Interview with Mr. Al Hodnik- Chairman, President Ceo of ALLETE

For the August 2014 issue of Skillings Mining Review, we interviewed Mr. Al Hodnik – the chairman, president and CEO of ALLETE, an energy company headquartered in Duluth, MN, with operations in Wisconsin, North Dakota, Oregon, and Iowa. ALLETE’s energy businesses include Minnesota Power, Superior Water, Light & Power Co., BNI Coal, and ALLETE Clean Energy.

Low cost & reliable energy is a critical input into our natural resource economy

For the August 2014 issue of Skillings Mining Review, we interviewed Mr. Al Hodnik – the chairman, president and CEO of ALLETE, an energy company headquartered in Duluth, MN, with operations in Wisconsin, North Dakota, Oregon, and Iowa.

Allete Inc. corporate headquarters

 ALLETE’s energy businesses include Minnesota Power, Superior Water, Light & Power Co., BNI Coal, and ALLETE Clean Energy.
Mr. Hodnik joined Minnesota Power in 1982 and moved up the ranks to hold several key leadership positions including vice president of Generation Operations and senior vice president of Minnesota Power Operations.
In 2007, he was was named Minnesota Power’s chief operating officer and led transmission, distribution, generation and engineering for all aspects of the company as well as Superior Water, Light & Power and BNI Coal in North Dakota. He was promoted to ALLETE president and elected to the board in 2009, named CEO in 2010 and appointed chairman of the board in 2011.
A native of Aurora, MN and a graduate of the University of Minnesota-Minneapolis, Mr. Hodnik maintains strong working relationships with business, organized labor, political and education leaders in northeastern Minnesota.
He was mayor of Aurora from 1988-1997. He serves on the boards for Essentia Health Systems, PolyMet Mining, Edison Electric Institute and the Area Partnership for Economic Expansion (APEX).

SMR: You have publicly expressed your support for polymetallic mining and stated that (clean) copper is important in renewable energy. Can you please explain why that is and what do you mean by “clean” copper?

AH: The urbanization of America has brought about a reduced sense of where things come over the decades namely, farming, drilling and mining before any “value add” occurs. There has been much talk about the need for a clean energy economy but little talk about the minerals required to bring it about. We drive along in hybrid vehicles failing to recognize where the metals that make up a Prius come from.
Our 500 megawatt carbon free BISON wind energy farm is comprised of more than 1000 tons of copper.

Large and small scale solar is even more copper intense than wind. Finally storage, the holy grail of energy sector transformation, and the batteries needed to bring it about are laced with precious metals. Clean energy needs clean copper. While recycling is a part of the equation it is not sufficient to sustain a growing global context. Despite all benefitting from these minerals some have suggested that mining be done elsewhere regardless of lax permitting and environmental impacts. Beyond selfish it is irresponsible, especially when technology advancements and stricter environmental permitting mean it can safely be done in Minnesota.

Technology transformation has not somehow passed over the mining sector. Rather, PolyMet will be deploying the very latest technologies and recently received an EC-2 rating from the EPA, the highest given in the past 15 years. Simply stated, PolyMet is about producing the clean copper our clean energy economy requires.

SMR: People who do not work in heavy industry may underestimate the fundamental importance of low-cost energy. Can you please elaborate on why that is such a big contribution to economies?

AH: Minnesota’s mining and paper industries need reliable and low cost energy to convert the region’s raw materials into higher value products. Low cost energy drives the natural resource economy of northern MN making up 15% – 20% of the production cost of each ton of taconite or paper. These industries compete nationally and internationally for business, and any increase in energy prices challenges their competitive position.

We believe low cost and reliable energy is a critical input into our natural resource economy and are working to keep our energy prices competitive. Our 3rd lowest Edison Electric Institute-Investor Owned Utilities rates speak to that.

SMR: In what ways do you think it is feasible for local voices on mining matters to outweigh state and national interests? i.e., Have you seen it before, how challenging do you think it is to achieve and what do you think is necessary for that to happen?

