LATEST NEWS

MINNESOTA PUBLIC UTILITIES COMMISSION MAKES TWO RULINGS FAVORABLE TO CAMP

Correcting Errors in Previous Order

At its meeting on June 12th, the PUC unanimously granted CAMP's petition to correct erroneous information in a previous PUC order (Docket No. 07-1640). The corrections make it clear that: the DOE funding of the Mesaba Energy Project is a loan rather than a grant; and the MEP has not yet been awarded any federal loan guarantees.

Denying Excelsior's Request To Delay PUC's Final Decision on Power Purchase Agreement

In April the PUC denied Excelsior's request to indefinitely delay consideration of Phase 2 of the PPA (Docket No. 05-1993). Excelsior then filed a Petition for Reconsideration of this decision. At its meeting on June 12th, without discussion, the PUC unanimously refused to reconsider its earlier decision.

Now we are waiting for the PUC to again (3rd time's the charm?) schedule a hearing where it will decide: whether to grant Excelsior's position under Phase 2 of the PPA; and whether to set a deadline on negotiations between Excelsior and Xcel regarding Phase 1 of the PPA.

Excelsior Concedes to CAMP's Corrections in PUC's Order

In response to CAMP's Petition, Excelsior's Attorney has notified the PUC that the Order should be corrected as CAMP requested.

Starns 5/23/08 letter

MESABA'S FEIS DELAYED AGAIN

Mesaba's Final Environmental Impact Statement, originally scheduled for March, is now scheduled for August, according to the Department of Energy's website - http://www.eh.doe.gov/nepa/

CAMP seeks correction of errors in PUC Order regarding Mesaba's financial status.

CAMP has submitted a petition to the PUC to correct misstatements concerning the Mesaba Energy Project's financial postition. Below is a link to the petition.

Petition to PUC - 88 KB pdf

A Letter to Governor Pawlenty from Dr. James Hansen, NASA Goddard Institute and Columbia University Earth Institute

"There is no such thing as 'clean coal'."

CAMP is posting this most extraordinary letter that concerns global warming, coal, power plants and CO2.

Letter to Governor Pawlenty - 128 KB pdf

INTERESTING READING - MORE DEFICIENCIES IN MESABA'S DEIS

CAMP has just discovered that the Minnesota Dept. of Commerce failed to timely and properly post comments received on the Draft EIS from the Army Corps of Engineers and the Environmental Protection Agency. The EPA has "environmental objections to the proposed project" and also states that "additional information needs to be provided to support the impact analysis". The ACoE states that there continue to be several NEPA deficiencies in specified areas.

Comments from both agencies are provided at these links to the respective pdf documents. They can also be found with the Resource Materials:

Army Corps of Engineers comments - 704 KB pdf

US EPA comments - 408 KB pdf

CAMP Comments to ALJ

CAMP submitted comments to Administrative Law Judge Steve M. Mihalchick regarding the Joint Permit Application: Plant Site, HVTL Route and Natural Gas Pipeline Route for the Mesaba Energy Project.

The comments can be found at this link.

The four volumes of the transcript of the public hearings on the Mesaba siting docket are available at the Grand Rapids Area Library.

Vol. I is from the first day of hearing, at Taconite.

Vol. II is from the evening session at Taconite.

Vol. III is from the day session at Hoyt Lakes.

Vol. IV is from the evening session at Hoyt Lakes.

Vols I and IV contain interesting questions that were put to the witnesses and some revealing answers.

Agency Draft EIS Comments

There were several governmental agencies that submitted comments for the draft evironmental impact statement. CAMP has posted all agency pdf documents on the Resource Materials page for your convenience. CAMP encourages you to read through them as many are substantive and important to the comprehensive culmination of data on the draft EIS.

Page Links on CAMP Action

Letter to Legislators

CAMP Comments to ALJ

DEIS Comments Page One

DEIS Comments Page Two

Please contact the Webmaster if you experience any problems with our new website.

CAMP UPDATES

CAMP UPDATE: AUDITOR EXAMINES IRR LOANS TO EXCELSIOR ENERGY
May 28, 2008

The Office of the Legislative Auditor (OLA) has been examining Iron Range Resources (IRR) records regarding its $9.5 million in unsecured loans to Excelsior Energy for the Mesaba Project. Brad White, Audit Manager, has now confirmed that OLA is conducting an assessment of a complaint, to determine whether a formal audit should be conducted. This is the result of a request by CAMP that OLA investigate questionable items that CAMP had discovered.

Digging Through Files

Last fall a team of CAMPers went to the IRR office, dug through piles of loan-related documents, and photocopied many of them. After studying the information retrieved, we concluded that there were serious questions about IRR's management of the loans and Excelsior's use of the funds.

Referral to OLA

We explained our concerns and submitted back-up documentation to the Office of the Legislative Auditor, which has authority to investigate alleged misuse of state money or resources. The Audit Manager replied that the Office planned to "examine Iron Range Resources actions and management of the Excelsior Energy loan. That audit will take place this spring/summer . . . ". Although we are disappointed to learn that OLA is not yet conducting a formal audit, we expect that it will decide to do so after the initial assessment.

Areas of Concern

IRR's failure to hold Excelsior to the requirement in the first $1.5 million loan that Excelsior must receive additional equity investments from other investors of $1.7 million before the second $500,000 would be disbursed and another $3.2 million before the last $500,000 would be disbursed.

IRR's approving another $8 million loan before ever seeing any audited Excelsior financials.

Where did Excelsior get the more than $1 million it spent on lobbying, given that the IRR and DOE loan documents prohibit lobbying expenditures?

Excelsior's requesting $6 million from DOE, based on many of the same invoices reimbursed by IRR.

IRR's reimbursing undocumented claims for expenses, including travel, meals and cell phones.

Excelsior's classifying workers as independent contractors and consultants rather than employees.

IRR Commissioner's extensions of the due date for Excelsior's first interest payment, without a vote by the Board.

Let the Word Go Forth

It did not seem appropriate to make this information public until recently when rumors of OLA's activities at IRR leaked out. CAMP is issuing a News Release so that CAMPers and the general public can know the nature of our concerns and some of the questions raised.

CAMPers are encouraged to download the News Release by clicking here and send it to anybody who would or should be interested.

CAMP UPDATE: SPIN, SMOKE & MIRRORS FOOL THE MEDIA BUT NOT CAMPers
May 9, 2008

Investment Tax Credits

Excelsior Energy has issued a news release, crowing about $133.5 million in federal investment tax credits for the Mesaba Project. Newspapers across the Range have relied on this release to spread Excelsior's portrayal of the Project as alive and well. However, they all missed the significance of the statement that the IRS has "allocated" this amount. The IRS notice of "allocation" is a preliminary step and significant hurdles remain before the tax credits are finalized.

Basic research into this incentive program reveals significant points not included in the news reports:

To qualify for certification, Excelsior has two years to submit evidence that it has obtained all federal and state environmental authorizations necessary to begin construction. (Final Environmental Impact Statement and air, water, siting and routing permits are having significant problems and delays.)

If the Project is certified, Excelsior will have five years to place the Project in service or the certification is void. The tax credits are not applicable until the Project is constructed and put into service

An acceptance, allocation or certification by the IRS is not a determination that the project satisfies the requirements of Section 48A of the tax code. The IRS may, upon examination (and consultation with DOE), determine that a project does not qualify for Section 48A tax credits.

Federal Loan Guarantees

In the same news release Excelsior again gave the false impression that it has also received federal loan guarantees. Similar misleading statements were repeated by Tom Micheletti to the Hibbing and Virginia newspapers.

