PSC Lands Double Blow on Consumers in 2 Electric Rate Cases, Sides with Ameren

St. Louis Post-Dispatch, October 1, 2014

In dual victories for Ameren Missouri, Missouri regulators dismissed on Wednesday an overearnings complaint against the utility and a request from Noranda Aluminum to reconsider its case for a lower electric rate.

The Missouri Public Service Commission’s order denied the southeast Missouri smelter’s rehearing request in a case that began in February. The smelter initially sought a rate that would lower its $170 million annual power bill by about $50 million a year, but the state’s consumer advocate later proposed a compromise after the PSC indicated it would reject the original request.

Noranda and the Office of Public Counsel sought a rehearing so the PSC could more fully consider the compromise proposal, which would have reduced Noranda’s rates by about 16 percent rather than nearly 25 percent. A lower rate for Noranda would likely have led to higher rates for Ameren’s other customers.

PSC Chair Robert Kenney urged the parties to present their compromise proposal when hearings begin early next year on Ameren’s ongoing rate case.

“There is an opportunity in the rate case to present those intriguing proposals yet again and the parties are encouraged to do that,” he said.

Noranda Aluminum is Ameren Missouri’s largest customer, and it already pays a lower rate for electricity than other, smaller customers. Ameren asked the PSC in July to raise rates on all of its customers by 9.7 percent.

Noranda has argued it faces a liquidity crisis and that it needs a lower electric rate to conserve cash or it will be forced to close. In early September, it announced it would lay off 125 to 200 people over the next six months while it waited for the PSC to reconsider its rate request. A more favorable ruling, Noranda said, might allow it to save some of those jobs.

While Noranda initially argued it would be forced to close without a lower rate, aluminum prices have recovered in recent months as warehouse stocks and global production fell. Bloomberg reported Wednesday that consumption of the metal is expected to exceed production by 806,000 tons this year. Last month, Goldman Sachs upgraded Noranda to a “buy” rating from neutral, and its stock has risen by about 20 percent over the last three months.

The company said it “vigorously pursue” the public counsel’s compromise proposal during Ameren’s general rate case.

“Unfortunately, since rate relief from that path, if any, would not under normal circumstances be effective until June 2015 it will likely be too late for the 125 to 200 employees whose jobs will be lost based on the PSC’s decision,” Noranda spokesman John Parker said in an email.

The PSC also formally denied an overearnings complaint from Noranda and consumer groups that had the potential to lower bills for all customers. Commissioners last month indicated they were unconvinced Ameren had earned above its allowed return.

Consumer groups cited quarterly surveillance reports, which indicated the utility was earning above its allowed return on equity, or profit.

While the PSC and its staff did not dispute the figures, they said those reports measure earnings differently than a cost of service study conducted to set rates. Utility earnings sometimes rise above allowed earnings, but the PSC pointed out times in the last several years when earnings have fallen below the allowed rate of return.

The surveillance reports also don’t take into account ongoing spending, such as environmental controls at Ameren’s Labadie power plant and solar rebates. A more comprehensive study adjusts earnings for one-time costs such as abnormally hot or cold seasons.

“Failing to consider all relevant factors when adjusting a utility’s rates is condemned as single-issue rate making and is generally prohibited in Missouri,” the commission said in its order.

The commission also voted to keep the latest surveillance report confidential. Noranda and its allies had requested it be made public, which the PSC had done for past reports during the overearnings case. Now that the case is closed, though, “there is no reason to set aside the provision of the rule that makes the surveillance report highly confidential,” the PSC said in its order.