CHARLESTON, W.Va. -- West Virginia utility regulators unveiled a plan Thursday that could help reopen the Century Aluminum plant in Jackson County three years after 650 workers lost their jobs in a down market.
The Public Service Commission will allow what is essentially a complicated layaway plan to help Century cope with the volatile aluminum market.
The plan would let Century reopen its Ravenswood smelter and keep it running through ups and downs in the global metals market by allowing the company to pay different rates based on aluminum prices.
But, importantly, the PSC rejected a Century proposal that would have increased utility bills for other Appalachian Power Co. customers if aluminum prices plunged.
The PSC plan gives Century a way to defer rising costs based on market conditions, but ultimately leaves the plant's owner on the hook to pay a minimum amount to Appalachian by the end of the decade.
Century and Appalachian still have to sign a contract for Thursday's PSC order to mean anything.
Officials at Century did not immediately comment on the 80-page order. But an Appalachian spokeswoman said the company is pleased with the order and can accept the terms so Century can reopen, though Appalachian is still making calculations.
Century's smelter was Appalachian's biggest customer and bought more than 13 percent of the utility's electricity.
Under the plan, Century has to pay a minimum price for power over the life of the contract. But the bill the company has to pay each month will go up or down based on aluminum prices.
"It provides a mechanism that allows Century to make cash payments for electricity that vary on a per (megawatt hour) basis with the price of aluminum," the order said. "This protects Century's cash flow and should provide it with the incentive and ability to restart its Ravenswood aluminum operations."
An expert witness for Century told the PSC earlier this year that aluminum prices would be high enough over the next 10 years so that Century and Appalachian would end up coming out even at the end of a decade-long contract. The PSC is basically asking Century to puts its money where its mouth is instead of shifting the risk to customers if those predictions are wrong.
Byron Harris, the head of the PSC's independent Consumer Advocate Division, said the PSC tried to find a way to make sure Century could reopen and operate while protecting ratepayers from paying more than they already do.
"That's a good thing," Harris said. "But there's no guarantee that Century, even in the parent company, is going to be in business 10 years from now -- I mean, have you ever heard of a company called Kaiser Aluminum -- they're not around. Companies come and go. That parent company guarantee is a good thing, but it's not absolutely perfect in terms of protecting other customers."
Appalachian spokeswoman Jeri Matheney said Century going under is a risk of doing business that the power company was willing to accept.
"We are obviously still evaluating the order -- it's long and we haven't been able to specifically make calculations on what this means -- but for the most part we feel very pleased that the commission reached what seems to be a reasonable plan," she said.
Appalachian is also glad the PSC rejected Century's plan to shift risk to customers.
"Customers should not have to deal with that risk, Century should," Matheney said.
Under a plan Century floated earlier this year, other Appalachian customers could have ended up paying higher rates if the bottom fell out of the aluminum market. The PSC's order nixes that deeply unpopular idea and instead puts Century on the hook for any shortfalls it accumulates.
But if market conditions are good, Century could end up saving consumers money at the end of the decade.
Consumers have been saddled with $20 million a year in higher rates since the plant closed in early 2009. Those rates represent fixed costs for Appalachian's system that someone has to pay whether Century is operating or not.
Under the PSC plan, customers have to keep paying that $20 million a year.
"If Century doesn't open we have to pay that $20 million, if they do reopen we have the prospect of getting some of that $20 million back," Harris said.
But while the PSC spares Century $200 million over the next decade, it also provides a chance for future rate relief. That's because if aluminum prices are high, Century will be paying higher utility rates. Those overpayments could create a windfall to help provide retrospective relief.
Still, the PSC did stick Appalachian customers with one cost that was originally Century's to bear. That's a $22.7 million bill Century ran out on when it closed the Ravenswood plant in 2009.
"We thought that Century should be responsible for that rate and the commission disagree with that," Harris said.
The commission said the rate case was particularly "difficult and troublesome" and filled with "regulatory angst." The commission had to balance a handful of hot potatoes: a plant that was once Jackson County's second largest private employer and utility customers across the state
The PSC case's history is a long one, beginning with the highly publicized layoffs when the plant closed in February 2009 after the global recession caused aluminum prices to plummet. More than 650 workers lost their jobs as a result of the shutdown.
