Of West Virginia
201 @roo&Street, P,0. Box812 Phone: (304) 340-0300 Charhston, Vb)v 25323 Fm (304) 340-0325
November 15,20 13
Ingrid Ferrell, Executive Secretary Public Service Commission P. 0. Box 812 Charleston, WV 25323
Re: Case No. 13-1325-E-P Felman Production, LLC
Dear Ms. Ferrell:
Enclosed for filing are the original and twelve (12) copies of the PUBLIC Version of the Prepared Direct Testimony of Jonathan McGuire.
Copies have been served upon all parties of record.
Sincerely,
fohn D. Little Staff Attorney West Virginia State Bar I.D. No. 9907
JDL/cm Enclosures
H:\JLittle\-CASES\13- 1325-E-PC (FELMAN)\-TESTIMONY\cguire DirectTestimony Ltr.docx PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON
CASE NO. 13-1325-E-P Felman Production, LLC
CERTIFICATE OF SERVICE
I, JOHN D. LITTLE, Staff Counsel for the Public Service Commission of West
Virginia, hereby certifj that I have served a copy of the foregoing PUBLIC Version of the
Prepared Direct Testimony of Jonathan McGuire upon all parties of record by First Class
United States Mail, postage prepaid on 15* day of November, 20 13.
James V. Kelsh, Esq. Gina E. Mazzei-Smith, Esq. Counsel, Felman Production, LLC Counsel, American Electric Power Bowles Rice McDavid Robinson & McElwee PLLC Graff & Love, LLP PO Box 1986 P.O. Box 1386 Charleston, WV 25327-1986 Charleston, WV 25325-1386 Charles K. Gould, Esq. William C. Porth, Esq. Counsel, SWVA Counsel, American Electric Power Jenkins Fenstermaker PLLC Robinson & McElwee PLLC 325 8* Street, 2ndFloor PO Box 1791 Huntington, WV 2570 1 Charleston, WV 25326 Damon E. Xenopoulos, Esq. Brian E. Calabrese, Esq. Brickfield, Burchette, Ritts & Stone, PC Counsel, American Electric Power Counsel, SWVA Robinson & McElwee PLLC 1025 Thomas Jefferson St., NW PO Box 1791 Eighth Floor, West Tower Charleston, WV 25326 Washington, DC 20007 Thomas E. Scarr, Esq. Derrick P. Williamson, Esq. Counsel, SWVA Counsel, WVEUG Jenkins Fenstermaker PLLC Spilman Thomas & Battle 325 Sth Street, 2ndFloor 1100 Bent Creek Blvd., Suite 101 Huntington, WV 2570 1 Mechanicsburg, PA 17050
Susan J. Riggs, Esq. Heather B. Osborn, Esq. Counsel, West Virginia Energy Users Group Consumer Advocate Division Spilman Thomas & Battle 700 Union Building PO Box 273 723 Kanawha Blvd, East Charleston, WV 25321-0273 Charleston, WV 25301
Barry A. Naum, Esq. Counsel, WVEUG Spilman Thomas & Battle 1100 Bent Creek Blvd., Suite 101 Mechanicsburg, PA 17050
JOHN D. LITTLE, Staff Attorney W.Va. State Bar I.D. No. 9907 CASE NO. 13-1325-E-PC FELMAN PRODUCTION, LLC.
PUBLIC VERSION
PREPARED DIRECT TESTIMONY BY
JONATHAN B. MCGUIRE UTILITIES ANALYST UTILITIES DIVISION
ON BEHALF OF THE STAFF OF THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
