Iron Range solar deal generating cash and controversy

Despite scoring millions of dollars from the public, the little solar panel maker on the Iron Range was fighting for its life.

So its lobbyist, Gary Cerkvenik, went to work.

Two months later, the state announced substantially higher rebates for anyone who buys Silicon Energy's solar panels. The increase boosted the fortunes of the company and the city it calls home, Mountain Iron.

Both are represented by the same lobbyist: Cerkvenik.

Cerkvenik's knack for finding public money to finance projects on the Range has made him a go-to guy in Minnesota's laissez faire lobbying world. With a dozen clients, mostly local governments, he's helped bring bike trails, a call center, business parks and a biomass burner to northern Minnesota.

"He is our eyes on the ground as far as how do we get funds, how do we work the funds, how do we do the funds correctly," said Rob Scott, chair of the Crane Lake Sewer & Water District.

In the case of Silicon Energy, Cerkvenik helped write the "Made in Minnesota" laws designed to create a local solar manufacturing industry. After he helped Mountain Iron build a business park and then Silicon Energy's solar panel factory, the company hired him as an executive. On overnight trips to St. Paul, Cerkvenik sleeps at the Summit Avenue condo owned by a co-founder of Silicon Energy's parent company. He's held DFL fundraisers there.

Despite more than $7 million in public support, Silicon Energy employs just 11 people, fewer than when it opened in 2011. It's been slowed by production issues and lower cost products offered by its rivals.

Undaunted, Cerkvenik sees the company and the more than $10 million its California owner has put into it as a victory for the Iron Range, whose leaders want to wean it away from mining jobs.

"This is something we should be celebrating," Cerkvenik said. "Someone who took their own money and invested in the end of the road, in an economically challenged area."

Not everyone is slicing cake. Republican lawmakers tried this spring to ax the entire Made in Minnesota solar rebate program. Rep. Pat Garofalo, R-Farmington, called the program a "spectacular failure."

Thanks to lobbying by Cerkvenik and others, the program survived unscathed. Silicon Energy's troubles merely seem to strengthen the state's resolve to hold it up.

A force at the Capitol

Tall and whippet-thin, Cerkvenik, 57, coaches his daughter's cross-country team, running the work outs with them. He works the Capitol with the same energy when he's down from his home in Britt, observers say, using the office lounge of fellow Iron Ranger Sen. David Tomassoni, DFL-Chisholm, as a base.

Cerkvenik's lobbying clients paid him about $215,000 last year.

Often he's also a consultant for clients, working on economic development projects. Cerkvenik said he sees no conflict between his private business interests and those of his public clients.

Cerkvenik, son of a mine mechanic, grew up on the edge of Mountain Iron, pop. 2,886.

At the age of 22, still fresh from St. John's University, he was elected to the St. Louis County Board of Commissioners. His résumé includes stints with U.S. Rep. Jim Oberstar and work on the national campaign of presidential candidate Michael Dukakis in the late 1980s and U.S. Sen. Paul Wellstone's 1990 campaign.

His career hit a bump in 2000 when Cerkvenik was sentenced in a fraud scheme involving a public relations company's contracts with National Steel Pellet Co. Cerkvenik pleaded guilty to three misdemeanor counts of willfully failing to report to the IRS the kickbacks that his business associate was paying National Steel's former general manager.

Cerkvenik paid a $30,000 fine and did 250 hours of community service.

"I am fortunate that the people for whom I work and my community understand that I made a mistake and I accepted responsibility," he said.

The DFL operative went on to build a thriving career consulting and lobbying.

As a consultant for the Mountain Iron Economic Development Authority, Cerkvenik found public funds to turn a 40-acre site atop a mine dump into a renewable energy business park. He was also scouting opportunities in wind farms, along with John Carroll, an executive with an Irvine, Calif., finance company called Newport Partners.

The Iron Range Resources and Rehabilitation Board (IRRRB), the state economic development agency dedicated to diversifying the Range economy, gave the Mountain Iron authority more than $1 million in grants, mostly for developing a wind farm near the Giants Ridge Golf & Ski Resort.

That wind farm never materialized, a failure Cerkvenik blames on the recession.

"Sure, not everything I work on turns out to be gold," he said.

