Felman plant faces tough sell
Appalachian Power customers now have another case to worry about that could affect their electricity rates.
Yesterday, we reported about Felman Production's application to the state Public Service Commission seeking up to $9.5 million in annual power discounts to help keep its New Haven plant open.
Felman, which produces a steel additive ingredient called silicomanganese in its three towering 3,000-degree electric arc furnaces, is proposing the power company pay for the discounts by shifting the cost onto other ratepayers.
The company says the $9.5 million discount would cost the average customer about 55 cents more on their monthly bill.
The power rate would be tied to the price of silicomanganese and other raw materials. When prices are low - which they are right now - the company's rate would go down, when prices rise, the company would pay more and (hopefully) give consumers a slight break on their bills.
The scheme is similar to the one Century Aluminum unsuccessfully pitched to the PSC last year. (By the way, Felman's PSC case was filed by Bowles Rice attorney James Kelsh, who also represented Century in its case last year.)
However, power costs aren't the company's only problem.
The Felman plant is 61 years old, and has changed hands several times over the years, as owners have gone into bankruptcy or sold off the plant to other companies. Felman, a subsidiary of Georgian American Alloys, Inc., spent $20 million to buy the plant from bankrupt Highlander Alloys in 2006.
According to the company's filing with the PSC, Felman has failed to turn a profit in the seven years since it bought the New Haven plant.
"The financial performance has been dismal," Barry Nuss, chief financial officer at Georgian American Alloys, said in written testimony filed with the PSC.
Part of the loss was due to increasing power rates, which account for 20 percent of the company's costs. But inefficient equipment has also played a part.
The company said the equipment was in a state of disrepair when the plant was purchased in 2006. Since then, Felman has had to spend more than $54 million in capital improvements at the site.
The company is also being hurt by competition from manufacturers in countries like India, Kazakhstan, and Venezuela. It's asked the International Trade Commission to renew anti-dumping duties designed to protect domestic producers from potential unfair trading practices by international competitors.
The other headwind is the current global oversupply in the steel markets, which has driven commodity prices down for steel and steelmaking components, including coal and additives produced at plants like Felman.
The company contends it needs the special power rate in order to remain competitive until the market returns to normal.
However, as they did in the Century case, critics will argue the state shouldn't force residential power customers - who have already been hit with significant increases in their power bills - to subsidize a company that can't turn a profit on its own.
Felman will face a tough sell to convince the public its plan represents a worthwhile investment.