St. Louis Post-Dispatch: PSC staff recommends against Noranda rate request
By Jacob Barker
Noranda Aluminum Holding Corp.’s case for a lower electric bill was dealt a blow Friday after the staff of the Missouri Public Service Commission recommended against it, saying the proposed rate would not cover Ameren Missouri’s costs.
The regulator’s staff filed testimony disputing many of Noranda’s calculations, including Ameren’s cost to service the huge aluminum smelter and the impact to other ratepayers if the company stopped buying the St. Louis utility’s electricity. While the appointed commission will make the final decision, the staff’s analysis casts doubt on Noranda’s assertion that ratepayers will be worse off if it doesn’t receive the cut.
“Noranda is requesting to purchase energy from Ameren Missouri at a rate that is below the cost to Ameren Missouri of purchasing the energy on the wholesale market, and the difference between those prices is an additional cost to customers,” Sarah Kliethermes, a regulatory economist on the PSC’s staff, wrote in testimony filed with the commission Friday.
Ameren Missouri’s largest customer in February asked the commission for a 25 percent rate cut, arguing that its massive aluminum smelter in Missouri’s Bootheel would not be viable without it. The request, if granted by the PSC, could mean other Ameren customers see slightly higher rates — Noranda has estimated an increase of 1.8 percent.
Massive amounts of electricity are needed to create the chemical reaction that produces aluminum, making electricity “the most important part” of a smelter’s cost structure, said Julio Moreno, senior raw materials analyst at consultancy Harbor Aluminum.
Noranda consumes roughly the same amount of power as the city of Springfield, Mo., or 10 percent of all power Ameren produces.
With downward pressure on global aluminum prices and Ameren rate hikes in recent years that have increased the price of power, Franklin, Tenn.-based Noranda warns it needs the lower rate to keep 900 jobs in one of the poorest parts of the state.
Ameren has disputed that, calling the request a cost shift from Noranda’s shareholders to the utility’s other customers.
“It’s not strange to see these kind of disputes in the aluminum industry,” Moreno said. “You always have this in every country.”
Until the PSC staff’s testimony, both sides had an agenda and employed their own consultants to bolster their case.
Noranda has argued that if it doesn’t get a rate cut and closes its New Madrid smelter, Ameren’s other customers will feel an even greater impact after the utility loses its largest customer. Kliethermes disagreed with Noranda consultant estimates, saying the cost to other ratepayers would be greater if Noranda received its rate adjustment.
Neither scenario is good for consumers. If Noranda leaves the Ameren system, it will cost ratepayers $9.5 million to $20 million, according to PSC staff estimates. If the plant stays and gets its full cut, customers will absorb at least $28 million.
Staff didn’t recommend against a Noranda rate decrease altogether. Noranda was paying 4.43 percent more than Ameren’s cost to serve it in late 2012, according to estimates from a PSC staff study. It’s not unusual for different types of customers to pay more or less than the cost of service — residential ratepayers pay about 6.8 percent less than the utility’s costs, according to the study.
Warren Wood, Ameren’s vice president of regulatory and legislative affairs, said he was “encouraged” by the report but “it’s too early to tell where the commission would be inclined to go with this.”
John Parker, Noranda vice president of communications, released a statement that said the company will respond to staff’s recommendations through the commission’s formal process.
“The staff’s rebuttal testimony is a natural part of the process the PSC has established for reviewing our petition for a competitive and sustainable power rate in New Madrid,” he wrote in a statement.
