Felman files response in rate hearing - Beckley, Bluefield & Lewisburg News, Weather, Sports

Felman files response in rate hearing

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Georgian American Alloys CFO Barry Nuss figures getting a discount on electricity for his company's New Haven subsidiary is a "can't lose" for Appalachian Power's other ratepayers.

Worse-case scenario — if the company can't make it even with the discounted rates — Nuss says Appalachian Power's other customers would be on the hook for about $9.5 million.

That's exactly what he says they'd have to pay anyway if Felman were to fold, though he adds it would be compounded by the loss of hundreds of jobs and roughly $2 million annually in tax revenue.

But the Consumer Advocate Division of the West Virginia Public Service Commission isn't so sure, arguing that the discount could leave Appalachian Power's residential customers holding the bag for more than $90 million in subsidies to the company.

Public hearings on the special discount begin Monday, Dec. 9 in Charleston.

"We do not support their request for a special discount," CAD's Jackie Roberts says flatly. "In evaluating (their) request against the statutory standards for allowing such a special rate, the CAD does not believe Felman has met its burden of proof or that it qualifies for the rate. 

"For these reasons the CAD believes that granting Felman the special rate will harm residential consumers."

Felman's proposal would cap tariff rates at its $9.5 million fixed cost base, though rates would vary: If the margin between the market price of silicomanganese and the market price of the major raw materials is below a pre-determined market index, Nuss says the company would receive discounted electricity. If margins go above the market index, he said the company would pay more than its full electric rate.

There's also a roll-over provision built in that would allow the company to carry over discounts that aren't used in a particular contract year.

CAD says that roll-over provision creates potential subsidies from other ratepayers totaling $95 million over the 10-year term of the contract so, theoretically, "there could be years when the Company pays nothing toward their costs of electricity."

Because the company typically buys from and sells to affiliates, CAD said it's difficult for outsiders to know exactly how much money the company is actually making.

But Nuss insists the special discount is critical to Felman's future. Since acquiring the plant out of bankruptcy in 2007, Nuss said Georgian American has invested millions of dollars into upgrades that, while improving operations, haven't improved their bottom line.

"Right now we are not producing," he said. "We have three furnaces and all three have been shut down since July."

He said Felman's electric bill has jumped nearly 45 percent since the company bought the plant six years ago.

"Under our proposal, other ratepayers will never be worse off," he said. "If we operate and the market is good enough, we'll pay all of our fixed costs and variable costs. If not, we may only pay the variable costs but the discount will never exceed our fixed costs."

He admits that even with the discounted electricity, there's no guarantee market conditions won't force them to idle their furnaces again, "but we believe, based on historic prices of products and cost structure, with special rates we'll be able to sustain our operations."

Nuss said Felman's proposal is essentially what the PSC had proposed for Ravenswood's shuttered smelter, Century Aluminum. 

"It wasn't sufficient to their purposes; they did not end up starting their facility," he said. "But we've taken what the PSC offered them and built it into our proposal.

He also said suggestions other ratepayers would subsidize Felman's profitability are "a significant misunderstanding."

Nuss stresses that the costs of Felman's idling have already been shifted to the other ratepayers.

Felman employed about 260 people at its high point in 2012, though by the time the furnaces were idled in July employment had dwindled to 205.

If the special discount is approved, the company would initially restart two of its three furnaces. 

The New Haven plant's published capacity is 105,000 metric tons per year.