MESSAGE FROM THE CEO
To maintain our position as a low cost iron ore producer in the U.S., we continue to focus on efforts to enhance this core business. Affordable and reliable energy is essential to the long-term health of the U.S. economy and the prosperity of all American businesses. At our Michigan operations, energy comprises approximately one third of our costs to produce iron ore pellets.
Cliffs strives to preserve the competitiveness and long-term viability of its Empire and Tilden mines. Presently, electrical energy development and costs continue to be a prominent issue affecting all Upper Peninsula Michigan rate payers, including Cliffs. Due to a number of rate proceedings filed by a regional electric power supplier, Cliffs’ total electrical costs increased from $78 million to $120 million annually between the years of 2007 and 2013. Unfortunately, these rate increases did not fund additional generation investments in Michigan’s Upper Peninsula, but were used for massive generation investments in Wisconsin. Our mines cannot bear constant rate increases to fund developments that do not advance a cost-effective energy future for Michigan.
To best manage our energy costs, Cliffs made the decision to migrate to an alternative electric supplier through the Michigan’s Electric Choice option after it was announced in 2011 that the operator of a UP electric power plant, Presque-Isle Power Plant, was considering retirement of that facility. While Cliffs transitioned to an alternative source, this continues to be a complex issue for us. Presently, the major electrical energy supplier in the region has made changes to well-established cost sharing principles in order to excessively segregate costs to all rate payers in Michigan’s Upper Peninsula.
Currently, we are aligned with the State of Michigan, community stakeholders and other businesses in pursuing cost-effective near-term and long-term solutions to the electricity issues facing the Upper Peninsula. As a prominent employer in the region, Cliffs is moving forward to secure an affordable and reliable energy solution to meet our current and future business needs. As we have done for over 167 years, Cliffs is committed in doing the right thing for its business and stakeholders. After all, Cliffs and its stakeholders in Michigan’s Upper Peninsula have a shared interest in cost-effective short and long-term energy solutions.
Chairman, President & Chief Executive Officer
Cliffs Natural Resources Inc.