The Project has not received or yet qualified for any federal loan guarantees. The most recent public information was DOE's announcement in October 2007 that the Project was one of sixteen pre-applicants selected to submit full applications. These competing projects will be ranked by specified criteria. Twenty-nine detailed requirements are listed for submitting a full application, several of which are likely to present obstacles for the Mesaba Project, particularly the lack of a PPA and insufficient private equity. Greater weight will be given to applications that rely upon a smaller guarantee percentage; this conflicts with Excelsior's stated expectation of receiving the maximum of 80%.

PUC To Decide Whether Ratepayers Protected

Micheletti also reportedly stated that this means that the government and investors will bear all financial risks associated with the the Project and so "Minnesota consumers are protected".

If Micheletti's claim is true, all he needs to do is revise his proposed PPA with Xcel Energy and get the PUC to reconsider its prior decision that Mesaba's financial and operational risks are too great to be imposed on Xcel's ratepayers.

CAMPers should not hold their breath until this happens.

CAMP UPDATE: MESABA HEARING FOR MAY 8th POSTPONED
May 6, 2008

On May 6th Excelsior Energy requested that the PUC postpone the hearing scheduled for May 8th on Phase 2 of the Power Purchase Agreement that Excelsior is trying to force on Xcel Energy.

Excelsior's stated reason is that it has not had the 20 days that the rules allow for filing a Petition for Reconsideration of the PUC's 4/23/08 order. That order denied Excelsior's request for an indefinite delay of the Phase 2 hearing.

Excelsior says that it "is currently drafting its Petition for filing no later than May 14, 2008, and will endeavor to file its Petition early". CAMPers know that Excelsior's attorneys could have filed such a petition quickly if they wanted to, and they have known that their request was denied since the hearing on April 10th.

Excelsior is succeeding in delaying a final PUC decision on the PPA by making repeated requests for stays and continuances, which take time to process even if they are ultimately denied. Excelsior apparently agrees with CAMPers that the final PUC decision will mark the end of the Mesaba Project.

PUC staff say that this matter will be rescheduled "at an as now unknown date in the future after reconsideration requests are dealt with."

We'll let CAMPers know when it is rescheduled.

CAMP Update - PUC SCHEDULES HEARING ON PHASE 2 OF MESABA PPA
April 27, 2008

THURSDAY, MAY 8, 2008 (#6 and last on the agenda) This could lead to the final blow for the Mesaba Energy Project. CAMPers have been eagerly anticipating this date since the Administrative Law Judge's report was issued last September.

Want to be there? We will try to find out what time this docket is likely to be reached on May 8th and let you know.

Anyone interested in carpooling to attend the hearing should respond to CAMP.

The PUC will consider two questions:

Does the Mesaba Project incorporate a "clean energy technology" that "is or is likely to be a least-cost resource, including the cost of ancillary services and other generation and transmission upgrades necessary" and is therefore entitled to supply Xcel with at least thirteen percent of the electric energy that Xcel Energy provides to its retail customers?

Should the Commission place a deadline on negotiations between Excelsior and Xcel?

Past Decisions Predict Outcome

The PUC decided in Phase 1 of the PPA that the Project was not likely to be a least-cost resource, and that was the conclusion of the ALJ in Phase 2. We expect that the PUC will again reach the same conclusion, and again rule that Excelsior Energy's proposed power purchase agreement (PPA) should not be imposed on Xcel Energy.

Fruitless Negotiations Should End

In August 2007 the PUC rejected Phase 1 of the requested PPA but ordered negotiations to continue between Excelsior and Xcel. The PUC subsequently ordered 60-day reports on the status of the negotiations, which show that they have not been successful. The PUC has noted that similarly, Excelsior has been unable to report success in negotiations with other utilities for the purchase of its output. The PUC will likely set a deadline on the negotiations, and when that arrives, finally deny the PPA.

The End?

This will leave Excelsior without the long-term customer that it needs in order to finance and build the Project. Absent some heroic life-saving infusions of money by the state or federal government, that should toll the death knell for the Mesaba Project.

CAMPers WILL BE INVITED TO THE WAKE!

CAMP Update on PUC Hearing Held April 10, 2008
April 12, 2008

PUC UNANIMOUSLY DENIES DELAY REQUESTED BY EXCELSIOR ON PPA

On April 10th, the PUC, without discussion, voted 5 to 0 to deny Excelsior Energy's request for an indefinite stay of the proceeding regarding Phase 2 of the Power Purchase Agreement Docket.

This means that the PUC "Staff will bring the complete Phase 2 issue back to the Commission in a timely manner". The problem is what is considered timely, considering that the ALJ's report on Phase 2 was issued in mid-September. Excelsior already achieved a significant delay by filing the request for a stay in mid-February, resulting in this procedural hearing on April 10th.

The PUC's regular meetings are on Thursdays. So far the agendas have not been posted for dates subsequent to April 17th. CAMP will be watching the PUC calendar and will alert CAMPers when this matter is scheduled. That hearing is likely to result in a final denial of the PPA, leaving the Mesaba Energy Project unable to attract the investors needed to move the Project forward.

PUC GRANTS EXCELSIOR'S PETITION REGARDING TRANSMISSION
(but it doesn't solve the Project's fundamental problems)

On a vote of 3 (Reha, O'Brien & Pugh) to 2 (Koppendrayer and Boyd), the PUC found that "all transmission infrastructure associated with the Mesaba Project" is exempt from the requirements of a certificate of need (CoN), regardless of which entity builds and owns it. Minnesota Power, which may have to build and/or own it, is concerned that this may become a legal issue in the future if it is challenged by affected landowners after the route is determined.

Discussion indicated that some Commissioners were influenced to grant Excelsior's seemingly premature request by deadlines in the Interconnection Agreement among Excelsior, Minnesota Power and the Midwest Independent System Operator (MISO).

Commissioner Reha suggested that Excelsior was putting the cart before the horse, given that the Project may never be built because of serious issues with the PPA and costs. However, she agreed that Excelsior's position was supported by the statutory language that exempts an Innovative Energy Project (IEP) from a CoN.

Although the PUC previously determined that Mesaba qualifies as an IEP, Minnesota Power has indicated that it may challenge that in court. So this is likely not the final word on this issue.

Chair Koppendrayer Voices Lack of Support for Project

During this discussion, Chair Koppendrayer said (according to hurried notes):

I don't believe that plant will be built. I believe there is going to be cleaner ways to use coal. That plant on that site won't ever be built. Why would I in good conscience ever do anything to hold out hope for that process, why would I ever do that?

It's not by the coal mine and it's not by the power demand. To put it in this particular spot, it makes no sense. This plant was a good idea as a way of using coal, at this point in time this plant is a bad idea, and I'm not going to do anything to encourage it.

Nobody has come forward to say we need this power, can afford it, and it would fit in our generation portfolio. I can't imagine you'd find any Independent Power Producer who could find capital for a project that no one needs.

CAMPers EAGERLY ANTICIPATE THE FINAL HEARING ON THE PPA. SOME OF US WILL BE THERE, EXPECTING REASON TO CELEBRATE.

UPDATE ON PUC HEARING - APRIL 10, 2008

The PUC has scheduled hearings on two of the Mesaba Energy Dockets.