*****
November 15,20 13
201 Brooks Street, P. 0. Box 812, Charleston, WV 25323 Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 1
1 Q* WOULD YOU STATE YOUR NAME, BUSINESS ADDRESS, AND
2 OCCUPTION?
3
4 A. My name is Jonathan McGuire and my business address is 201 Brooks Street, Charleston,
5 West Virginia 25323. I am a Utilities Analyst for the Utilities Division of the Public
6 Service Commission of West Virginia.
7
8 Q- PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND
9 PROFESSIONAL EXPERIENCE.
10
11 A. I graduated with a Bachelor of Science degree in Business Administration and an
12 Associate’s Degree in Accounting from the University of Charleston in 2008. In
13 addition, I graduated with a Masters in Business Administration degree from California
14 University of Pennsylvania in 2009. I have been employed by the Public Service
15 Commission of West Virginia for over two years specifically from March 20 11 to
16 present. Prior to my employment at the Commission, I was employed by HICHA
17 Associates, LLC as an Accounting Manager.
18
19 Q. WHAT ARE YOUR RESPONSIBILITIES IN YOUR CURRENT POSITION?
20
21 A. I am responsible for analyzing and preparing recommendations to the Commission
22 related to filings made by publicly owned or privately owned utilities operating within Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 2
1 the State of West Virginia. The recommendations consist of written testimony,
2 memorandums, accounting schedules and exhibits.
3
4 Q* DOES STAFF HAVE ANY INFORMATION DIRECTLY RELATED TO ITS
5 TESTIMONY THAT IT WOULD LIKE TO GET INTO THE RECORD?
6
7 A. Yes, before Staff begins its review it would like to note that Staff has used and referenced
8 materials that can be found online. Staff did not attach these documents as exhibits to its
9 testimony because of the size of each document. Staff referenced four documents which
10 are as follows:
11 1. U.S. International Trade Commission, Publication 4354, Investigation Nos. 73 1-
12 TA-67 1-673 (Third Review), Silicomanganese from Brazil, China, and Ukraine,
13 referenced herein as (ITC 4354), which can be found online at
14 (usitc.gov/publications/701-73 1/pub4354 .pdf).
15 2. U.S. International Trade Commission, publication 4244, dated September 20 13,
16 Investigation Nos. 73 1-TA-929-93 1 (Second Review), Silicomanganese from
17 India, Kazakhstan, and Venezuela, referenced herein as (ITC 4424) which can be
18 found at (www.usitc.gov/publications/70 1-73 1/4424.pdf).
19 3, U.S. International Trade Commission, hearing transcript dated September 5,
20 20 12, in Investigation Nos. 73 1-TA-67 1-673 (Third Review), Silicomanganese
21 from Brazil, China, and Ukraine, is referenced herein as (ITC 4354 Hearing),
22 which can be found online at Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 3
1 (http ://www .usitc .gov/trade_remedy/73 1 -ad-70 1-
2 cvd/investigations/201 2/silicomanganese-br-ch-
3 uk/PDF/Hearing%20(3rd%20Review)%2009-05-20 12.pdf).
4 4. U.S. International Trade Commission, hearing transcript dated July 18,2013, in
5 Investigation Nos. 73 1-TA-929-93 1 (Second Review), Silicomanganese from
6 India, Kazakhstan, and Venezuela, is referenced herein as (ITC 4424 Hearing)
7 which can be found online at
8 (http://www.usitc.gov/trade_remedy/73 1 -ad-70 1-cvd/investigations/20 12/silico
9 manganese~in~kz~ve/PDF/Hearing%20(2nd%2OReview)%2007-1 8-
10 20 13%20India-Kazakhstan-Venezuela.pdf),
11
12 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS CASE?
13
14 A. The purpose of my testimony is to address and present Staffs position regarding the
15 petition by Felman Production, LLC (Felman) for approval of a special rate for the
16 purchase of electricity (Special Rate) from Appalachian Power Company & Wheeling
17 Power Company (APCo/WPCo). My testimony will explain why the Commission should
18 reject Felman’s petition on a regulatory basis and on an economic basis.
19
20 Q. WHY IS IT IMPORTANT TO DETERMINE FELMANS’S BASIS UPON WHICH
21 IT BELIEVES A SPECIAL RATE IS NECESSARY?
22 Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 4
1 A. This is the first step to help guide the Commission in its determination of “reasonable”.
2 In Case No. 12-0613-E-PC (Century Case) the Commission stated “The Commission is
3 charged with balancing a myriad of factors in determining a reasonable special rate.
