Minnesota Power receives permission to cut industrial customers' rates by 5 percent

Utility regulators Thursday approved a Minnesota Power proposal to cut rates by 5 percent for its struggling large customers — particularly taconite mines. But regulators essentially put off a decision on a plan that would fund the industrial rate cut with a 10 percent rate increase for residential customers.

The Minnesota Public Utilities Commission (PUC) voted 3-2 in favor of the industrial rate cut, after shooting down a similar proposal in February that would have raised residential rates by up to 14.5 percent. The commission concluded then that the company didn't present enough evidence of the rate cut's benefits.

Some commissioners, including those who voted for Duluth-based Minnesota Power's plan, said Thursday the power company and the mining industry still fell short of adequately laying out the benefits.

Minnesota Power has said its average residential customer will pay about $8 more per month, or $104 a year, if rates are raised 10 percent. The PUC decided it needs more information from Minnesota Power in order to determine the "reasonableness" of the utility's plans to compensate for the 5 percent industrial rate cut.

However, the 10 percent residential rate hike is key for Minnesota Power to neutralize revenue losses from the industrial cut.

Commissioners who voted for Minnesota Power's proposal said that despite its shortcomings, it met the test of a 2015 law allowing such a rate cut. "This is about what the legislature has given us," Commissioner Dan Lipschultz said at Thursday's hearing on the plan.

The law is aimed at providing "competitive" electric rates to energy-intensive customers exposed to the vicissitudes of foreign trade. It applies only to Minnesota Power and Otter Tail Power and said the PUC is to approve a rate cut "upon finding a net benefit" to the utility or the state.

The attorney general's office opposed the rate plan, arguing that Minnesota Power and its large customers didn't adequately quantify their economic benefit claims and failed to consider the impact of increased rates on residents. The 5 percent rate cut affects 11 large industrial customers in the mining and forest products industries, both still cornerstones of northeastern Minnesota's economy.

The 2015 law gives the PUC only 90 days to decide on a utility's request for a special rate cut for large customers. Normally, a full rate case takes more than a year and involves exhaustive studies.

"This commission rarely approves a 5 percent increase without the trappings of a rate case, and now we will let it go to 10 percent when the evidence is so weak," said Beverly Heydinger, the PUC's chairwoman, who voted against the proposal. "That is troubling to me."

Minnesota Power, a unit of publicly traded Allete Inc., has about 143,000 customers in the northeast and central portions of the state. Unlike most utilities, Minnesota Power gets the majority of its revenue from large industrial customers.

During Minnesota Power's last rate case — in 2009 — the PUC approved a 16 percent increase for mines and other industrial customers, while residential rates were upped by 4 percent.

The steel industry has stabilized somewhat this year.

"There is one element of [Minnesota Power's latest rate petition] that is quite different from the first go round — the significantly improved position of the taconite producers," Buddy Robinson, staff director of Minnesota Citizens Federation Northeast, told the PUC. An advocacy group for consumers' rights, the federation opposes the rate plan.

Jack Croswell, general manager of Cliffs Natural Resources' Hibbing Taconite operation, said that Cliffs has indeed seen a slow improvement in the iron ore market this year. "That may seem to indicate we are out of the economic crisis, but that is not the case," he told the PUC.

The 5 percent rate cut is critical to improve the mines' competitiveness. "When energy is 25 percent of your costs — one of the top costs — it will have an impact on your success in the future," he said.