Consumer Groups Back Noranda in Fight with Noranda Over Electric Rates

St. Louis Post-Dispatch, March 31, 2014

A dispute between a major employer in the Missouri Bootheel region and St. Louis-based Ameren Corp. is commanding attention from consumer groups, cities and even the world’s largest retailer, creating unusual alliances in the process.
Noranda Aluminum Holding Corp., which operates a smelter in New Madrid that employs 888 people, is seeking sharply lower electric rates, something it says it needs to preserve jobs in an economically depressed corner of the state.

If granted, the rate cut to this one business — from 4.1 cents per kilowatt hour to 3 cents — would raise the cost of electricity by at least 1.8 percent for Ameren’s other customers in Missouri, according to a regulatory filing. The average residential customer pays 10.3 cents a kilowatt hour.

Despite that, some high-profile Missouri consumer advocates are on Noranda’s side.

The reason: Noranda, in a separate complaint with the Missouri Public Service Commission, is accusing Ameren of earning millions of dollars more than the 9.8 percent return on equity allowed by the PSC. The company wants state regulators to order Ameren to reduce rates for all customers.

In the 12 months ended Sept. 30, the amount the utility overearned was at least $29.2 million, according to Ameren’s own reports. Noranda’s consultants assert the amount was even higher, $67.1 million.

Ameren has argued the reports detailing its return on equity are not a complete picture of its earnings, and that Noranda already pays less for electricity than its other customers.

The allegation of overearning surfaced last year. In March 2013, the utility released part of a report that showed its return on equity, a key measure of profitability, was 11.66 percent in 2012 — far above the 10.2 percent it was authorized by the PSC to earn at the time. The difference equaled about $80 million.

Ameren attributed higher earnings in 2012 to some unusual circumstances, including the hottest summer on record.

Consumer groups could have filed a complaint and asked for a rate reduction when the excess earnings were first identified, but they didn’t.

“That takes quite a bit of money to do,” said John Coffman, an attorney for the Consumers Council of Missouri. “No one had the resources to put that together.”

Instead, the consumer groups turned to Noranda, a Franklin, Tenn.-based company controlled by Apollo Global Management, one of the nation’s biggest private equity firms.

Unlike the PSC’s Office of Public Counsel, which advocates for ratepayers, or grass-roots consumer groups, Noranda has the resources to press an overearnings case before the PSC.

Its complaint, filed last month, set off a flurry of activity from lawyers, lobbyists, publicists, advocacy groups, municipalities. Even Wal-Mart Stores Inc. has asked to intervene, although it has not taken a public position on the cases.

The group advocating on behalf of Noranda and consumers is the Fair Energy Rate Action Fund. Charles Skoda, Noranda’s senior vice president of strategic operations sits on the board. So does Joan Bray, a former state legislator who heads the Consumers Council. Jeanette Mott-Oxford, a former state representative from St. Louis who is currently director of the Missouri Association of Social Welfare is a board member, as is the Missouri state director of AARP.

Even though it would mean higher rates for other Ameren customers, the consumer groups have not opposed Noranda’s request for a rate cut. In fact, they have even filed a motion asking the PSC to expedite its review of Noranda’s request to lower only its rates, suggesting a plant closure could hurt other customers more.

The smelter buys roughly 10 percent of Ameren Missouri’s power. If the plant were to close, the drop in demand would have to be made up somewhere, they argue.

“That closure … would cause rates to increase for all Ameren Missouri customers by an amount greater than if complainants obtain their requested relief,” the consumer groups wrote in a filing asking for expedited review of Noranda’s rate reduction request.

A sluggish global economy and rising Chinese production have hurt aluminum prices and spurred producers to trim capacity. On Friday, Alcoa announced it would temporarily shutter a smelter and reduce production at another smelter because of the Brazilian facilities’ operating costs.

Public Counsel Lewis Mills, whose office represents consumers in regulatory matters and was a party in that filing, said there’s a difference between asking for faster review and “being on board” with Noranda’s request for lower rates.

The PSC should review the case quickly, Mills said, because Noranda has threatened to shut down. If that’s true, it could harm ratepayers.

“If the commission does not act expeditiously, it will be the same as not acting at all,” Mills said.

Mills, though, said there’s a chance Noranda’s overearnings complaint could help consumers more than the company’s rate reduction request would hurt them. Still, his office hasn’t staked out a position on the smelter’s rate filing yet.

Chris Roepe, executive director of the Fair Energy Rate Action Fund, said there is no conflict between Noranda and the more consumer-oriented members of the group.

“The fact is all consumers’ rates are going to go up higher if Noranda has to buy energy on the open market or they have to close their doors,” Roepe said. “That would be a very bad thing for consumers.”

One of the parties that has taken a position on Ameren’s side, the office of St. Louis Mayor Francis Slay, also says consumers will be hurt, but for the opposite reason.

In a letter sent last week to the PSC, City Counselor Michael Garvin wrote that Noranda’s request to reduce its rates would increase consumer rates by “more than 2 percent per year for the next decade” and cost city coffers $3 million over 10 years.

Irl Scissors, director of Missourians for a Balanced Energy Future, a utility advocacy group that generally pushes bills beneficial to Ameren, criticized the consumer groups’ work with Noranda. In effect, he said, they’re endorsing a rate increase on their own members.

“It is shocking and it is indefensible that some of these groups would just walk lockstep with whatever Noranda requests,” he said.

But Mott-Oxford said her goal and the coalition’s objective is to hold down utility rates.

“You don’t have to agree with people about every single thing that they do if you have a common goal,” she said.

Noranda’s request for a special rate case is nothing new — companies ask for incentives and special treatment all the time, Mott-Oxford said. She doesn’t celebrate it, but to hold down utility rates, her organization has found more success within a coalition than acting alone, she said.

“Who would you sit down with if you had to examine everyone’s life for absolute purity?” she said.

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