Docket No. 05-1993 - Power Purchase Agreement - Phase 2

In September 2007 Administrative Law Judge Bruce H. Johnson issued a report and recommendations regarding Phase 2 of the PPA proceeding. The issue was whether Xcel Energy should be required to purchase at least 13% of the energy it provides to its retail customers from Mesaba. (In Phase 1 the PUC decided not to require Xcel to purchase 2%). The ALJ's conclusion in Phase 2 was the same as in Phase 1: the Mesaba Project is not likely to be a least-cost resource and so Xcel should not be forced to purchase its output.

CAMP has been watching for months for the hearing on Phase 2 to be scheduled, expecting that the PUC would finally deny Excelsior's attempt to force a PPA on Xcel Energy. Apparently Excelsior feared that would be the result and so on 2/14/08 Excelsior requested that a decision on Phase 2 be postponed indefinitely. Minnesota Power and Xcel both filed objections and the issue to be addressed on 4/10/08 is: Whether the PUC should grant the request for an indefinite stay of Phase 2.

Docket No. 07-1640 - Certificate of Need for Transmission Infrastructure

The other issue to be considered on 4/10/08 is: Whether the PUC should dismiss or grant Excelsior's petition regarding transmission infrastructure. (It is remarkable that the option of conducting a contested case proceeding is not being considered.)

Excelsior has requested a finding that all transmission infrastructure associated with the Mesaba Project is exempt from the requirements of a certificate of need, regardless of whether the Mesaba Project or some other entity actually permits, owns, constructs, or oversees the construction of this infrastructure. Minnesota Power has objected to this, arguing that no decision should be made until both phases of the PPA are complete and the parties have time to appeal the PUC's final decision. Xcel agreed with this position and also pointed out that the Siting and Routing Docket and necessary permits should be finalized before the transmission issues are addressed.

More Information

The parties' filings and the notice of hearing can be found by going to - www.edockets.state.mn.us/EFiling/DocumentSearch.do - and entering the docket number.

Carpooling to St. Paul

Any CAMPers who are interested in sharing vehicles and costs to attend the hearing should reply to CAMP - camp@northlc.com

Please state the number of travellers in your party and whether you have a vehicle that could be used and how many people it can comfortably accommodate.

There are other items on the PUC's calendar for the same day and we are trying to estimate the likely start time for the Excelsior issues. We'll let you know when we have more information.

UPDATE ON SITING AND ROUTES DOCKET

This proceeding leads up to the PUC's decision on permits for Mesaba's plant site and routes for its natural gas pipeline and HVTLs. These decisions are supposed to be based on Excelsior's Joint Permit Application and Environmental Supplement, filed in June 2006. Excelsior also filed written testimony from more than twenty "expert witnesses" (well-paid consultants) in January 2007. The last-minute surprise was a supplemental filing on January 28, 2008, abandoning the plan to discharge Mesaba's cooling tower blowdown water, and announcing an enhanced Zero Liquid Discharge system. (see article below for Ed Anderson's 1/25/08 response to Excelsior's self-congratulatory press release).

The PUC is also supposed to consider the Environmental Impact Statement and the opinions of the DNR, MPCA, and Health Department regarding whether the Project will qualify for necessary air, water, and waste permits. Although these agencies have filed extensive comments in response to the Draft EIS, they were not represented at the hearings. We hope that their comments will be taken into consideration in the Final EIS. The PUC will have to determine that the FEIS is adequate before it decides on the permits.

Administrative Law Judge Steve Mihalchick conducted public hearings in Taconite on January 29th, and in Hoyt Lakes on January 30th to allow Excelsior Energy to present its 20 expert witnesses and formally offer their prefiled written testimony from a year earlier. Technically, Excelsior is the only party in this proceeding but the ALJ chose to treat the Department of Commerce and its attorney, Karen Hammell, like a party. This meant that she was given the "right" to question the witnesses, which she chose to do only sparingly. The ALJ also had the "right" to question the witnesses, which he also did sparingly.

Under the rules the public has a right to question the witnesses but the ALJ has discretion over timing and duration of this questioning. On the first day, in Taconite, well-informed questions hit their marks. They were asked by: Ross Hammond (Fresh Energy), Carol Overland and Alan Muller (Mncoalgasplant.com/MCGP), Ron Rich (Swan Lake Association), and Andy David. They challenged: the estimated economic impact for the region; dangers from escaping carbon monoxide; validity of emission estimates; handling of heavy metals in the slag; disposal of captured mercury; disposal of hazardous solid waste from the ZLD system; best available control technologies (BACT); and problems that occurred at the Wabash, Indiana plant, which is the model for Mesaba. Excelsior got through only two of its witnesses in the morning session and two more in the afternoon session.

In addition to a good turnout of CAMPers, the evening session was crowded with local elected officials and union members, speaking of the need for jobs and economic development. CAMPers, raised more substantive concerns and important questions but the ALJ was busy doing his paperwork and not paying attention. At 8:30 p.m. he said how much he enjoys and appreciates having people pour their hearts out and adjourned the meeting.

On the second day of hearing, in Hoyt Lakes, the rules were changed to prohibit the public from asking questions until Excelsior had finished presenting the testimony of all of its witnesses. This meant that no questioning was permitted until after the dinner break and after the public comments were heard. The effect was that only Carol Overland and Alan Muller got the opportunity to question the witnesses and then for only about one and one-half hours before the ALJ shut it down. CAMP and MCGP are filing a protest over the failure to allow sufficient time for public questioning and input, and requesting additional time.

The ALJ has revised the schedule for this docket, allowing Excelsior to file supplemental materials until February 6th (we're still looking for them), and allowing the public until February 29th to file comments. CAMPers will be hearing more about this soon. One problem with the schedule is that it allows only one week between the anticipated publication date of the FEIS and comments on its adequacy. CAMP is going to try to rectify this situation.

PUBLIC INTEREST OR EXCELSIOR'S INTERESTS?
February 3, 2008
CAMP Co-chair Charlotte Neigh

Imagine your investment club decided to lend a lot of money to a business venture under certain terms and conditions. Later you found out that the borrower missed the contractual deadline for the first interest payment but the club's treasurer gave an extension of time for the payment and also gave the borrower more of the club's money. When the new deadline arrived, although the borrower failed to meet the specified milestones, the treasurer gave the borrower another year to make the first payment, based on the borrower's rosy promises. Would you feel that your money and that of your coinvestors was being managed properly?

This is what happened with $9.5 million of IRR funds that were loaned to Excelsior Energy for the Mesaba Project. In the spring of 2007 Tom Micheletti asked for an extension beyond April 23rd to make the first interest payment of about $1 million. The deadline passed without an extension being granted and IRR could have declared Excelsior to be in default under the loan agreement. This was the status on May 31, 2007, when Excelsior asked IRR to give it another $2.75 million - the balance of the $9.5 million, which IRR did.

Then on July 23rd IRR Commissioner Sandy Layman, without a vote of the IRR Board, granted an extension to December 31, 2007, for the interest payment; and on that date she granted another extension to December 31, 2008, again without a vote of the Board. The Commissioner's letter noted that Excelsior had failed to meet the required milestones, but she granted the additional extension anyway. Where does she get the authority to make such decisions about risking the public's money without the oversight of the Board? Have the Board members decided that ceding their authority to the Commissioner is preferable to a public meeting where their votes might be questioned?

IRR knows that the Mesaba Project has not been able to achieve the power purchase agreement that it needs with Xcel Energy. The Minnesota Public Utilities Commission denied Excelsior's attempt to force the PPA, declaring it to be not in the public interest. Tom Micheletti minimized this as a "delay", and Commissioner Layman chose to act as if she believes this, even though a cursory investigation would show that the PUC likely will soon finalize its decision disapproving the PPA.

