Missouri's Public Service Commission should grant Noranda Aluminum's request for a lower electric rate - or its New Madrid smelter likely will close, Noranda's attorney told the five-member commission Monday morning.
"The smelter is crucial to Missouri's economy and an economic disaster will result from its closure," St. Louis attorney Diana M. Vuylsteke said. "The smelter cannot be sustained without the rate relief that Noranda requests in this case.
"Ratepayers will experience lower rates than if the smelter closes. Ameren ratepayers, and all Missourians, will benefit from Noranda's continued presence in the state and its continued contributions."
Noranda's smelter requires substantial amounts of electricity, delivered in a steady, constant stream. The company is the single largest customer of Ameren Missouri, the state's largest regulated electricity provider.
When Ameren first began providing Noranda's electric supply in 2005, the smelter paid $32.50 for each megawatt hour (mWh) of electricity used.
After Ameren's most recent rate case, in 2012, and increases from the fuel adjustment clause, Noranda said in its Feb. 12 petition for the PSC to lower its rates that the cost had increased to "an effective rate of $41.44/mWh."
But, because of competition in the aluminum industry and the low cost being paid for aluminum products, Noranda said in its request for a rate change, it needs a rate of $30/mWh to remain viable - about a 25 percent reduction from today's charges.
And, Layle K. (Kip) Smith, Noranda's president and chief executive officer, told commissioners Monday, "When you look back at the last 10 years and look where the price goes, Noranda will experience very tough times from a pricing standpoint more than twice as often as we will experience really good times.
"When we looked at our rate, we focused on a rate that would give us what we felt was the highest rate that we could tolerate and be viable across the cycle.
"We didn't focus on our instantaneous rate - $23 would make us cash neutral now. $30 won't, and we'll need the cycle to improve."
Noranda's rate-change request asks the commission to raise other Ameren customers' rates so the change is revenue-neutral to the utility, and - for the next decade - limit any increases because of future rate cases to no more than 2 percent, no matter what increase other customers would face.
Noranda also wants the commission to exempt it from any increases caused by Ameren's use of the "fuel adjustment clause" that allows the utility to make interim rate changes when its price for fuel changes.
Noranda, the Public Service Commission's staff and the Office of Public Counsel all said in opening statements Monday that the PSC has the legal authority to change Noranda's rates - if the commission determines the facts justify the change.
The various parties differed on whether the commission could shift the costs to other customers, or require Ameren to prove it needed the additional revenue.
But the St. Louis-based utility said the proposal is an economic development question, not a rate case.
"It is a rate increase for every single Ameren customer except for Noranda," lawyer Wendy Kay Tatro told the commission. "The only basis for their request is Noranda's claim of financial need.
"Noranda has calculated what it wishes it were paying for electricity - and is asking you to set the rate at that level."
But, she told the PSC during her opening statement, "You've been placed in a difficult situation, having had Noranda appeal to your sympathies while asking you to provide rate relief that's not possible under Missouri law.
"This is something that you should not have been asked to decide."
The afternoon and evening sessions would switch in-and-out of closed session several times Monday, because some of the issues discussed are important for the commission to hear, but are protected from being discussed publicly.
The hearings resume this morning and are scheduled to end tonight, with the PSC set to make a decision on the rate-change request by early August.