King Coal may find his throne on Range

Editors note: The need for electric power and its force in economic development is one of the few constants in the Northland economy. Just as certain is the controversy that energy projects create as they move through the planning and permitting ...

Editors note: The need for electric power and its force in economic development is one of the few constants in the Northland economy. Just as certain is the controversy that energy projects create as they move through the planning and permitting process.

New clean coal technology, job creation, increased tax revenue, environmental concerns and utility competition will be explored in this series on "Energy in the Northland." This series will also look at a Florida county that welcomes power plants as a growth industry, along with proposed plants in Minnesota and Wisconsin, how clean coal technology works and the controversial Arrowhead-Weston power line project that will soon be back in front of state regulators.

King Coal, long the bad boy of energy and an environmental scapegoat, is being recast in a new role on the Iron Range.

Persistence, politics and technology could make the black rock fuel the next harbinger of Iron Range economic development.

As the last century closed, coal had a questionable future as America's main fuel for firing up power plants. Minnesota was especially wary, taking a critical look at coal emissions, global warming and air pollution.


But things changed, according to author and former Minnesota assistant state attorney Barbara Freese, who dealt with pollution laws.

"Then coal won the triple crown," she wrote. "Bush was elected, the price of natural gas briefly but dramatically spiked, and California's energy crises scared the nation."

Her book, "Coal, A Human History," traces the history of the mineral in a mixed-blessing form, stopping well short of seeing a bright future for "the most American of fuels."

And early this year, the Minnesota Pollution Control Agency continued pointing a finger at coal as the state's main source of greenhouse gases, which contribute to global warming. Some environmental groups concur and also claim burning coal is the single largest source of mercury emissions.

But on the Iron Range, with a culture more akin to large, loud, machine industry that taps local labor and transforms natural resources, a coal-fired power plant makes sense to local officials still reeling from jobs cuts in mining.

Tom Micheletti, co-president and CEO of Excelsior Energy, points that out as he talks about the Mesaba Project. It's a simple dream with a thousand details. Get government support, raise a billion and a half dollars, then build a clean burning coal fueled power plant that will create jobs and stimulate economic development.

The Mesaba project is the name for Excelsior's planned Iron Range power plant.

The plan calls for using a process called coal gasification, part of a generation of new power plant systems designed to burn coal while sparing the environment. It would be located on former LTV Mining property and already has a large customer, local support and considerable outside interest.


It also has skeptics.

On May 29, Gov. Tim Pawlenty signed energy legislation that will help start the Mesaba Project and ensure its future. Speaking in Duluth two weeks later, he lauded it as an opportunity to help diversify the Iron Range economy.

The measure provides regulatory and financial incentives for an "innovative energy project" that uses coal as a primary fuel to be located in the taconite relief area. The project's planned location is the former LTV Mine site near Hoyt Lakes.

The bill also grants some regulatory exemptions, paves the way for up to $10 million in state channeled funding and sets up a relationship with Xcel Energy as a long-term customer. The project has also received a $1.5 million equity loan from the Iron Range Resources and Rehabilitation Agency.

Significant energy legislation was also passed in June in Wisconsin, providing financial incentives for municipalities that host new power plants. The industry hailed this state action as a step toward assuring adequate energy supplies.

Minnesota's power supply is a concern of Micheletti, who has been mustering legislative support for the Mesaba energy project for several years. It barely made it this year, finally passing in the special session. He credited much of the success this session to the efforts of state Sen. David Tomassoni. The Chisholm lawmaker and Sen. Tom Bakk of Cook were two of the bill's co-authors.

But it didn't have the support of all northern Minnesota legislators. Representatives Mike Jaros of Duluth and Mary Murphy of Hermantown voted against the energy bill.

The final version of the bill dealt with the storage of nuclear waste, renewable energy development, especially hydrogen, some regulatory issues and the Iron Range Mesaba Energy project.


"I didn't think the bill provided enough wind (energy)," said Murphy, who has opposed similar energy bills previously. "I never felt that Northern States Power and Xcel Energy were committed to alternative energy."

Xcel Energy, which serves the Twin Cities area, is affected by many provisions in the legislation.

She said her main reason for voting no this year was that one would answer questions about how the power would be transmitted from the new plan down to the Xcel in the Twin Cities.

Murphy said from experiences with Minnesota Power and the Arrowhead-Weston line she believes that people who are affected have to be included in the process from the very beginning.

She said once they mentioned creating jobs on the Range, nobody wanted to talk about the other issues.