The legislative session starts on February 12th, and Excelsior will be seeking additional assistance for its troubled Project, after already having spent more than $700,000 on lobbying. We need to be vigilant because Excelsior will be courting our District 3 legislators, as well as other members of the Iron Range delegation, for more special favors. Tell your Senator and Representative that no more benefits for Excelsior should be on the legislative agenda.

Excelsior Energy: Environmental Consciousness or Desperation?
January 25, 2008
CAMP Co-chair Ed Anderson

Excelsior Energy has announced a "major water quality improvement program" whereby they pledge to eliminate discharge of cooling water by a process called Zero Liquid Discharge (ZLD). The announcement also describes upgrading the Coleraine/Bovey/Taconite wastewater treatment facility (WWTF) in order to improve water quality in Trout Lake and the Mississippi River watershed. The press release is an interesting development, but not entirely unexpected. Excelsior is unable to obtain water discharge permits with their current proposal. Completely eliminating water discharge is the only way they can proceed. If Excelsior Energy really had intentions of being environmental stewards and wanted to "mitigate environmental impacts", measures such as ZLD and carbon dioxide capture and sequestration would have been in the plan from the beginning.

Senator Saxhaug was quoted in Excelsior's press release as saying "Excelsior didn't have to do this to get licenses, but they have agreed to do all they could to demonstrate they intend to be good environmental stewards. This is a very promising development." Obviously Senator Saxhaug has been influenced by Excelsior's spin, and apparently he hasn't been following this issue closely. Excelsior has fought hard to avoid eliminating water discharge and has repeatedly shown us that the focus is on dollars, not environmental stewardship. ZLD is extremely expensive to implement, and will mean a loss of efficiency with regard to power output. A major reason Excelsior changed their preferred site to the West Range was because the East Range site required ZLD due to the more stringent mercury criteria of the Lake Superior watershed.

Excelsior's Joint Permit Application clearly shows that under the original plan, the Mesaba Energy plant would cause the Canisteo Mine Pit to exceed water quality standards for hardness and dissolved solids. Mercury levels in the pit would rise sharply, the lake trout fishery would be ruined, and the polluted Canisteo water would put local municipal drinking aquifers at risk of contamination. Water was also proposed to be discharged into the already impaired Swan River system. CAMP has advocated for elimination of water discharge all along, so we see this announcement is a positive development.

The problems with this announcement are that:

The ZLD plan is vague. This "plan" as proposed is not adequate or specific, similar to but not as far-fetched as their "plan" for carbon capture and sequestration.

A ZLD agreement with "local officials" is of no significance. Right now the Joint Permit Application and Draft Environmental Impact Statement mention West Site ZLD as a last option with little detail. Unless the proposal is on record in the Final EIS it carries no weight as local officials have no say as to water discharge permitting. Excelsior needs to show the permitting agency that their water discharge plan is viable. Complete elimination of discharge water is the only plan that potentially has a chance to succeed.

ZLD does not necessarily mean that the Canisteo would remain open to recreational use. Its surface water levels will need to be maintained within a narrow range to ensure safe recreation and a viable ongoing trout fishery.

The WWTF can not handle the wastewater from Mesaba without major upgrades. This is also something that Excelsior knows they need to address, and the plan as written in the press release may get them off the hook quite inexpensively. This proposal could be a way to minimize Excelsior's contribution to the required upgrade. The plan specifies $250,000 to strengthen grant funding (for a $1 million dollar piece of equipment) for 2009, and says "those funds would be conditioned on the start of construction of Mesaba One." Tom Micheletti is quoted as saying they will contribute up to half a million dollars to upgrade the WWTF. This is a company that has no buyer for its power, and can't even make its interest payment on IRR loans.

This announcement is important in that Excelsior appears to be finally dealing with the reality of discharge water permitting, and if the plant is ever funded and built, there would be less environmental impact. Excelsior's newest water discharge plan is not about environmental stewardship; it's a necessity. Excelsior is desperately fighting to stay alive, and now we're seeing major concessions so that the project might remain viable.

MPUC SUPPORT FOR MESABA FADES
November 1, 2007

At its meeting on 11/1/07 the Minnesota Public Utilities Commission considered requests from the parties regarding its 8/30/07 Order denying Excelsior Energy's effort to force a power purchase agreement on Xcel Energy.

Excelsior, Xcel and Minnesota Power had all filed petitions for reconsideration and/or clarification (see CAMP's 9/27/07 Update). The only request granted by the MPUC was to issue an erratum notice to correct legal citations in the initial order.

The Commission added an Issue not presented by the parties:
"Should the Commission Reconsider its August 30, 2007 Order On Its Own Motion with Respect to the Party Negotiations of a Final Power Purchase Agreement?"

The Commission came close to terminating the negotiations and putting an end to Excelsior's quest for a forced PPA with Xcel. In the course of the discussion the Commissioners indicated that no utilities need or want Mesaba's energy because it uses coal and is too expensive. They noted that plans for coal-gasification plants have recently been delayed or canceled in three other states.

Chair Koppendrayer said "This dog won't hunt" and told Excelsior it needs a new plan. Commissioner Reha said it's apparent that the PPA "isn't going to fly" at the present time.

The PPA proceeding was divided into two phases. In August the MPUC ruled on Phase 1 - that it was not in the public interest because it shifted too much of the cost and risk to Xcel ratepayers. An Administrative Law Judge has issued a report finding the same problems with Phase 2, which will be considered by the MPUC in the near future.

At that time the Commission will consider whether or not to put a time deadline on negotiations or TERMINATE THE NEGOTIATIONS, which now appears likely to be the outcome. That would let Xcel off the hook and leave Excelsior with little prospect of finding a customer for Mesaba's output. That should put an end to the Mesaba Project.

CAMP'S Response to Rolf Westgard & Duluth News Tribune
October 17, 2007

Recently an opinion piece by Rolf Westgard was published in the Duluth News Tribune, advocating for Excelsior Energy's Mesaba Project - a power plant proposed to be built near the Scenic Highway in Itasca County.

"Clean" Coal

Mr. Westgard's premise that it is possible to use coal "cleanly" echoes the Bush administration's "clean coal initiative", an oxymoron and myth designed to obscure coal's problems and enhance the financial interests of the coal industry. People are tempted by the promise of "clean coal" because it is abundant in the U.S. and has a relatively low direct cost. Federal policy and incentives enable promoters of IGCC technology to mislead the public about claimed benefits.

Under these circumstances, Mr. Westgard may be correct in saying that coal's share of electric energy generation in the U.S. is projected to increase to 57% by 2030. That does not mean that it's a good thing or that thoughtful citizens shouldn't work to avoid it. Even though some reduction in SO2 emissions is achieved by IGCC technology, it is still dirty and contributes to all of the health and environmental problems known to be caused by coal mining, transport and combustion.

In the contested case proceeding the administrative law judges (ALJs), relying on an analysis by the Minnesota Pollution Control Agency (MPCA), compared IGCC technology to supercritical (SCPC) and ultrasupercritical (USC) pulverized coal plants. They found that although the Project is expected to significantly outperform future SO2 emission reductions of the other technologies, it is expected to only slightly outperform them in reducing particulate matter emissions, and to slightly underperform them in reducing NOx emissions. The ALJs also found that IGCC technology is not inherently better at controlling mercury emissions.