A solar vision

Then solar came calling. Carroll called Cerkvenik about his interest in Silicon Energy, then operating in Washington state. IRRRB economic development officials flew out to see it.

The two helped persuade the Legislature to create the Made in Minnesota solar program, which was championed by Tomassoni and fellow Range lawmaker Tom Rukavina. Newport Partners bought Silicon Energy, while the Mountain Iron EDA, working with consultant Cerkvenik, obtained a $3.6 million loan from the IRRRB to put a new factory in the energy park.

The IRRRB loaned Silicon Energy itself $1.5 million for equipment. The loan was partially forgivable if the company had an average of 15 full-time employees in the first years, but it didn't accomplish that.

It missed out on the first year of the state's new Made in Minnesota solar customer rebate program in 2011 because the tsunami in Japan delayed the shipment of needed equipment, company President Gary Shaver said. It missed at least two loan payments in 2012. The IRRRB responded by giving Silicon Energy more time to pay it back.

The state agency lent another hand, passing out $1 million in solar grants to several Range towns in 2011 to buy Silicon Energy modules. Mountain Iron got $150,000 and installed an array behind its community center.

In 2013, after three years of lobbying for Silicon Energy, Cerkvenik joined its payroll as an executive. Cerkvenik said he did so only after getting permission from Mountain Iron.

Craig Wainio, head of the Mountain Iron EDA, said Cerkvenik is worth the money. Silicon Energy pays the county $70,000 a year in property taxes.

Things would get worse for Silicon Energy in 2014. A production flaw shut down the Mountain Iron plant for five months. The company stopped making the high-end Cascade panel and switched to a cheaper one, the Voyageur.

With the company in dire straits, the IRRRB gave Silicon Energy an 18-month loan for $1.95 million.

"We're trying to wisely preserve our investment in the company," IRRRB Commissioner Mark Phillips said.

But the key to saving Silicon Energy, company executives decided, was to press for a higher rebate from the state, which would give people a better reason to buy its panels.

Controversial rebate

Using money collected from ratepayers of four power companies, the state Commerce Department pays out $15 million each year to buyers who install qualifying solar energy systems.

No other state has a system quite like Minnesota's, however. Commerce sets different rebates every year for each manufacturer, and they are derived from a secret formula, with the biggest factor the cost of making the panel.

"I've never heard of a rebate varying by who is manufacturing it," said Glen Andersen, energy program director at the National Conference of State Legislatures. Andersen called the setup "strange."

Last June, Cerkvenik and Carroll met with Commerce official Bill Grant in Tomassoni's Capitol office. Tomassoni and Commerce Commissioner Mike Rothman also attended. The Silicon Energy executives made the case for a high enough rebate so customers could pay off their costs in 10 years.

Two months later, in August 2014, Commerce set the rebate levels for 2015. Even though it was now producing a cheaper panel, the rebates set for Silicon Energy customers jumped significantly. For homeowners, the rebates nearly doubled, amounting to $2,385 each year for a typical 5-kilowatt system.

Grant said the meeting was not unusual; all four manufacturers in the state have argued for the best incentives. Silicon Energy's new one was based on what the company said it cost to make its solar panels. Since it had just started making the cheaper product, the only known cost information was for their previous, more expensive panel, Grant said.

The move outraged some in the industry. At least two local professionals wrote complaints to Commerce.

"It ain't right," said Jon Kramer, CEO of Sundial Solar in Edina, a leading installer. "There's a disconnect."

Silicon Energy said its costs are higher because nearly all of its components are U.S. made and they use union workers at about $13 an hour, plus benefits.

Tomassoni defended the 2015 rebates and said Silicon Energy has the "only true Minnesota-made panel," a reference to competitors' use of foreign components.

Despite the higher rebate, Silicon Energy did not steal the market this year. Its customers have received about $5 million in rebates, about the same as customers of rival tenKsolar in Bloomington.

Out on Silicon Energy's brightly lit floor last month, workers framed solar panels. Wiping away adhesive from one, employee Seth Abate said he worked construction jobs before Silicon Energy, and loves the job. It helps support his family in Hibbing and the less physical routine "saves the body."

Such jobs are why Cerkvenik calls Silicon Energy a win for the Iron Range. "The public has not lost a dime of money."

Jennifer Bjorhus • 612-673-4683