4 “Reasonable” is not easily reduced to an objective test -there is no “five feet” or “fifteen
5 pounds” of reasonable. Nevertheless, while “reasonable” is a subjective standard, it is a
6 standard that this Commission is called upon frequently to apply and is the touchstone of
7 utility ratemaking.” Once the Commission has determined the proposed basis for the
8 Special Rate it can begin processing the information provided by Felman in its
9 determination of reasonableness. While reviewing Felman’ s petition the Commission
10 will determine if Felman has provided all the reasonable justification supporting the basis
11 of the Special Rate.
12
13 Q. WHAT DOES STAFF BELIEVE IS FELMAN’S BASIS FOR THE SPECIAL
14 RATE?
15
16 A. Staff believes the basis of the Special Rate as it has been proposed is merely for
17 providing a profit to Felman during market fluctuations of the price of silicomanganese
18 (SiMn). Felman, in return for profit, will continue operations which supports its
19 economies of scale.
20
21 Q. DESCRIBE FELMAN’S SPECIAL RATE REQUEST PROPOSED IN ITS
22 PETITION. Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 5
1
2 A. Felman’s proposed rate is based on historical experience from which a target gross
3 margin was developed and set to a level at which Felman would recover its expenses
4 plus [Begin confidential] [End confidential] return on invested capital. Felman
5 defines the gross margin as the selling price of SiMn less the cost of major raw materials
6 such as manganese ore, coke and coal. Felman used historical levels of data based on
7 20 1 1 and 201 2 operations. Felman used an average Gross Margin over a two year period
8 to determine the Gross Margin Value of $749 per ton of SiMn. Felman then added 9 [Begin confidential] =[End confidential] to arrive at a Target Gross Margin Index 10 Value of [Begin confidential] [End confidential] (Target Rate). Barry Nuss’s
11 testimony states “Felman would have needed, on average, to make an additional [
12 ] per ton of SiMn sold in 201 1 and 2012 to recover
13 its expenses plus earn a [Begin confidential] [End confidential] return on invested
14 capital during those time periods.’’ Felman uses the Target Rate for SiMn of [
15 confidential] [End confidential] versus the prior month gross margin to determine if
16 a premium or discount is needed for its cost of electricity. If the prior month price for
17 SiMn on a per ton basis is less than the Target Rate, a discount of [
18 ] per dollar difference is given. Felman has proposed the total
19 discount should be equal to an annual discount of APCo/WPCo’s fixed cost contribution
20 for Felman. At the time of filing, APCo/WPCo’s fixed cost contribution for Felman was
21 proposed to be $9.5 million. If the Target Rate is less than the prior month market price
22 for SiMn, a premium is given. Felman has proposed two formulas for calculating the Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 6
1 premium which has been proposed to be maxed out at $1 million dollars over the
2 accumulated discount taken to date.
3
4 Q* DESCRIBE THE REQUIREMENTS FELMAN MUST MEET IN ORDER TO
5 QUALIFY FOR A SPECIAL RATE UNDER W.VA CODE 824-2-13.
6
7 A. As laid out in W.Va. Code S24-2-1j and by the Commission in Case No. 12-0613-E-PCY
8 for Felman, an energy intensive industrial customer, it must meet the following
9 requirements to qualify for a special rate:
10 1. First, to qualify for a special rate Felman must have a contract demand of at least
11 fifty thousand kilowatts of electric power (50 MW) at its West Virginia facilities
12 under normal operating conditions.
13 2. Second, to qualify for a special rate Felman must create or retain at least twenty-
14 five full-time jobs in the State.
15 3. Third, Felman must have not less than $500,000 invested in the State of West
16 Virginia (State) in fixed assets, including machinery and equipment.
17 4. Fourth, Felman must provide reasonable evidence that due to market conditions,
18 or other factors bearing on its investment in and operation of its facility or
19 facilities, that without the special rate the continued operation of its facility is
20 threatened or not economically viable under reasonable assumptions and
21 projections regarding the market and the operations of the industrial facility or
22 facilities. Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 7
1 5, Fifth, Felman must also provide reasonable evidence that, with a special rate, it
2 intends to operate the New Haven facility or facilities for an extended period of
3 time and that the operation or continued operation of the industrial facility or
4 facilities for an extended period of time appears economically viable, under
5 reasonable assumptions and projections regarding the market in which it operates
6 and regarding the operation of the industrial facility or facilities.