AH: I am not sure local voices will ever outweigh State or National interests but they should at a minimum be heard. While permitting processes are by their nature designed to afford access to all, local voices are often muted due to their own apathy, fragmentation and lack of coordination.

Said differently, the people and resources often being deployed from elsewhere to effectuate local mining outcomes are highly focused and well resourced professionally and financially. There are a myriad of examples where something began as a “local” issue and gathered enough steam to result in legislative or regulatory action in St. Paul or Washington DC. Entities may need to persist to get action or to the ultimate decision maker and must continuously refine public good or interest messaging against a sea of loss leaders tossed about to create doubt. But this is democracy at its core and I am strong believer in “average people” organizing to create and preserve economic vitality. In the case of PolyMet, the minerals are strategic in a National context for national defense, a clean energy future and everyday life. In Minnesota, mineral revenues have richly supported President Lincoln’s original land grant “educate a nation” vision, at the University of Minnesota.

Thoughtful non-ferrous mineral extraction will continue that legacy and much more in a State hungry for new revenue sources and a region in need of economic stimulus. PolyMet in many ways can serve to harmonize Federal, State and Local interests but local voices must awaken, unite and better align quickly to meet the challenges all forms of mining face.

Al Hodnik Chairman President CEO of ALLETE

SMR: How was ALLETE’s EnergyForward strategy developed and -going forward -to what end do you envision its impact on regional economic growth?

AH: Our 1/3 renewable, 1/3 gas, 1/3 coal EnergyForward strategy was developed in classic Minnesota Power fashion, highly public, very transparent and in full partnership with all who have stake in our business. EnergyForward is principled in that it balances stewardship, reliability and affordability and is the means by which we are helping to answer our Nations call to transform its energy landscape.

Endeavors such as our award winning BISON wind energy center coupled with our Manitoba Hydro-MP 500kV Great Northern Transmission line provide clear evidence of both a Company and a Nation on the move. This while we have reduced mercury and other pollutants by 90% at our Boswell Energy Center, our multi-unit base load facility, built principally to cost effectively serve our high load factor-energy intensive mineral customers on the Iron Range. While energy transformation has created stimulus and jobs, reliable, low cost power is the single greatest contribution we can make to the regional economy.

SMR: You have lauded Rep. Rick Nolan’s public assertions that environmentally conscious mining is not an oxymoron. As someone in resources yourself, can you give us your own view on how it is possible for resources extraction to coexist with environmental stewardship?

AH: Congressman Nolan has rejected the false premise that mining jobs and a good environment cannot co-exist and faced down that falsehood in a highly public and courageous way. First one must acknowledge the difference between preservation and conservation, though many in my opinion use the words interchangeably.

Preservation, whether it be in National Parks or elsewhere implies no development. Conservationists recognize that societies need various natural resources to function and in the context of mining, thoughtfully partner to assure that the design and development of mines minimizes environmental impacts.

Some of the best examples include the Eagle mine in Michigan which is utilizing best practice mining including Reverse Osmosis treatment technology for mercury. Likewise, Kennecott Copper in Utah which created a wetland mitigation project that created over 4000 acres of new and better quality wetland habitat while winning numerous environmental awards and recognition for its world class Inland Sea Shore Bird Reserve.

The Flambeau mine in Wisconsin operated its entire mine life without receiving a single citation. Certainly last but not least, our own BNI Coal Mining in North Dakota which like many western mines has utilized best practice reclamation processes while working in harmony with land owners, nature and while earning awards for environmental stewardship from regulators.

SMR: ALLETE has invested heavily in energy infrastructure projects like the Great Northern Transmission Line and the energy corridor between North Dakota and Minnesota. How would you grade the current energy infrastructure in North America and what type of key energy linkages would you like to see?

AH: Generally the US electric and gas/oil pipeline grid is in reasonable shape though it is fair to say we are currently benefitting from the over build of capacity in the 70’s and 80’s.

