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Minnesota commission approves electric-rate shift

Sept. 15

ST. PAUL — The Minnesota Public Utilities Commission on Thursday approved a proposal to raise electric rates for homeowners and small businesses in Minnesota Power's service area in order to lower rates for taconite plants and paper mills.


The commission voted 3-2 for the rate shift which was ordered by the 2015 Minnesota Legislature to help reduce operating costs for Northeastern Minnesota's largest industries, both hard-hit by foreign imports.

The rate shift will raise most homeowner rates 10 percent and raise business rates between 1.8 and 5 percent to give 11 of the utility's largest customers — all taconite plants and paper mills — a 5-percent rate reduction.

The 10-percent hike amounts to about $8 per month more for most homeowners served by Minnesota Power, raising the average monthly bill from $79.44 to $87.44, just under $100 per year.

Many low-income customers would be exempt from the increase.

The rate change will occur sometime after the PUC approves a rate recovery plan in coming weeks.

The new rates will be in effect for at least four years, but the PUC said it reserved the right to annually review the situation to see if the shift had spurred both the benefit intended or caused undue burdens for homeowners.

The PUC turned down a similar proposal in February, saying Minnesota Power didn't fully demonstrate how the move would be in the best interests of the state or the utility. That plan would have raised homeowner rates 14.5 percent to pay for a nearly 5-percent cut in electric costs for paper mills and taconite plants.

This time commissioners generally agreed that the rate shift would indeed help Minnesota Power.

The new reduction will save those big employers millions of dollars annually on their electric bills. Electricity makes up nearly 30 percent of the cost of producing taconite iron ore pellets, industry supporters noted, and about 25 percent of papermaking costs.

The approved rate shift will collectively save the 11 big customers between $13 and $19 million annually, according to testimony during Thursday's nearly daylong hearing.

Supporters say the rate shift helps eliminate a de facto subsidy that the big electric customers have been paying to keep homeowners' rates down. And they say that homeowners would end up paying much more of the cost to produce and deliver electricity if the big industrial users close shop because they can't compete in the global economy.

Jack Croswell, general manager of Hibbing Taconite, operated by Cliffs Natural Resources, said the 5-percent cut would help keep the company competitive.

"It will have an impact on our success in the future," Croswell testified to the commission Thursday.

Larry Sutherland, manager of Minnesota operations for U.S. Steel, said lowering electric rates would be the "main factor'' for the company returning to full production and employment at both its Minntac operation in Mountain Iron and Keetac facility in Keewatin. Keetac has been idled for more than 18 months.

Lowering electric rates would be the "biggest component that would move the bar for the Keetac facility," Sutherland told commissioners. The company has said Keetac's future depended on increased production of oil pipeline at a U.S. Steel mill that remains idled.

Commissioner John Tuma argued that the rate shift was a subsidy of large companies by homeowners and small businesses.

"What you're asking for is a subsidy," Tum a scolded taconite industry officials, later adding that the companies had provided no guarantee of added employment or production if they get the rate cut. "We're buying a pig in a poke."

Buddy Robinson, staff director of the Minnesota Citizens Federation Northeast, said the proposal was based on "lots of wishful thinking" but no hard evidence that the lower electric rates would lead to any new employment or production at the plants. He said the crisis of the U.S. iron and steel industry that spurred the 2015 legislation appears to already have waned.

If most of the "companies that would get the discount are already at full production, how can the discount lead to increased employment?" Robinson asked.

Bob Tammen of Soudan, a frequent critic of the mining industry, said the rate shift produces no net benefit for Minnesota.

"I don't believe there's going to be a happy ending if we take resources from local homeowners and give them to global corporations," he said.

While the rate shift would essentially be revenue neutral for investor-owned Minnesota Power, the company could stand to make more money if the big plants used more electricity in coming years — potentially up to $40 million annually, company officials said. Minnesota Power has a clear stake in supporting the big industrial customers. Mining companies alone account for more than 47 percent of Minnesota Power's revenue. Add in paper mills, and heavy industry accounts for nearly 60 percent of the utility's customer load, far different from most utilities, such as Minneapolis-based Xcel Energy, which are tilted toward residential customers.

http://www.inforum.com/news/4116236-minnesota-commission-approves-electric-rate-shift