7 6. Sixth, and finally, Felman must provide information and data setting forth how it
8 meets the qualifications of W.Va. Code 524-2-1j , and how the special rate
9 advances the policy goals set forth in W.Va. Code 524-2-1j (The Act).
10
11 Q. DOES FELMAN’S PETITION MEET THE SIX REQUIREMENTS TO RECEIVE
12 A SPECIAL RATE UNDER W.VA. CODE $24-2-1j?
13
14 A. No, Felman’s petition does not meet the six requirements outlined above. Of the six
15 requirements Felman only meets requirements one, two, and three of The Act. Felman’s
16 petition specifically does not meet requirements four, five and six of The Act.
17
18 Q. HOW HAS FELMAN FAILED TO MEET REQUIREMENT FOUR OF THE
19 ACT?
20
21 A. For Felman to meet requirement four of The Act, Felman must provide reasonable
22 evidence that either due to market conditions or factors bearing on investment in and Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 8
1 operation of its facilities, that without the Special Rate Felman’s operation or continued
2 operation is threatened or not economically viable under reasonable assumptions and
3 projections. Staff argues that Felman’s investment and operational factors are not
4 threatened and are economically viable beginning with Barry Nuss’s testimony, page
5 number 4, line 22 which states “Since 201 1, plant and efficiency issues have not been
6 present”. Staff asserts that statement provides Felman with limited substance to debate
7 that operational factors are present to provide sustenance for a Special Rate. In addition,
8 Felman’s petition prides itself on providing continued investments. Felman has even
9 recently initiated a slag processing facility in May of 20 13 as further investment
10 potential. Also, Staff emphasizes the [Begin confidential] 1-1
11
12
13 limits or eliminates the idea that Felman’s investment is actually being
14 threatened. Without any evidence of factors bearing on investment in and operation of
15 its facilities, Felman must provide reasonable evidence that due to market conditions in
16 the industry that without a special rate the operation or continued operation of its
17 facilities is threatened or not economically viable under reasonable assumptions and
~ 18 projections.
19
Felman on multiple occasions mentions market conditions. Felman’s petition defines
market conditions as: the price for SiMn, the price for raw materials, cost components
mainly related to the cost of electricity and the global market place. Felman’s petition Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 9
1 fails to give specific detail surrounding the SiMn market in the United States and on a
2 global scale. Staff argues that Felman has failed to provide reasonable assumptions and
3 projections regarding market conditions. Felman did not present any projections and
4 only assumed that if it continued operations as it has done in recent years, it will continue
5 to be unprofitable. Staffs argues that Felman’s assumptions of “market conditions” and
6 “continued losses” do not include Felman’s proposed or described (going level)
7 operations going forward. Felman’s assumptions fail to include the changes in Felman’s
8 operations if it employs “at least”155 employees with two furnaces running and or “as
9 much as” 200 employees with three furnaces running. This is a difference of at least 40
10 employees compared to the 240 hourly and salaried employee’s mentioned in Felman’s
11 Introduction. Also operational factors such as proposing to run two furnaces instead of
12 three as was done in 201 1 and 2012 were not considered in Felman’s assumptions.
13 Felman has also mentioned recent investments in a “high efficient fan and motor
14 assembly on No. 5 bag house” which it estimated will provide an annual energy savings
15 of [Begin confidential] -[End confidential]. These factors directly impact the
16 cash flow and influence the assumptions made by Felman to show that without the
17 Special Rate, Felman will continue to incur future losses. Felman’s lack of reflecting
18 these changes within its assumptions does not result in reasonable assumptions and
19 projections as required by The Act. Staff maintains that Felman has failed to reflect
20 reasonable assumptions and projections concerning continued losses due to the
21 production and sale of SiMn. In fact, Felman failed to make any market projections at
22 all. Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 10
1
2 Q* HOW HAS FELMAN FAILED TO MEET REQUIREMENT FIVE OF THE ACT?
3
4 A. For Felman to meet requirement five of The Act, it must provide reasonable evidence that
5 with the Special Rate it intends to operate in West Virginia for an extended period of time
6 and that the operation or continued operation for an extended period of time is
7 economically viable under reasonable assumptions and projections regarding the market.
