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Aleris to fight proposed electricity rate hikes

Oct 11, 2013 | 06:41 PM | Michael Cowden

Tags  Aleris, Kentucky rate hikes, Big Rivers Electric, Sharla Austin-Darnell, electricity, rate increase, Century Aluminum, Rio Tinto Alcan Kentucky Public Service Commission

CHICAGO — Industrial power users in Kentucky are bracing for a series of electricity rate increases from power supplier Big Rivers Electric Corp., according to Aleris International Inc.

A first rate increase, which is being considered by the Kentucky Public Service Commission (KPSC), would see industrial consumers hit with a 25-percent increase, a spokesman for the Cleveland-based aluminum company said in an Oct. 11 e-mail to AMM.

Aleris alleges that Henderson, Ky.-based Big Rivers is looking to boost rates after "failed negotiations" saw two smelters seek power on the open market.

"Big Rivers is now trying to pass on the cost of unnecessary power plants and power generation to its remaining customers, which includes Aleris and other large industrials," the spokesman said.

Aleris and these other large industrial players are participating—via an intervener organization, Kentucky Industrial Utility Customers (KIUC)—in a review process overseen by the KPSC, the spokesman said. "Together we have testified before the KPSC to educate the commission on the potential impacts of the first rate increase and have suggested a more balanced approach," he said.

Asked whether Aleris’ operations in Kentucky would be impacted, the spokesman said there would be no affect on its Morgantown operations. However, he did not mention Aleris’ Lewisport, Kentucky facility.

"Cost-competitive and predictable electricity rates are critical to the overall performance of our operations," he said. "At this point, we do not expect any changes in plans for our operations in Kentucky, but we will continue to monitor this issue and raise awareness about the potential negative impact these rate increases could have on the local economy."

The Morgantown facility makes recycled secondary ingot and molten aluminum, according to Aleris’ website. The Lewisport facility makes aluminum rolled sheet for a variety of industries.

Big Rivers served Chicago-based Century Aluminum Co.’s smelter in Hawesville, Ky., and continues to serve its smelter in Sebree, Ky., with both smelters accounting for about 64 percent of the utility’s load, Big Rivers’ director of risk management and strategic planning Sharla Austin-Darnell said in an Oct. 10 e-mail to AMM.

The Hawesville smelter began receiving power from other suppliers Aug. 20 after giving a 12-month power termination last year, Austin-Darnell said. The Sebree smelter, formerly owned by Montreal-based Rio Tinto Alcan Inc., has also given its 12-month notice and plans to terminate its power contract with Big Rivers effective Jan. 31, 2014, she said.

The departures will result in an annual revenue loss of $360 million for Big Rivers, Austin-Darnell said. As a result, Big Rivers has undertaken "drastic cost-cutting efforts," including reducing staff, refinancing debt, renegotiating fuel contracts and making plans to idle one or more generation facilities, she said.

But Big Rivers still stands to lose about $115 million in revenue after the cost-cutting measures, which is why it is seeking rate increases from the KPSC, Austin-Darnell said. The first rate increase, amounting to $74.5 million, was implemented when Century’s Hawesville smelter left Big Rivers for the open market, and a second rate increase will be delayed until July 2014 for industrial customers, she said.

The KPSC isn’t expected to decide on the first rate increase for several weeks, Austin-Darnell said.

A KPSC spokesman said Big Rivers’ rate increase amounted to only 17 percent, noting that the utility is permitted by statute to implement it before the commission’s final decision, which he confirmed is expected in the coming weeks. If the commission awards a lower rate than that already in place by Big Rivers, over-collections will be subject to refund with interest, he said, adding that the second proposed rate increase is of a similar magnitude. No decision on it is expected until January.

Big Rivers has been left with "substantial excess generating capacity" after the Hawesville smelter sought market power in August and the expected departure of Sebree to do the same in January, the KPSC spokesman said. "The revenue losses are too large to be entirely offset by closure of generating facilities—hence the rate increase applications," he said.

Aleris is one of three large industrial ratepayers represented by the KIUC that has opposed increases of the magnitude sought by Big Rivers, the KPSC spokesman said. The other two are paper mills, he added.

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