State regulators dealt a major blow Thursday to a controversial proposal to generate hydroelectric power beside the Stone Arch Bridge, possibly derailing a project in the works for more than two decades.

The Public Utilities Commission (PUC) voted to yank the remaining $3.5 million from a renewable energy grant Xcel Energy awarded to Crown Hydro LLC in 2002. The firm wants to build a powerhouse beside the falls and a tunnel running beneath the historic bridge, a plan opposed by the city, its Park Board, and an array of advocacy groups focused on the river.

Opponents say the project clashes with plans to develop an area around the now-shuttered lock and dam system into a destination spot, with food options and a visitor center. They also highlight how much the riverfront has changed since the hydroelectric project was proposed — before the Guthrie Theater, the Mill City Museum and an array of luxury apartment buildings were built.

“We have a project which perhaps was once in the public interest, but through the passage of time — and a lot of time — it no longer is,” said PUC Commissioner Dan Lipschultz. “And, in fact, I think is contrary to the public interest in a really profound way.”

Crown Hydro’s attorney Richard Savelkoul told the commission the money is important to the project. The company has already spent $1.5 million of the original $5 million grant, partly to purchase turbine generators that have been sitting in storage.

“If you take action on this contract and terminate it at this time, the project is not feasible financially and it will be terminated, wasting ratepayer funds,” Savelkoul said before the vote.

But Crown Hydro’s owner Bill Hawks disagreed in an interview, saying it will merely require the company to change its financing.

“It isn’t good news,” Hawks said. “But it doesn’t really change anything that we’re doing.”

Funding is one of several hurdles the project has to overcome. It also needs the Federal Energy Regulatory Commission (FERC) to modify its license, which was approved in the late 1990s when Crown Hydro intended to build the project in the nearby Crown Roller Mill building.

The firm now wants to build it on land owned by the Army Corps of Engineers, but has not secured control of the site. Hawks said the company is working on a FERC-required review of the impact on historic properties over the next few months, after which he is confident they will be able to move forward.

The PUC cited lack of progress securing a site, one condition of the contract, as a reason for terminating the agreement on Thursday.

‘Project has lingered’

Others say that the project has loomed over the riverfront’s future for long enough.

“The project has lingered and lingered and lingered,” Assistant City Attorney Corey M. Conover told the commission. “And now we’ve got all these plans. … We have billions of dollars worth of investments [at the river]. We have new communities that didn’t even exist that now exist. And we’ve got all this tourism down at the river.”

Other opponents include Friends of the Lock and Dam, a nonprofit formed in 2016 to focus on the redevelopment of the Upper St. Anthony Falls lock and dam that closed in 2015 to stop the spread of invasive carp. Kjersti Monson, who is managing the redevelopment efforts for the group, said the Crown Hydro plan clashes with their vision for the site.

“That would pretty much negate what we’re planning to do, which is to build a building there with two levels of underground parking,” Monson said. “That would be completely incompatible with the visitor center concept that we’ve developed with partners.”

Monson added that the proposed Crown Hydro facility would disrupt plans to encourage public use of the river, such as having access for kayaks and water taxis around the lock.

Potential risks

Sen. Kari Dziedzic, DFL-Minneapolis, also highlighted the potential risks to the Stone Arch Bridge if the Crown Hydro project proceeds.

“They are now proposing to put a tunnel under the Stone Arch Bridge,” Dziedzic told the commission. “That is a 100-year-old bridge that MnDOT has determined is in precarious condition.”

A number of groups have been vying in recent years to harness the power of the falls to generate power, hearkening back to the city’s industrial roots when the river powered lumber and later flour mills in the area.

Xcel Energy already operates two hydroelectric plants near the falls, one just north of the Stone Arch Bridge and another downstream near the Interstate 35W plant.