(Greetings from Grand Island, NE, half-way through Nebraska.  It’s changed so much here, there are irrigation systems all over that were not here when I was here a couple times a month blasting through to one coast or the other.  Another thing that wasn’t around then — sit down… BOSSELMAN TRUCK STOP HAS HUGE SOLAR PANELS, HOT WATER SOLAR.  Like WOW!!!  I’ve got a photo but can’t download in here, will post tonight.)

Perhaps it’s the reality, or NON-reality, of carbon capture and sequestration of coal gasification’s CO2 that’s giving Excelsior’s Tom Micheletti indigestion:

BusinessNorth Exclusives
Mesaba Energy faces uphill fight

by Beth Bily

Mesaba Energy, one of the most hotly debated and contested initiatives in recent Northeastern Minnesota history, faces a new obstacle.

A Jan. 5 letter from the Minnesota Department of Commerce asserts the project should be modified to fall within the scope of public interest, a stance signaling the agency is lining up with other business interests against the project.

The letter surfaced in the public comment period following a series of hearings around the state in December to take public testimony whether Minneapolis-based Xcel Energy should be required to buy power to be produced at Mesaba Energy.

A special 2003 state law commits Xcel to a power purchase agreement to buy 450 megawatts of generating capacity from Mesaba Energy. An agreement with a dedicated buyer is critical for the project to proceed.

Project developer Excelsior Energy already is encountering stiff opposition from business interests to its plan to build the Upper Midwest’s first coal gasification electric generating plant at a site north of Taconite in northern Itasca County. The developer has identified a location near Hoyt Lakes as a secondary choice.

Some of the state’s biggest business heavy hitters — the Minnesota State Chamber of Commerce and Minnesota Power, as well as Xcel — are criticizing the project, citing potential costs to ratepayers.

Meanwhile, project advocates tout the economic benefits for a host community with above average poverty and a dire need for economic development. Excelsior is proposing Mesaba One— the first of as many as six coal gasification generating plants it wants to build — as a 600-megawatt operation. With Mesaba One would come about 100 permanent jobs and 1,000 construction jobs during a three-year construction phase.

In his letter to the two administrative law judges who conducted the public hearings, deputy commerce commissioner Edward Garvey, who heads its Energy and Telecommunications Division, suggests three major modifications to the power purchase agreement required by the 2003 project legislation. The law judges are charged with recommending terms of the agreement to the Minnesota Public Utilities Commission, which has final regulatory authority.

In his letter, Garvey proposes:

• Limiting Xcel’s purchase requirement to 450 megawatts as is written in 2003 legislation.

• A fixed “all-inclusive” annual price that Xcel will pay at $110 per megawatt-hour, and a requirement that the project capture or “sequester” 90 percent of the plant’s carbon emissions.

• Additional terms protecting ratepayers from “any performance failures” of the Mesaba project.

The gasification technology proposed would turn coal into a synthetic gas before it is burned to produce electricity. Tom Micheletti, co-chief executive of Excelsior Energy, has 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.

Charlotte Neigh, co-chair of CAMP (Citizens Against the Mesaba Project), which was formally organized in Itasca County in 2006 in opposition to the project, views the Department of Commerce position as “huge.

“This (project) is not going to happen. The Minnesota Department of Commerce is withdrawing its support without directly saying so,” she said.

In a telephone interview, Micheletti said he was a bit surprised by Garvey’s position, adding his stipulated modifications — particularly the 90 percent sequestration, or capture of carbon dioxide — are not reasonable.

“To suggest that we do something that no one else has ever done (90 percent carbon capture) and cap the costs, seemed a little over the edge,” Micheletti said. “Our project is no different than any other project, you don’t know exactly what the costs will be until the (engineering) work is done.”

Opposition is gaining momentum as the project moves through the permitting and review process. Opponents charge the proposed gasification technology hasn’t proved itself, leaving both ratepayers and the environment at risk.

The project also has staunch supporters. The federal government is offering up to $800 million in loan guarantees, and the U.S. Department of Energy has awarded a $36 million “clean coal” technology grant.

The state of Minnesota also is supporting the project with $12 million in bond financing to Itasca County for infrastructure improvements for both the Minnesota Steel and Mesaba Energy projects. In addition, Iron Range Resources, a state agency, has approved a $10 million loan for start-up costs to move the project forward.

While expressing support as a “worthy and important project, the Garvey letter seems to weigh in with the gathering economic-based opposition: “…the Department concludes that the current price, terms and conditions of the Power Purchase Agreement (PPA) as filed by Excelsior with the Minnesota Public Utilities Commission on Dec. 27, 2005 are not reasonable. The direct PPA costs payable by ratepayers are not yet balanced by ratepayer benefits. Plus, the indirect financial risks to ratepayers are too high. For these reasons, the proposed PPA is not yet in the public interest.”

The Commerce Department will not directly decide the fate of the proposed PPA, but is charged with ensuring the purchase agreement meets the requirements of state statute.

The administrative law judges will file a recommendation with the state Public Utilities Commission on the proposed power purchase agreement by the end of February. The regulatory agency, which has final authority in the matter, is expected to make its decision sometime this spring.

Beth Billy is a freelance writer in Itasca County.

