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American Metal Market

By Daniel Fitzgerald
November 20, 2013

Felman rate plan faces stiff opposition 

NEW YORK - Felman Production LLC's petition for a special electricity rate for its silicomanganese plant in New Haven, W.Va., is facing stiff opposition from energy supplier Appalachian Power (APCo) and the West Virginia Public Service Commission (PSC). 

Letart, W.Va.-based Felman has petitioned the PSC for a special rate tied to a target margin that will be derived from independent indices related to the selling price of silicomanganese and raw material costs (amm.com, Sept. 3). 

However, Felman's proposed rate plan would have an adverse impact on other ratepayers in the state, according to APCo director of regulatory services Steven Ferguson. 

"The new special rate proposed by Felman is not revenue neutral: it has the potential to require APCo's other ratepayers to pay some $95 million towards the continued operation of the plant over the 10-year term of the contract. This could shift a substantial portion of Felman's business risk from Felman to (APCo) and their ratepayers," Ferguson said in testimony filed with the PSC. 

 Ferguson's concerns were echoed by J. Kennedy & Associates Inc. consultant Richard Baudino. "Several aspects of Felman's proposed special rate are deeply flawed and should not be allowed by the commission," he said in testimony filed with the PSC on behalf of the West Virginia Energy Users Group. 

"West Virginia ratepayers and particularly other West Virginia businesses should not be required to support a rate of return for Felman's investors. Such a proposal relieves Felman's management of the responsibility for operating its business in a prudent and profitable manner. In essence, APCo's other ratepayers would become unwilling partners who are responsible for subsidizing Felman's return on capital," Baudino said. "The minimum return proposal also transfers the risk of operating in the (silicomanganese) market to APCo's other ratepayers. The subsidies paid by the remaining ratepayers would have nothing to do with APCo's cost of service and would instead be subject to the vicissitudes of the (silicomanganese) market, as well as the market cost of Felman's inputs to its production process." 

Felman's claim that the ongoing viability of its New Haven production facility depends on a special electricity rate were challenged by Deanna White, a financial analyst from the PSC's Consumer Advocate Division. 

"Even if the commission accepts that Felman has demonstrated the need for a special rate, the company has failed to present reasonable evidence that with the special rate there will be sufficient cash flow for Felman to be 'economically viable' and operate for an extended period," she said in testimony filed with the PSC. 

Evidentiary hearings for the petition have been scheduled for December [amm.com, Nov. 13).