Minnesota Power plans to cut its rate increase request by 29 percent, telling state regulators Tuesday that its sales forecast is brighter due to increased energy demand from the iron ore industry.

Duluth-based Minnesota Power reduced its proposed rate increase from $55 million to $39 million. The original rate request, filed in November with the Minnesota Public Utilities Commission, or PUC, called for an average rate increase of 9.1 percent. The new average rate increase would fall to 6.1 percent.

"As mining and paper companies expand production, they use more energy, which in turn can reduce costs others must pay for delivering the energy we produce," said David McMillan, a Minnesota Power executive vice president.

Residential rates, which would have climbed 18 percent under the original request, would rise 15 percent under the new proposal. But a recent cut in the monthly energy charge to Minnesota Power's residential customers will lead to an actual increase of 10 percent, the company said in a statement. The typical residential customer's bill would increase from $81 to $90.

"That's better than the original request, but still falls short of what we feel is a just and fair proposal," said Buddy Robinson, staff director of the Minnesota Citizens Federation Northeast, an advocacy group for consumers. "It looks as if the reduction in the overall rate increase is for the benefit of the large power class."

Indeed, 11 very large power users — mostly in the taconite and paper industries — would see a monthly decline in power bills under Minnesota Power's new rate proposal. With the original rate plan, the large power users' monthly bills would have risen at least 7 percent.

Minnesota Power, which serves 145,000 customers in northeastern and central Minnesota, is far more dependent on heavy industry than most utilities.

The taconite industry, which suffered production cuts and layoffs in 2015 and 2016, has begun to rally. The Keetac plant in Keewatin, owned by U.S. Steel, is slated to reopen soon after being shuttered for almost two years.

The revival of Keetac is a key reason for Minnesota Power's reduced rate hike request, said Amy Rutledge, a Minnesota Power spokeswoman.

Minnesota Power has effectively been saying that the large industrial power users are subsidizing household consumers. Residential rates would need to rise 35 percent to cover the cost of producing and delivering power to them, the company claims.

Minnesota Power, owned by Duluth's publicly traded Allete Inc., says it needs the proposed rate hikes to cover capital expenses for power distribution and transmission lines, as well as for other investments. The current general rate case is Minnesota Power's first since 2009.

In addition to the general rate case, Minnesota Power has proposed a 10 percent rate hike on residential customers to pay for a special 5 percent rate cut for its large industrial customers.

The special rate cut was authorized by the state Legislature in 2015 when the mining industry was in a steep decline. The PUC has approved the 5 percent cut but is still mulling the consumer rate hike.

Robinson questioned the need for the special rate cut now that the taconite industry is recovering. "The whole premise for that [reduction] has disappeared," he said.

Mike Hughlett • 612-673-7003