Noranda electric-rate case raises novel questions for Missouri

Aluminum producers sometimes say their product is really molten electricity, not metal.

The industry witticism reflects the fact that energy accounts for one-third or more of a smelter’s production costs, and it helps explain why one producer is asking the Missouri Public Service Commission for a 25 percent cut in its electricity rate.

Noranda Aluminum, which operates a smelter at New Madrid in southeast Missouri, is by far the state’s largest buyer of electricity. Its power appetite is roughly equal to the entire city of Springfield, Mo.

Noranda already pays less than any other customer of Ameren, its electricity supplier. It has managed to hold its rate increases to 13 percent since 2002, while residential rates have risen 49 percent.

Noranda certainly deserves a discount for buying in bulk and having a steady demand year-round. Noranda told the PSC last week, however, that its current discount isn’t enough: Without relief, it’s threatening to lay off at least 150 workers and, eventually, maybe close the New Madrid plant.

The threat isn’t an idle one. The aluminum industry has a capacity glut, and a smelter in Ohio closed last fall after its parent company filed bankruptcy. Global aluminum prices have fallen by more than a third since 2011.

Other states have cut deals to save jobs. In Kentucky, residential customers were hit with large rate increases when two aluminum producers were allowed to buy power on the open market instead of from the local utility. In New York, a state agency agreed to provide low-cost power to keep an Alcoa smelter open.

Partly because of those deals, Noranda says its plant has become uncompetitive. It says its electricity costs are the second-highest among nine domestic smelters. It wants to reduce those costs to the industry average.

The rate-realignment case is one of two petitions that Noranda filed with the PSC last week. In the other, it contends that Ameren is earning more than is allowed under the commission’s previous rate orders. It wants the PSC to reduce everyone’s rates by the amount of the alleged overearning.

The overearning case will be highly technical and could take a couple of years to play out. Noranda’s relief request may be decided quicker: It wants a decision by July and has included the rate relief in its earnings projections for the second half of this year.

Noranda’s rate-relief request seeks to move the PSC from its usual regulatory role into the realm of economic development. Essentially, all Ameren customers would be paying a little more for electricity each month — no more than 1.8 percent, Noranda says — so 900 workers in New Madrid could keep their jobs.

That’s not the PSC’s role, argues Warren Wood, Ameren Missouri’s vice president of legislative and regulatory affairs. “This rate shift is really an economic development project funded through electricity rates,” he said. “Projects like this that choose winners and losers should be in the purview of the General Assembly.”

At one level, the request is an argument over numbers. Ameren says Noranda’s proposed price is below its cost of serving the plant; Noranda says it’s not. The two companies also disagree on whether consumers would face higher rates if Noranda were to leave Ameren’s system.

The broader fairness issue, though, shouldn’t be lost in an argument over arithmetic. It doesn’t seem right to make consumers and small businesses — many of whom face tight budgets these days, too — pay more just so the state’s largest power buyer can pay less.