Daily Mail Business Editor
Felman's special rate proposal may hit power customers
by Jared Hunt
Wednesday September 11, 2013

CHARLESTON, W.Va. - Mason County manufacturer Felman Production is using a law intended to help restart Century Aluminum's Ravenswood plant to seek a special power rate for its idled New Haven plant.

And like the failed rate plan Century asked state regulators to approve last year, Felman's proposal could shift some of the company's power costs to other Appalachian Power customers.

On Aug. 30, Felman submitted an application to the state Public Service Commission seeking approval for a 10-year special power rate contract to help restart production at the company's steel additive manufacturing plant in New Haven.

Felman produces silicomanganese, a deoxidizer that allows steel companies to produce a purer type of steel. It's made by taking three raw ingredients and heating them to 3,000 degrees Fahrenheit in an electric arc furnace.

The Foote Mineral Co. originally built the plant in 1952. Over its 61-year history, the plant has closed and reopened numerous times as various plant owners declared bankruptcy and sold it to new owners.

Felman, a subsidiary of Georgian American Alloys, Inc., paid $20 million to buy the plant from bankrupt Highlander Alloys in 2006.

Citing rising production costs and poor market conditions, Felman began a temporary shut down of most of its operations June 28. About 150 of the company's 200 workers have been laid off since cost-cutting measures began earlier this year.

Georgian American Alloys Chief Executive Officer Mordechai Korf said the company remains committed to the New Haven plant, but said the company needs more favorable power rates for the plant to survive.

"Unless we can obtain more flexible electricity rates, which account for more than 20 percent of our cost, our continued operation is in jeopardy," Korf said in a statement.

Felman's proposal would tie the company's power rates to the prices of silicomanganese and other raw materials the company uses in production. When material prices are low, the company would pay lower rates, and when they are high, the company will pay higher ones.

This kind of rate structure was made possible by a 2010 state law meant to help Century Aluminum restart its Ravenswood plant, which closed in 2009. The law allows manufacturers that consume large amounts of electricity to negotiate rates tied to commodity prices.

Last year, lawmakers also passed a bill granting up to $20 million in annual tax credits to give large manufacturers like Century an additional break on power bills. Felman, however, is not requesting those tax credits be used in its proposal.

Felman's plan caps the amount of discounts the company could receive in a given year at $9.5 million, which represents the amount of Appalachian Power's fixed costs the company currently pays.

The company argues that these are the costs that could be forced on to other consumers should the plant shut down permanently.

Under the Felman plan, when prices are low, Felman's power discounts would be paid for by shifting costs to other ratepayers. The company said if the full $9.5 million discount were used, the average residential customer's bill would increase by about 55 cents a month.

To make up for those costs, the company said it would pay higher rates when its material costs recovered. That benefit would then be passed on to other customers in the form of a rate decrease.

"We believe this is a very fair and reasonable way to address our energy cost issue, which is one of our major operating expenses, while also helping to preserve good paying manufacturing jobs in this area," said plant manager John Konrady.

The Felman plan is similar to a proposal made by Century Aluminum last year, which also called for shifting some of the company's power cost risk onto regular consumers.

The PSC, in its decision last October, rejected Century's request to pass on costs to other consumers. Instead, it said Century must pay for any deficits at the end of the 10-year contract period.

The PSC has not taken any action on the case, and so far no other companies or interest groups have petitioned to intervene.

Consumer Advocate Division director Byron Harris said he has briefly reviewed the company's petition and said the division will likely oppose the plan.

"Essentially it's the same thing as Century's plan - they're trying to shift the risk of their business to the other customers of Appalachian Power," Harris said.

"I understand their problems, but their problems shouldn't be the other ratepayers problems," he said.

Like other large manufacturers, Felman already has an existing special rate contract with Appalachian Power.

Appalachian Power spokeswoman Jeri Matheney said the power company has been in talks with Felman to renegotiate that contract.

"They're one of our largest customers, so of course, we always want to work with them," Matheney said.

However, Matheney said Appalachian Power officials have not yet decided if they could support the plan Felman submitted.

"We still don't feel like we have everything we need to know to be able to form an opinion about it," she said. 

Felman has requested the PSC make a decision on its rate proposal by the end of the year.