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Utility, aluminum maker continue to battle for support

Utility, aluminum maker continue to battle for support

Noranda wants lower Ameren electric rates for its plant

March 30th, 2014 in News

The war of words appears to be heating up this spring between Missouri's largest utility company, electricity provider Ameren Missouri, and its biggest customer, aluminum-maker Noranda.

The real battle will occur inside Jefferson City's Governor Office Building, where the Missouri Public Service Commission has been asked to decide two cases - a complaint about over-earning and a request for lower rates.

But the secondary battle is that war of words aimed at generating support from the other consumers (and some lawmakers, as well), as Ameren and Noranda square off over how much one customer should pay for its power, and whether the provider is breaking the rules by earning too much money.

This fight has its roots in the PSC's December 2012 approval of Ameren's current rates - a $260 million increase - effective Jan. 1, 2013, but with a lower return on equity (RoE) of 9.8 percent rather than the previous 10.2 percent.

As in the past, Ameren's new rates included a rate-class that serves only Noranda, which has an aluminum smelter operation near New Madrid that uses substantially more electricity than any other Ameren customer.

Last month, in separate filings, Noranda asked the commission to reduce the rates it pays Ameren - and also asked the PSC to reduce Ameren's overall rates because, the company said, Ameren has taken in more revenue than is allowed by its RoE.

That's an accusation Warren Wood, Ameren Missouri's vice president for legislative and regulatory affairs, said last week was "without merit," and Ameren wants the commission to reject the request.

Wood also said his company thinks Noranda and its supporters are making a big deal over an "inaccurate" claim of "overearnings" because they want to divert attention from Noranda's rate-change request.

But John Parker, Noranda's vice president of Communications and Investor Relations, flipped the argument during a Friday interview.

"Given that our rate design proposal is revenue-neutral to Ameren," he said, "I'm surprised they're paying as much attention to it as they are - other than the fact that they're looking to distract from the fact that they're over-earning."

Under the current rates, Parker said, Noranda is paying a little more than $37 for each megawatt-hour (MWh) of electricity it consumes.

"We have 500 aluminum-producing pots," Parker said, "(that) use 4.2 million MWh per year."

One of their filings with the PSC said Noranda pays Ameren more than $160 million each year for their electricity.

Part of the argument for lower rates is that Noranda's power consumption varies very little - Parker said the company requires a constant stream of electricity demand that Ameren can calculate easily.

"What we're requesting is $30 per MWh, as an initial rate, and the fuel-adjustment charge wouldn't be a separate component of our rate," Parker said - although Ameren still could seek rate adjustments for other customers as its fuel costs change during each year.

And - any time the PSC grants Ameren another rate increase - Noranda wants the commission to cap its increase at 2 percent, no matter what higher increase other customers might get.

"We seek a competitive power rate for our New Madrid smelter," he explained, "and we seek power rates that provide a return to our monopoly utility - Ameren Missouri - that are just and reasonable, but not excessive."

Parker said Noranda's New Madrid plant competes with nine other smelters in the United States, and with other aluminum processors around the world.

"Without competitive power rates, there is no smelter, and that's the gist of our (rate) filing," Parker explained.

Without the smelter, nearly 900 would lose their jobs, and Missouri would lose about $300 million a year in economic impact.

Wood and groups supporting Ameren question Noranda's request, noting the company already pays about 60 percent less than residential consumers pay for electricity.

Wood said if the PSC approves Noranda's request, it could shift about $500 million in costs to other customers.

But, Parker countered, even with the requested lower rate, Noranda still would pay more to Ameren than the utility spends providing the smelters with a constant stream of electric power.

"We're (still) contributing to the fixed costs of the other ratepayers," he said, noting consumers are better off with Noranda on Ameren's system than off of it.

"Without us on the system," Parker said, "other consumers' rates are going to go up by more than they would go up with this rate-design change."

Parker said the rate-change request is intended to keep the business operating.

Opponents have complained that Noranda is painting a picture of a troubled future to the PSC - while telling investors that the company's in good shape.

"They can't have it both ways," said Irl Scissors, director of the Ameren-supporting group Missourians for a Balanced Energy Future, in a news release last month.

In a letter to Missouri Senate President Pro Tem Tom Dempsey and House Speaker Tim Jones, Scissors asked lawmakers to look into Noranda's requested "rate-shift," arguing Apollo Holding Corp.'s annual "massive sell-off of Noranda stock" each March doesn't benefit Noranda or Missouri consumers.

"The magnitude of the potential rate-shift and the serious concern that Wall Street will be profiting on the backs of Missouri residents and small businesses goes beyond the purview of the PSC," Scissors said, "and should more appropriately be addressed before the General Assembly."

But, Parker said, Apollo is just another investor, the same as any other investment fund, and isn't even a majority stockholder as opponents claim.

"It's in between inaccurate and irrelevant," he said. "If you own stock in something, you should be able to buy and sell the stock" whenever you choose.

PSC spokesman Gregg Ochoa said Friday the commission ordered the parties to file a proposed procedural schedule by April 1 on the cases.

Unlike the procedure when a utility files a rate request, which state law requires the PSC to resolve within 11 months, Ochoa said: "Where ratepayers have filed a rate complaint ... there is no statutory deadline for Commission action.

"The Commission will consider the complaint within a time frame that is fair to all parties."