DULUTH – Minnesota Power is asking state regulators for a 10.5% rate increase that would raise the average residential bill by more than $11 a month and small business power bills by $30 a month.

The Duluth-based utility told the Minnesota Public Utilities Commission on Friday it needs to increase operating revenue by $65.9 million in the face of what it calls increased costs and "significant lost sales" among some industrial and wholesale customers.

"Even after this increase, rates will still be well below state and national averages," said Frank Frederickson, Minnesota Power's vice president of customer experience.

Before the full rate increase is approved, Minnesota Power is asking the state to approve a 7.7% interim rate increase — about $6 a month for residential customers. That would go into effect in January and remain in place until the final rate is decided.

There will be opportunities for public comment before the PUC makes its decision, which could take 12 to 18 months.

The utility, which has 145,000 customers across northeast and central Minnesota but sells most of its electricity to taconite operations and paper producers, was last granted a 3.5% increase that went into effect in December 2018 — less than the 6% increase the company asked for.

In a filing with the PUC, Minnesota Power said it has lost sales due to the permanent closure of a paper machine in Grand Rapids; an expired contract with Brainerd Public Utilities; ongoing repairs at the fire-damaged Husky refinery in Superior, and the expiration of a 100-megawatt "large market contract" next year.

Xcel Energy's cancellation of its contract with Laurentian Energy Authority also undercut Minnesota Power's ability to sell to Hibbing and Virginia Public Utilities, according to the filing.

Annie Levenson-Falk, head of the advocacy group Citizens Utility Board of Minnesota, said the rate increase is meant to "shift electricity costs from large industry onto residential consumers."

"As in past cases, Minnesota Power claims that residential customers are paying less for electricity than it costs to serve them, but expert witnesses in past rate cases have refuted similar arguments," she said.

Minnesota Power said it has trimmed 20% from its operations and maintenance costs in recent years, and Frederickson said those moves have reduced the company's workforce by about 10%. He wrote in the company's filing with the PUC that "continued employee reductions to offset inflating costs are neither possible nor sustainable."

The stock price for parent company Allete Inc. was trending up just slightly following Friday's rate filing.

Frederickson said part of the rate increase is tied to "investments we're making in safe, reliable energy" and that Minnesota Power will get half of its electricity from renewable sources by 2021.

"We've made great progress, and retired seven of nine coal units in the region," he said, though that means the company is not able to make money selling that power.

Minnesota Power, along with Dairyland Power Cooperative, is also investing in a $700 million natural gas plant that Minnesota Power calls "renewable-enabling" to provide power when there is no sun or wind. Wisconsin regulators are reviewing the project, which would be located near the Enbridge terminal in Superior.

Frederickson said the rate increase does not reflect any spending on the natural gas plant, known as the Nemadji Trail Energy Center.

Brooks Johnson • 218-491-6496