Given his investment and loan, Gates’ interest in Otter Tail Power appears more than ‘passive’

Bill Gates speaks at a news conference in Tokyo.
REUTERS/Yuriko Nakao
Bill Gates speaks at a news conference in Tokyo.

When a group of Minnesota legislators pointed to a seeming disconnect between philanthropist Bill Gates’ public calls to address climate change and his partial ownership of a Minnesota utility that’s pushing to build a controversial coal-burning power plant, Gates’ investment manager said the Microsoft billionaire had only “passive” interest in the utility.
 
But a review of Gates’ investment suggests his 9 percent stake in Otter Tail Power of Fergus Falls, Minn., may be more than passive. Gates owns $90 million in voting stock in the utility, and his investment firm made a strategic $50 million loan to Otter Tail, a move that has attracted the attorney general’s attention.
 
Moreover, Gates’ Cascade Investment LLC of Kirkland, Wash., has made other investments in coal, including half ownership of a company that owns a large New Mexico utility and a huge stake in a railroad that operates unit trains that haul coal from mines in western Canada.

Otter Tail leads a five-utility consortium seeking to build a large, 550-megawatt coal-burning plant at Milbank, S.D., just across the Minnesota border on Big Stone Lake. Energy advocates, along with several state legislators and a prominent NASA scientist, have opposed the “Big Stone II” plant because it would release massive amounts of carbon, which is linked to climate change.
 
PUC still examining question of need
Earlier this year, two administrative law judges said the state’s Public Utilities Commission (PUC) should deny a “certificate of need” for transmission lines to carry into the state nearly half of the power from the “Big Stone II” plant. Even though an administrative panel has taken extensive testimony in the matter over several years, the full PUC board has delayed its decision so that still more examination can be conducted.  
 
But it’s Gates’ split personality on climate change, along with his curious loan to Otter Tail, that has attracted attention.
 
Last August the Bill and Melinda Gates Foundation invested some $150 million into a carbon-trading fund designed to reduce carbon emissions of projects in China through something called the Kyoto Protocol’s Clean Development Mechanism.
 
In January, Gates joined Al Gore and Bono in Davos, Switzerland in high profile support for the United Nations’ Millennium Development Goals, which included addressing climate change as well as improving people’s health in developing countries. In his Davos speech, Gates expressed concern that climate change “will have the biggest effect on people who have done the least to cause it.”
 
Businesses that burn or haul coal
Meanwhile, Cascade Investment puts a lot of Gates’ considerable personal wealth into utilities whose business is burning coal or hauling it to industries that do. Here are some places where Cascade has parked Gates’ money:
 
• An estimated $90 million in voting stock in Otter Tail Power, along with a $50 million loan to Otter Tail that allowed the company to reduce interest payments on debt that was due. The loan wasn’t properly reported to PUC officials, as state law requires of investors that own more than 5 percent of a company to which a loan is made.
 
• Half ownership of EnergyCo in partnership with PNM Resources of Albuquerque, N.M. EnergyCo owns a 305-megawatt coal-burning plant in Texas and has partnered with utility giant NRG Resources of New Jersey, which operates facilities worldwide that include coal burners, nuclear plants and wind generators. In 2005 Gates invested $100 million to help EnergyCo acquire TNP Enterprises of Fort Worth, Texas, a gas and electric utility that also operates an oil refinery. 
 
• Some $1.6 billion in the Canadian National Railway, with a major business of hauling coal from mines in Alberta and British Columbia to destinations throughout Canada and the central United States, and to ocean ports for international shipment.
 
When asked about Bill Gates’ public calls to address climate change through his high-profile foundation but his investment that appears to be heavy into coal, which releases atmospheric carbon linked to climate change, a foundation spokesman said only that Gates’ charitable works are separate from his investment company.
 
Michael Larson, who heads Cascade Investment, is known to refuse to talk with the media; he has declined repeated requests to comment on this story. 
 
Oversees personal and foundation investments
However, a MarketWatch report on Cascade said that Larson not only is in frequent contact with Bill Gates but that he oversees Gates’ personal fortune at Cascade as well as the foundation’s finances.
 
The discrepancy in purpose caught the eye of Rep. Jean Wagenius, DFL-Minneapolis, and seven other legislators. In February they sent a letter inviting Gates to visit Minnesota to see “green investments we are making” that would provide “many opportunities to align the values of your foundation with your investment strategy.”
 
On June 6, after repeated promises by the foundation that it would respond to the Wagenius letter, Michael Larson said in a brief letter that Gates’ interest was “passive.”
 
“But you don’t own nearly a tenth of a company and loan it $50 million without having some involvement in the company that’s beyond passive,” said a state official familiar with the Otter Tail dockets at the PUC but who preferred to remain anonymous.
 
The Office of Energy Security in the Minnesota Department of Commerce said its review of the loan shows that it helped reduce interest payments by paying off loans that were at a higher interest rate; it recommended that the PUC approve the loan.

However, the attorney general’s office, which has noted that Otter Tail has drawn several anonymous complaints on financial reporting, has said that its review of the circumstances surrounding the Gates loan is continuing. 

Ron Way, a former reporter for several Midwest newspapers, covers the environment and energy issues. He can be reached at rway [at] minnpost [dot] com.

Comments (3)

  1. Submitted by Ron Way on 07/08/2008 - 04:38 pm.

    While it is true that Otter Tail Corp. is diversified into many things including wind generation, it is also true that Mr. Gates’ investment in the company occurred before the larger corporation was formed and when it operated solely as an electrical utility that generated most of its power with coal. The utility part of Otter Tail is regulated, and that is why the MN PUC and Atty. Gen. were interested in the $50 mil loan to Otter Tail while Mr. Gates’ owned more than 5 pct of the company.

    And, it remains true that Otter Tail is active in pushing the highly controversial coal-burning power plant, Big Stone II.

    If Mr. Gates’ were inclined to align his investments with his public actions and statements on climate change, he could simply invest in renewable energy. A review of his investments shows no such inclination.

    MinnPost made numerous attempts to contact Mrs. Gates’ investment manager, Michael Larson, via phone and email for comment on the seeming discrepancy between his public calls for addressing climate change and his major investments in companies that burn coal or haul coal to companies that do. Mr. Larson could have addressed a question that many people see as important; he elected no to. Mr. Gates’ foundation also declined comment.

    – Ron Way

  2. Submitted by Joanne Engelking on 07/07/2008 - 03:33 pm.

    I was stunned when I first read about Mr Gates’ financial backing of Otter Tail Power, which, on the surface, seems suspicious given his involvement with green technology worldwide. In light of the previous person’s statement, it seems that more investigation is warranted before any assumption of guilt by association can be made. Please dig deeper.

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