Gerdau Ameristeel, operating at half speed, gets Xcel discount

The steel industry's woes haven't just hammered Minnesota's Iron Range. At the state's only steel mill, Gerdau Ameristeel in St. Paul, the situation is so dire that Xcel Energy has agreed to effectively lower its electricity bill.

Gerdau, which is based in Brazil, came to Xcel for relief because like so many steelmakers, it has been battered by a low-growth economy and a global glut of steel. Minneapolis-based Xcel, the state's largest utility, recently agreed to beef up a discount that Gerdau is already receiving.

The original five-year discount, granted in 2012, was an incentive for Gerdau to invest $55 million in the aging St. Paul mill. It's an electricity hog, and that's good for Xcel's business. But market conditions have been so poor that Gerdau hasn't been producing enough steel to take full advantage of the discount.

"Gerdau has had to operate at much lower levels than anticipated, which has also placed a heavy burden on the St. Paul plant to stay in operation," Xcel said in a filing with the Minnesota Public Utilities Commission (PUC).

Rogerio Turatti, Gerdau's general manager in St. Paul, said at a PUC hearing Thursday that the mill is running at only 50 percent capacity, and operating two shifts instead of the preferred three. The plant employs about 300, though 45 more jobs would be added if a third shift was running.

Minnesota Department of Commerce officials met with Gerdau executives over the proposed power rate reduction.

They came away "impressed with the severity of Gerdau's situation," and felt rate relief should come "as quickly as possible and to the fullest extent possible," according to a PUC filing.

Gerdau is one of the world's largest steelmakers. Its St. Paul plant, tucked into the city's southeast industrial tip, melts crushed cars and other scrap metal to make steel products for several industries, including automotive, construction, mining and energy.

That process sucks up massive amounts of electricity, and the plant is likely one of Xcel's largest industrial customers. "Energy rates are critical for our competitiveness," Sam Harper, Gerdau's regional energy manager, said at Thursday's PUC hearing. "It is our No. 1 cost."

Energy is also a big cost for taconite producers on the Iron Range, making up at least a quarter of their budgets. On Thursday, the PUC — by a 3-2 margin — approved a Minnesota Power proposal to cut rates by 5 percent for up to 11 energy-intensive businesses in the slumping mining and forest products industries.

That measure was controversial: Minnesota Power's residential consumers are likely to see a rate increase of up to 10 percent to fund the 5 percent rate cut on big industry.

The Xcel deal with Gerdau should have no effect on other ratepayers.