Efficiency

A plant with higher heat efficiency produces fewer emissions for each unit of electricity produced. Mr. Westgard claims that the Mesaba Project would be one of the world's most efficient coal plants. The MPCA and the ALJs concluded that, operating on subbituminous coal, Mesaba's thermal efficiency would be 36.3%. This is lower than the EPA would expect from a "generic" IGCC plant (40%), SCPC plants (37.9%), and USC plants (41.9%).

Capture and Sequestration of Carbon Dioxide

Mr. Westgard ignores the problems of capturing and sequestering CO2. Excelsior has no intention of capturing CO2 until it is required to do so. It admits that currently available technology would enable it to capture only 30% of Mesaba's five million annual tons. This would also increase the cost for electricity that already costs 30% more than electricity available from other sources, including renewables. This is one of the reasons why the MPUC found Mesaba's proposed power purchase agreement not to be in the public interest.

The Mesaba Project is planned for a site that is about as far as it could be from potential sequestration sites. Piping the CO2 to western North Dakota or Canada would cost hundreds of millions of dollars, and it would reduce the efficiency of the plant by 10%. The feasibility of large-scale and/or long-term sequestration has not yet been proven. There are known environmental and health dangers from migrating and escaping CO2. A new coal-powered plant built today can be expected to operate for fifty years. We must not allow such proliferation of greenhouse gases.

Excelsior Energy has already received about $40 million in public subsidies to promote and develop the Mesaba Project. It is counting on between $800 million and $1.6 billion in federal loan guarantees and $130 million in federal tax credits. Such sums of money could better be spent on research and development of alternative and renewable sources of energy and improved distribution systems to replace dirty coal as the mainstay of our electric energy generation.

CAMP Update: IGCC Woes
October 14, 2007

While CAMP supporters are watching and waiting for Excelsior Energy's next moves on the Mesaba Energy Project, there is more bad news regarding IGCC project financing.

Excelsior already has an uphill climb to revise its proposed power purchase agreement to satisfy the Minnesota Public Utilities Commission. Now an industry report says that IGCC costs have escalated between 30% and 50% since the beginning of 2006, and as much as 100% since 2004.

An energy industry research and analysis group (Emerging Energy Research) issued a report on October 5, 2007, saying that much of the momentum behind IGCC has waned because of rising capital costs, stabilizing natural gas prices, and an uncertain outlook for carbon policy.

On 9/18/07 a major Dutch utility (Nuon - "perhaps the world's biggest utility proponent of IGCC") after two years of deliberation and project evaluation, tabled its proposed 1,200 MW IGCC project in the Netherlands.

On 10/4/07 TECO (regional Florida utility Tampa Electric) announced that it is shelving its plans for a 630 MW IGCC project, even though in 2006 it was awarded over $130 million in federal tax credits to build the project.

"These cancellations are a very clear indication of the widespread challenges facing IGCC over the next two to five years."

More detail is available in the three-page pdf version:
IGCC Cancellations-EER.pdf

CAMP UPDATE:
Federal Loan Guarantees and Mesaba Energy Project
October 8, 2007

Excelsior Energy used an announcement by the U.S. Department of Energy regarding its Loan Guarantee Program to get positive media coverage for its Mesaba Project. The two media sources checked on Saturday (Channel 13 in Duluth and MPR) both noted the problems with the power purchase agreement. However, the MPR report on Sunday let Julie Jorgensen's questionable claims go unchallenged and the Grand Rapids Herald Review published Excelsior's News Release unfiltered.

Excelsior's News Release is conveniently oversimplified. It says: "the Mesaba Energy Project has been selected from 143 applicants to begin the final review process for its loan guarantee program". The DOE's News Release says that 16 project sponsors, who submitted pre-applications in the fall of 2006, have been "invited . . . to submit full applications for loan guarantees", which "will undergo disciplined and rigorous reviews". Mesaba and others have until October 30, 2007 to notify DOE that they plan to submit a full application.

Given the federal government's infatuation with the myth of "clean coal" and the IGCC technology, it is not surprising that Mesaba is among the projects selected to submit final applications. However, even the DOE's description of Mesaba states only that it "would allot space in its design for CO2 capture and storage". This should ultimately be found inadequate to meet the standards set forth in the regulations.

Excelsior's News Release also quoted Jorgensen as claiming that "the loan guarantee offers Minnesota consumers unparalleled protection from the risks of . . . innovative technologies". This ignores the determination by the Minnesota Public Utilities Commission that Excelsior's proposed power purchase agreement was too risky financially and operationally, even though the PPA already factored in the benefit of federal loan guarantee.

The Mesaba Project is a long way from achieving a federal loan guarantee. The rigors of the application and screening process will be a significant challenge. There are also monetary hurdles: in submitted comments, TXU said that the costs of securing a guarantee could be hundreds of millions of dollars; applicants must pay fees to cover DOE's administrative costs of processing the application; and before a Loan Guarantee Agreement can be finalized, applicants must pay a substantial Credit Subsidy Cost.

The DOE's News Release and a link to the regulations can be found at:
http://www.doe.gov/news/5568.htm

THE PROGRAM

The loan guarantee program was authorized by Title XVII of the Energy Policy Act of 2005, for up to 80% of the cost of projects that employ new or significantly improved technologies as compared to commercial technologies that are in service in the United States when guarantees are issued. The fact that Mesaba might be eligible for such a guarantee was noted in DOE's publications in the fall of 2005. The loan program could not begin to operate until the DOE established regulations to govern it, which have just been finalized. The total amount made available for the loan guarantees in 2007 was $4 billion. Congress is currently considering DOE's request for $9 billion for fiscal 2008. There likely will not be enough money to fund all of the projects that have been invited to submit full applications. The DOE will score and rank the applications by criteria set out in the new regulations, which are found in Part 609 of of Title 10 of the Code of Federal Regulations.

SELECTED REGULATIONS

Section 609.6 lists twenty-nine detailed requirements for submitting an application, including:

(12) An analysis of the market for any product to be produced by the project, including relevant economics justifying the analysis, and copies of any contractual agreements for the sale of these products or assurance of the revenues to be generated from sale of these products.

Problem: No Power Purchase Agreement.

(21) A preliminary credit assessment for the project without a loan guarantee from a nationally recognized rating agency for projects where the estimated total Project Costs exceed $25 million. . .

Problem: Standard and Poors has determined that IGCC projects should be assigned a risk premium unless at least five such projects are in operation with a satisfactory record.

(22) A list showing the status of and estimated completion date of Applicant's required project-related applications or approvals for Federal, state, and local permits and authorizations to site, construct, and operate the project;

Problem: The release of the draft EIS has been delayed repeatedly and, if released, likely will point out serious impediments to the required permits.

Section 609.7 lists the factors that will be weighed in deciding which applications should receive loan guarantees. It states that greater weight will be given to applications that rely upon a smaller guarantee percentage, all else being equal.

Problem: Excelsior has always assumed, and Jorgensen is still talking about, the maximum permissible 80%.

Among the sixteen criteria to be evaluated by the DOE:

(1) To what measurable extent the project avoids, reduces, or sequesters air pollutants or antrhopogenic emissions of greenhouse gases;

Problem: The Minnesota Pollution Control Agency has concluded that Mesaba will not significantly reduce air pollutants compared to other state-of-the-art coal technologies. Mesaba has no current intention of capturing and sequestering CO2 and admits that currently available technology would enable capture of only 30% of its CO2. This would have a prohibitive cost and reduce efficiency. Sequestration would likely increase the cost significantly and has not yet been proven feasible on a large scale or over a long time.

