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SB71

Smelters & Energy Rates

In the last week I have received a number of calls and emails urging me to vote "No" on Senate Bill 71 and/or House Bill 211. These companion bills relate to two aluminum smelters in Western Kentucky and how they purchase energy. There is a heated debate on whether these bills will have an impact on consumer energy rates. I have not decided how I will vote on this legislation, but I did want to share with you an op-ed written by Rep. Ben Waide from Madisonville - who has the smelters in his backyard. I know calls and emails are going out urging you to urge me and the rest of the General Assembly to stand against these bills, but I wanted to offer this information below so you can see the other side of the argument.

In the meantime, I am continuing to speak with utility and smelter company representatives to determine the best course of action for the 3rd District.

OFFICE OF STATE REPRESENTATIVE BEN WAIDE

BIG RIVERS and 2000 Jobs FRANKFORT, Ky. (February 18, 2013) – On August 21st 2012, Century Aluminum of Hawesville KY, an aluminum smelter plant, gave their one year notice to Big Rivers Electric that they would no longer be purchasing power from the cooperative. In December 2012, Big Rivers notified the Kentucky Public Service Commission (PSC) that they intended to ask for a rate increase to make up for the lost revenue from Century. That rate request was officially filed with the PSC on January 15th 2013 and would increase electric rates for the remaining Big Rivers customers by almost 75 million dollars per year.

This proposed increase was the proverbial last straw for Rio Tinto/ Alcan; another aluminum smelter located in Sebree KY. They gave their one year notice on January 31st that they would no longer be buying their power from Big Rivers. As a result, Big Rivers representatives have reported they will be seeking another rate increase from the PSC in order to make up for the lost revenue from Rio Tinto / Alcan.

The combined rate increase from these two requests is estimated to be 110 million dollars per year. For individual customers it will be a 30-40% increase in one year.

Once the first notice was given in August 2012, the rate payers fate was sealed. That means the remaining Big Rivers customers were going to have a huge increase in their electric bills and there was nothing that could stop it. No legislation in Frankfort had anything to do with a rate increase.

However, as a legislator, I still wanted to try to keep the smelters in Kentucky and save the jobs associated with those smelters.

On February 5 2013, a group of Western Kentucky legislators led by Senator Joe Bowen and Representative Tommy Thompson, filed 2 bills in an effort to save the 2000 jobs affected by the potential loss of these two smelters. I am a sponsor of one of those bills. Since they both have the same language I will call it the bill.

The bill would make a way for the two smelters to stay in Kentucky and keep 2000 jobs from leaving the state in one year. Specifically, it would allow the smelters to purchase their power from the open market instead of buying it from Big Rivers; which they are already not going to do. This means that the smelters could buy their power for $39 per megawatt hour (MWh) on the open market instead of the proposed $60/MWh.

As a Kenergy customer, I received an email and phone calls that told me to contact my representative and oppose the bill because it would force remaining customers like me to pay for the “extra expenses” and “incremental costs” of transmitting power to the smelters from the open market.

What they are talking about is the 10 million dollars per year it will cost to keep the Coleman Electric Plant running to supply Century a stable power supply. They are also talking about the Midwest Independent System Operator (MISO) transmission construction costs that will be a direct result of the smelter's load.

Well, this claim IS NOT TRUE. In fact, the bill specifies that the cost of “transmission and distribution services” will be paid for by the smelters at a Federal Energy Regulatory Commission (FERC) approved rate. This is in Section 2 subsection 7C for those who wish to look it up. What's more, Century's Associate General Counsel John DeZee has maintained throughout the discussions that Century will pay all additional costs incurred by Big Rivers.

I also believe there has been some confusion on the part of Kenergy regarding the 10 million dollars. They claim the 10 million for operating the Coleman plant will be an additional cost to customers. However, the PSC confirmed to me that the 10 million is already included in the January 15th rate increase request. I have spoken to all parties involved and I truly believe this is a point of confusion.

It is NOT TRUE that the remaining customers might have to pay transition costs if the smelters wish to return to Big Rivers in the future. The smelters have agreed to forgo any return to the co-op. Although the smelters have stated this, it is included in a revised version (“committee substitute”) of the bill (HB 211) to make sure Big Rivers is not vulnerable.

It is also NOT TRUE that the bill would deregulate electricity in Kentucky. These two smelters are the only entities in the whole state that would qualify to buy power on the open market under this bill. Kenergy states this on their own website. No one in Frankfort is proposing to do anything that would affect the statewide certified territories. It does not open any doors or create any new ways to deregulate the state.

I will always be a champion of coal fired electricity. We have so much coal that electricity ought to be cheap. Unfortunately, things are not the way they ought to be.

Big Rivers has been in financial trouble for many years. They are hundreds of millions of dollars in debt. The EPA adds costly regulations every year and the smelters make up 70% of their business. Even if Big Rivers wanted to lower rates they probably could not.

What they could do is help protect 2000 jobs. Past agreements between Big Rivers and the smelters are not suicide pacts with the people of Western Kentucky. A new agreement could be reached that allows the smelters to stay and Big Rivers associated costs to be covered.

The bill introduced in Frankfort does not increase anyone's electric bills. The increase that is coming was triggered in August of last year and we cannot do anything to stop it.

It is my hope a new agreement will be reached while there is still time to save 2000 jobs. If achieved, this agreement would remove any need for legislation out of Frankfort and that's the way things ought to be in the first place.

Ben Waide State Representative 10th District