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Herald Dispatch
Huntington, WV
December 8, 2013

Company’s power-rate proposal 

For the second straight year, the West Virginia Public Service Commission is considering a company’s request for a special electricity deal that would have other customers of Appalachian Power pick up the tab if conditions in the marketplace went poorly.

Let’s hope the PSC gives the same answer as it did last year: The company should bear the financial risk, not other Appalachian customers.

Formal PSC hearings will be held Monday and Tuesday on Felman Production’s request for a special power rate for its now-idled silicomanganese plant in New Haven in Mason County. The company denies claims that the deal would guarantee it a profit potentially on the backs of other Appalachian Power customers, but a portion of the plan would provide a guaranteed gross margin on production during the proposed 10-year deal.

Felman’s proposal involves connecting 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, according to a report by The Associated Press. When prices are not favorable for Felman, the plant’s power discounts would be paid for by shifting costs to other ratepayers. 

Conversely, the company said it would pay higher rates when its material costs recovered, and other power customers would be repaid in the form of a rate decrease.

The net result, in our view, is that other Appalachian Power customers will be shouldering a portion of the company’s risk — something they should not be required to do.

Not surprisingly, the PSC’s Consumer Advocate Division has come out against the plan, as has  the West Virginia Energy Users Group, which 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,” Richard Baudino, a consultant for the Energy User Group, said in testimony filed with the PSC.

Felman submitted its request 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.

Century Aluminum followed up with a proposal that worked much the same way as Felman’s: When aluminum prices were low, Century would pay a lower power rate and other Appalachian customers would make up the difference. When aluminum prices were higher than a certain threshold, Century would pay more and other ratepayers would pay less. Again, ratepayers in general were taking on the company’s risks.

In that case, the PSC wisely took other ratepayers out of the equation. It essentially told Century that if the company was confident that aluminum prices would rebound, it didn’t need the support of other Appalachian Power customers to even out market fluctuations. No alternative deal has been struck, and the Ravenswood plant remains closed.

The PSC should give the same answer regarding Felman’s request for a special deal.

If the state wants to nurture these company’s to a healthier position and preserve jobs, the task should be taken up by the state’s development agencies, which can use money appropriated for that purpose. That’s the more appropriate approach rather than relying on electric utility ratepayers to provide the incentive.