(7) The amount of equity commitment to the project by the Applicant and other principals involved in the project;

(9) Whether and to what extent the Applicant will rely upon other governmental assistance to support the financing . . . of the project . . . ;

Problem: Equity is defined as cash contributed by the Borrowers and other principals, not including proceeds from loans or the value of government assistance or support. The amount invested and risked by Excelsior's principals has always been questionable and kept secret. Its known financing to date is about $40 million in public funds.

(10) The feasibility of the project and likelihood that the project will produce sufficient revenues to service the project's debt obligations over the life of the loan guarantee and assure timely repayment of Guaranteed Obligations;

Problem: No Power Purchase Agreement.

(12) The Applicant's capacity and expertise to successfully operate the project, based on factors such as financial soundness, management organization, and the nature and extent of corporate and personal experience;

Problem: Excelsior Energy has no corporate experience; Mesaba I is its first project. Nearly all of its executives were employed at NRG, which declared bankruptcy in 2003.

(14) The levels of market, regulatory, legal, financial, technological, and other risks associated with the project and their appropriateness for a loan guarantee provided by DOE;

Problem: The MPUC determined that the financial and operational risks were reasons not to approve Mesaba's proposed PPA.

CAMP UPDATE: Nobody Likes PPA Order
September 27, 2007

CAMPers weren't the only ones who had problems with the PUC's 8/30/07 order regarding Excelsior Energy's petition to require Xcel Energy to purchase Mesaba's output under a long-term power purchase agreement (PPA). The parties had until September 19th to file a petition for rehearing. This is a mandatory step before a party may appeal a PUC decision to the courts. Petitions were filed by Minnesota Power, Xcel Energy, and Excelsior Energy.

The documents are summarized below. They can be found at:

http://search.state.mn.us/puc/query.html

Enter Docket No. 05-1993

MINNESOTA POWER

MP has requested a rehearing and reconsideration of the determination that the Mesaba Project is an Innovative Energy Project (IEP). This was the PUC's crucial finding (reversing the ALJs) that entitles Mesaba to "substantial and extraordinary" incentives in the 2003 statute, such as exemption from certificate of need, eminent domain powers, $10 million from the Renewable Development Fund, and more.

MP reasserts that Mesaba does not meet the standards required in the legislation because it:

• Does not deliver significant emission reductions compared to traditional technologies; and

• Is not capable of offering a long-term supply contract at a hedged, predictable cost.

MP also argues that the PUC should not have relied on its 2/23/05 order approving $10 million in RDF funding for Mesaba, but should have reviewed the statutory definition of an IEP and the evidence that shows Mesaba does not qualify.

The issue of whether Mesaba qualifies as an IEP is fundamental and of great interest to CAMPers. If MP pursues this issue to the court of appeals, it will be trying to show that this finding by the PUC is not supported by substantial evidence in view of the entire record as submitted. MP's case should be helped by the fact that the ALJs made extensive findings contrary to the PUC's opinion.

XCEL ENERGY

Xcel filed a Request for Clarification or Modification, seeking more guidance from the PUC regarding its requirement that Xcel and Excelsior continue negotiating a PPA. Xcel offers a non-exclusive list of issues "that may prove to be significant challenges":

• Relationship of timing of the PPA to Xcel's need;
• Carbon capture and sequestration;
• Impact on Xcel's financial health;
• Pricing certainty and operational risks; and
• Whether other utilities should participate in the negotiations.

Could Xcel's "respectful request" be a diplomatic way of warning the PUC that this is not doable?

EXCELSIOR ENERGY

Not surprisingly, Excelsior's filing was the lengthiest and contained the most requests and issues. Apparently they still have enough money for extensive legal services.

EXCELSIOR ENERGY'S REQUEST FOR APPOINTMENT OF AN INDEPENDENT EXPERT EVALUATION FIRM, REQUEST FOR CORRECTION AND CLARIFICATION OF THE AUGUST 30, 2007 COMMISSION ORDER, PROTECTIVE PETITION FOR RECONSIDERATION AND REHEARING OF THE AUGUST 30, 2007 COMMISSION ORDER, AND REQUEST FOR DEFERRAL OF DECISION ON THE MERITS

1. Appointment of independent third-party expert evaluation firm to work with Xcel and EE to identify and present to the Commission the optimal terms and conditions for the PPA (who pays?)

2. Correct four typographical errors that give wrong numbers for statutory citations.

3. Reconsider and rehear specific issues:

• The PUC exceeded its authority by considering need and other public interest factors;
• The PUC applied an erroneous "least cost" standard;
• Evidence in the record does not support the PUC's:
• Findings on comparative costs;
• Findings on cost certainty;
• Findings on carbon dioxide; and
• Determinations that PPA not in the public interest.

Aside from these minor points, EE liked the order just fine.

4. EE suggests that perhaps the PUC's 8/30/07 order was interim rather than final, and if so, the PUC should defer any rehearing and reconsideration until after the independent evaluation process is complete and the PUC determines statewide need and allocation of the project's output. EE notes that this could potentially limit any possible appeals in the meantime.

CAMPers should note that this could be an attempt to keep the Mesaba Project in limbo and alive long enough to try to come up with some more public subsidies and legislated benefits. Wonder how MP feels about having its right to appeal delayed? We'll find out soon because the parties' replies are due within a few days.

PUC ACTION

Minn. Rule 7829.3000 provides that the PUC shall decide these petitions with or without a hearing or oral argument.

Minn. Stat. 216B.27 provides that:
• The PUC has sixty days to decide whether to grant a rehearing or the application is deemed denied;
• If the PUC determines that the original order was unlawful or unreasonable, it can change it; and
• No order of the PUC shall become effective while an application for a rehearing or a rehearing is pending.

If the PUC uses up the entire 60 days, it could be months before we know whether the PPA order will be appealed to the courts. Meanwhile, it looks like the 8/30/07 order is ineffective. Does this mean Xcel doesn't have to negotiate with Excelsior until this is resolved?

OTHER INTERESTING STATEMENTS

Recently discovered e-mail by Janet Gonzalez, Energy Unit Manager at the PUC:

"This is one of the most controversial cases the Commission has had to deal with in a number of years."

It's reassuring to know it's not just our opinion.

CONOCO PHILLIPS' SPIN ON THE PUC'S DENIAL OF THE PPA

See Conoco Phillips' 8/3/07 report on all of its gasification projects at:

http://www.gasification.org/Docs/News/2007/COALGEN/ConocoPhillips%20COALGEN%2007.pdf

The report includes the PUC's determination that the Mesaba PPA is "not in the public interest" and then explains Mesaba's problems:

"Mesaba Energy Project Status - What happened?"

Nationally:
- Capital cost escalation
- Drive for Coal Plants to capture carbon NOW

Locally:
- Xcel has reduced its load forecast to 325 MW and proposed wind and hydro to fill need.

- Strong local opposition - NIMBY groups masquerading and fundraising as environmentalists.

- State may have retreated from position of supporting economic development for Iron Range Area".

Now environmentalists are the good guys? But what are those NIMBY groups really up to behind their masks?

CAMPers could take pride in such recognition by Conoco Phillips, but it appears that we are being used in its campaign to portray failure of the Mesaba Project as separate and unrelated to its wonderful and promising gasification technology.

CAMP UPDATE:
ALJ RE: Phase II of PPA - PUC Should Deny Excelsior's Petiton
September 17, 2007

On September 14, 2007, an ALJ recommended that the Public Utilities Commission deny Excelsior Energy's request that Xcel Energy be required to purchase 13% of its energy from Mesaba Units 1 and 2 by 2013.

