Energy tax plan benefits Century Aluminum for re-start

The $20 million tax credit package meant to help restart Century Aluminum's Ravenswood plant had some lawmakers scratching their head at the complexities, but architects of the plan said it was the only way to get it to work.

For starters, Century Aluminum doesn't get a dime of the credit - even though the bill was nicknamed the "Century Aluminum tax credit" by some legislators.

Officially dubbed the "Energy Intensive Industrial Consumers Revitalization Tax Credit," the credits actually will go to coal companies.

Why didn't the state just give the money directly to Century?

That wasn't the kind of relief the company was looking for.

"The credit was never conceived of or envisioned as a tax credit for Century Aluminum, but rather represents an effort by the state to help bring down the cost of electricity in certain market conditions," said Tom Heywood, a lobbyist for the company.

Century's single largest cost by far is electricity.

When it was at full capacity, the Ravenswood plant consumed 325 megawatts of power every hour while its four potlines heated raw alumina to more than 1,800 degrees Fahrenheit.

That equals the amount of energy used to power roughly 325,000 homes.

When it was open, Century's power needs represented about 10 percent of Appalachian Power's total demand in the state.

The price of electricity has gone up about 40 percent since the last time the Ravenswood plant was open, according to a recent report from the Public Service Commission's Consumer Advocate Division.

Recent federal Environmental Protection Agency regulations regarding mercury, sulfur dioxide and other toxic air emissions also have company officials worried.

"We expect that future electric power costs in the U.S. will present severe challenges to our domestic smelting operations," company officials said in the annual earnings report to the U.S. Securities and Exchange Commission.

Century officials said the new rules could have a disproportionate impact on the power supply to their plants in Ravenswood, Hawesville, Ky., and Mt. Holly, S.C., by forcing local power suppliers either to close coal-fired plants or to invest in significant improvements.

"The reduced power generation capacity and the additional compliance costs are forecasted to put upward pricing pressure for electrical power, particularly in areas with high concentrations of coal-fired power generation facilities like Kentucky and West Virginia," the report said.

Century has been working with power suppliers and state lawmakers over the past few years to find a way to combat those increasing costs.

In 2010, the state Legislature passed a bill that would let Appalachian Power adjust the company's power rate as the price of aluminum fluctuated.

But the company needed a cushion in case aluminum prices plummeted as they did in late 2008.

That price collapse is what led the company to shut down the Ravenswood plant in February 2009. More than 650 people lost their jobs.

What they came up with, and what the Legislature approved earlier this month, was the $20 million tax credit.

Under the complex system, the state Public Service Commission is allowed to allocate up to $20 million of severance tax revenues each year to use for tax credits to coal companies selling coal to power suppliers.

The coal companies are required to pass along 97 percent of the credit's benefit to the power company, and the power company would be required to pass along the benefit to high-energy industrial consumers like Century in the form of lower cost electricity.

The industrial consumer must employ more than 300 people and create 150 jobs through use of the lower power rates.

Heywood told lawmakers earlier this month that Century was planning to hire 450 people when the plant restarts. He said additional workers would be hired in later months.

Why did the credit go to coal companies instead of the power company?

There was a lack of tax liability to credit.

While power plants do pay a business and occupation tax to the state, they don't pay enough to rebate $20 million back to the plants.

Plus, plants already are receiving credits on that tax to conduct upgrades like installing emissions scrubbers at the John Amos plant in Poca.

The only remaining stream of tax revenue officials could tap for the $20 million rebate program was the coal severance tax.

"It's a place where there's a lot of tax coming into the state," said Appalachian Power spokeswoman Jeri Matheney.

"It was just an appropriate place to lodge that discount for Century; this way it reduces their cost of doing business on an ongoing basis."

State Deputy Revenue Secretary Mark Muchow called the tax credit program "a wash," saying the state would make up for the $20 million in other areas.

He cited a 2007 Economic Impact Study by the West Virginia University Bureau of Business and Economic Research that found Century accounted for $5.9 million in direct taxes to the state.

Muchow also said the state would benefit from the additional 2 million tons of coal that would be mined and sold each year to fuel Century's power demand.

"These coal sales could generate roughly $9 to $10 million in additional severance taxes and related fees each year," he said.

Muchow said the various other state and local taxes, including income taxes, franchise taxes, sales taxes, excise taxes and local property taxes also would offset the tax credit.

Heywood said a tax program like this could help other manufacturers struggling to cover rising utility costs and avoid job cuts.

"There are very solid public policy reasons to help keep the costs of electricity affordable for our largest industrial consumers, and many, many benefits to everyone in West Virginia from our doing so," he said.

Kentucky lawmakers are studying West Virginia's strategy to see if it would help the aluminum plants in their state.

Last week, Ravenswood Mayor Lucy Harbert joined Century officials, union and other industry representatives in testifying before the Kentucky House of Representatives' Economic Development Committee.

Century officials discussed the ways West Virginia has acted to ease power costs. Harbert testified about what happens if a solution can't be found.

"I spoke from the heart and told them they've got keep these good jobs," she said. "These are jobs that people can use to buy homes and send kids to college. We don't have very many of them in this country anymore. They're sending them all overseas.

"The EPA and all these other regulations are really hurting us here," she said. "I just told (Kentucky legislators) they need to find a way to help any way they can."

The Kentucky Legislature later approved using $200,000 in coal severance tax funds this year to study the effects of utility rates on Kentucky's aluminum industry.