Day two: A big believer, bettor in ethanol

GRAND RAPIDS, MICH.

Ron Fagen was on the fly again, preaching the virtues of ethanol and reaping the rewards for making an early bet on its promise.

This day's journey took the contractor from his home in Granite Falls, Minn., to western Michigan, where he presided over the grand opening of a $60 million ethanol plant that he both built and co-owns. He flew on a chartered jet to Gerald R. Ford International Airport, leaving him to navigate 30 miles of interstate to rural Woodbury. On the way, he humored his car passengers and monitored the progress of an ethanol plant his firm is building in Illinois.

"By golly, we're gonna be on time," the exuberant Fagen said as security guards waved him into the plant's parking lot.

Wall Street may be infatuated with biofuels this year, but if anyone embodies America's ethanol boom and the industry's rural Midwestern roots, it's the burly 57-year-old former barrel-rolling stunt pilot.

Fagen's construction firm is credited with having built 65 to 70 percent of U.S. ethanol capacity, and he's booked solid with ethanol plant jobs through the end of 2010.

He's also a big shareholder in U.S. BioEnergy, an ethanol plant operator that is considering a $300 million stock offering.

"Ron Fagen has almost taken it upon himself to double the size of this industry," said Bob Dinneen, president of the Renewable Fuels Association, the ethanol industry's trade group.

Dinneen joined farmers, local investors, politicians, plant workers and others who'd gathered to mark the opening of Fagen's newest plant, which attracted some 3,000 applicants for 35 jobs.

When Fagen took the stage he bellowed, "This plant right here won't pack up its bags and move to Mexico," which elicited applause in a state that has lost thousands of manufacturing jobs.

He thought livestock was his future

Fagen -- his legal first name is Roland but everybody calls him Ron -- never figured to be the Corn Belt's energy czar. He grew up 8 miles northeast of Granite Falls in Maynard, Minn., population 420. He didn't go to college and assumed he would one day inherit his father's livestock hauling and trading business.

Associates say it's that grounding in rural Minnesota, as much as his track record, that has helped catapult Fagen to near-celebrity status in ethanol circles.

"If Ron Fagen tells you something, it's gospel," said Scott Dubbelde, general manager of the Farmers Cooperative Elevator in Hanley Falls, 9 miles from Granite Falls. "His word is better than any legal file in the world."

At age 16, Fagen learned from his father how to fly a vintage Taylorcraft from a grass airstrip on the edge of town. The plane was so small -- only 65 horsepower -- that Fagen swears he could almost make it change direction by putting his arm out the window.

Drafted in 1968 at 19 and sent to Vietnam, Fagen spent 32 months with an Army infantry unit. He returned to find that his father, Ray, had sold the family business because herds in western Minnesota were dwindling.

"He knew it was over, and I guess he did me a favor," Fagen said.

He reentered civilian life as a heavy equipment operator on road projects around Alexandria, Minn. He and friend Bud Pulsifer started their own construction firm in 1973, building grain bins, fertilizer plants, car dealerships, paper mills and other commercial structures until the partnership dissolved amicably in 1986.

Two years later, Fagen founded his own firm inside a hangar at the Granite Falls Airport, about 115 miles west of Minneapolis. He flew around the country to drum up business and supervise job sites. When work was finished, Fagen would buzz the site using aerobatic maneuvers he learned from a stunt master. He flew in competitions for several years before retiring from stunt flying in 1985.

He is still trying to curb his need for speed. Fagen, who has been ticketed at least 10 times in Minnesota for excessive road speed, said he has been trying successfully over the past two to three years to slow down on the roads.

Ethanol wasn't on Fagen's radar until 1988, when his firm added ethanol-making equipment to the Minnesota Corn Processors' wet mill in Marshall -- the oldest operating corn ethanol plant in Minnesota.

Throughout the 1990s, Minnesota was the cradle of the ethanol industry under a state subsidy program that virtually guaranteed banks wouldn't lose money if they financed an ethanol plant. Still, growth was slow and the plants were small, with Fagen building one ethanol plant every two to three years.