Century filed a petition with the PSC May 11 asking it to approve a new a new, 10-year rate structure that would help it reopen the plant.
When aluminum prices rebounded from their 2009 low of about $1,400 per metric ton to more than $2,000 last year, the company began working tow restart the Ravenswood plant.
But Century officials said they needed to find a way to deal with the biggest cost on their books: electricity.
Power costs represent more than 40 percent of the costs in the aluminum manufacturing process. Aluminum market officials often refer to the commodity as 'liquid electricity.'
The company says it needs a power rate structure that would protect it from sudden swings in commodity prices, like those of 2008 and 2009.
Unfortunately, the cost of electricity in West Virginia has risen significantly since the plant shut down.
Century paid $108 million in electricity costs the year before it closed the Ravenswood plant. If it were to reopen at today's regular industrial power rate, the company would pay $148 million to $150 million.
Century Chief Executive Michael Bless told the Daily Mail in July that aluminum prices would have to stay above $2,500 a ton for the plant to be profitable. However, long-term forecasts put the average price of aluminum around $2,450 over the next decade.
Bless said his goal was to get the plant's power costs back to the $108 million annual range.
The Legislature had already approved in 2010 a bill allowing the PSC to grant manufacturers special power rates tied to commodity prices. Under this kind of plan, Century would pay a lower rate for electricity when aluminum prices are down and a higher rate when they are up.
This year, lawmakers passed a bill that helps lower the company's power bill by giving $20 million in severance tax credits to coal companies that they can pass along to Appalachian Power in the form of lower coal prices which can help APCo lower Century's power bill.
Century's proposal to the PSC used the features of both bills and added other measures to lower its rates. That plan had three basic elements.
The first used $20 million in annual tax credits.
The second would have ratepayers continuing to absorb $17.3 million per year in fixed costs that were passed on to them when the plant closed. APCo shareholders also would contribute about $2.7 million in discounts.
The third part was most controversial. It would shift some of Century's power costs to other ratepayers when aluminum prices were low.
Under the company's original plan, other ratepayers would begin paying higher rates when aluminum prices were in the mid-$2,400 range per ton. But the company came under increasing pressure to change this, especially after aluminum prices fell earlier this year to below $1,800 per ton.
In July, the company altered its proposal the by eliminating a controversial "guaranteed profit" provision, establishing a minimum power rate and extending the time in which the company hopes to recoup the costs of restarting the plant.
The company said those changes would "substantially reduce the risk" to other ratepayers. Critics said the changes were merely cosmetic, and said the proposal is still "beyond the pale of reason."
"The special rate proposed by Century in this proceeding, in both its original and modified versions, attempts to shift far too much of the burdens and business risks properly borne by Century to APCo and APCo's other customers," Appalachian Power said in final filings with the PSC.
During a July hearing in the case, PSC Chairman Michael Albert asked Appalachian Power director of regulatory affairs Steven Ferguson to draft a modified version of Century's plan.
Ferguson's plan would cap the amount other power customers could pay for Century's power bill at $60 million over the first three years of the rate plan while still giving Century some discounts.
Harris also offered a third proposal, which he dubbed the "do no additional harm" plan.
The Consumer Advocate Division's proposal essentially eliminates the third element from Century's plan, eliminating additional risk to other ratepayers, and capping Century's discounts at $40 million per year over the 10-year period.
The case has drawn a significant amount of comment from the general public. As of Wednesday, 124 people had filed letters of protest against Century's proposal with 27 individuals - mostly local political and business leaders - filing letters supporting a special rate plan.
One bit of positive news for Century in recent weeks was a dramatic surge in aluminum prices following efforts by European and U.S. central banks to stimulate their respective economies.
Aluminum prices on the London Metal Exchange surged over 20 percent from their August lows to nearly $2,200 per ton in mid-September. Prices fell back some, but were still trading near $2,100 earlier this week.