Mo. regulators oppose Noranda’s rate reduction request
State utility regulators indicated they will deny Noranda Aluminum’s request for a lower electric rate from Ameren Missouri, saying the Southeast Missouri smelter’s issues would be better addressed in the legislature.
The Missouri Public Service Commission has yet to adopt a final order on Noranda’s rate request, but all five commissioners said Wednesday they opposed lowering the special rate paid by Ameren Missouri’s largest customer.
Ameren’s ratepayers in the St. Louis area or the company’s shareholders faced a hit if Noranda had convinced the PSC to lower its rate. The huge quantities of electricity required for aluminum production put Noranda’s annual electric bill around $170 million. The smelter’s formal plea for a lower rate would caus its bill to drop nearly $50 million a year, a difference that could push other customer bills up by roughly 2 percent.
After it filed the request in February, Noranda warned that its plant — the only primary aluminum smelter in the state and one of about 10 in the U.S. — faced closure if it didn’t get the lower rate. It argued it was facing a “liquidity crisis” that put not only its operations, but the economic health of the Bootheel region, in jeopardy. It employs roughly 900 people in the region, one of the poorest in Missouri.
While a majority of the commission felt they had the authority to adjust Noranda’s electric rate, many said the company had other options and that the situation was not as dire as Noranda indicated.
“Although Noranda is very important to the economy of the Bootheel and to the state of Missouri … I tend to be with staff on this issue and they have not recommended this,” PSC Commissioner Stephen Stoll said during the hearing that was archived on an online video file. “And I don’t think the evidence in the record really supports Noranda’s complaint. I think it was up to them to make that case, and I don’t believe they really did.”
A Noranda spokesman said in an emailed statement it wouldn’t “speculate” on what the commission will decide.
About one third of an aluminum smelter’s costs come from electricity, and Noranda has said in regulatory filings that without the lower rate it “expects” to lay off 150 to 200 people this year. Ultimately, the smelter will run out of cash and close, the company says, but it has not indicated when.
Disputes between electricity providers and aluminum smelters are common in every country because electricity is the “most important” part of the cost structure, Julio Moreno, senior raw materials analyst with Harbor Aluminum, said in a May interview.
“This happens a lot in the aluminum industry. You see smelters, when they want to negotiate, they always say they need a lower price or they’re going to shut down,” Moreno said. “Sometimes it’s true if the smelter is a very high-cost plant, and the others, it’s just part of the negotiation process.”
Noranda is almost completely vertically integrated, controlling mines, an alumina refinery and factories that make end products from the pure aluminum produced in Missouri. Closing the New Madrid smelter would put a hole in the middle of the company’s operations that could leave it without a smelter for its raw materials and force it to turn to competitors for primary aluminum.
Still, U.S. smelters have been closing in recent years due to lower aluminum costs. Ormet Corp’s Ohio smelter closed in October after it failed to win a similar bid for lower electric rates in front of Ohio regulators.
However, aluminum has rallied in the last two months due to cuts in production and warehouse stockpiles. The metal reached highs not seen since February 2013 this week on the London Metals Exchange.
Noranda still has another case pending in front of the PSC that accuses Ameren of earning $67 million more than it should have last year and would reduce rates for all customers, not just the smelter. Plus, the PSC did not totally shut the door to rate relief for the company.
“I am not completely closed to the idea of a type of modest rate reduction, but as long as it’s in concert with something that the legislature would do that would be borne by all the taxpayers and not just the shareholders or the ratepayers of Ameren,” Commissioner Scott Rupp said.
Commission Chairman Robert Kenney said it was “unfortunate” the two couldn’t resolve their issues in the legislature – the arena where most of the battles between Ameren Missouri and its largest customer have been fought in recent years.
“Unfortunately, getting energy policy modified or changed over in the general assembly has been an exercise in futility because of the adversarial relationship between Noranda and Ameren,” Kenney said. “I think the unfortunate nature of that adversarial relationship is laid bare in this case.”
