Some wonder whether Century Aluminum will reopen WV plant - Business, Government Legal News from throughout WV

Some wonder whether Century Aluminum will reopen WV plant

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The only thing holding Century Aluminum back from restarting its smelter plant in Ravenswood, if the company's statements are to be believed, is a flexible electricity rate.

But with mounting public opposition to the company's May 11 rate request with the West Virginia Public Service Commission, some may wonder if the Jackson County plant will ever reopen.

"The mood in Jackson County is one of apprehension," Delegate Mitch Carmichael, R-Jackson, said June 10 on "The State Journal's Decision Makers," a weekly public affairs show produced by West Virginia Media, The State Journal's parent company.

"At the end of the day, we are trying to open this plant at a time when aluminum is bad," Carmichael said. 

"But this is a scenario that will bring jobs, and I think it makes great economic sense."

The Road to Reopen

Century Aluminum ceased operations in 2009. It left 650 unemployed workers, numerous local foreclosures, underfunded city services and a frequently empty food bank in its wake.

"Everyone in Ravenswood and the surrounding area knows that there is nothing more important to the future of our community than the restart of the Ravenswood smelter," said Ravenswood Mayor Lucy Harbert in a May 11 testimony to the PSC on behalf of Century.

"The economic impact went well beyond the loss of the smelter jobs," she said. "Several local businesses that provided services or materials to the smelter closed or were forced to lay off employees."

Harbert also said in her testimony the community was excited after the West Virginia Legislature made moves this spring to facilitate an arrangement with Century, Century retirees whose health benefits were cut a few years ago and a severance tax credit structured to give Century a boost.

After the law was passed, Gov. Earl Ray Tomblin issued a statement that said the tax credit and required payment program was designed to enhance the prospects of restarting a large, energy-intensive manufacturing facility.

"In a matter of hours, the economic outlook for Jackson County exploded with potential due to the retiree agreement and, now, state legislation designed to help Century Aluminum reopen and put hundreds of West Virginians back to work," Tomblin said in the news release March 16. "The revitalization of Jackson County's manufacturing industry with jobs, benefits and confidence [means] that better days are on the horizon. I am eager to see the first shift report for work at Century Aluminum."

What Century Needs

During a quarterly conference call April 24, Century President and CEO Michael Bless said the cost of a restart at Ravenswood would be $80 million, and about half of that amount would be to build the working capital needed for a restart.

He said it had been a "very busy" quarter in Ravenswood, and there were a couple of reasons Century thought restarting the plant in Ravenswood "could be a very good investment for our shareowners," Bless said, according to a transcript of the call from SeekingAlpha.com, a stock market analysis website.

In the call, Bless pointed to a market environment he described as conducive to reopening in Ravenswood. 

He also said the physical plant in Ravenswood is in "reasonably good shape," and he said the company has been "spending to maintain the plant in reasonably good order, ready for a restart."

Bless said in the call that Century has "great support in the local community from all the constituencies" and a "very good work force in the local area ready to go."

At the time, Century had not yet filed its rate request with the PSC, but Bless said during the call that a plan was coming "to develop a special rate and a structure that will protect the plant in weak environments."

"Ultimately as I said, we've got to get the power situation right in order to put our sales in a position to be able to restart that plant," Bless said in the call, according to SeekingAlpha. "But it also goes without saying that along with the power, we need an economic environment and commodity price environment that will be conducive to the restart of that plant, so we'll obviously be watching the market carefully here as we go forward over the next couple of months."

In testimony to the PSC on Century's behalf, John Hoerner, vice president of North American Operations for Century Aluminum, said all companies have to build profits into their planning.

"Simply put, Century will not restart Ravenswood — nor in my judgment would any other owner restart a comparable facility — without a margin of at least $200/MT," Hoerner said.

What the Rate Request Means

When Century filed its 10-year rate request May 11, several stakeholders said they were surprised at the amount of help Century said it needed to reopen the Ravenswood smelter.

Century's request proposes a rate for electricity that is tied to the London Metals Exchange-based rate for aluminum, something the PSC granted in 2006.

Henry Fayne, a consultant for Century, testified on behalf of the company to the PSC as part of the rate request. Prior to becoming an energy sector consultant, Fayne worked for American Electric Power, or AEP, the parent company of Appalachian Power. He retired in 2005.

"The LME-indexed rate is the amount that Ravenswood can afford to pay for electricity at various LME prices to produce a net margin of $200/tonne after covering its other cash expenditures, including restart expenses," Fayne said in his PSC testimony. 

Fayne said Century's proposal relies on three separate layers of rate support.

"Century expects that initially it may need to utilize all three tranches," Fayne said in his PSC testimony. "The special rate is designed so that the $20 million annual tax credit, the $17.3 million annual fixed costs that are now being absorbed due to Ravenswood's curtailment and Century's proposed $2.7 million annual contribution from (Appalachian Power) are always available."

