Iron Range mines and mills slated for electric rate relief that will boost homeowners' bills

Struggling northern Minnesota mining companies and paper mills would get a 5 percent break on their electric bills under a rate relief plan that also would drive up residential rates, a Duluth-based utility said Friday.

Residential customers of Minnesota Power would see an increase of 14.5 percent, or about $11.45 per month, based on a typical 750 kilowatt-hours of monthly power use, the utility said. General commercial businesses would see a 4 percent rate hike.

The Minnesota Legislature authorized rate relief this year for "energy-intensive trade-exposed customers" like mines and mills. The rate changes require approval by the Minnesota Public Utilities Commission, where challenges from consumer advocates are likely.

Under Minnesota Power's proposal, mills and mines would get a rate break only if their power consumption exceeds 62 percent of their maximum load. That means plants running at a low level or not at all would not get the break.

"There is the feeling that these customers can run away with some money, and that is not the case," Pat Mullen, vice president of marketing, corporate communications and energy supply at Minnesota Power, said in an interview with the Star Tribune. "They still have to run hard to earn the money."

Mullen said some eligible plants are not operating at enough capacity to get rate relief. If more plants ran at high levels, residential rates could rise further in future years, he said. The utility's profits wouldn't change because the plan only shifts the share of revenue from various customer classes.

The utility filed paperwork offering rate relief to seven mines, including Minntac in Mountain Iron and Hibbing Taconite, the two largest Iron Range producers. The four pulp and paper operations are Verso Paper in Duluth, Sappi Mill in Cloquet, Blandin Paper in Grand Rapids and Boise Paper in International Falls.

"For these large industrial companies that employ thousands of people in our region, energy is one of their largest costs of doing business," Dave McMillan, Minnesota Power executive vice president, said in statement. "Global competition is intense and we need to do all we can to keep their energy costs as competitive as possible. Sustaining a healthy regional economy, which benefits everyone who lives here, is an important part of Minnesota Power's mission."

The request comes one day after Gov. Mark Dayton called for a special legislative session to extend unemployment benefits for nearly 600 of the estimated 1,413 workers laid off by mines. The industry, which employs 4,500 Minnesota workers, has been staggered by worldwide oversupply of iron ore and depressed prices.

The Iron Mining Association said electricity is 25 percent of the cost of taconite pellets. "These costs are not sustainable and give foreign competitors an unfair advantage in an already difficult market," Craig Pagel, president of the mining trade group, said in the statement released by the utility.

Wayne Brandt, executive vice president of the Minnesota Forest Industries, a trade group, said the relief plan would reverse a decades-old state policy of requiring mining and forest products companies to pay rates exceeding the cost of electric service. "With one-third of the forest products industry being lost in the past decade due in great part to global economic pressures, these companies can no longer pay such a premium for their electricity," Brandt said in the statement.

But Will Phillips, state director for AARP in Minnesota, said raising residential rates causes other economic pressures, and state regulators need to consider the broader effects.

"Raising electric rates on households impacts somebody's ability to pay their other monthly bills or limits what small amounts of discretionary income people have — and that also can have a negative impact on our economy," Phillips said in an interview.

David Shaffer • 612-673-7090 Twitter: @ShafferStrib