Cliffs pulls plug on We Energies: Deal to buy power for mines from Integrys

MARQUETTE – Driven by rising electric costs, Cliffs Natural Resources is opting to change the power supply company for the area’s Empire and Tilden mines.

Beginning Sept. 1, the two mines will no longer be customers of Wisconsin’s We Energies and will instead receive electricity from Chicago-based Integrys Energy Services Inc.

The decision to switch electric providers was a purely economic one, according to Cliffs spokesman Dale Hemmila.

“I think it’s no secret that we’ve seen costs go up considerably over the last five years. Our electrical power costs have gone up 110 percent, roughly, over the last five years,” he said. “Just like every other company, we need to be able to control the costs that we can and this will give us a cost savings that’s substantial, into the tens of millions of dollars.”

Hemmila said that, depending on usage, annual cost savings are projected to be between 17 and 26 percent at the mines.

Michigan’s utility choice law allows customers to choose their energy provider, but stipulates the amount of departing customers is capped at 10 percent of a company’s state retail sales.

In 2008, the mines were exempt from that cap.

Hemmila said an “alternative energy team” had been studying a variety of cost-saving measures.

“This was the one that really stood out for us and made the most sense for the mines to incorporate,” he said.

We Energies was informed of the Cliffs decision in late July, but Hemmila said the companies had no real dialogue on the topic prior to that point.

In an investor conference call Wednesday, Wisconsin Energy Corp. Chairman Gale Klappa said the company was “evaluating our options for mitigating this loss of load for 2014 and beyond.”

He said he was unsure why Cliffs had decided to switch at this point, but speculated it may be related to the drawdown of the Empire Mine, which is slated for closure next year.

“They’ve been eligible to switch ever since 2008. What specifically motivated them at this stage of the game, we really don’t know for certain,” he said. “But again, I think there are some internal dynamics up there at the two mines.”

Responding to an analyst’s question, he stated the move could impact the future of the Presque Isle Power Plant. The electric consumption of the two mines represents more than half of the energy generated at Marquette’s coal-fired power plant.

“We simply have to look at the future of the Presque Isle Power Plant, up in the Upper Peninsula,” Klappa said. “If you were in a normal business, and you lost this significant customer load, even if it may or may not have been particularly profitable, you would look at, ‘Well, what capacity do I still need?’

“One of the things that we obviously have to re-examine is the future of the Presque Isle Power Plant. It’s all very early days and we will work our way through this.”

In 2011, We Energies officials said impending federal pollution regulations would make it financially unfeasible to continue operation of the Presque Isle plant beyond 2017.

Last fall, however, We Energies struck a deal with Michigan-based Wolverine Power that would see Wolverine invest up to $140 million in pollution control upgrades in exchange for a minority interest in the facility.

That deal is still in the process of receiving regulatory approval.

Under the new Cliffs electric arrangement, We Energies will continue to supply customer service and distribution functions for the mines, while the power will be purchased from Integrys, a company with a foothold in 10 states and a service area that stretches from Maine to southern Illinois.

The company’s parent corporation, the Integrys Energy Group, reported revenues of more than $4.2 billion in 2012. Intergrys Energy Group subsidiaries include the Upper Peninsula Power Co. and Wisconsin Public Service.

Kyle Whitney can be reached at 906-228-2500, ext. 250.