BACKGROUND

Excelsior Energy filed a Petition with the PUC in December 2005 to force Xcel Energy to purchase Mesaba's output pursuant to two statutes passed in 2003. In April 2006 the PUC said it would address three issues:

1) Whether to approve the PPA (Minn. Stat. 216B.1694);

2) Whether Xcel would be obliged to use Mesaba's output for at least 2% of its energy (Minn. Stat. 216B.1693); and

3) Whether at least 13% of Xcel's retail energy should come from Mesaba by 2013.

Decisions on the first two issues were recommended by two Administrative Law Judges in a 4/12/07 report. In its August order the PUC chose not to approve the PPA proposed by Excelsior (see our earlier report for more detail). The PUC did not act on issue #2, although the ALJs had recommended against requiring Xcel to purchase the 2%.

ISSUE #3 - MUST AT LEAST 13% OF XCEL'S RETAIL ENERGY COME FROM MESABA BY 2013?

ALJ Bruce H. Johnson's short answer is "NO" because Mesaba's energy is not likely to be a least-cost resource. However, it's not that simple, as evidenced by the fact that the report numbers 39 pages. Find the report by going to:

http://search.state.mn.us/puc/query.html

Enter docket no. 05-1993.

The decision will be made by the PUC at a public hearing some time after the parties have had 30 days to file their objections and replies.

FINDINGS OF FACT

The ALJ noted that the PUC had already concluded in its August order regarding the PPA that the power from Mesaba Unit 1 would cost Xcel Energy about 30% more than other comparable sources. He found that in order to require Xcel to purchase 13% of its power from Mesaba, the PUC would have to:

• First find that the Project qualifies for the 2% minimum; and then
• Conclude that it is likely to be the least-cost resource for 13% of Xcel's need; and
• Find that this would not be contrary to the public interest.

The ALJ noted: in Phase 1 the ALJs found that Mesaba was not likely to be a least-cost resource to provide 2% of Xcel's energy; and it is even less likely to be a least-cost resource to supply 13%.

CONCLUSIONS OF LAW

The ALJ concluded that the Mesaba Project and its technology do not satisfy the requirements of Minn. Stat. 216B.1693 because it is not likely to be a least-cost resource and that it would be contrary to the public interest for it to supply 13% of Xcel's retail load starting in 2012.

IS THE CLOCK RUNNING OUT?

A significant finding by the ALJ is that the opportunity to require Xcel to purchase at least 2% of its energy from Mesaba EXPIRES ON JANUARY 1, 2012, and the power won't be available to Xcel until 2014, according to a realistic timetable.

The ALJ notes that: Excelsior Energy disputes this interpretation of the statute; and the PUC may consider the expiration date to be 12/31/13.

CAMPers: STAY TUNED

The PUC's DECISIONS on ISSUES #2 and #3 and could be vital to the survival of the Mesaba Project.

Mesaba's problems could also lead to new attempts for MORE SPECIAL LEGISLATION.

Meanwhile, we still have the PUC's NON-DECISION ON THE PPA - requiring that Xcel continue negotiating with Excelsior and that other utiltities consider Mesaba as a source in their upcoming resource plans.

And we're still waiting for the federal Dept. of Energy to release the DRAFT ENVIRONMENTAL IMPACT STATEMENT.

WE'LL BE WATCHING ON ALL FRONTS.

CAMP UPDATE: PUC Issues PPA Order
September 4, 2007

CAMPers:

The Minnesota Public Utilities Commission issued its Order on August 30th, "Disapproving" the Power Purchase Agreement between Excelsior Energy and Xcel Energy. The 24-page document can be found at:

http://www.puc.state.mn.us/docs/orders/07-0130.pdf

The Order amplifies the PUC's earlier statement, which we sent on August 4th and we discussed further on August 21st. It contains two provisions designed to keep open the possibility that Mesaba's output might find a buyer.

PROVISIONS IN PUC'S ORDER & CAMP'S REACTION

"Excelsior and Xcel shall resume their negotiations toward a final power purchase agreement, with the assistance of the Department of Commerce and in light of the guidance provided by the Commission in this case."

It is hard to see how renewed negotiations can be productive, given the fundamental cost and risk problems that the PUC acknowledges as "legitimate barriers" that are "likely to impose unreasonable and excessive costs on Xcel's ratepayers".

"The Commission will explore the potential for a statewide market for the innovative energy project's power . . . both in the context of upcoming resource plan proceedings and in other cases in which the Commission reviews (a) requests to build or expand fossil-fuel-fired generation facilities or (b) requests to enter into power purchase agreements with those facilities for terms longer than five years."

This refers to the statutory requirement that other utilities consider Mesaba as a supply option. The PUC explains it as "spreading the . . . challenges of cost, pricing, and rates . . . among more than one set of ratepayers (to) make those challenges more manageable." The PUC promises to "explore that possibility in the months ahead".

This requirement could also be applied in the case involving new transmission facilities in Minnesota for the output of Big Stone II, a 630 MW coal-fired plant planned in South Dakota. The Administrative Law Judges recently found that the energy is needed by several Minnesota utiltites and recommended that the route permits be granted. However, the ALJs also found that the utilities requesting the new lines did not adequately consider using Mesaba's output as a supply option. This case will be decided by the PUC, which could make Mesaba a serious issue.

CAMP will be watching developments in the BS II case and in the upcoming IRP proceedings at the PUC, which are referenced as follows:

"Resource plan filings are imminent from Xcel, Minnesota Power, and Great River Energy, three of the state's largest generators of electricity and purchasers of wholesale power. These resource plan proceedings should provide a good starting point for examining how Mesaba might contribute to meeting the state's intermediate and long-term power needs and how that contribution would affect rates, reliability, and other public-interest concerns."

KEY QUESTIONS & CAMP'S RESPONSES

Can a PPA be successfully negotiated that meets Excelsior's needs and overcomes Xcel's objections and the deficiencies identified by the PUC?

Highly unlikely, given the PPA's fundamental flaws and the failed efforts over the past three years.

Can the PUC force the other utilities in the state to incorporate Mesaba's output as they plan to meet their needs for new baseload generation?

Not likely, if the PUC applies a true public interest test (need, cost and risk) and takes into account Mesaba's lack of a meaningful plan to capture and sequester CO2.

How long can Excelsior Energy survive without new cash infusions?

That probably depends on how much of the $22 million in DOE funding has not yet been spent and whether the DOE is willing to continue funding in light of the disapproved PPA.

Private investments aren't likely in the absence of an approved PPA.

We expect that no additional public funds will be provided. WE'LL BE ON THE LOOKOUT FOR THAT, TOO.

CAMP UPDATE:
Mesaba's Power Purchase Agreement at the Public Utilities Commission
August 21, 2007

The Minnesota Public Utilities Commission did not approve the power purchase agreement that the Mesaba Project needs with Xcel Energy because it "is not in the public interest as currently drafted".

However, rather than finally denying the PPA, the PUC "requested" that Excelsior, Xcel, and the Department of Commerce continue negotiating.

The PUC identified deficiencies in the proposed PPA to include: the absence of a fixed price at a reasonable level; inadequate ratepayer protections from operational and financial risks; and the need to further develop plans to capture and sequester carbon. These deficiencies are fundamental and will be difficult, if not impossible, to overcome.

We will need to see the PUC's order and detailed findings of fact before we can know exactly what it's doing and that may take a few more weeks. In the meantime, here's our analysis of the Project's status.

