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Felman revises special rate proposal

CHARLESTON, W.Va. -- Felman Production executives say a new special power rate proposal offered for the company's New Haven plant more closely mirrors a plan approved last year for aluminum maker Century Aluminum.

The company also feels the alternative plan, drawn up during a state Public Service Commission hearing earlier this month, provides more benefit to consumers than if the company permanently shuttered its Mason County facility.

"We believe that it's fair and reasonable and what's needed to restart the plant and sustain it during tough times in the market," said Barry Nuss, chief financial officer for Felman and its parent company, Georgia American Alloys.

Felman approached the PSC earlier this year, asking regulators to approve a 10-year special power rate for the steel additive manufacturing plant.

Felman is one of two domestic producers of silicomanganese, a deoxidizer that allows steel companies to produce a purer product. It's made by taking three raw ingredients and heating them to 3,000 degrees Fahrenheit in an electric arc furnace.

The plant shut down earlier this year because of poor market conditions. The company is working to determine if the shutdown will be temporary or permanent.

Because electricity represents 20 percent of production costs, Felman said it needs a more favorable power rate (its rate has risen about 45 percent since 2008) to compete globally.

The initial proposal would have allowed the plant's power rate to float based on the costs of its raw materials -- manganese ore, coke and coal -- and the selling price of silocomanganese.

The proposal would have offered the company up to $9.5 million in annual discounts on its power bill. That figure comes from the amount Felman has been paying each year to cover Appalachian Power's fixed costs of providing it with electricity.

Should Felman shut down permanently, those costs would be shifted to other ratepayers, so company officials said their plan left consumers no worse off than if the plant shut down forever.

Appalachian Power, the PSC's Consumer Advocate Division, and state manufacturing groups opposed the plan, saying power customers should not be forced to subsidize a private business.

During a hearing in the case on Dec. 10, Nuss testified the company would be willing to revise its proposal to help allay some of the group's concerns. Attorneys met to negotiate the following morning but were unable to reach an agreement.

"We didn't come out of that with an agreement, but we came out of it understanding some of the concerns that were being expressed by the others," Nuss said in an interview earlier this week.

"So we went and revised our proposals somewhat to address some of those concerns," he said.

The revised plan eliminated a return on investment provision for Felman shareholders that was in the original proposal. It also removed an aspect of the plan that allowed Felman to carry over available power discounts from one year to the next.

Both of those provisions were key complaints of the industrial and consumer representatives.

Felman also agreed to contribute at least $500,000 to Appalachian Power's annual fixed costs under the new plan. That, Nuss said, means ratepayers could still be slightly better off even if Felman took the entire remaining $9 million discount in a given year.

The company also revised the plan to incorporate a rate mechanism crafted by commissioners as part of their Century Aluminum special power rate case last year.

While the Century case allowed that company's power rates to float in line with commodity prices, it also established a baseline minimum charge that the company would be responsible for paying in a given year.

The commission then set up a "tracking account," so that if the floating rate fell below the minimum rate in a given year, that deficit would be pushed over into the tracking account. At the end of the 10-year contract, Century would be responsible for paying whatever deficit (or surplus) had accumulated in that account.

This system was designed to prevent pushing any more costs onto ratepayers.

Felman's alternative plan works in a similar fashion.

If prices remain low, the company could get additional discounts that it would pay off at the end of the special contract. If prices go up during the contract, the company would pay a premium on its power rate, and that premium would also accumulate in the tracking account.

If at the end of the contract there is a deficit in the tracking account, Felman would pay it off.

If there were a surplus, the first portion of it would go to pay ratepayers back for any of the fixed cost discounts they had to absorb during the special rate plan. Once those costs are covered, any remaining surplus would be split between Felman and ratepayers.

During the PSC hearings, West Virginia Energy Users Group analyst Richard Baudino said the revised proposal was a "step in the right direction" but said it still offered the company a great deal of discounts that he did not believe were necessary.

Nuss said the new proposal is even more in line with what the PSC has approved in the past and said it would allow the company to begin restarting its furnaces and recalling about 200 laid-off workers.

"We put forward the best proposal we could put forward," Nuss said. "We want to preserve those jobs, and that means you have to be able to operate when markets are tough. I think what we've put forward allows us to do that."

Attorneys still have to file post-hearing briefs in the power rate case. Once they do, which could take until mid-January, the PSC will begin the process of crafting a final decision in the case.

Contact writer Jared Hunt at business@dailymailwv.com or 304-348-4836.


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