Apr. 13--The dream of a $2 billion coal-gasification plant on the Iron Range the was dealt a setback Thursday when two administrative law judges urged the Minnesota Public Utilities Commission to deny the plans of Excelsior Energy, a newcomer power company.

While not binding on regulators, the ruling is filled with warnings, from doubts that the plant will burn coal as cleanly as guaranteed to an opinion that Excelsior would not, as promised, likely deliver electricity at a lower cost than alternative energy suppliers. After sifting through thousands of pages of testimony in a hotly contested case, judges Steve Mihalchick and Bruce Johnson wrote that the plan is "not in the public interest." The judges' warnings to the utilities commission -- which is expected to rule on the project later this year -- include cautions about whether risks to Minnesota's economy would be overshadowed by the benefits of the biggest investment in decades on the troubled Iron Range.

And, in a move that undermines a key argument for building the Excelsior plant, the judges found that the design to transform pulverized coal into gas is not particularly new or innovative. To build the plant, Excelsior needs a customer. The Legislature four years ago directed Xcel Energy Inc. to buy power from the proposed 600-megawatt plant. But Xcel, in expert testimony, said the power isn't needed in 2011 when Excelsior's Mesaba plant s supposed to open. Xcel argued that Excelsior's power would cost more than alternatives and put Xcel at financial risk if everything didn't go according to plan -- two arguments the administrative law judges accepted in their findings.

The project would create 3,500 construction jobs from 2008 to 2011, according to Excelsior's economic consultant, and employ 107 full-time workers to keep the plant running. The company said millions of dollars in benefits would flow to local communitie , as well. But the judges were skeptical. "There are economic development benefits to the state from the project, especially to the nearby area," they wrote. "There are also negative economic development impacts from the increased costs that will be passed on to b siness and individual ratepayers and from the negative environmental consequences of the project.

"Overall, the economic development benefits weigh in favor of the project. But they do not justify an unreasonable price for its electric capacity and energy." Excelsior officials were unavailable for comment. Xcel offered a cautious response: "We have not had the opportunity to review the administrative law judges' report in detail," said Judy Poferl, Xcel director of regulatory administration. "We appreciate that the judges recognized the concerns raised by the parties to this proceeding. W will continue to participate in this case and look forward to resolution by the Minnesota Public Utilities Commission." The commission is expected to rule on the proposal this summer.

Mike Meyers -- 612-673-1746 -- meyers@startribune.com