PUC'S FINDING THAT MESABA IS AN INNOVATIVE ENERGY PROJECT

The PUC's finding that Mesaba is an Innovative Energy Project reversed the ALJs' recommendations and keeps Mesaba entitled to the special benefits listed in the 2003 legislation.

One of these benefits is of increased significance because the PUC could use its authority over all new generation facilities to pressure all of the state's utilities to use Mesaba's output. However, the test would be whether that is in the best interest of ratepayers and the PUC also unanimously agreed that Mesaba's power would be too costly. It is hard to imagine what benefits the PUC might find sufficient to counterbalance this cost issue.

It is expected that as the various utilities present their Integrated Resource Plans to the PUC, they will be required to show that they "considered" Mesaba as a supply option, and to show why it is not suitable. IRPs from Xcel, Minnesota Power, and Great River Energy are due in November and December of this year. We will be watching for developments on that front.

The Hearings

The PUC met on July 31st and August 2nd to hear arguments from the parties. On the first day 40 CAMPers rode our chartered bus to St. Paul and several more met us there to create a significant presence in the room. Co-Chair Ed Anderson ably presented CAMP's perspective to the PUC. We all agreed that Excelsior's Mesaba Project did not fare well that day and its proponents appeared to be disconcerted.

By Thursday morning the Excelsior team had regrouped and was encouraging the PUC to approve the PPA in some form, even by modifying it to 450 MWs (vs. 603 MWs proposed), and delaying the production date. Excelsior emphasized that it needed some favorable word on the PPA to support its application for $130 million in federal tax credits, which must be filed by October 1st. Without these tax credits, the costs of Mesaba's power could increase by another 10%. Nevertheless, the PUC did not set any deadline for results from negotiations with Xcel or for identifying how Mesaba's output could be marketed to all of Minnesota's utilities. This may leave the Project with a critical timing problem.

Time and Money>

Since the hearing we have learned that, in addition to the deadline for applying for the federal tax credits, Excelsior had another reason for needing a 450 MW PPA. Its first interest payment on its first "loan" from Iron Range Resources was due in May 2007. Tom Micheletti requested an extension and in late July Commissioner Sandy Layman granted one until the end of 2007. She also said that an extension to the end of 2009 would be granted if, by the end of 2007, Excelsior achieved: either an approved PPA for 450 MWs; or a third-party equity investment of $100 million. These two conditions are so interdependent that it is unlikely that Excelsior will get one without the other.

Is Excelsior running out of money and therefore time to continue promoting the Mesaba Project? Apparently the entire $9.5 million from IRR has been spent. We don't know how much of the initial $22 million from the Department of Energy has been spent but we do know that in order for the Agreement with DOE to continue, Excelsior needs a PPA or some other suitable agreement for selling its output. At least three-fourths of this year's $2 million installment from the state's Renewable Development Fund in addition to two previous installments have been spent. Even though the PUC did not pronounce a death sentence for the Project, it may not survive much more delay.

The World and Micheletti Keep On Spinning

Nevertheless, Tom Micheletti continues to spin the Project as alive and doing well, as shown by his "update" to the Itasca County Commissioners on August 14th. He claimed that: the PUC is going to "force" utilities to participate in a PPA with Mesaba; the PUC wants to spread Mesaba's "benefits" statewide; Mesaba would provide baseload "desperately" needed locally; and the Project would be a low-cost alternative for the region. All this despite: Excelsior's fight to prevent the PUC from considering the need for Mesaba; and the PUC's unanimous finding that the power in the proposed PPA was too costly and the risks were too great to impose on Xcel's ratepayers.

CAMP UPDATE: MPUC Update
August 3, 2007

MINNESOTA PUC DECIDES NOT TO DECIDE ON POWER PURCHASE AGREEMENT (PPA)

About 50 CAMPers attended the session for oral arguments at the Minnesota Public Utilities Commission in St. Paul on July 31st. All were impressed with the quality of the case put on by Xcel Energy and other parties in opposition to Excelsior Energy's proposed PPA. A smaller number attended the second day of arguments and the PUC's deliberations on August 2nd.

The key question before the Public Utilities Commission was whether to force Xcel into a long-term contract to purchase the output of Mesaba I. This is critical to Excelsior's ability to: receive additional federal financial support; and attract private funding.

The PUC unanimously decided not to approve the terms of the PPA as currently proposed. However, the PUC left open the possibility that somehow a mutually acceptable PPA might yet be negotiated. They did not establish any particular time for the end of negotiations.

Time is a serious concern for Excelsior, particularly the deadline of October 1, 2007, for applying for at least $100 million in federal tax credits. Its chances of being awarded these credits will be lower if it doesn't have an approved PPA. Without the credits, the cost of its power will increase significantly, making the Project even more untenable.

The PUC decision has not yet been put in writing, so it is difficult to say how they expect the parties to overcome the obstacles to a mutually agreeable PPA (Xcel says it doesn't need the power and it is too costly). The PUC is expected to issue a statement soon. It should also issue a detailed order with findings in a few weeks.

We'll keep you informed of this and other developments - the draft environmental impact statement is now expected to be released in mid-August.

The bottom line is that five Commissioners found:

1. Excelsior Energy's Mesaba Unit I meets the statutory definition of an Innovative Energy Project.

(This reverses the findings of the Administrative Law Judges and allows Mesaba to continue to claim the special privileges in the 2003 statute such as: entitlement to a PPA; exemption from a Certificate of Need; eminent domain power; $10 million from the Renewable Development Fund.)

2. The PPA as currently drafted is not in the public interest but Excelsior, Xcel and the Department of Commerce are requested to continue to negotiate toward a final PPA.

3. The Mesaba Project is not a least cost resource for Xcel and so Xcel is not required to purchase at least 2% of its retail energy from the Project.

CAMPers all hoped that this PUC decision would put an end to the Mesaba Project. That may eventually be the result but in the meantime we have to continue our opposition.

AND WE WILL!

CAMP UPDATE:
Wall Street Journal deals major blow for Excelsior Energy
July 25, 2007

This is a major blow for Excelsior Energy! The PUC and potential investors can't ignore the numbers below. Read on...

The following is an excerpt from the Wall Street Journal's recent article entitled: "Coal's Doubters Block New Wave of Power Plants" by Rebecca Smith

Even proposals to build so-called “clean coal” plants have been met with skepticism. This new technology, which primarily involves converting coal into a combustible gas for electricity generation, has been touted as a solution to coal’s global-warming problems.

A hearing judge at the Minnesota Public Utilities Commission is urging commissioners to reject a plan for Northern States Power Co., a unit of Xcel Energy Inc., Minneapolis, to buy about 8% of its electricity from a coal-gasification power plant that was proposed by Excelsior Energy Inc., Minnetonka, Minn. The judge concluded the 600-megawatt Excelsior plant wouldn’t be a good deal for consumers.

The judge concluded it would cost an extra $472.3 million, in 2011 dollars, to make the power plant capable of capturing about 30% of its carbon dioxide emissions, and another $635.4 million to build a pipeline to move the greenhouse gas to the nearest deep geologic storage in Alberta, Canada. Thus, $1.1 billion in pollution controls had the potential to inflate the cost of power coming from the plant by $50 a megawatt hour, making electricity from Excelsior twice as costly as power from many older coal-fired plants that simply vent their carbon dioxide. The recommendation will be considered by the commission on Aug. 2.

To see the complete article, go to www.legalectric.org