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Charleston Daily Mail
Manufacturer says power proposal of minimal risk
By Jared Hunt
September 15, 2013 

http://www.dailymail.com/Business/201309150062?page=1&build=cache 

CHARLESTON, W.Va. -- Felman Production representatives on Friday defended the company's request for a special power contract, saying the plan is structured differently and presents far less risk to consumers than a proposal pushed by Century Aluminum last year. 

Felman wants the state Public Service Commission to approve a 10-year special power rate for its New Haven steel additive manufacturing plant.

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

The plant shut down earlier this year because of poor market conditions for its product. The company is working to determine if the shutdown will be temporary or permanent. 

Because electricity represents 20 percent of the company's production costs, Felman said it needs a more favorable power rate (its rate has risen about 45 percent since 2008) to compete globally.  

The proposal the company submitted to the PSC 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. 

When commodity prices are low, as they are now, Felman's power rate would go down. When they go up, Felman would pay more. 

This type of rate structure was made possible by a 2010 law passed by the state Legislature that allows large industrial manufacturers to tie their power rates to commodity prices. 

That law was passed with the focus of helping Century Aluminum restart its shuttered Ravenswood plant, which closed at the height of the recession in 2009. 

But when Century tried to push its special power rate plan through the PSC last year, it drew staunch opposition from consumer groups and Appalachian Power, who did not like the company's proposal to shift some of its power costs onto regular ratepayers. 

Critics said Century's plan exposed consumers to far too much risk and would force them to absorb tens of millions of dollars in higher power bills each year. The PSC sided with critics and told Century it couldn't transfer its costs. 

Mindful of the Century case last year, officials with Georgian American Alloys, Felman's parent company, said Friday that while their proposal is crafted using the same law as the Century plan, the Felman plan does not contain the same kind of risks to consumers. 

"It really is a very different proposal," said Barry Nuss, chief financial officer at Georgian American Alloys. 

The plan looks at the three components that make up anyone's power rate: The fixed costs of doing business that Appalachian Power spreads out among all of its customers, the variable costs that cover extra fuel needed as a customer consumes more power and the various surcharges and fees tacked on to one's power bill. 

In its proposal, Felman says it will continue to pay all of the variable power costs and surcharges that it would incur by restarting production. 

The potential discounts would come from the $9.5 million the company pays each year to cover Appalachian Power's fixed costs. 

Felman said when prices are low, its power rate could go down by as much as $9.5 million. 

Appalachian Power would pay for this by charging other ratepayers slightly more. Felman 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. 

Nuss said 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. 

"The bottom line, (under the rate plan) other customers are never worse off than they would be if Felman shut down," Nuss said. 

He said that was completely different than the Century proposal last year. 

Century's plan required ratepayers to continue absorbing about $17.3 million a year in fixed costs that were pushed onto the rate base when the company's plant shut down in 2009. Consumers would then pick up an additional portion of the plant's variable costs, depending on where the price of aluminum traded. 

The Century plan also allowed that company to benefit from about $20 million in annual tax credits that would have lowered its power bill even further. Felman is not asking that those tax credits be used to help reduce its power bill. 

Century's plan was also criticized because it had no cap on how low the company's power rate could fall. The company's plan also guaranteed it would reap a guaranteed profit margin on all of the aluminum it would produce. 

Analyst Henry Fayne, a Georgian American Alloys consultant who also worked on the Century plan, said the Felman plan has a definite floor on its potential discounts — one that doesn't guarantee a profit. 

"Once that $9.5 million is used up, that's it," Fayne said. "And if things are worse, Felman suffers." 

Felman purchased the New Haven plant out of bankruptcy from Highlander Alloys in 2006. 

It hasn't turned a profit since due in part to inefficient equipment at the 61-year-old facility. Since purchasing the plant, Felman has invested more than $50 million in equipment upgrades. 

Nuss said the equipment at the facility is now operating at its ideal capacity. Low prices in the silicomanganese market and the plant's power costs are the only things keeping the plant from being profitable today. 

Nuss and Fayne believe prices will rebound within the next year. Now they just need a favorable power rate. 

"Felman production can participate in this business profitably," Nuss said. "It comes down to being an efficient producer with the right cost structure." 

Last week, an Appalachian Power representative said the company is still reviewing Felman's proposal and has yet to take a position on the plan. 

The state Consumer Advocate Division on Friday filed a petition to intervene in the case. 

Deputy Consumer Advocate Jacqueline Lake Roberts said in the petition that the Felman plan, if approved, "could have an adverse effect on residential consumers." 

No other parties had intervened in the case as of Friday afternoon. 

 

The commission has yet to schedule a timetable for the case to be heard. Felman has requested commissioners issue a ruling by the end of the year.