COLUMN: A bad idea that got way too big

This is my weekly column for the Sunday, Sept. 28, 2008 edition of the Hibbing Daily Tribune. I archive my columns at my writing site. My book, “Overburden: Modern Life on the Iron Range,” is beginning to be available in Iron Range and Duluth book stores and will be available on the big online stores very soon.

A bad idea that got way too big
By Aaron J. Brown

This column has a simple message. Just after the turn of this 21st century, the Iron Range bought into the hype of a startup company called Excelsior Energy and its Mesaba Energy Project. As a result, today more than $20 million in Iron Range, state and federal tax dollars may have been wasted. Most involved had the noblest of intentions. Many had no idea what was going on. Lobbyists, free steaks, booze and other incidentals were paid for by money that could have just as easily paved streets, fixed sewers or helped dozens of local small businesses. Now there’s very little that can be done to restore the funds and the chances of the original project succeeding remain dubious. While supporters of the project will surely disapprove of my choice of words, the people of the Iron Range should be outraged over this wasteful failure.

Recent newspaper stories described an audit released Thursday by the Minnesota Office of the Legislative Auditor. That audit reviewed three specific complaints about the spending of $9.5 million in loans by Iron Range Resources to Excelsior Energy issued in 2001 and 2003. Among them: inappropriate use of loan funds, the arbitrary extension of loan payment deadlines by the commissioner and potential double dipping between state and federal loans.

The latter two charges were dismissed by the auditor, but the first – that Excelsior used Iron Range Resources loan funds inappropriately – was deemed true. About $40,000 was reimbursed for meals, alcohol, hotel stays and other administrative misdirections. News accounts focused on this small amount of money, but most in the local media missed the big picture. Another large amount, at least $126,000 was used for lobbying expenses, a direct violation of the loan agreement’s intention. The actual amount of lobbying was probably much higher because several key members of Excelsior’s staff and leadership are registered lobbyists. There’s just no way to know how much lobbying was done by Excelsior, except to note that the company engaged in a massive amount of influence-peddling paid for by unknown sources. Today, 18 lobbyists are registered for Excelsior Energy in Minnesota, all working for the past four to five years for a company that has never produced any energy. These lobbyists were paid more than $1 million, according to reporting data.

Here’s why it’s so bad to use public money for lobbying. They took your money and used it to ask your representatives in St. Paul and Washington, D.C. for more of your money. That, and to encourage the passage of a state law that would force another power company to buy overpriced electricity from Mesaba under a prescribed set of conditions. Along the way, Excelsior officials used loan funds to pay for their steaks, alcohol, Ikea furniture and subscriptions to the Wall Street Journal. As near as anyone outside the company can determine, including the auditors, the only private money invested in this project so far was the original $60,000 investment from the Excelsior’s co-CEOs Tom Micheletti and Julie Jorgensen. That $60,000 begat the $9.5 million in loans from Iron Range Resources, which begat tens of millions more in clean energy grants from the federal government and millions more from the state or state-mandated private funds.

The Mesaba Project is a very large proposed coal-fired power plant that would be located near Taconite in Itasca County. The plant, according to the company, would use new cleaner coal gasification technology. This technology has yet to be proven in large scale power plants and, according to Excelsior’s proposal, would not be able to immediately capture the carbon as promised without massive additional financing above the project’s already monumental $2.3 billion price tag. Accordingly, the state PUC has all but killed the project by denying it a mandatory power purchase agreement with Xcel Energy, though Excelsior continues to fight this battle (again with the vociferous use of lobbying and public relations).

Five years ago the Iron Range was reeling from steel company bankruptcies, mines were closing all around us and people felt like the bottom was dropping out. Iron Range Resources, its GOP governor-appointed staff and its DFL elected board, shared a sense of urgency to create new jobs. And without much independent research about the company, its structure, the technology involved or the construction of the loan agreement, leaders of both parties gambled $9.5 million of one-time taconite revenue on the longest of long shots.

There are three options for a way forward: two of them bad, the other probably impossible. 1) Iron Range Resources can call in the first payment for Excelsior’s first loan this December. If Excelsior doesn’t have it, the company declares bankruptcy; 2) Iron Range Resources extends the deadline for the first payment again, and potentially again and again, forever and ever and ever; or 3) Excelsior Energy produces a customer, permits and private investors. Unfortunately, with the national trend toward renewable energy, clean coal technology’s shaky footing in the marketplace, and this company’s inability to function without public subsidy, that last one is the least likely of the three.

Officials at Iron Range Resources seem appropriately chagrined at these findings. Commissioner Sandy Layman has vowed to correct their loan granting process for projects like these in the future. That’s good, but doesn’t help us get our money back or create a single job. Unless you’re a lobbyist.

Aaron J. Brown is a columnist for the Hibbing Daily Tribune. Contact him or read more at his blog,


  1. Lets be clear. The best investment, with the highest return in terms of economic development, is in early childhood education for our kids. The IRRRB should have been investing in making sure every kid on the range was reading at grade level.

    Instead it is investing in the schemes of various cronies of local legislators. We have empty buildings waiting for tenants – because everyone knows what is keeping businesses from locating on the Range is the lack of available space, not the lack of skilled workers. They invested in building infrastructure to encourage more sprawling retail, because we need more strip malls and fast food joints to compete with the established downtown businesses. They just invested a bunch of money in building more housing, ignoring the fact that there is already a glut of houses already built that lack buyers.

    Maybe its time for the IRRRB to be run directly by people from the range elected for that purpose. At least they would be accountable for their decisions and maybe we would actually get some real benefit from all that money. Excelsior is just one example of how seriously off-track they are now.

  2. Even though this seems like an insignificant amount,if you or I had been found to have taken $40,000+, we’d be looking at some serious prison time even if we paid it back!

Speak Your Mind


This site uses Akismet to reduce spam. Learn how your comment data is processed.