Ryan’s Notes
April 14, 2014

Players wait on Felman 

Opinions surrounding the Public Service Commission of West Virginia were widespread with regard to its proposed electric deal with Felman Production. While a few market players speculated that prices would fall if Felman Production re-started its furnaces, one analyst pointed out that in recent years during times of production at Felman, silicomanganese prices were over 70 cents.

"Some people think this production would bring thousands of tons back into the US market, and prices would then plummet, but really, imports would be cut back," one source noted. "Units would be shifted globally to accommodate for the production. I still think the discipline in prices will continue, so I do not expect prices to fall. Even if they did, that wouldn't happen until June or so. Most mills are set on their requirements for the time being," another added.

The Public Service Commission of West Virginia issued an order on April 3 establishing a special rate plan for Felman Production, LLC to purchase power from Appalachian Power Company. The plan calls for a discount up to $9-million per year off of Felman's electricity rate - calculated each month on the gross margin available in the silicomanganese market. The order sets a target gross margin. In months where the gross margin is less than the target, the producer would pay a discounted electricity rate. For other months where market conditions would allow a gross margin above the target, Felman would pay a premium above its regular rate. 

According to the Commission, Felman's regular electric rate contributed $9.5-million annually to Appalachian Power Company's fixed costs. These costs include owning and maintaining generation, transmission lines, and administrative expenses. Since Felman Production has been idled, the fixed costs were covered by other utility customers. Under the new agreement, Felman would pay at least $500,000 towards the electric generator's fixed costs.