energy Project will have effective hedges against high coal and transportation costs. How can MP object to something that will be so good for consumers?

IGCC Is a Proven Technology on the Planned Fuel

The Mesaba Energy Project plans to utilize sub-bituminous coal from the Powder River Basin. While there are relatively few IGCC power plants in the world, the LGTI facility in Louisiana, which was the initial forerunner of our IGCC power plant, had extensive experience running on Powder River Basin sub-bituminous coal. The simple fact is that the LGTI facility operated effectively on sub-bituminous coal. Additionally, MPâ??s objections to the IGCC technology fly in the face of companies such as General Electric, ConocoPhillips, and Shell, who not only promote IGCC, but also have made significant investments themselves in the technology. MP apparently hasnâ??t done its homework in this area.

The Proposed Power Purchase Agreement (PPA) Provides Risk Protection That Utilities Cannot Match

Ratepayers begin paying for a utility-owned plant at the beginning of the development process, and are charged significant amounts during the construction period, including during any periods of delay in achieving commercial operation. In contrast, under the proposed Mesaba PPA, Xcel and its customers do not pay anything until the plant is in service and delivering power. The risk that the schedule is delayed is entirely borne by the Mesaba Project.

Ratepayers bear the bulk of the risk that construction costs are higher for a utility-owned plant than what the utility has forecasted, even if regulators require some form of sharing of this risk. In contrast, under the PPA, the price of capacity is fixed before construction starts and any cost over-run will be paid for by the Project.

Ratepayers bear the risk of changes in interest rates for the entire life of a utility-owned power plant. In contrast, the price that will be paid for the capacity under the PPA is fixed for the entire 25-year term of the PPA on the date construction starts, and ratepayers are completely insulated from interest rate risk.

These benefits are in addition to avoiding more exposure to natural gas expense to fuel power plants, and avoiding the pollution associated with traditional coal alternatives.

The Mesaba Energy Projectâ??s Environmental Profile Is Superior

Excelsior is always happy to talk about the â??environmental realityâ? that Mr. Candy references because the facts are unambiguously in favor of the Mesaba Project. Here again, it is obvious that Mr. Candy and MP have apparently not done their homework on IGCC and its superior environmental advantages. Leading environmental groups around the country support the deployment of IGCC and totally oppose the old technology that MP wants to build in North Dakota. A quick look at the chart below tells it all. Even after MP spends hundreds of millions of dollars to clean up its Clay Boswell station, it will still not come close to the emissions profile of our plants.

Coal-Fired Power Plant Emissions

(This chart compares a New Conventional Coal Plant; Clay-Boswell (Post-Retrofit); Mesaba IGCC; and Increased Emissions: Conventional Coal vs. Mesaba IGCC)

Sulfur Dioxide 2,500 7,410 695 (90% less than Clay Boswell) 260%
Nitrogen Oxides 2,000 6,660 1,440 (78% less than Clay Boswell) 39%
Carbon Monoxide 3,240 N/A 1,270 155%
Particulate Matter 320 690 250 (64% less than Clay Boswell) 28%
Mercury 100 134 54 (60% less than Clay Boswell) 85%

Mercury figures are in pounds per year; all other figures are in tons per year.
Emissions from non-Mesaba plants reflect a plant equal in size to Mesaba Unit 1, with all plants operating at a 100% capacity factor. The â??New Conventional Coal Plantâ? is a hypothetical new conventional coal plant using the most up-to-date pollution control features available.

Unlike conventional coal plants, IGCC power plants are adaptable to economically capture and sequester carbon dioxide. Therefore, IGCC plants are an important part of any realistic plan to reduce greenhouse gas emission in our nation. Excelsior is co-sponsoring a study that is examining the potential for sequestering carbon dioxide in the region. Further, unlike conventional coal power plants, the Mesaba Energy Project at the very least has an identified strategy of dealing with future carbon regulations. Minnesota Power has not made any real efforts to develop plans to shelter its customers from the rate shock associated with limits on carbon dioxide emissions, even in the face of many in its own industry that are saying that greenhouse gas legislation is only four or five years away. The state of Californiaâ??s action just weeks ago should be a clear warning to everyone. Without a carbon plan, MPâ??s only option will be to simply try to buy credits from others and pass the costs on to its customers.

Northeastern Minnesota Is a Great Place for Electric Power Generation

The Mesaba Energy Project will benefit from the natural features and infrastructure that the region offers. The plant location is:
– Located near ample water supplies (and will help ease pumping expenses from abandoned mine pits that are currently shouldered by taxpayers)
– Located on a rail line that allows access to two carriers
– Located near natural gas and transmission infrastructure

If Mr. Candy is suggesting that the regional economy should rely solely on mining and timber, Excelsior disagrees. While the mining and timber industries have been and will continue to be critical industries in the region, the economy will benefit from new companies that diversify our regionâ??s industrial base while providing 1000 construction jobs and over 100 good-paying permanent jobs. Finally, it is strange that the Senior Vice President of Utility Operations for Minnesota Power, which owns over 1200 MW of coal plants in northeastern Minnesota, is arguing that the region is inappropriate for coal-fired electric generation. At the same time MP criticizes the location and everything else about the Mesaba project, which will be cleaner than any existing coal plant in the world, MP is laying plans to build a dirty coal plant in North Dakota, where it can sell coal from its own mine to benefit its shareholders, pollute the air, avoid Minnesotaâ??s strict environmental laws and regulation, draw dollars and jobs out of our state, and block economic growth in Northeastern Minnesota. All this from a company that was granted a franchise monopoly by the Minnesota legislature â?? in exchange for an agreement to serve the public interest.

The Mesaba Energy Project Is Part of a Thoughtful Energy Policy Set by the Minnesota Legislature

Recognizing the need for environmentally friendly, coal-fired, base load generation in the state, the Minnesota Legislature passed laws in 2003 to encourage the development of the Mesaba Energy Project. Further, the U.S. Department of Energy selected the Mesaba project for funding in a nationwide competitive selection process, in which MP competed. There is nothing speculative about the project: IGCC is a proven technology that will provide electricity at a hedged, predictable cost under a long-term power purchase agreement with Xcel Energy.

Excelsior Energy appreciates the effort that Itasca Economic Development Corporation has put into promoting the Mesaba Energy Project, and we look forward to continuing to work together to make this positive development for the Range economy a reality. We would be honored to have your endorsement.

Sincerely,

Tom Micheletti

Too bad he didn’t send them the Chamber of Commerce testimony in opposition to it… but I guess that’s my job.

Here’s the Minnesota Chamber testimony for those of you who haven’t read it:

Rebuttal Testimony

mcc-blazar-reply-testimony.pdf

and the Surrebuttal, and it’s a BIG file:

(It’s not here, too big!)