Verne Wagner's cabin has been in the family for three generations.
Since the early 1960s, the simple blue family cabin on the Whiteface Reservoir has been passed down. Wagner's grandfather sold it to his father for $1 and then his father sold it to Wagner and his siblings for $2 — "He wanted to double his money," Wagner said.
"If you come into my cabin, you'll see paintings of my grandmother's, you'll see woodworking of my father's, you'll see work that I've done," said Wagner, who described himself as the cabins' caretaker since his brothers and sister live out of state. "I do that because it is my family's cabin."
While he and his family own the structures, the land is owned by Minnesota Power, the Duluth-based utility company. The company leases land surrounding its system of reservoirs north of Duluth — from which water is released to help feed the company's four power-producing dams along the St. Louis River — to people who can then own a cabin or home on the land. The leaseholder pays the land's property taxes and 2.5% of the land's estimated market value as rent to Minnesota Power.
But that could soon change.
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Minnesota Power is looking to leave the land-leasing business and, pending approval from state regulators, sell the land around Island Lake, Fish Lake and Whiteface reservoirs to the nearly 900 leaseholders — a move the company estimates would generate approximately $100 million. The money would then be returned to customers as a credit on their bill to help offset an expected rate hike the company will seek later this year , company officials said. The public could buy the few vacant lots.
Kurt Anderson, Minnesota Power's director of environmental and land management, told the News Tribune that the company determined it was "probably not necessary to hold on to these residential lease lots, but that if we were to offer those to the leaseholders for sale, we could then use the proceeds to benefit our electric utility customers."
The company's plan — crafted with input from the Minnesota Public Utilities Commission, which must approve it — would offer leaseholders the land for its 2020 estimated market value plus 4% to account for the potential future increase in value.
But that's putting Wagner and others in a tough spot.
"If I have to buy my property, I may not be able to do it," Wagner said. "I may end up losing it."
Wagner, 66, is retired and on a fixed income. He said he's paying about $5,000 per year on taxes and rent to Minnesota Power for the land. To purchase that land, valued at about $126,000, he'd need to take a mortgage out, and even with a 20% down payment, he'd be looking at up to a $600 monthly payment — or $7,200 per year.
He's been organizing other leaseholders in pushing the company and PUC to make what they say would be a more equitable sale option. Most argue a credit or discount should be considered in the purchase price as they and their families have paid substantial rent payments to the company over the lease's life, in Wagner's case, back to the early 1960s. Some leases go back further, as the company began the program shortly after World War II.
Others feel blindsided by the company leaving the leasing business and are wishing they had renewed their lease sooner.
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Late last month, Wagner created a group on Facebook called "NE MN Concerned Reservoir Leaseholders." In less than 3 weeks, it's grown to more than 500 members.
There, Wagner and others have organized public comment writing forms to urge the PUC to consider a different plan. They also plan to reach out to the area's state legislators. Last week, they submitted a complaint to the PUC with a list of questions that were then posed to, and responded to by, Minnesota Power.
Among the questions was whether the down payments made to secure a lease would be deducted from the sale price.
Writing in a response filed Thursday, Minnesota Power Environmental and Real Estate Manager Jim Atkinson said, "Leaseholders who paid (Minnesota Power) directly (sometimes referred to as a “right-to-lease” payment) will receive a prorated benefit based on the amount of time remaining on their original lease term. However, any right-to-lease payments made from one private party to another private party will not be refunded, since we did not participate in, and cannot control, buyer/seller decisions that did not involve (Minnesota Power)."
While many are voicing their opposition to the proposal, others have expressed interest in buying the land (Minnesota Power said 90% of survey respondents are in favor of the program). But through public comments and discussions on the Facebook group, the leaseholders in favor of buying the land are echoing the opponents' proposal for a discount and to take in account the amount of money they've already paid Minnesota Power over the years.
"While we do look forward to purchasing the leased land, we're hoping that Minnesota Power will offer it at a fair and equitable way," Doug Madole, who holds a lease on Island Lake Reservoir, wrote in a public comment to the PUC.
In the Facebook group, a leaseholder on Fish Lake said he's ready to buy.
"I think being given the opportunity to buy our land is a great thing," he said. "I am all for it, and I am hoping it will happen while the interest rates are still low."
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That's what Anderson of Minnesota Power said the company wants.
"Right now they're able to take advantage of low interest rates, which may or may not last — who knows? And property prices only typically tend to go up — especially lakefront property," Anderson said. "So it's a great time for them and we felt it was a prudent time for us as well to try to bring some of that value back to our electric utility."
While Minnesota Power would exclusively sell the land to the current leaseholders, leaseholders that choose not to buy their lease will need to sell their buildings at the expiration of their lease. The new buyer would then buy the land from Minnesota Power.
Wagner, with a lease that expires in 2023, doesn't want that to happen.
"It puts me in a very tough spot and I hate to be the one to lose the cabin," Wagner said. "And I'd hate to be the one to lose the cabin on my watch. This was given to me and it's been handed to me as something very special and I'd hate to be the one to lose it."
The PUC has not yet voted on the plan; however, company officials and leaseholders expect the PUC to hold an early-fall meeting on the proposal.
