Charleston Daily Mail
November 19, 2013
By Jared Hunt

Groups oppose Felman rate proposal 

Several key groups filed testimony with the state Public Service Commission last week opposing Felman Production's request for a special power rate for its Mason County plant. 

Felman has asked state regulators to approve a 10-year special power rate for its New Haven steel additive manufacturing plant.

The plant shut down earlier this year because of poor market conditions for silicomanganese, a deoxidizer that allows steel manufacturers to produce a purer form of steel.

The company's rate proposal would allow the plant's power rate to float according to the costs of its raw materials and commodity prices, offering the company up to $9.5 million in annual discounts on its power bill.

The potential discounts would come from the $9.5 million the company pays each year to cover Appalachian Power's fixed costs. Since electricity represents 20 percent of the company's production costs, Felman said the new rate structure would help it restart production and better compete in the global market.

Last Friday, Appalachian Power, along with analysts from the West Virginia Energy Users Group, PSC staff and the Consumer Advocate Division, all filed written testimony opposing the Felman plan.

Steven Ferguson, director of regulatory services at Appalachian Power, said the Felman plant already has a special power contract, negotiated in 2006, that provides the company with discounts while protecting other ratepayers.

Ferguson said the new rate proposal has the potential to shift up to $95 million in costs onto Appalachian and Wheeling Power ratepayers over the next 10 years.

"This could shift a substantial portion of Felman's business risk from Felman to the companies and their ratepayers," he said.

While Appalachian Power provides service to Felman, the Wheeling Power customers could be affected in the future through the proposed merger of the two utility companies.

Felman has estimated the average residential customer's bill would go up by about 55 cents a month if the full $9.5 million discount is taken. When prices go back up, as Felman officials believe they will, the company would pay a premium on its power bill and that could be used to lower costs for other ratepayers.

Barry Nuss, chief financial officer at Georgian American Alloys, told the Daily Mail earlier this year that this rate proposal leaves consumers no worse off than they would have been if Felman shuts down permanently.

"If Felman shuts down, Appalachian Power will still have to collect the same $9.5 million a year in fixed costs that Felman pays currently," he said. "This would be accomplished by spreading the same amount of total fixed costs over the remaining, smaller customer base."

Richard Baudino, consultant for the West Virginia Energy Users Group, which represents several large manufacturers across the state, said his organization supports the concept of special power contracts for large industrial users.

However, he said the PSC has an obligation to ensure these special contracts are fair, reflect reasonable risk and cost expectations and don't have an adverse effect on other ratepayers.

Baudino said the Felman plan was "fatally flawed" and "unacceptable as proposed" because it allows the company to maintain a guaranteed profit margin as long as it is operating.

"West Virginia ratepayers, and particularly other West Virginia businesses, should not be required to support a rate of return for Felman's investors," he said. "Such a proposal relieves Felman's management of the responsibility for operating its business in a prudent and profitable manner."

The PSC staff and Consumer Advocate Division analysts said they do not believe Felman could not continue operating as a viable business without the new rate plan.

They cited statutory guidelines that say a company must demonstrate its viability as a business in order to be granted a special rate -- something Felman has not done, they said.

Another concern the analysts had was a portion of Felman's proposal that allows it to carry over unused discount amounts from one year to the next.

Ferguson said that meant if Felman had two or three good years where it paid a higher rate under its plan, then saw a large decline in commodity prices the next year, it could get anywhere between a $19 million to $28.5 million discount on its power bill that year.

"This could mean that Felman would go a full year or more without having to pay an electric bill," Ferguson said.

"This has the effect of giving (Felman) a "checkbook" and a pen to write an unlimited discount on its electric costs," said Deanna White, financial analyst with the Consumer Advocate Division.

Felman will have the opportunity to submit rebuttal testimony in the case later this month.

 

The PSC will hold formal hearings on the case Dec. 9 and 10 at its offices in Charleston.