Ameren, Noranda now working together

Missouri customers could see jump in electric rates

Noranda Aluminum's bankruptcy filing last week likely means higher electric rates for Ameren Missouri's customers throughout central and eastern Missouri.

Noranda's New Madrid County smelter is the Bootheel's biggest employer, with about 850-900 good-paying jobs - but about half have been laid-off since Noranda lost two-thirds of its production lines last month.

And the New Madrid smelter is Ameren's single biggest customer, consuming 10 percent of the utility's total electric output.

Warren Wood, Ameren Missouri's vice president of external affairs and communications, said Noranda uses "almost 500 megawatts of power," equivalent to the demand from "all of Springfield, Missouri, continuously. Our next biggest customer is about 20 megawatts - there's a cliff between Number One and Number Two on our system."

If Noranda shuts down that plant and goes away forever, those employees' families will struggle finding another job, and likely have to move somewhere else.

And the rest of Ameren's customers will see an even bigger jump in rates than if the utility and the smelter reach some agreement for an even better electric rate than Noranda now has - the lowest cost for electricity paid by any of Ameren's 1.2 million customers - and Noranda figures out a way to re-start the smelter operations.

"If you were to lose the smelter down there, it would be years and years to try to overcome that," Wood told the News Tribune last week.

But even with the lowest rates available, Chris Roepe - Noranda's Jefferson City-based vice president of Government Affairs - told the News Tribune last week that electricity costs still are one-third of the manufacturer's business expenses.

And prices for the plant's finished products have gone from hard to predict fluctuations a couple years ago to steadily falling.

Two years ago, before Roepe worked for it, Noranda asked the Missouri Public Service Commission for a roughly 25 percent cut in its electric rate, with an accompanying 2 percent increase in the rates for all other customers.

The aluminum company said in its Feb. 12, 2014, filing it needed the rate reduction to keep it viable - or it might have to close the New Madrid smelter.

At the time, New Madrid was one of only nine smelters in the United States - down from 33 smelters a quarter century ago.

The PSC ruled against Noranda's request on Oct. 1, 2014 - but said the aluminum producer could pursue a better rate as part of Ameren's 2014 rate-increase request which the commission had to decide by May 2015.

Last May, the PSC gave Noranda a better rate - but days later, Apollo Global Management, the New York City-based hedge fund which bought Noranda in 2007, sold all its Noranda shares - leaving the aluminum-maker with more than $1 billion in debts and sending its stock price into free-fall.

Its stock was trading at about $2.20 a share after Apollo announced its sell-off.

Last Friday, Noranda stock was trading on the over the counter market at 4 cents a share.

Adding to Noranda's economic chaos, Roepe said, is China - which, since last year, has been selling aluminum to the U.S. market at below-market values - helping put businesses like Noranda out of business.

Today, Roepe told the News Tribune last week, the United States is down from that nine operating smelters seven months ago "to the basic equivalency of about four. There's a couple in Kentucky. There's half of one in New York," where Alcoa is running only one pot line.

"(And) we've got one line still running (at New Madrid) - so we've got a third of our capacity still running."

The company lost two of its three production lines in January, thanks to an internal power outage caused by what Roepe described as "a very big circuit breaker got fried."

Even before the January shut-down, Wood and Roepe said, the two companies began discussing ways to help Noranda get back into full operations at New Madrid.

Reports last May said the changes in Ameren's new rate structure saved Noranda about $17 million to $25 million in expenses.

But, Roepe said, a total Noranda shut-down would cost Ameren customers "between $45 and $60 million" more.

That's because Ameren already has invested in the infrastructure - power plants, transmission lines and other equipment - needed to produce and deliver electricity to all its customers.

Noranda now is paying a share of those costs. But if it goes out of business and stops buying electricity, the rest of us get higher rates to help Ameren pay for its already existing, fixed-cost expenses.

Wood acknowledged the recent talks between Ameren and Noranda mark a major turn-around for Missouri's largest electricity provider and its largest customer.

"(Over the years) you could pretty much see that Ameren and Noranda didn't see eye-to-eye on anything," he noted. "We generally have a pretty direct record of finding ways to fight each other on just about everything related to energy."

In its February 2014 request, Noranda also argued lowering its rates so it could stay in business would cost the rest of Ameren's customers less than if Noranda shut down the New Madrid smelter and walked away.

Some of Ameren's larger customers supported Noranda's request for lower costs, while others didn't.

But Ameren objected.

"We didn't believe then that their finances were really (so bad) that they wouldn't be able to operate," Wood explained last week. "And we saw it as hedge fund "play.'

"Now, we see it differently. The hedge fund is gone, and look at all the (other) aluminum smelters that have closed.

"(Closing the New Madrid smelter now) is a real probability, if we don't find a better path."

Wood said Ameren also has agreed any final agreement will involve its opening its records for regular inspection, rather than just during a rate case - with a regular PSC review.

Meanwhile, Noranda and Ameren are meeting with many business and consumer groups to explain their negotiations.

And they're talking with lawmakers about assistance from the state, at least in terms of a law allowing a rate agreement for a longer term than the PSC can approve.

Senate President Pro Tem Ron Richard, R-Joplin, said last Monday it's too soon to predict how those discussions will end. But Sen. Ryan Silvey, R-Kansas City, has introduced a bill that could be used for the state's role in the situation.

Until something happens, Noranda plans to shut down its last New Madrid pot line next month.

Both Roepe and Wood said the negotiations need to move quickly.

If something isn't done by the mid-May end of this year's General Assembly, they said, the financial markets where Noranda must borrow money will have little confidence in the company's future ability to make money and pay back their loans.