The electric side anticipates considerable investment on generation supply transformation, bulk delivery upgrades and modernizing the commercial/residential distribution network to facilitate two way energy delivery over the next decade. With regards to oil & gas, fracking has been a game changer with the US now contemplating energy independence by 2020. Rail capacity has taken up the excess production to date however clearly more pipeline capacity will be required should the expected manufacturing renaissance occur and as US generation supply shifts from coal to natural gas.

SMR: As a PolyMet board member, in what ways does the company demonstrate the idea that mining industry operations can take beyond-adequate measures to protect the environment while maintaining, or improving, its expected level of economic prosperity?

AH: There has been a significant change for the better in public company governance and attitudes over the past several decades brought about by shareholders and other stakeholders who increasingly expect stewardship of both their investment and the natural environment in which the enterprise conducts its affairs.

Twenty years ago the first line of questioning from investors was about economics and returns whereas today the first line of questioning is about conducting our business in a way that is socially and environmentally responsible. I would not be serving on the PolyMet Board if this ethos was absent. Working in partnership with the State of Minnesota, Federal regulators and other stakeholders these minerals can be safely produced. I and the full Board are holding Jon Cherry and his team accountable for right results-right way outcomes and fully expects PolyMet to become a mining leader in the State.

Some examples of this Board accountability in action include the recruiting and hiring of Jon Cherry, a man of integrity and whose reputation with Federal and State agencies preceded him, to permit this project and “best practice” operate the mine. EPA recently granted our PolyMet project one of the highest ratings (EC-2) it has granted in the past 15 years which is a real testament to Jon and his team. The company has led solution finding initiatives around sulfate and wild rice by testing and demonstrating reverse osmosis on site.

This to treat sulfate laden wastewater while agreeing to meet a 10 mg/l standard ahead of conclusive research proof that 10 is the correct number to protect wild rice. PolyMet has incorporated into its mining and reclamation plans, designs to remediate surface and ground water impacted by historic mining activities prior to PolyMet. Working in partnership with the United States Forest Service, the USFS will receive over 6000 plus acres of high value habitat land and recreational property in exchange for several thousand acres of land impacted by historic mining activities.

Emblematically, our PolyMet endeavor demonstrates the investor-conservationist stewardship balance described by reusing the existing Erie mine milling facility and tailings basins versus disturbing additional virgin lands or adding capital costs to the project.

SMR: Reports tell us that the Bison purchased turbines sooner than projected to take advantage of federal government subsidies for green energy projects. What role do you think subsidies like this should play going forward?

AH: Subsidies litter the Federal tax code, code that most readily agree is in bad need of simplification. That agreement is often short-lived however when Congress or the IRS proposes to eliminate industry specific favorite sons! Given the worsening Federal deficit and debt, retaining all or adding new incentives seems implausible.

Energy sector transformation is not dissimilar to others in that PTC/ITC incentives, as well as, State imposed mandates brought about change. A policy, regulatory and tax framework that support effective markets, is predictable and resists picking winners and losers is the most desirable. The “all of the above” energy policy, tax and regulatory framework playing out in North Dakota speak to this as both carbon based and renewable energy forms flourish, unemployment is next to zero and the State is awash in new revenues.

SMR: What are the energy technologies you would like to see additional federal and private investments in?

AH: With fuel diversity, domestic energy independence and the need for prudent climate change action as governing principles, it is important our Country continue to advance large and small scale carbon free nuclear, find solutions for coal based carbon capture and sequestration, further improve renewable generation capabilities and focus on conservation and efficiency.

SMR: Can you update us regarding the Minnesota Power / Essar Steel relationship to provide power for mining and energy projects?

AH: Minnesota Power has a long-term contract in place with the Nashwauk Public Utilities Commission (NPUC) for wholesale electric service, which is used by the City to provide power to their customer, Essar Steel. We’ve got a strong working relationship with the NPUC and Essar Steel, and Nashwauk has long been a customer of Minnesota Power.

We dialogue frequently with the NPUC and the Essar leadership team on their construction plans and their timeline – and we’re ready to serve this important new customer with low-cost power when they’re ready.

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