Minnesota iron mines offered break on a major expense: electricity

Minnesota's struggling iron mines soon could be paying lower electric bills.

The energy-jobs bill passed Friday by the House and Senate during the special legislative session authorized rate relief for mining operations on the Iron Range, all of which are served by Minnesota Power based in Duluth.

But it means higher electricity bills for that utility's residential and business customers. How much more is not yet clear.

"It is a zero-sum game — the folks that are going to end up with higher bills are residential customers," said Will Phillips, state director for AARP, the advocacy group for older people, who often spend a higher portion of their incomes on utility bills. "That is a tremendous concern."

The measure declares iron mines "energy-intensive trade-exposed customers" and authorizes Minnesota Power to offer them tailored relief on electric bills. Taconite mines draw vast amounts of electricity. They and other large industries account for more than half the utility's power demand.

Northern Minnesota has nine iron mining operations. Over the past year, the industry has been staggered by lower prices for iron ore, triggering worldwide cuts in production. More than 1,000 Minnesota iron mine workers have been laid off.

For years, Minnesota Power says, mines and other big industries have paid higher rates than they deserve, subsidizing rates of residential and commercial customers. In Minnesota Power's last rate hike in 2011, state regulators approved a 4 percent increase for residential customers while raising industrial rates, which apply to mines, by 16 percent.

"Because of the economic pressures they are feeling, this is an effort to lower that subsidy so it is more market-rate based," said Rep. Pat Garofalo, R-Farmington, the chairman of the House jobs and energy committee. "So we are only requiring those large energy users to pay for the energy that they are using."

The rate relief measure also applies to wood products and paper industries and potentially other large power users served by Minnesota Power and Fergus Falls-based Otter Tail Power Co. The state's largest power company, Xcel Energy, based in Minneapolis, is not covered by the measure.

Minnesota Power, which serves 143,000 customers in northern and central parts of the state, has about 12 to 20 large customers that might qualify for relief, including mines and four paper mills, said Pat Mullen, vice president of marketing and communications for the utility. Otter Tail, serving 61,000 western Minnesota customers, serves no mines, but has at least one other large power user eligible for rate relief, said spokeswoman Cris Oehler.

Utility officials said they don't know at this point how much rates would change. Any adjustments require approval of the Minnesota Public Utilities Commission, and that could take months. If every large power user at Minnesota Power took advantage of the new rate policy, the increase on residential and commercial rates potentially could range 5 percent to 10 percent, Mullen said.

The energy-jobs bill, which Gov. Mark Dayton is expected to sign, also authorizes cooperative and municipal power companies to tack on a monthly fee to customers who generate their own solar or wind power. Clean energy advocates opposed the fee as a step backward, but utilities said it allows them to recoup costs of the power grid from customers who rely on it but contribute little or nothing via their electric bills.

Legislators also approved a new, performance-based approach sought by Xcel to set its utility rates for up to 5 years. Senate Environment and Energy Committee Chairman John Marty, who supported the rate measure but voted against the bill for other reasons, said regulated power monopolies should be rewarded for efficiency, not the quantity of energy delivered.

"We want them to make money by delivering power to meet the economy's needs in the most efficient way," said Marty, DFL-Roseville, who believes Minnesota can create a new national model for utility regulation. "There are risks," he added. "It has to be done carefully or ratepayers would be hurt."

Staff writer Dee DePass contributed to this report.

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