Bill would cut taconite plant electric rates

Northern Minnesota's taconite plants and paper mills need a break against global competition, some Iron Range lawmakers say, and that break could come from lower electric rates.

Legislation is moving at the Capitol in St. Paul that would allow taconite plants, paper mills and other industrial facilities that gobble vast quantities of electricity to negotiate with publicly held utilities - namely Minnesota Power - to get a lower rate.

But the bill also allows Minnesota Power to then petition the Minnesota Public Utilities Commission to transfer those rate cuts for industry into rate increases for residential and commercial customers.

The bill was introduced last week and heard Monday in the House Job Growth & Energy Affordability Policy and Finance Committee. It was laid over to be included in the larger, omnibus energy bill later in the legislative session.

"Energy costs make up between 25 and 28 percent of the cost at taconite plants and paper mills. If we can reduce that cost we can help keep them competitive in this global market," said state Rep. Tom Anzelc, DFL-Balsam Township. "We can either sit here and admire what's going on with iron ore and steel and other players in the global economy, or we can try to do something about it."

The bill is similar to rate-shifting legislation that failed last year at the Capitol but doesn't order any specific rate cuts. Under the new bill the Minnesota Public Utilities Commission still would have to approve any rate changes, up or down.

Officials for U.S. Steel, Minnesota's largest producer of taconite iron ore, testified in committee that just the increase in their 2014 electric bill over 2013 amounted to more than $13 million, or about 60 cents per ton of taconite they produce. It now costs about $60 to produce each ton.

Iron Range officials said just the electric rate increases in recent years are enough to make local mining operations uncompetitive in a global market where iron ore is trading below $60 per ton and cheap, foreign steel is spurring not just Minnesota mine shutdowns but also steel mill layoffs across the U.S.

Pat Mullen, vice president of marketing and corporate communications for Duluth-based Minnesota Power, which provides electricity to the region's major industrial plants, said the bill would allow the utility to reduce the effective subsidy that industrial customers are now paying to keep homeowners' rates low. Taconite plants essentially have been overpaying to keep homeowner rates lower, he said.

"This bill amends state law to allow specific customers to negotiate their electric rate." he said, noting it also could apply to the USG ceiling-tile plant in Cloquet and Enbridge Energy's pumping stations in the region.

U.S. Steel last week announced it will indefinitely close its Keetac plant, putting up to 412 employees out of work starting May 13. Mullen said more plant closures are likely if companies can't cut costs, saying the situation on global competitiveness is nearing a crisis point.

"I don't know how many more plants need to close for people to realize that,"' he said.

While Mullen said the utility's remaining commercial and residential customers could end up paying slightly higher electric bills, he said the community benefits of preserving the major employers across the region should be obvious.

"In the end, some will pay less, some will pay more ... but everyone benefits because we may be able to keep these plants running," Mullen said. "Once these shut down, it's not easy to get them going again."

The bill, HF 1782, is sponsored by Anzelc and Reps. Dave Dill, DFL-Crane Lake, and Dave Baker, R-Willmar, in the House. The Senate version, SF 1312 - sponsored by Sens. David Tomassoni, DFL-Chisholm; Tom Bakk, DFL-Cook; Tom Saxhaug, DFL-Grand Rapids; John Hoffman, R-Champlin; and Julie Rosen, R-Vernon Center - has not yet had a hearing.

Lower tax on DRI taconite pellets?

Legislation advancing at the Capitol would reduce state taxes for taconite plants that produce a new kind of taconite pellet used to make direct-reduced iron.

The state would reduce its per-ton taconite tax and then gradually phase the full tax back after six years, under the bill sponsored by Anzelc and Dill, and Reps. Jason Metsa, DFL-Virginia, and Carly Melin, DFL-Hibbing.

The new kind of DRI-ready pellet, under consideration by several Minnesota taconite companies including Cliffs Natural Resources, would go into making direct-reduced iron that can be used in electric arc mini-mills to make steel, an entirely new market for Minnesota iron ore.

Nearly all Minnesota taconite iron ore now goes to traditional blast furnaces to make steel.

Minnesota had a production tax discount in the past but that legislation has expired, Anzelc said. It was used by Mesabi Nugget as that Hoyt Lakes facility ramped up production of iron nuggets.

"It's an incentive to get the companies, in some very uncertain times, to maybe move ahead with new investment in their Minnesota operations for DRI," Anzelc said. "We've done it before and I think it may help again."

Under the bill DRI pellets would be tax-free the first two years, then pay 25, 50, 75 and eventually 100 percent by the sixth year.

Minnesota's taconite iron-ore mining companies don't pay property taxes on the value of the ore they own in the ground. Instead, they pay a per-ton tax on every finished ton of concentrate or pellets that they ship out of the state. The current tax is about $2.56 per ton. They also pay a state occupation tax, also based on production, instead of a traditional state income tax.

The bill, HF 416, passed a House subcommittee last week and will be heard by the full House Tax Committee today.

The Senate version, SF 677, sponsored by Sens. Tomassoni, Bakk and Saxhaug, has not yet received a hearing.