Legalectric

Kevin Diaz,Star Tribune Washington Bureau Correspondent

July 5, 2005

WASHINGTON, D.C. — Ron Gustafson’s dream of a placid retirement on Big Diamond Lake in northern Minnesota is caught in a fractious congressional debate over a national energy bill.

Alongside acres of pine and crystalline water, the St. Paul retiree might be getting a new neighbor: the Mesaba Energy Project, a coal gas power plant with smokestacks and coal trains originally destined for an abandoned industrial site 50 miles away.

Billed as environmentally friendly, the project had been planned for a shuttered steel plant in Hoyt Lakes. But that was before the taconite industry began showing signs of resurgence.

That good news for the industry has become looming trouble for cabin owners around Big Diamond and Dunning lakes in Itasca County.

Owners of the proposed power plant have acquired the rights to 1,000 wooded acres there, in a remote part of the Iron Range once owned by U.S. Steel.

“It’s like any Minnesota lake place,” said Gustafson, who built a retirement home on the lake with his wife 10 years ago. “We were hoping to spend a whole lot of time here when we retire.”

Those plans could change with passage of the energy legislation before Congress. The version of the bill the Senate passed late last month contains unspecified loan guarantees for the $1 billion Mesaba Energy Project, a 500-megawatt power plant that supporters say will generate hundreds of jobs.

Those jobs have been the Mesaba’s biggest selling point on the economically depressed Iron Range. But another attraction has been reusing the old steel plant.

“It was going to be wonderful because the company was going defunct, and they were going to reopen the land and put jobs there,” said state Rep. Alice Hausman, DFL-St. Paul, who opposes the plant. “Well, surprise, surprise. The price of steel goes up, the mining company has zero interest in talking to them, and now they have to go to pristine land on scenic Highway 7.”

Community support

The Mesaba Energy Project already has gained more than $55 million in state and federal aid. That funding arrived before the project’s owner, Minnetonka-based Excelsior Energy Inc., announced in June that it had secured the Itasca County site from RGGS, a Texas land and mineral management company.

The project has received strong community support on the range, but there’s not much of a welcome mat now around Big Diamond Lake.

Earl Orf, a wildlife photographer who homesteads a log cabin in the area, calls it “a very nice, quiet and peaceful place.”

The plant’s potential location change is likely to ignite a new debate about the state funding it is receiving.

The Itasca County Board of Commissioners approved a resolution in June seeking $42 million in state bonding money to develop the new site proposal, which will not be completed until August.

The St. Louis County Board approved a similar resolution last month for the same amount of money to support one of three potential sites for the new plant, including the one in Hoyt Lakes, which is still a possibility.

Those requests follow a hotly debated decision this year in the Minnesota Legislature to give Excelsior Energy $10 million for solar, wind and other renewable energy projects.

“The new location is probably something that will add some concern to whether or not we get to where we want to go,” said state Sen. David Tomassoni, DFL-Chisholm, one of the energy project’s leading supporters. “But the fact is, it’s pretty well on its way now.”

The project has already received $9.5 million from the Iron Range Resources and Rehabilitation Board and $36 million from the U.S. Department of Energy to pursue new technology that turns coal into gas before burning it to produce electricity. Proponents say it is cleaner than traditional coal-fired plants.

U.S. Sen. Norm Coleman, R-Minn., and Rep. Jim Oberstar, D-Minn., have been instrumental in pressing for the federal loan guarantees for the new plant, which would help Excelsior Energy line up as much as 80 percent of the start-up capital it needs.

U.S. Sen. Mark Dayton, D-Minn., another supporter, said any decision on location should be made “by the company, the communities and the local and state officials involved.”

Local officials are not quibbling much about where the plant goes. “An Iron Range project is an Iron Range project,” said state Rep. David Dill, DFL-Crane Lake. “We need the economic development.”

Until now, opposition to the new plant has come mainly from environmentalists questioning the benefits of the new coal technology and from congressional watchdog groups who say the federal money being devoted to it is excessive and risky for taxpayers.

But the newest player in the debate is resurgent steel economy, which has rekindled interest in new mining and taconite projects at the former plant in Hoyt Lakes. It closed in 2001 and cost the area 1,000 jobs. The steel economy’s improving fortunes have forced Excelsior Energy, led by former Hibbing hockey star Tom Micheletti, to look around Big Diamond Lake.

Eminent domain

“Most of the site is unpopulated,” Micheletti said. “There are only a dozen or so properties that would be affected, and most of them are seasonal cabins.”

Although the Legislature has granted the project powers of eminent domain, Micheletti said he hopes he can come to terms with property owners who want to sell.

Since Congress appears close to approving the loan guarantees for the plant, and since Micheletti has won support in the past in the Minnesota Legislature, Gustafson said he has little hope of keeping the plant far from Big Diamond Lake.

“This whole thing is like a locomotive going down the tracks,” he said.

Kevin Diaz is at kdiaz@mcclatchydc.com.