Electrical bills at northeastern Minnesota's six iron ore operations would increase by millions under a Minnesota Power rate request filed with the Minnesota Public Utilities Commission.
Iron ore plants, which consume massive amounts of electricity to operate processing facilities, gigantic heavy equipment and electrify huge buildings, are Minnesota Power's largest customers.
At any given moment, northeastern Minnesota's iron ore plants use about 600 megawatts of electricity.
That's enough electricity to power two cities the size of Duluth.
Currently, northeastern Minnesota's iron ore producers spend about $1 million a day on electricity from the Duluth-based utility to operate mining equipment, crushers, conveyor belts, concentrating, and iron ore pellet-making equipment, according to Kelsey Johnson, president of the Iron Mining Association of Minnesota.
The rate request asks for an interim rate increase of 7.7 percent on all Minnesota Power customers effective January 2020. An interim rate decided by the Minnesota Public Utilities Commission (PUC) would remain in effect until a PUC decision on a final rate.
Minnesota Power's final rate request would increase residential rates by a total of 15 percent and businesses by 10.3 percent, according to Frank Frederickson, vice president customer experience at Minnesota Power.
If the full rate request is ultimately approved, it would increase Minnesota Power's annual operating revenue by $65.9 million. The rate hikes would impact all Minnesota Power customers including residential and business.
Minnesota Power's full rate request would be 10.3 percent increase for iron ore producers, Johnson said.
“We're happy Minnesota Power is using more renewables,” Johnson said. “But it's coming at a significant cost. It's a big jump.”
An interim 7.7 percent increase would cost northeastern Minnesota iron ore plants a total of about $23 million annually, Johnson said. A 10.3 percent hike would increase total iron ore industry electricity costs by $33 million to $38 million annually..
Minnesota Power's industrial customers would see an average increase of about $257,448 per month under the interim rate proposal and an average of $311,935 per month under the final rate request, depending on the size of the customer, Frederickson noted.
Northeastern Minnesota's iron ore plants produce iron ore pellets used to make steel. The six iron ore facilities in northeastern Minnesota produce two-thirds of the iron ore used to make steel in the United States.
Iron ore production is a highly-competitive global market. As far back as a major industry downturn in the early 1980s, iron ore pellet producers have been working to reduce per-ton production costs to stay competitive.
“The issue is how to keep our taconite plants globally competitive,” said Johnson. “We have to figure out a good balance here between costs and benefits. It's really about being competitive in the global marketplace.”
Minnesota Power says the rate request is needed to reflect changes in customer demand, increasing operating expenses and to recover costs associated with regulatory obligations since the company's last rate case filing in 2016. It would also help the company deliver energy from increasingly cleaner sources.
“We started first on this journey by cutting our own costs over the past several years, reducing our operating expenses by approximately 20 percent and reducing our workforce by about 10 percent just to pull down any costs Minnesota Power is able to control,” Frederickson said. “And we did that first before asking for an additional rate from our customers. We have done what we could to control internal costs. But like our industrial customers, they face some inflation pressures whether its wage inflation, new negotiation agreements with their workforce or health care costs. We have similar pressures as well.”
Seven of nine Minnesota Power coal generating units have closed or been converted to cleaner forms of energy such as natural gas. Thirty-percent of the company's generating capacity is currently renewable.
By 2021, Minnesota Power expects to be 50 percent renewable with 250 megawatts of wind power and more than 250 megawatts of hydropower to be added. Minnesota Power delivers a higher percentage of renewable energy than any utility in the state, according to the company.
Under the full rate request, monthly rates for the average residential customer would increase by $11.66 per month. An average small business customer would see an increase of $30.05 per month.
“Our residential customers have one of the lowest rates in the state, if not the lowest,” said Frederickson. “Even with this, they will still be below the state average.”
A Minnesota Energy Intensive, Trade Exposed rate law allows Minnesota Power to propose reducing rates paid by its energy intensive industrial customers such as iron ore plants while allowing rates for residential, business and other customer classes to increase to help make up the revenue.
PUC approval is required for both an interim rate and final rate.
Written comments can be made on the PUC website. Over the next year, feedback from the public will be taken at public hearings along with input from state agencies and other interested parties.
Final rates could be set by the PUC in 2020 or early 2021, according to Minnesota Power.