Where it Hits the Pocketbook

The part of Century's proposal that some people are calling an over-reach is the third layer of support that would come from the electric bills of all other Appalachian Power customers.

When Appalachian Power filed its response to Century's request with the PSC, it cited a real-life example using the May 30 LME closing price of $1,957 per MT.

"At that price level for aluminum, the average residential ratepayer would be facing a $12.65 increase in his monthly electric bill to support the special rate proposed by Century," reads the response. "APCo was not willing to agree to a special rate in these discussions unless it left APCo's customers no worse off than they would be if Century did not restart."

According to the PSC testimony of Robin Adams of CRU International Limited, who testified on behalf of Century, the LME rate on aluminum that would spare all other ratepayers from subsidizing Century Aluminum's electric bill is $2,457/t.

"I have reviewed calculations supplied to me by Century Aluminum that demonstrate, under steady state operating conditions and taking into account various tax incentives, there will be a zero net impact on other ratepayers at an aluminum price of $2,457/t," Adams said in his testimony. "I consider that it is substantially more likely that power prices will go down rather than up in the coming decade." 

Appalachian Power Director of Communications Jeri Matheney said Century's proposal has no floor or minimum price it would pay for electricity, which could potentially result in an unlimited subsidy from all other ratepayers. 

"We don't know what could happen after that 10 years, and this proposal doesn't have any provisions for Century to make further improvements to their facilities," she said. "They have said themselves the facility is old and obsolete. They would just be getting as much profit out of it as they could."

At the end of May, the West Virginia Supreme Court of Appeals upheld the state tax commissioner's 2010 appraisal of Century's Ravenswood plant, denying Century's argument that the value should have been lower.

Century argued in that case the tax department failed to take into account functional and economic obsolescence for assets other than machinery and equipment.

Hoerner, the Century VP, said in his PSC testimony that depending on the future price of aluminum over the next 10 years, ratepayers could enjoy lower rates as a result of the restart of Ravenswood.

"Consequently, under the rate formula, on average during the steady state period, the special rate will produce no significant burden on other customers as compared to Ravenswood not operating," Hoerner said.

A Timely Request

"Century is working energetically to restart one of its four potlines in the fourth quarter of 2012 with the other potlines to be restarted sequentially in the first half of 2013," Century Aluminum's rate request reads. 

The rate request also was accompanied by a motion for expedited treatment "because Century is desirous of being able to committing in September to restart the Ravenswood Plant no later than December of this year."

During a June 10 appearance on "The State Journal's Decision Makers," Tomblin's Chief of Staff Rob Alsop said the timing and the price of aluminum may be working against Century Aluminum.

"I think Century is looking to restart," he said. "But you can't unreasonably burden other ratepayers."

As of June 13, six letters in support of Century Aluminum's rate request had been filed with the PSC. However, 22 letters of protest had been filed from residents throughout Southern West Virginia.

Looking Ahead

In Appalachian Power's response to Century's rate request, the power company stressed that it wanted Century Aluminum to reopen.

"APCo is in no position to challenge the sincerity of Century's position or the accuracy of its economic calculations about what it and its investors need to restart the Ravenswood plant," the response reads. "But, if one assumes that Century needs every penny of potential subsidization, of guaranteed profit and of insulation from business risk that it says it needs, a major public policy question remains to be decided: is the game worth the candle?"

Appalachian Power's response repeatedly touches on the long-term viability of the plant.

"For the Century restart proposal to achieve the objectives of the Energy Intensive Industrial Customer Revitalization Tax Credit Act, the result needs to be a thriving Ravenswood plant, competitive over the long term, not merely the assurance to Century's owners of a final decade of guaranteed profits from an aging and outmoded facility until the public subsidy comes to an end and the plant's doors are shuttered for good."

Matheney reiterated that Appalachian Power has tried to work on solutions to get Century the power it needs without burdening other ratepayers, such as interruptible service or not running all the potlines if there is an especially high energy load.

Century announced June 11 that its wholly owned subsidiary, Century Anodes B.V., entered into a definitive agreement to purchase substantially all of the assets of a Dutch anode production facility. The former Zeeland Aluminum Co. known as Zalco, currently is curtailed. The Associated Press said the transaction was valued at $12.5 million.

When the project is complete, that facility could supply anodes to a Century smelter project in Iceland, according to a news release from Century, which also stated that the acquisition is a continuation of Century's efforts to "opportunistically secure access to strategic assets and cut costs within a challenging global economy."

The news release also stated that in anticipation of a restart of anode production in the third quarter of 2013, Century intends to undertake an approximately $45 million investment program, expected to include capital expenditures, restart expenses and working capital to modernize the facility and optimize production.

All briefs are due to the PSC in this case by Aug. 22.

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