Associated Press
December 3, 2013

Felman defends proposed power rate for W.Va. plant

CHARLESTON, W.Va. (AP) — Felman Production says a proposed special power rate will allow its silicomanganese plant in New Haven to operate when commodity markets are weak.

In testimony filed with the Public Service Commission, the company says allegations that the rate plan guarantees profits are "offensive and naive."

A portion of the plan would provide Felman with a guaranteed gross margin on production. Barry Nuss, Feldman's chief financial officer, told the Charleston Daily Mail that the guaranteed gross margin doesn't take into account all production costs.

"There are many different factors and many different risks in operating a business," Nuss told the newspaper. "This in no way guarantees that we're profitable.

"We're not going through this process in order to assure ourselves of a profit," he said. "We're going through this process to ensure we can sustain operations, that we can sustain these jobs."

Feldman idled the plant earlier this year because of poor market conditions.

West Virginia Energy Users Group consultant Richard Baudino said in testimony filed with the PSC that this portion of the plan is unacceptable and "fatally flawed." The group represents several large manufacturers in the state.

"West Virginia ratepayers, and particularly other West Virginia businesses, should not be required to support a rate of return for Felman's investors," Baudino said.

Felman's proposal would tie the plant's power rates to the costs of raw materials used in production and commodity prices. The 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. When prices are low, Felman's power discounts would be paid for by shifting costs to other ratepayers.

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.

Appalachian Power has objected to a provision that would allow Feldman to carry over the $9.5 million discount from one year to the next. The utility said in testimony filed with PSC that Feldman potentially could go an entire year without paying for power.

Consumer Advocate Division analyst Deanna White said it would have "the effect of giving (Felman) a 'checkbook' and a pen to write an unlimited discount on its electric costs."

Nuss said the proposal ensures Felman pays 100 percent of Appalachian Power's variable costs, mainly for fuel and power generation, during the contract. The discounts would only apply to the $9.5 million in annual fixed cost payments.

"We can never pay less than variable costs unless we've already paid more in the past," he said. "It's a matter of a timing issue, but it doesn't affect the bottom line that we always will pay variable costs in the life of a contract.

"There is no risk to us not paying the full variable costs," he said.

The company submitted its request for a 10-year special power rate under a 2010 law that was intended to help Century Aluminum restart its plant in Ravenswood. The law allows manufacturers that consume large amounts of energy to negotiate rates tied to commodity prices. 

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