Ameren Missouri has proposed a lower electric rate for Noranda Aluminum's New Madrid smelters, as part of Ameren's new rate increase case - and said its proposal would be a better deal for other customers.
Last year, the state Public Service Commission (PSC) twice rejected Noranda proposals to cut the rate it pays for electricity under a 2012 Ameren rate case and to declare Ameren is earning more money than allowed by the 9.8 percent "return on equity" set in that 2012 case.
Ameren is Missouri's largest regulated electric company, serving about 1.2 million customers in eastern and central Missouri.
Noranda's New Madrid smelter is Ameren's single largest customer, with a steady and substantial power demand that earned it a special rate class in the 2012 case - paying the lowest cost for electricity of any customer, and about 60 percent less than the average residential customer pays.
Noranda currently pays $42.35 for each megawatt-hour of electricity it uses - including Ameren's current fuel-adjustment-clause rate, $4.40/MWh.
Noranda's failed request last year had asked the PSC to drop its rates to $30/MWh, limit any growth in its costs to no more than 2 percent regardless of the size of a rate increase the PSC would give Ameren - and to exempt Noranda from any cost increases related to the rate changes Ameren makes when the costs of its fuels change (known as the fuel-adjustment clause), even if other customers saw an increase.
Although the PSC said Noranda had not proven its case in either of the complaints it filed with the commission almost a year ago, the five-member commission urged all parties in the case to keep talking about Noranda's rates as part of Ameren's new rate case filed last July - which the commission must decide by early June.
Ameren's proposal for new, lower Noranda rates was made in prepared testimony filed with the PSC last Friday, in preparation for next month's formal hearings on Ameren's proposal to raise its rates by almost 10 percent.
Matt Michels, Ameren Missouri's senior manager of Corporate Analysis and a former consulting engineer in the the utility's corporate planning operations, said in the written testimony that Noranda's proposal for new rates "would cost Ameren Missouri's other customers over $400 million, while offering no benefits in return."
Michels said Noranda's new proposal would cut its rate to $32.50/MWh with an annual escalation of 1 percent for a term of seven years and, again, be exempted from any fuel adjustment clause (FAC) increases.
"Noranda's proposal would result in a year seven rate of just $34.50/MWh," Michels said.
He also testified that William Davis, another Ameren employee, said in a separate, prepared testimony that "Noranda's proposal results in rates that are far below the cost to serve the smelter and far below the rate proposed for Noranda in this case."
State law already allows Noranda to buy electricity on the open market when it can get better rates than Ameren charges, and the utility's new proposal is that the PSC change the smelter's status from "retail customer" to "wholesale" customer with a five-year contract and "market-based pricing."
Michels testified: "A wholesale arrangement would provide Noranda with a rate that is lower than its current retail rate," while also taking the aluminum company out of all future rate cases.
Approving the proposal as part of Ameren's new rate case, Michels said, would give Noranda some options.
"Noranda would be free to secure a subsequent deal for power in the open market," he said. "Noranda could also use this window of time to pursue long-term relief at the Missouri General Assembly.
"As Ameren Missouri has long argued, the appropriateness of a long-term subsidy to Noranda is an issue that elected officials should determine, and if such a subsidy is granted, the burden should be borne by all state residents, not just Ameren Missouri's customers."
In a news release, the group Missourians For a Balanced Energy Future (MBEF) said it was "encouraged by Ameren Missouri's "win-win' proposal."
Other parties will be able to file comments and offer testimony during the formal hearings next month, as well as question the experts both Ameren and Noranda will offer for formal testimony.