Missouri's largest electric consumer told state regulators Monday that it needs a significant rate reduction from the state's largest power company in order to spare the jobs of hundreds of employees at an aluminum smelter in southeast Missouri. But if a rate cut happens, the cost could trickle down to residential customers.
Missouri's largest electric consumer told state regulators Monday that it needs a significant rate reduction from the state's largest power company in order to spare the jobs of hundreds of employees at an aluminum smelter in southeast Missouri.
Noranda Aluminum Inc. is seeking a more than one-quarter percent rate cut for electricity used at its New Madrid smelter while suggesting that Ameren Missouri should be allowed to offset the lost revenues by charging higher rates to its other 1.2 million electric customers.
The Missouri Public Service Commission, which regulates publicly traded utilities, heard arguments Monday from attorneys representing Noranda, Ameren and others whose electric rates could be affected, including advocates for residential consumers, cement manufacturers and the world's largest retailer, Wal-Mart Stores Inc.
Noranda employs 888 people at its New Madrid aluminum smelter. Electricity accounts for about one-third of its production costs. The company wants not only an immediate rate cut but a guarantee that its rates will rise by no more than 2 percent annually over the next decade. Without rate relief, Noranda said it expects to lay off 150 to 200 employees this year and could eventually have to shut down the smelter.
"The smelter is crucial to Missouri's economy, and an economic disaster would result from its closure," said Noranda attorney Diana Vuylsteke.
Ameren attorneys questioned whether Noranda's financial straits really are dire and, if they are, suggested that was due partly to decisions by the company's investors. Ameren opposed the rate shift as a "radical departure" from state regulatory law that would lead other big businesses to seek similar special rate reductions.
"What they're asking you to do is illegal," said Ameren Missouri attorney Wendy Tatro.
Millions of dollars are at stake in the dispute, though there is no agreement on the precise amount.
Noranda contends its request would shift $48 million of electric costs annually from it to other Ameren customers. But if the aluminum smelter closes, Noranda contends the costs to other consumers will be even higher — a total of $55 million annually — for Ameren to maintain its allowed earnings.
By contrast, the staff for the Public Service Commission projects that Ameren's other customers would be better off without Noranda. It estimates that customers would pay nearly $28 million more annually under Noranda's rate-shift proposal than if Noranda simply shut down its smelter or obtained its electricity from some other supplier.
A decision on Noranda's rate request is not expected until Aug. 6.
By then, the PSC also will have heard testimony on another dispute involving Noranda and Ameren. In that case, Noranda is arguing that Ameren is earning more than allowed by state regulators and that rates should be reduced for all customers.
The case heard Monday is unusual, in part, because Noranda is essentially asking the PSC to set its electricity rate based on its ability to pay rather than on Ameren's cost of providing service.
Dustin Allison, who recently was appointed by Gov. Jay Nixon as the state's official consumer advocate in utility cases, took no position on whether Noranda should be granted a rate reduction. But if it is, Allison said Ameren should bear the costs instead of shifting them to other customers. If Noranda is granted a lower rate, Allison also suggested that the aluminum company should be required to maintain certain employment levels, make at least $100 million of annual capital improvements to the smelter and agree not to pay dividends to investors.
Consumer advocates expressed sympathy both toward Noranda's financial plight and that of other Ameren customers who could have to pay more if Noranda pays less.
"Residential consumers are getting squeezed by two giant corporations here. It's really hard to look at this and know the right way to go," said John Coffman, an attorney for the Consumers Council of Missouri.
An attorney for Wal-Mart said the retailer didn't oppose Noranda's rate request.
But an attorney for Continental Cement Co. , which employs 228 people at a Hannibal plant, said it "would be fundamentally unfair" for its electricity rates to rise so that Noranda could receive a rate cut.