Minnesota Power selling leased lots to reservoir residents north of Duluth

DULUTH – Hundreds of cabins and homes that ring reservoirs north of Duluth sit on land Minnesota Power has owned for nearly a century. The utility, armed with the approval of state regulators, is now selling that land to leaseholders and crediting ratepayer bills with the proceeds.

Some homeowners are upset about the move, citing the unexpected financial burden it puts on them.

"At 61 years old, I hesitate to take out a large mortgage on this," Island Lake cabin owner Sally Sundeen wrote to the Minnesota Public Utilities Commission in September.

"We all wish we could get a better deal, especially the people who have been here the longest. It's kind of a no-brainer — it's a good deal — but we wish it was a better deal," she said on Monday.

There are 880 different residential leases on Island Lake, Fish Lake and Whiteface reservoirs included in Minnesota Power's land-sale program, which was first proposed to state regulators in August 2020.

This summer the utility obtained the federal approval needed to sell the land, which it said is no longer needed for its hydropower operations.

"It started out simple, but fast-forward to today and there has been a lot of development," Kurt Anderson, Minnesota Power's director of environmental and land management, said of the land leases. "A lot of leaseholders want to buy their lots, and we thought it would be a great and creative option."

The Minnesota Public Utilities Commission approved the land-sale proposal last week. Minnesota Power expects the land sales to bring in about $100 million before taxes, all of which would be applied to customer bills as credits.

Leaseholders have until 2024 to buy their lot at a locked-in 2020 market value plus 4%. From there the most recent value will be applied to the sale.

Many of the property leases don't expire for decades, at which point Minnesota Power would assume ownership if a land-sale agreement is not reached. The earliest leases expire is in 2028.

Given the demand for lakeshore property driving up costs year after year, some feel squeezed by the need to make a decision at all.

"We may have to sell a cabin that is very dear to us and our children," wrote Island Lake leaseholder Dan Laurila. "I feel we are being taken advantage of."

Some residents had asked for credit toward the purchase from the lease payments.

"Many of us who have cabins are from middle-class, blue-collar working families," Sundeen wrote. "We feel fortunate to have a lake cabin. ... I ask that a more equitable solution be developed, which takes into account our years of leasing and family traditions."

Anderson said if it had been a lease-to-buy arrangement all along, "it would have looked different than it does now." Lease payments likely would have been higher; leaseholders currently pay 2.5% of the land's market value in annual rent plus property taxes.

Anderson added that surveys found at least 80% of leaseholders are interested in purchasing their lots, the first of which will come up for sale early next year.

"We need to get these right, so folks can continue to enjoy these lots for the next 100 years or more."

Brooks Johnson • 218-491-6496