BusinessNorth Exclusives
Mesaba Energy proposal gets mixed reviews

by Beth Bily

TACONITEâ?? Public comment on a power purchase agreement for the Mesaba Energy Project in Taconite Wednesday evening was civil. But it was obvious that proponents for and opponents against building the $2 billion power plant in Itasca County have passions that run deeply.

The Dec. 20 public hearing held by the Minnesota Public Utilities Commission was one of six it scheduled around the state this week (two in St. Paul Monday and two in Hoyt Lakes on Tuesday). The purpose was to gather public comment on whether the regulatory agency should require Minneapolis-based Xcel Energy to buy the power produced from the proposed coal gasification plant. As proposed, the projectâ??s first phase would be built with 600 megawatts of generating capacity.

The gasification technology would first turn the coal into a synthetic gas before it is burned to produce electricity. Tom Micheletti, co-chief executive of Excelsior Energy, the Mesaba projectâ??s parent company, said gasification will reduce mercury emissions by at least 90 percent compared to conventional coal-fired plants, and remove a very high percentage of sulfur prior to the synthetic gas burning process. If it moves forward, the project is expected to bring about 100 permanent jobs and 1,000 construction jobs during a three-year construction phase. A purchase power agreement, or dedicated buyer of the electricity produced, however, is needed if the project is to proceed.

About 200 people turned out for the Wednesday evening hearing, following the afternoon session that drew another 100. The majority of the public comment was against the project. The technology can â??sequesterâ? or capture carbon dioxide (CO2), the biggest contributor to global warming among the so-called â??greenhouseâ? gases.

But opponents noted Excelsior Energy has no immediate plan to contain CO2, and cited concerns about other emissions, as well. They also expressed skepticism about the potential economic benefits from the project versus the price of construction, estimated at $2 billion. Several also noted the 2003 state law providing significant project incentives was enacted with the assumption a plant would be located on the East Range near Hoyt Lakes at the former LTV Steel Mining site.

Although mercury was a topic of discussion, much of the environmental concerns centered on carbon dioxide emissions and Excelsiorâ??s openness of late to capture CO2 emissions and send them by pipeline to underground storage points in North Dakota. The costs of such disposal are not estimated in the project proposal, said Ross Hammond, representing, a Web site long critical of the project.

Many other critics have surfaced in recent months, testament to increasingly organized opposition led by CAMP (Citizens Against the Mesaba Project), formed in Itasca County earlier this year.

Though not discussed much at the hearings in Taconite, there has been significant criticism of the 2003 state law favoring the siting of a coal-gasification project on the Iron Range. Among its provisions: the right of eminent domain for new transmission lines to provide service to Xcel, and an exemption from a certificate of need normally required for new power generation plants.

Project advocates also turned out to tout the economic benefits for an area with above average poverty â?? about 10 percent countywide â?? and a dire need for economic development.

Mike Andrews, a local resident and business development specialist for Itasca Economic Development Corp., countered criticism that the shift in preferred location from Hoyt Lakes in August 2005 to just north of Taconite represents a move from a brownfield to Greenfield site.

â??The land around this (Taconite) site is mostly owned by mining companies, this is not a pristine wilderness,â? said Andrews. â??Times have changed, weâ??re now in bad timesâ?¦we need a better quality of life.â?

The Mesaba Energy project has received major support from local and federal governments, as well as the state. With help from U.S. Sen. Norm Coleman, Excelsior Energy secured $800 million in federal loan guarantees and a $36 million â??clean coalâ? grant in the last federal energy bill. The Itasca County Board, Itasca Economic Development Corp. and the Range Association of Municipalities and Schools all have publicly endorsed the project.

Meanwhile, it also would benefit from $55 million in state infrastructure bonds approved by the 2006 Minnesota Legislature for this project, and the planned Minnesota Steel plant nearby.

But Excelsior Energy also faces opposition from some of the stateâ??s biggest business heavy hitters. Xcel Energy, the Minnesota State Chamber of Commerce and Minnesota Power are criticizing the project, citing potential costs to ratepayers. The city council in Cohasset, home of Minnesota Powerâ??s Clay Boswell plant, has remained neutral.

In the end, the Minnesota PUC hearings this week were focused on the power purchase agreement that Xcel itself supported as the 2003 state legislation was enacted, not the entire gambit of issues that surround the project. That decision likely will come down to how the PUC interprets the 2003 law.

Micheletti said the legislation clearly requires Xcel to negotiate a power purchase agreement.

The statute stipulates that a commission designate a â??clean energy technology,â? defined as â??a technology utilizing coal as a primary fuel in a highly efficient combined-cycle configuration with significantly reduced sulfur dioxide, nitrogen oxide, particulate and mercury emissions from those of traditional technologies.â? Further, it declares â??the utility that owns a nuclear generating facility shall supply two percent of the electric energy provided to retail customers from clean energy technology.â?

Xcel owns all three nuclear generators located in Minnesota, according to the U.S Department of Energy.

â??The outcome is gong to be favorable, all youâ??ve got to do is read the (2003) statute,â? said Micheletti, adding he believes any fifth grader would interpret the law in his favor.

But, other provisions in the law offer considerable room for interpretation.

It grants the Public Utilities Commission authority to waive the power purchase requirement if â??the commission finds doing so contrary to the public interest.â?

Other restrictive wording requiring the finding that the â??clean energy technology is or is likely to be a least-cost resourceâ? also could give Xcel an out on a power purchase agreement.

At the Taconite hearing, Xcel representative Chris Clark said the Mesaba Energy Project â??doesnâ??t satisfy the requirements from the legislationâ? as a least-cost resource.

Clark also said a power purchase agreement would require Xcel customers to pay an additional $1.5 billion in higher rates. According to the St. Pioneer Press, Xcel estimated those costs at the Monday hearings in St. Paul as equivalent to an 8 to 12 percent rate increase.

Micheletti said his project wonâ??t die if the PUC fails to approve a power purchase agreement with Xcel. In that case, he said he would pursue a second power purchase agreement.

An administrative law judge will combine the public comment gathered this week as well as written testimony on the power purchase agreement and make a recommendation to the Minnesota Public Utilities Commission in February 2007. The PUC will make a determination from there.

Meanwhile the draft Environmental Impact Statement for the Mesaba Energy project is scheduled for release in February.

If the project clears the power purchase agreement in addition to a number of other regulatory hurdles, current timelines have construction of the first phase of the project starting in the first quarter of 2008, and electricity production commencing in 2011.

Plans also call for a second plant in operation by 2013.

Beth Bily is a freelance writer based in southern Itasca County.

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