Heeding concerns that a proposed franchise fee could jeopardize the future of Verso Corp.'s paper mill in West Duluth and the 260 jobs it provides, city councilors unanimously voted Monday night to roll back the fee the company could have seen tacked onto its mammoth electric bill.

As part of an effort to plug a hole in the city's budget, the council earlier had approved a significant increase in the franchise fee it charges Minnesota Power to do business in Duluth. At the recommendation of city administration, councilors bumped that fee from 1 percent to 3 percent - a cost that the utility has the authority to pass on directly to its customers.

Its largest customer in the city, Verso Corp., cried foul, noting that its annual power costs would go up $540,000 as a result, likely placing the plant at a serious competitive disadvantage.

Under a compromise agreement approved Monday, that increase will now be limited to $150,000. The paper mill had annually been paying $270,000 to cover the franchise fee and that will rise to $420,000 - the maximum now allowed under a revised city ordinance.

John Bastian, the mill's manager, said: "Our mill makes products that compete in global commodity markets. Being a low-cost manufacturer is absolutely essential to being successful in our business, and it's the focus at our mill every day."

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He told the council Monday that the cost increase very well could have threatened the viability of the local mill and pointed to Verso's decision just last week to idle a paper machine in Maine, putting 190 people out of work, perhaps for good.

"I believe the amendment is a fair and reasonable compromise, given the challenges facing both the mill and the city of Duluth," he said.

Bastian said that capping the franchise fee for large industrial power users "will help ensure that Duluth remains a good location for businesses in the future."

Guy Priley, another mill employee, praised the city for listening to workers' concerns.

"What actually happened in the end is what's supposed to happen. ... There was an issue regarding government, and the two sides came together, sat down, had open discussions and came to what I think both parties feel is a fair and reasonable compromise," he said.

Although he expressed concern about how the city would make up the $390,000 gap in its budget that will result from the change, 1st District Councilor Gary Anderson said: "It's clear that Verso plays an important role in this community, and its economic impact is tremendous. ... We really do want to see this company continue to thrive here in Duluth."

While 2nd District Councilor Joel Sipress supported cutting a break for Verso, he defended the city's decision to raise the electric franchise fee it charges.

"It was vital that the city raise the franchise fee," he said. "The city of Duluth, compared to comparable communities, has kept the franchise fee artificially low for many years, which essentially shifted the financial burden onto property taxpayers. And what we've done by raising the franchise fee is basically to right that wrong."

But Sipress blasted Minnesota Power for not stepping forward to help craft a solution, saying the company was notably absent from that discussion even as it was preparing to ask for an 8 percent rate increase.

That proposed rate increase should have been disclosed as part of the discussion, said 4th District Councilor Howie Hanson.

However, Hanson disagreed with Sipress, saying that the franchise fee increase "was not vital."

"I think there were other ways that we could have possibly raised these additional monies to meet the general fund budget," he said.