For Fagen, the plants in such places as Watertown, S.D., and Monroe, Wis., were more than just jobs. He and his wife, Diane, the human resources director for Fagen Inc., were early believers in ethanol as an economic engine for rural America and a patriotic alternative to foreign oil. One of Fagen's pet sayings is, "We're making fuel, and it's not coming from the Middle East."

The Fagens invested in almost every plant they built. In those early days farmer groups might spend up to five years trying to raise money for an ethanol plant, and an investment by the Fagens was often key to obtaining bank financing.

"Our bonding companies thought we were nuts," Fagen said. "They scolded us for making high-risk investments."

As recently as 1996, the Fagens personally guaranteed repayment of $2 million in bank loans to keep an ethanol project on track in Winthrop, Minn. They sold shares in some plants, but only as a means to help finance more projects. "We kind of gambled our profit," Fagen said. "I always felt it would pay out, but there were some sweaty times."

Fagen's business accelerated in 2001, when his staff figured out that larger plants -- 40 million to 50 million gallons in size -- could be profitable with no state subsidies. Suddenly, he was building as many as three plants at a time. Then last year, with passage of a new energy bill friendly to ethanol, "things went wild," Fagen said.

Today Fagen's business is so large, with 1,720 employees, that he no longer knows everyone by name. His brown brick headquarters on the corner of Hwys. 212 and 23 is undergoing a 40 percent expansion.

Son Aaron, 30, is the chief operating officer, and son Evan, 27, works as vice president of operations. The company will soon be juggling 33 ethanol construction projects at one time. An average 40-million-gallon plant costs about $60 million. Fagen won't disclose his profit, but he says his firm's revenue will double by the end of 2007, to more than $1 billion.

"Right now it's a once-in-a-lifetime opportunity," Fagen said. "We spent years begging for work, and now we are turning it away."

A prosperous line of work

Fagen calls ethanol "the best thing to happen to the farming industry since they invented the combine."

It's certainly been good for Fagen. In April, he and Diane received $40 million in cash and 44.9 million shares of stock for selling their Platte Valley ethanol plant in Nebraska to U.S. BioEnergy, based in Inver Grove Heights.

Fagen, cofounder Gordon Ommen of Brookings, S.D., and Cenex Harvest States (CHS), a large farmer-owned cooperative and Fortune 500 company, each owns about 25 percent of U.S. BioEnergy.

Ommen said he hitched his wagon to Fagen because of integrity and chemistry. "He's just a common, hard-working guy who gets it done," Ommen said.

Fagen doesn't flaunt his prosperity. He and Diane have lived on the same street for almost 30 years. In the office and on the road, the 6-foot-2 Fagen wears golf shirts and khakis. He eats soup and sandwiches for lunch at the town cafe and drives a flex-fuel Chevy Tahoe.

But Fagen's success has allowed him to indulge in his passion for World War II fighter planes. He stages a weekend air show in Granite Falls every year. He owns four airworthy American combat planes -- a P-51 Mustang, a P-38 Lightning and two P-40 Warhawks -- and has five mechanics restoring six more Warhawks to flying condition. Fagen figures it will take a total of 25 years to complete the work.

Though his major investment in U.S. BioEnergy ties him directly to Wall Street, Fagen said he is increasingly concerned about the encroachment of corporate owners into an industry created by farmers. He has vowed to steer at least 50 percent of Fagen Inc.'s ethanol business to groups that are majority-owned by farmers and other local people who live in the area of a proposed plant.

Without local ownership, ethanol plants provide far less economic benefit to a host community.

"He's always had a heart for the farmer," said David Kolsrud, an industry veteran from Luverne, Minn., who is active with a group of other farmers on various agri-energy pursuits.

When the construction boom in corn ethanol refineries ends -- limited ultimately by supplies of both corn and water -- Fagen hopes to build the next generation of ethanol plants that process some form of cellulose.

No one has it figured out yet, but Fagen won't be a follower. He has one of his most valued employees working full time to find the right technology.

"In five years we will build a cellulose ethanol plant to make fuel from biomass, not corn," Fagen said. "We'll own it ourselves and prove it out. It's gotta be right."