|Financial Audit Division Report 08-22||Released September 25, 2008|
The Office of the Legislative Auditor investigated a citizen’s complaint that Excelsior Energy, Inc., inappropriately used some of the $9.5 million in loans it obtained from Iron Range Resources (IRR). Excelsior Energy obtained the loans to construct a coal gasification electric power generating facility in the Taconite or Hoyt Lakes area. The loans were approved by the IRR Board and Governor Pawlenty. The complaint alleged that Excelsior Energy used loan funds for costs not allowed by the loan agreement and was reimbursed twice for some costs through the loan and through a federal grant. In addition, the complaint alleged that the IRR commissioner exceeded her authority by changing the loan terms without approval of the IRR Board.
Our objective was to address the citizen’s complaint by answering the following questions:
Iron Range Resources did not adequately oversee Excelsior Energy’s use of loan proceeds to ensure that the company complied with certain loan provisions. IRR did not clearly define prohibited lobbying costs, did not adequately review documentation that Excelsior Energy submitted to support use of loan proceeds, and did not set limits or constraints on certain travel costs. As a result, the company used loan funds for some expenses that appear to be related to lobbying activities and was reimbursed $40,161 for inappropriate, duplicate, or unsupported costs.
The IRR and federal government funding arrangements were appropriate and did not create a duplicate reimbursement of expenses. The second IRR loan allowed and recognized the coordination of third-party federal resources. We found that the Excelsior Energy agreement with the federal Department of Energy required the company to report 100 percent of all project costs, including costs reimbursed from IRR loans, and the company was reimbursed for half those costs through the federal grant.
Finally, the IRR commissioner acted within the authority of IRR Board’s Financial Assistance Administration Policy which requires the development of an action plan when modifying the terms of an agreement. The policy states, “The Commissioner will determine if the Board of Iron Range Resources must be notified of the action plan.” We concluded that the policy provided the commissioner with authority to change the initial loan interest payment due date in its loan agreements and discretion about whether to involve the IRR Board in the matter.