Why the Iron Range?

"Why not?" Micheletti asks. "It's a perfect place for it."

Plus, his mother lives in Hibbing, and he thinks Iron Rangers are comfortable with large industry and machines.


He listed the three main ingredients for an energy project, all of which are present on the Range.

"One, there's a need for power, a need for new energy infrastructure in our region, that is without question. Two, there's a good site to build such a facility, and three, the economy needs a shot in the arm. We need to create jobs and create investment and wealth and economic development in northeastern Minnesota," he said. "And it's good for the environment. This technology is an environmental driver because its emissions profile is so clean."

That leads Micheletti to another issue, which could broaden the support for the project: natural gas prices. He said the nation has been relying more and more on natural gas, which is going up in price. Nationally, it is being considered an emerging crisis by U.S. Secretary of Energy Spencer Abraham.

"So ours is the perfect technology," Micheletti said. "Take America's most abundant energy resource -- coal -- and use it in a clean way."

And what he believes makes the project even more attractive is that most Midwest power plants are limited to burning one kind of coal -- clean Western coal -- while the Range plant will be able to go after the cheapest {IMG2}coal available. Likewise, a coal gasification plant on Lake Michigan planned by Wisconsin Power Company will use cheaper Eastern coal.

Power plants that can burn coal cleaner are getting a big push from the Bush Administration, and $2 billion has been earmarked for clean coal technology as part of the pending national energy policy. Excelsior has been working with the Minnesota Congressional delegation to try and get some of those benefits targeted for its project. In fact, the legislation requires that the project make an effort to secure federal funding.

In May 2001, President Bush discussed his energy policy on a visit to St. Paul, highlighting both the need for more power plants and the new clean coal technology.

Shooting for a 2010 in-service date, Excelsior hopes to break ground in 2005 or sooner if things come together. Wisconsin Power Company is shooting for 2011 for its coal gasification plant.


While some of the details about the proposed Range power plant have changed, the legislation does not limit the plant to one site; it could eventually be developed at multiple locations. The bill also gives Excelsior the ability to resize operations and expand capacity of transmission facilities. The green light approach of the legislation has raised red flags with Minnesotans For An Energy-Efficient Economy (ME3), a nonprofit group promoting a clean, efficient and fair energy system.

Michael Noble, executive director of ME3, said the Range project has received unnecessarily generous incentives from the Legislature. He said the most shocking was the provision for providing 450 megawatts of power to Xcel, power that could have come from renewable sources. ME3 and the Izaak Walton League share other concerns about the project's impact.

Though the legislation eliminates some red tape, Micheletti sid there is still a big role for regulatory agencies such as the Federal Energy Regulatory Commission (FERC) and the Minnesota Environmental Quality Board, especially in locating power lines.

A legislative provision that did not survive and was opposed by Minnesota Power could have forced municipalities and other utilities to purchase electricity from the Mesaba plant. According to David Gartzke, chairman, president and CEO of Minnesota Power's parent company Allete, the Duluth-based utility will view the upstart as a competitor, if and when it goes on line.

"Our market's the Twin Cities and other places, and it's hard to say whether or not we'd be a competitor," Micheletti said. "In the past, we've offered them an opportunity to play a role in this project."

Micheletti agreed with projections that Minnesota could start hitting an energy crunch in 2006 and Wisconsin possibly sooner. However, he takes a pragmatic view.

"I would say the crunch is here right now," he said. "It takes six to eight years to license and construct these plants, and transmission lines have to get built -- so the crisis is now.

"Natural gas prices are high and are going to remain so, so now is the time to start."


The exact size of the plant and technology brand have not been finalized, keeping potential employment in the estimate stage. There will be an initial rush of temporary construction jobs, with significant economic impact, and afterwards, Micheletti believes, there could be 400 or so permanent jobs. And he's confident it will benefit Duluth as well.

He said the first phase of the plant will cost $1.5 billion, more or less, and will be paid for with a mix of private equity and debt, in addition to any funding assistance.

"I'm excited about it," said St. Louis County Commissioner Mike Forsman of Ely, who represents that part of the Iron Range. "If it can be done as planned, it will be an excellent economic base for the region.

"We have a good infrastructure there, railroad and a great work force."

Forsman said local officials are excited about it, and the project appears to be environmentally sound.

"I haven't seen any red flags yet," he said.

Part two of this series will explore additional concerns from environment groups, the role of Minnesota Power in the Northland energy picture, the Arrowhead-Weston project and the status of clean coal energy in Wisconsin.

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