Two energy companies square off over Iron Range power plant

Tom Micheletti
Tom Micheletti is co-president and CEO of Excelsior Energy, the company proposing the Mesaba Energy Project.
MPR file photo

This could be the end game for a project that's been on the drawing board since 2001.

Excelsior Energy's Mesaba Energy project could be the nation's first large-scale coal gasification power plant. That's a technology that's supposed to provide power with much fewer emissions than conventional coal plants. It also has the ability to capture carbon dioxide -- a gas blamed for global warming.

Canisteo Pit
The Excelsior Energy Power plant proposal would take water from the Canisteo Pit to cool the coal-fired facility. Locals are worried the water being returned to the pit would cloud the pristine water, and ultimately pollute it so much it would hurt the trout fishing.
MPR file photo

The power plant would be a big economic boost for Itasca County. But it needs a customer.

Under state law, that customer would be Minneapolis-based Xcel Energy, but only if the Mesaba project fits certain criteria. It has to be in the public's interest, and it has to be cost effective.

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On the second point, Xcel Energy attorney Chris Clark said it isn't. He told PUC members the coal gasification project can't make electricity as cheaply as other power plants can.

"We come up with $1.5 billion in costs that our customers otherwise don't need to pay," said Clark. "When we tell our customers, 'Well, it's for a new technology,' we don't think that will fit the bill either, because we have an environmentally clean alternative."

Instead, Clark said, Xcel is planning to add new baseline power that relies on wind and on hydropower generated in Manitoba.

"They got the wrong customer here. We simply don't need the product they're selling."

Clark said the company will need only 375 megawatts of new electricity by 2015 -- not the 600 megawatts from the Mesaba Energy project.

"At the end of the day, they got the wrong customer here. We simply don't need the product they're selling," said Clark. "The fact that it may be great for the technology, and great for the potential of that technology, is wonderful. Wrong customer. It doesn't fit with our system. Far too expensive. Not even close to least cost."

But Excelsior Energy's attorney, Tom Osteraas, argued the Mesaba Energy project can be a low-cost producer -- or as he says, a least-cost resource -- by taking advantage of federal tax breaks for the technology.

Osteraas told the commissioners the cost advantage will be even greater when, as he predicts, power plants are forced to capture their carbon dioxide.

"We feel that the record, basically, if properly interpreted, can only yield a decision that this is a least-cost resource today, and certainly likely to be a least-cost resource over the long term," said Osteraas.

Looking at the proposed Mesaba Energy site
Excelsior Energy President Tom Micheletti, left, shows an unidentified ATV operator where the proposed Mesaba Energy Project power plant would be located near the town of Taconite.
MPR file photo

Commissioners gave few clues as to which way they might be leaning.

Commissioner Marshall Johnson did suggest the Iron Range was not the best place for the project, since the Mesaba project would import coal, export electrical power to the south, and potentially pipe its carbon dioxide hundreds of miles away to North Dakota.

"I think this plant should be built in North Dakota, right at the mine's mouth. Then you don't have that transportation problem whatsoever. And you've got the locked-in supply," said Johnson.

But project attorney Tom Osteraas said the Legislature believed otherwise.

"The Minnesota Legislature was pretty clearly suggesting that not only did they want us to be in Minnesota, but they required that it be on the Iron Range. The law that currently exists sends a pretty clear signal on that issue to us," said Osteraas.

Ed Anderson
Dr. Ed Anderson is worried about the environmental risks of living near a proposed coal gasification power plant. Anderson is a member of the group Citizens Against the Mesaba Project, or CAMP.
MPR file photo

A busload of opponents from the Iron Range packed the meeting. Ron Rich has a business in Edina, but a cabin seven miles from the power plant site. He says it's wrong to rely on dirty fuel like coal.

"We do not need fossil fuels. We need to convert our resources to a different approach," he said.

Rich added that he believes coal should be left where it is, in the ground.

"This is a stupid, stupid approach. It's being pushed by the coal lobby. It's being pushed by the federal government," said Rich. "I can understand why they get a good response at the federal government, because they're playing the game they want to. We shouldn't be playing that in Minnesota."

Commissioners will discuss the project again on Thursday, when they are expected to make a decision.

They could force Xcel into a power purchase agreement it doesn't want with the Mesaba Energy project, or they could turn down the PPA, essentially putting Excelsior Energy and its project out of business.

But it still won't be quite the final word. There's still a potential appeal process, and possibly litigation after that.