Our Opinion: Noranda rate request fails fairness test
Monday, June 9, 2014
Is it fair to all concerned?
The question is among the guiding principles in the Four Way Test used by members of Rotary, an international service organization.
Let’s apply it to a case by filed Noranda Aluminum against Ameren, an electric utility.
The Missouri Public Service Commission (PSC) on Wednesday will host a public hearing on two Noranda cases. The PSC will consider a rate reduction case on June 17-18 and will hear a separate complaint in July alleging excess earnings by Ameren.
Regarding the requested rate reduction, Noranda is seeking a decrease to $30 per megawatt-hour beyond the reduction it now enjoys.
The additional reduction would be offset by increasing rates for other Ameren customers, a revenue-neutral result for the utility.
Some of those other customers, as you might guess, oppose the request, arguing it would raise everybody else’s rates by a total of $500 million.
Randy Allen, president of the Jefferson City Area Chamber of Commerce, said in a letter to the PSC that was quoted in a Sunday news story: “With the low rate for electricity that is already 60 percent below rates paid by the average Ameren Missouri resident customer, Noranda Aluminum’s request for an additional 25 percent rate reduction goes too far.”
Noranda Aluminum enjoys a reduced, bulk rate because processing aluminum essentially requires electricity around the clock. The company’s smelter in New Madrid is one of only nine in the U.S. and it employs about 900 workers.
If the added rate reduction is not granted, Noranda has threatened possible closure of the smelter.
Despite the threat, the compounded rate request fails to pass the fairness test.
Would we feel the same if the potential loss of jobs was within our readership area? We certainly would join the effort to explore other solutions, but we know of no argument we could make that would clear the fairness hurdle.
An established business model authorized reduced rates for customers who make bulk purchases. As a bulk purchaser of electricity, it is reasonable for Noranda to benefit from a reduced rate.
What is not reasonable is for other Ameren customers to subsidize Noranda’s operations through an additional rate reduction. That would be fundamentally unfair.
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