Is it reasonable for you to pay more on your electric bill so that an aluminum smelter 250 miles away can get a reduced rate? That's the question the Legislature may be asked next session if the Public Service Commission doesn't grant a request from Noranda Aluminum Company's request to reduce rates.
Noranda operates an aluminum smelter in New Madrid. And it buys power - lots of power, more than the entire city of Springfield. For buying in bulk, Noranda receives a discount. While we pay around seven cents per kilowatt hour to power our homes and businesses, Noranda only pays four. In February, however, Noranda threatened to halt production at its New Madrid plant unless the PSC reduced its rate to three cents. When you buy as much power as Noranda, those pennies add up quickly. In this case, if the PSC granted Noranda's request, it would pay around $48 million less per year and we would pay that much more.
Noranda claimed a liquidity crisis. But the PSC rejected its claim. As explained in the PSC's Order, Noranda's pleas of poverty "differ substantially" from the rosy financials Noranda presented to Moody's Investor's Service just two weeks prior to filing its case before the PSC.
Worse, as detailed by the PSC, to the extent there's any liquidity crisis at Noranda, it's the result of management decisions. Apollo, a private equity firm, bought Noranda in 2007 for $1.165 billion. It paid $214.2 million in cash with the rest secured by debt. Then, just 25 days later, "Noranda borrowed money to pay Apollo a dividend of $214.2 million." That's a quick turn-around on a huge investment.
But, as the PSC Order details, Apollo wasn't nearly finished taking money out of Noranda. A year later Noranda paid Apollo a dividend of $100.7 million. If you're keeping score, that's a 147 percent return on investment in just one year. In 2010, Noranda went public and Apollo received an additional dividend of $107.9 million and another $151.1 million from the secondary sale of Noranda stock. Running ROI after three years? 268 percent. Because of Apollo-related debt, Noranda pays roughly $50 million per year in interest. Since 2007, Noranda has paid Apollo $31 million in management fees for the privilege, and it took another $4.5 million from taxpayers in tax credits.
After the PSC rejected its first request, Noranda took action. It announced it will lay off up to 200 employees unless it gets its way. In a disappointing move, Gov. Nixon announced his support for a proposed "deal" to shift $30 million annually from your wallet to Noranda's. This shouldn't be surprising. Gov. Nixon rarely meets a corporate subsidy he doesn't like.
Noranda's requested subsidy is shocking when put to scale. The sweetheart subsidy Gov. Nixon proposed for Boeing only amounted to $19,250 per employee per year, and only in the most expensive years of the deal. If Noranda scores its subsidy, it will receive a cost-shift equal to $240,000 per employee per year for every year of the deal. If it secures the "compromise" supported by Gov. Nixon, it would receive $150,000 per employee per year. Even assuming the worst case scenario of a 900 job loss, we're still talking more than $50,000 per job per year. At this rate, we might as well designate Noranda employees state employees - except, they'd be better paid.
Then, just last week, the Office of Public Counsel (an office that ostensibly represents residential ratepayers) asked the PSC to re-open the case to grant the "deal" supported by Gov. Nixon. In making its request, this alleged public advocate argued that the PSC "must respect and be deferential to" the claims of Noranda's Wall Street management regarding the company's alleged poverty. Never mind that those claims directly contradict statements Noranda management made in its public filings with the SEC.
The OPC's crack-pot theory is based on the "business judgment rule" which "protects the directors and officers of a corporation from liability" for decisions they make in good faith. But no one is trying to hold Noranda liable for anything in this case. Noranda is essentially the plaintiff.
To my knowledge, no court in the history of our country has ever held that the business judgment "benefit of the doubt" rule applied when a corporation was effectively seeking relief as a plaintiff. To hold otherwise would be absurd, and would be a dangerous standard for the PSC to apply to factual claims made by any party seeking ratepayer funds - whether an aluminum smelter in southeast Missouri or a utility company itself.
Whatever happened to this being the Show Me State? Beyond being shockingly inappropriate, the OPC's timing could not have been worse. At the same time that it was supporting Noranda's claim of poverty, Goldman Sachs upgraded Noranda's stock to a "buy" and said it was "bullish" on the company.
In addition to its rate reduction request, Noranda also filed a claim for "overearnings" against Ameren. That's a fair claim, and, if the PSC had found it true, it should have hammered Ameren.
But don't let Noranda fool you with a street magician's sleight-of-hand. Even if Noranda is correct about Ameren "over-earnings," that doesn't justify a rate shift from your wallet to theirs.
The PSC's original Order was sound and it should not stray from that decision, regardless of Noranda's threats and the OPC's parrot show. If and when the PSC rejects Noranda again, the question will certainly be put to the Legislature.
I believe the answer is clear. No one should begrudge Apollo for profits. But when those profits are gained through saddling a company with debt and then they turn around and ask Missouri families and small business owners to pick up the tab, the answer should be a resounding NO.
State Rep. Jay Barnes, R-Jefferson City, represents Missouri's 60th District.