Coal May Be Pricing WV Out of Aluminum Smelting Business

It used to be that “cheap” coal (unless you count all the deaths from externalized costs) meant that WV was a great place for electricity-intensive industries like aluminum smelting.  In 2008, Century Aluminum in Ravenswood decided that was the case and shut down their plant.

WV politicians have claimed that “the recession” caused Century to leave the state.  Now we are beginning to see the situation a little differently.  On Friday, we learned from George Hohmann in the Charleston Daily Mail that Century wants AEP rate payers and WV tax payers to provide the company “comfort” about the profitability of their Ravenswood plant.  In an editorial on Friday, the Daily Mail editorial board appropriately called the Legislature’s giveaways and Century’s rate payer fleecing “corporate welfare backed by rate payers” and subtitled the editorial “Other power customers should not be backstopping Century Aluminum.”

In the last Legislative session, the Legislature gave away $20 million of the coal severance tax revenue to “comfort” Century.  The Legislature also offered “incentives,” in the form of tax credits, to coal companies to participate in the program to cut AEP’s fuel costs for Century’s electric bill.  And now, according to Hohmann’s story, Century wants AEP rate payers to guarantee Century’s profit by lowering Century’s electric rates if the price of aluminum falls below $2000 per metric ton.  And where will that money come from to pay Century’s electric bill?  Other rate payers, of course.  Someone has to pay for that electricity.

Consumer Advocate Byron Harris has done the math.  He has looked at futures prices for aluminum and concluded that Century wants the PSC to lock AEP rate payers into rate subsidies, because the price of aluminum will probably not reach $2000 per metric ton for many years.

Last week, we also learned that Century is a chronic deadbeat.  Back in 2006, Century asked the PSC for special favors to pay its electric bill.  As it turns out, Century couldn’t even meet the terms of that special treatment.  The company now owes AEP $22.7 million from that past scheme.  And, of course, AEP has the Legislature’s new bailout bond scheme ready to dump this cost on WV rate payers.  Century’s bad debt from 2006 is one big reason why AEP wants much more from the bond scheme than they told the Legislature back in March.  And AEP’s lobbyist assured the legislators that the bond bailout would not cause rates to rise.  Forgive me, but “chump” is the only word I have that fits the legislators’ actions.

The WV Energy Users Group, the group of large industrial and commercial users who regularly push for special treatment on their electric rates at the PSC, is also worried that a lot of Century’s electric bill will get pushed off onto them.  George Hohmann wrote another excellent story on this situation last week.  So the Legislature’s special favors and PSC special rate deals have the potential to increase costs not only for taxpayers and residential rate payers, but they will raise costs for many of the other large businesses that provide jobs and tax revenue for the state.

Yesterday, Keryn posted a comment on my earlier Century/AEP post.  Here is what she said:

Why is no one examining the real problem here… the cost of APCO’s electricity? Perhaps if they weren’t reliant on increasingly expensive coal for most of their generation, businesses could afford to operate at a profit in WV without subsidies from ratepayers and taxpayers. It happens in other states, and even within WV, plenty of businesses operate without subsidies.

So where does all this Rube Goldberg financing and rate payer rip off leave us?  Is the problem really “the recession” or “falling demand”?  Or is it something more fundamental about WV’s electrical system?  After all, Century’s big problem is electric rates.  And what have WV’s electric rates been doing in the last ten years?  Rising rapidly.  And why have those rates been rising rapidly?  Almost entirely from the rapidly rising price of steam coal.  And where does 98% of WV’s electricity come from? Coal.

It could very well be that WV’s over-dependence on coal as a source of electricity has created an ossified and inflexible power system that is now locked in to rising electric rates for the foreseeable future.  Along with the myth that WV has the lowest electric rates in the US (It doesn’t, WV now ranks 11th lowest in the US), the myth that WV’s low power costs generate industrial jobs may also be gone up in smoke.

So far, WV political leaders have responded by transferring the costs of out of state corporations onto the backs of people who actually live in WV.  This is a recipe for disaster.  WV ‘s dependence on coal for electricity hurts our state in two ways: (1) it has locked us into a constantly rising cost spiral, and (2) it prevents diversification of our power sources, which itself can become a driver of innovation and economic growth.

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