Here’s the Garvey policy statement that they’re referring to, and it wasn’t part of the Public Comment section, it was attached to the Brief, and is not part of the evidentiary record in the PPA docket:

Garvey Policy Statement attached to Initial Brief

When even the Dept. of Commerce analysis determines it’s not in the public interest, when the big Minnesota Power ratepayers are very concerned about the impact on their businesses, and they are the big employers in the area, when Xcel the utility Excelsior wants to force into this PPA objects, perhaps there’s a rational reason for those objections, those beliefs. Excelsior doesn’t offer the benefits claimed, it’s one big detriment to the area, to the public, the ratepayers, to taxpayers…

The Business North story goes on with some background:

Mesa Energy history, details

The technology Excelsior proposes was developed by ConocoPhillips and would convert coal into synthetic gas with many pollutants removed prior to burning, according to the developer.

Excelsior executives assert the process reduces many emissions by about two-thirds compared with other coal-fired technologies, and removes more than 90 percent of mercury.

In 2003, the Minnesota Legislature passed a statute providing significant incentives for the so-called clean coal technology as well as the requirement that Xcel purchase such power, subject to Minnesota Public Utilities Commission approval.

Two administrative judges will make a recommendation on the PPA based on information gathered at public hearings to the Minnesota PUC, which will have the final say on the PPA as is was proposed by Excelsior in December of 2005.

Two items in that 2003 legislation will allow for significant interpretation by the judges and the PUC are: that the project is a “least-cost resource” and is in the “public interest.” That proposed PPA, if approved by the PUC, would provide the needed dedicated buyer for the energy produced – without that, the project will not move forward.

Economic impact

Itasca Economic Development Corp., the Itasca County Board of Commissioners and the Range Association of Municipalities and Schools, all endorse the project. Supporters argue construction and operation of the Mesaba plant would have profound economic impact on an area of the state badly in need.

Iron Range Resources Commissioner Sandy Layman said the state agency was an early supporter of sorts, providing funding for start up work with its $10 million loan.

“The potential for significant economic investment like Excelsior merits our attention. And, participating in the deployment of alternative energy is an exciting prospect,” she said. “It is from both of those angles that Iron Range Resources is interested in this project.”

Peter McDermott, president of Itasca Economic Development Corp., long has noted the county’s high poverty rate and need for better paying jobs. His group commissioned a study by the University of Minnesota Duluth Labovitz School of Business and Economics’ Bureau of Business and Economic Research assess the project’s impact on Itasca County.

Released in April 2006, the study concluded the Mesaba project would generate a $1.4 billion economic impact — $1.0 billion during the three-year construction phase.

Once in operation, the plant would create 107 permanent jobs and support another 137 jobs indirectly through vendor purchases and retail expenditures by those plant employees.

Criticism of the project during the December public hearings in St. Paul, Hoyt Lakes and Taconite focused on the economic costs as well as benefits.

Neigh and other CAMP members charge the development corporation’s inquiry didn’t go far enough because it failed to identify project costs.

“It’s not a cost-benefit analysis,” said Neigh. “We think the burden alone should be on Excelsior to show the benefits.”

The UMD study’s several disclaimers include a recommendation that policymakers address the project’s broader impacts. “Readers are encouraged to remember that the (bureau) was asked to supply an economic impact analysis only. Any subsequent policy recommendations should be based on the ‘big picture’ of total impact. A cost-benefit analysis would be needed to assess the environmental, social and government impacts.”

Big business opponents have seized upon that lack of big picture analysis, particularly the project’s statewide impact.

At the public hearings, Xcel executives testified requiring the power purchase agreement could result in an 8 to 12 percent increase for ratepayers. Minnesota Power also has objected, contending transmission lines and other infrastructure for moving the power to Xcel could cost its ratepayers, as well.

Whether the Public Utilities Commission will include Garvey’s recommendations in a power purchase agreement isn’t clear.

While the 2003 state law stipulates 450 megawatts, it also authorizes the commission to modify that number, said Tom Micheletti of Excelsior Energy, the project developer. He maintains engineering work completed for Excelsior concluded 600 megawatts is the most efficient number for operation. He also noted the 450 megawatt figure was selected as a 2003 baseline when the law was written, based upon Xcel’s actual need in 2003, included in its 2010 projections.

While costs for 90 percent carbon capture are unknown, they will be very expensive, he said. A document filed with the commission by Xcel estimates that cost in excess of $800 million.

The 2003 law does not stipulate 90 percent capture, but that Excelsior, “make a good faith effort to secure funding from the United States Department of Energy and the United States Department of Agriculture to conduct a demonstration project at the facility for either geologic or terrestrial carbon sequestration projects to achieve reductions in facility emissions or carbon dioxide.”

Micheletti said Excelsior has submitted a plan to capture 30 percent of carbon dioxide. But he concedes further limits were coming.

“In a sense, we agree (with Garvey) we just don’t know how fast we can get there,” he said.

Despite the increased scrutiny, Micheletti remains optimistic a power purchase agreement will be approved.

“I’ll take (Garvey) at his word that he wants to move this forward,” said Micheletti, interpreting the suggested modifications as a beginning point for further negotiations.

IRR’s Layman also believes the proposed Commerce Department modifications aren’t insurmountable obstacles.

“Minnesota has a rigorous regulatory process and (this is) evidence of that process,” she said. “We leave it to the regulatory agencies who have a role in protecting the public’s interest.”

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