Homeowner electric rates may rise to rescue taconite plants
Residential customers of Minnesota Power would pay more for electricity each month to help taconite plants and paper mills survive an onslaught of global competition under a plan to be filed today with the Minnesota Public Utilities Commission.
The rate re-jiggering, authorized by the 2015 Minnesota Legislature, would see the average Minnesota Power customer's household electric bill go up 14.5 percent, or about $11.45 per month.
An average homeowner, who uses about 750 kilowatts of electricity, would see their monthly Minnesota Power bill go from about $79 per month to $90.45.
Other customers — most businesses, government agencies, schools, etc. — would see their rates go up by a flat fee of $11.45 per meter, per month, an increase of between 1 and 4 percent.
The extra money paid by most customers would help offset a 5 percent cut in electric rates for 11 of the largest electric customers in the Minnesota Power service area — all of them taconite plants and paper mills.
U.S. Steel officials testified at the state Capitol last spring that the annual electric bill for two Minnesota operations — Keetac and Minntac — totals $140 million. A 5 percent reduction would save the company about $7 million annually.
The PUC has 90 days to consider the rate change but does have the option to deny the plan or modify it. A decision is expected by February and the new rates could show up on electric bills in March 2016, Minnesota Power officials said.
While the change is revenue-neutral for the Duluth-based utility, Minnesota Power has actively supported the change to help bolster two critical regional industries on the brink. Both industries gobble huge amounts of electricity and both have been hard hit by foreign competition.
"I understand a lot of people are going to be upset when they see that first bill. Personally, I'm not happy to see my bill go up at home. But there's a greater good here. It's the responsible thing to do," said Pat Mullen, Minnesota Power vice president of marketing and corporate communications. "We have to do something before they fail. Once they close, it becomes so much harder to get these jobs back."
Low-income residents in the Minnesota Power service area — those that qualify for heating assistance — will not see any rate increase, as stipulated in the legislation.
The shift is not a homeowner subsidy of taconite plants, supporters insist, but rather a reduction in the subsidy that big industries have been paying. Large industrial customers paid more than the actual cost to serve them in recent years so homeowners could pay less.
In 2010, the last time Minnesota Power received PUC approval to raise its rates, taconite plants saw a 16 percent rate hike compared to 4 percent for homeowners.
That's been the trend in recent years and has led to industry "paying more than their fair share," Mullen said. He said he hopes consumers will understand why they may be paying more and see the benefit the rate hike offers the regional economy and, potentially, their neighbor's job.
"We're giving them some relief. But it isn't even giving them back all of the increase they had in 2010," Mullen noted.
Concerns about rate shift
Investor-owned Minnesota Power has a clear stake in the future of mining in the region. 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, which are tilted toward residential customers.
That makes it critical for Minnesota Power's financial health to retain its largest customers. If one or more of those large customers close permanently, Minnesota Power probably would file a rate proposal that would cause homeowner rates to go up much higher, Mullen noted.
But state Rep. Tom Anzelc, DFL-Balsam Township, who sponsored the legislation calling for the rate shift, said he's now having second thoughts. Anzelc said he's not sure the time is right for such a major shift in pricing for electricity.
"What they (Minnesota Power) are proposing to the PUC is not what they are going to get. It's too much" for homeowners, Anzelc said.
During the spring legislative session "it seemed like the right policy. But the timing now is not good," Anzelc said. "I have to see what people think. The PUC is going to have to decide if $11.45 is too much for people on fixed incomes; whether it's worth it for a 5 percent cut for taconite plants. I'm not sure right now."
Buddy Robinson, director of the Minnesota Citizens Federation, Northeast, said the formula used to make the claim that industry has been subsidizing homeowner rates is flawed.
"This isn't the first time the taconite industry has tried to do this and we've challenged it every time," Robinson said. "There are ways to figure the true cost (of electricity) that show there is in fact no subsidy going on."
Robinson also questioned whether the rate shift would indeed be enough to help preserve any one plant or job.
"Decisions made under desperation aren't always the best ones," he noted.
Robinson said his group is part of a statewide coalition that will oppose the rate shift as it works through the PUC.
Minnesota Power spokeswoman Amy Rutledge said the utility chose a usage-based increase for homeowners rather than a flat fee in order to lessen the blow from small homes that use less power. That also gives homeowners a chance to reduce their bill increase by saving energy and reducing their usage.
As first reported in the News Tribune in March, the legislation allows industries that are harmed by global trade impacts to apply for a rate break. Those industries also have to be heavy users of electricity on a 24/7/365 basis. The bill passed and was signed into law in June, and the companies began applying to Minnesota Power almost immediately.
Minnesota's iron ore industry has been crippled by a huge influx of cheap, imported steel into the U.S. Nearly one third of all steel used in the U.S. is now imported. That's lowered demand for U.S.-made steel and thus the demand for Minnesota iron ore. The price of iron ore has dropped from nearly $200 per ton a few years ago to less than $50 today, less than the cost of production for some Minnesota operations.
Five of the state's 11 major iron mining and processing operations are currently shut down.
Taconite companies last spring pleaded with lawmakers to offer some relief, saying electric bills amount to as much as 30 percent of their production costs. Unlike rich natural ore that can be dug out of the ground and shipped to steel mills, taconite iron ore must be heavily processed to increase its iron content before it can be made into steel. That processing requires huge amounts of electricity.
So does making paper out of northern Minnesota trees.
Wayne Brandt, executive vice president of the Minnesota Forest Industries trade group, said paper mill electric bills range from $3 million to $6 million each month. Minnesota mills have been hard hit by an influx of imported paper, he noted. Margins for paper sales are so slim that northern Minnesota mills can no longer afford to pay a premium for electricity.
"When your electric bills are millions of dollars a month, every bit makes a difference. This is going to make a competitive difference," Brandt told the News Tribune. "I challenge anyone to say how, in this age of a global economy, we should have our industries subsidizing residential electric customers. We just can't afford to do that any more."
Electric bills make up nearly 15 percent of production costs form the Verso paper mill in Duluth, said John Bastian, the mill's manager.
"This plan will help our products be priced more competitively and will help keep our 300 Duluth-area employees working," Bastian said in a statement.
Who would get a lower electric bill?
- Verso paper mill, Duluth
- Sappi paper mill, Cloquet
- Boise paper mill, International Falls
- Blandin paper mill, Grand Rapids
- Mesabi Nugget iron nugget plant, Hoyt Lakes*
- Minntac taconite plant, Mountain Iron
- Keetac taconite plant, Keewatin*
- United Taconite plant, Forbes*
- Hibbing Taconite plant, Hibbing
- ArcelorMittal taconite plant, Virginia
- Mining Resources ore recovery plant, Chisholm*
*Currently not operating