Century alters its power rate proposal

Saying it would "substantially reduce the risk" to regular ratepayers, Century Aluminum officials have changed some key aspects of a power rate proposal pending with the state Public Service Commission.

In testimony filed with the PSC last Friday, the company removed a controversial "guaranteed profit" provision, established a minimum power rate and extended the time in which the company hopes to recoup the costs of restarting its shuttered Ravenswood aluminum smelter.

While the new proposal wouldn't eliminate the possibility of other Appalachian Power customers subsidizing the plant's power costs when aluminum prices were low, the changes are designed to reduce the costs customers might have to absorb.

One company official said the new plan makes it possible for customers to avoid picking up any tab for Century at all.

"Century believes that any near-term deficits can be carried by APCo and will be eventually netted out without any actual rate increase to APCo's customers," Century North American Vice President John Hoerner said in the filing.

Century is working with the PSC to formulate a new power contract that will help the company restart its Ravenswood plant. The plant closed in 2009 after the global recession triggered a sharp drop in aluminum prices.

More than 650 workers lost their jobs in the shutdown.

The company's goal is to come up with a rate structure that would protect it from dramatic aluminum price swings like those of 2008 and 2009.

The state Legislature already has approved up to $20 million in tax credits that can be used to help lower Century's power rate. The company's proposal also would have ratepayers continuing to pay more than $17 million in fixed costs that were passed on to them by Appalachian Power when the Century plant closed.

But the most controversial portion of the plan calls for other ratepayers to pick up a portion of the company's power costs should aluminum prices fall below a certain level - originally about $2,447 per ton.

The original proposal also included a guaranteed profit margin for the company of $200 for each ton of aluminum produced. The original plan also had no floor in the power rate Century could pay - meaning there could be circumstances under which the company would pay nothing for power.

Appalachian Power officials responded to Century's original request by saying costs to consumers could be "staggeringly high" if it were approved.

As of Monday, 85 people had filed letters of protest. Most of those protests were private citizens who objected to the idea of paying the company's power bill.

The changes are meant to assuage some of the concerns over Century's original plan.

"Century understands that other ratepayers and APCo are concerned in the current economic environment with the potential for additional rate increases," Hoerner said.

"The modifications substantially reduce the risk to other ratepayers," he said.

A key change was the elimination of what critics called the "guaranteed profit" provision in the original proposal.

Century's original plan called for the company to net a $200 profit on each ton of aluminum sold. The company said that margin was needed to help finance the projected $90 million restart of the Ravenswood plant.

Under the new plan, when aluminum prices fell below $2,200 per ton, the profit margin would begin to shrink. If prices fell to $1,800 - about $100 less than the current trading price - the profit margin would drop to zero.

The new plan also would set a minimum power rate of $10.50 per megawatt hour that the company would pay once prices fell below $1,500 per ton - although the company does not expect prices to go that low.

The company also extended the period during which it wanted to recoup the $90 million in up-front investment for restarting the plant from three to five years.

The changes would cause the company to pay more and other power customers to pay less when aluminum prices were low, as compared to the original proposal.

Under the new plan, if aluminum prices stayed at $2,100 for the first few years, Century would pay $19.8 million more each year than it would have under the old plan.

The level at which other consumers would start chipping in on power costs is about $100 per ton less under the new plan.

Century officials believe the revised plan is the best they can do to make the restart of the Ravenswood plant a viable investment option.

"I want to emphasize this point - Century's modified special rate proposal provides the absolute minimum rate support and flexibility that is needed to justify a recommendation that Century make the investments necessary for restarting the Ravenswood smelter at current LME prices, which are below $1,900 (per ton)," Hoerner said.

"Without this minimum level of support, the smelter will simply not restart at this time with all the consequential financial impact to our retirees, potential new employees, our community, and the state," he said. "Delay would only make restart more difficult."

The PSC will hold formal hearings on Century's rate proposal next week in Charleston.