The state Public Service Commission on Thursday approved a special rate power plan for Felman Production that gives the steel additive manufacturer up to $9 million in yearly discounts to help restart operations at its idled New Haven plant.
If Felman accepts the proposal, it could mean more than 100 jobs return to the Mason County plant.
Last August, Felman submitted an application to the state Public Service Commission seeking approval for a 10-year special power rate contract to help restart production at its New Haven plant.
Felman produces silicomanganese, a deoxidizer that allows steel companies to produce a purer type of steel. It’s made by taking three raw ingredients — manganese ore, coke and coal — and heating them to 3,000 degrees Fahrenheit in an electric arc furnace.
The Foote Mineral Co. originally built the plant in 1952. Over its 61-year history, the plant has closed and reopened numerous times as various plant owners declared bankruptcy and sold it to new owners. Felman, a subsidiary of Georgian American Alloys, Inc., paid $20 million to buy the plant from bankrupt Highlander Alloys in 2006.
Citing rising production costs and poor market conditions, Felman shuttered most of its operations last June, laying off nearly more than 140 employees in the process.
Because electricity represents 20 percent of production costs, Felman said it needs a more favorable power rate — its current rate has risen about 45 percent since 2008 — to compete globally.
The proposal the company submitted to the PSC would allow the plant’s power rate to float in conjunction with the costs of its raw materials and silicomanganese prices, offering the company up to $9.5 million in annual discounts on its power bill. Felman estimated the average residential customer’s bill would go up by about 55 cents a month if the full $9.5 million discount is taken.
The $9.5 million figure came from the amount Felman had been paying each year to cover Appalachian Power’s fixed costs of providing power. Should Felman shut down permanently, those costs would be shifted to other ratepayers, so company officials said their plan left consumers no worse off than if the plant shut down forever.
Under the plan Felman proposed, and in the separate plan approved by the commission Thursday, when Felman’s material prices are low, its power rate would go down. When they go up, Felman would pay more.
Appalachian Power, the PSC’s Consumer Advocate Division, and state manufacturing groups opposed Felman’s plan, saying power customers should not be forced to subsidize a private business. The United Steelworkers union, which represents the plant’s employees, and local Mason County officials supported the Felman proposal.
The proposal was based on a 2012 law passed by state lawmakers that allows the PSC to craft special rate plans for so-called energy intensive industrial consumers.
That law was designed to help Century Aluminum restart its shuttered Ravenswood aluminum smelter. Despite the PSC approving a special rate plan for Century in late 2012, the company has yet to restart.
In its Felman decision, the commission said it was mindful of the criticisms of these special rate plans, but said it was bound by the state law that allows for them.
“The Commission has, in this case and (in the Century Aluminum case), expressed our general concern about this statute and the difficulty of administering it,” commissioners said in their decision. “We are not, however, in fulfilling our legislative function, free to simply ignore the statute.”
The commission did modify some aspects of Felman’s original proposal.
The approved rate plan requires the company contribute at least $500,000 toward the power company’s annual fixed costs. The commission also capped the amount of unused discounts the company can carry over from year to year.
Felman’s original proposal allowed the company to carry over any used discounts; that could have allowed the company to take them all in one year, for a lump sum discount of $95 million. The commission’s decision caps that carry-over discount at $13.5 million.
The commission also included provisions designed to make sure Felman continues operating during the special rate plan. If the company were to shut down during the first five years of the plan, the commission plan allows some of the discounts provided to be recaptured.
Under the PSC plan, Felman’s rates would be set on a monthly basis. In months where material prices are less than target, Felman gets discounts. In months where prices are more than targets, Felman will pay a premium.
The commission ruled that there will be no cap on the power rate premium Felman can pay so long as it has an outstanding cumulative balance of discounts taken in the past. Once the company pays back its past discounts, its power rate premium will be capped at $4 million over the remaining life of the rate plan.
The ruling gives Felman and Appalachian Power until June 30 to craft a power contract consistent with the PSC plan.
A Felman spokesman did not return a request for comment Thursday afternoon.
Contact writer Jared Hunt at email@example.com or 304-348-4836.