8 Staff does not contend that if the Special Rate is approved that Felman will continue to
9 operate in West Virginia. Staffs argument for not meeting requirement five is that
10 Felman has not provided any reasonable assumptions and projections to support that
11 SiMn production and sales appear to be economically viable in the future. Most
12 importantly Felman’s petition does not specifically reflect any assumptions and
13 projections related to steel production, factors impacting SiMn purchasing decisions,
14 substitute products impact on the market, the global supply of SiMn, how SiMn is mainly
15 purchased and the effects of low priced SiMn into the US. market.
16 Presented in ITC 4354, under 1. Demand Conditions, Page 23 states “Silicomanganese is
17 primarily consumed by electric furnace steelmakers in the production of long products,
18 including bars and structural shapes. Thus, demand for silicomanganese is dependent on
19 demand for steel products and reflects the state of the overall economy.” Felman did not
20 present any projections and or assumptions of the demand for steel in the United States.
21 Therefore, Felman’s petition does not meet the minimum requirements of The Act. Also,
22 ITC 4354 (Demand Conditions, page 23) states “The U.S. market is characterized by a Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 11
1 limited number of purchasers with the majority of shipments directly to end users.
2 Although some steel producers can substitute a combination of high-carbon
3 ferromanganese and ferrosilicon for silicomanganese, such substitution is limited by
4 technical and cost considerations. Moreover, because silicomanganese accounts for only
5 a small share of the total cost of end-use steel mill products, demand for silicomanganese
6 is relatively price inelastic.” For a SiMn to be price inelastic the demand for SiMn is
7 unaffected when the price of SiMn changes. Staff points this out mainly to reflect Felman
8 has given no information regarding SiMn demand and or why the price of SiMn is
9 affected by the market for steel. Staff firmly believes the Commission should fully
10 understand the demand for SiMn and what affects the price of SiMn.
11 Felman has provided no assumptions or projections of the demand for SiMn and
12 longevity of SiMn in the United States. Staff believes Felman has provided insufficient
13 data to satisfy requirement five of The Act and lacks the sustenance needed for the
14 Commission to make any determination that Felman’s assumptions and projections
15 regarding the future longevity of SiMn market in the United States are reasonable. How
16 can the Commission determine reasonableness when Felman’s only projection and
17 assumption is as Barry Nuss’s testimony, page number 17, lines 14-18, states “Georgia
~ 18 American is willing to continue to operate the New Haven Plant to some extent even after
I 19 it has exhausted the discounts available to it under the Special Rate and reverts to
~ I 20 Standard Rates. However, if the price for SiMn deteriorates far more than we expect, Felman Production does retain the right in that circumstance to suspend production.” Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 12
1 To take it a step hrther, Staff also points out Felman can produce other products such as
2 ferromanganese. Felman has not provided a cost analysis to reflect whether
3 ferromanganese is or is not a viable option. Staff would also like to point out
4 Ferromanganese is a product Felman has shown on its own web site as a product it can
5 produce. This type of information could be extremely beneficial to the Commission in
6 determining if the plant could stay in operation with simply a shift of production between
7 SiMn and ferromanganese.
8
9 Q9 HOW HAS FELMAN FAILED TO MEET REQUIREMENT SIX OF THE ACT?
10
11 A. For Felman to meet requirement six of The Act it must provide and present how it meets
12 the qualifications of The Act and how the Special Rate advances the policy goals in
13 subsection (a); W.Va. Code $24-2-lj(a). Staff would like to quote number five of section
14 (a): “It is in the best interest of West Virginia, the Citizens of West Virginia, electric
15 public utilities in West Virginia, and all consumers of electric power in West Virginia,
16 including residential customers, to encourage the continued development, construction,
17 operation, maintenance, and expansion, in West Virginia of industrial plants and facilities
18 which are energy intensive consumers of electric power, thereby increasing the creation,
19 preservation, and retention of jobs, expanding the tax base, helping keep power rates low
20 for all consumers of electric power, and enhancing the productive capacity,
21 competitiveness and economic opportunities of all citizens of West Virginia.” Staff does
22 not believe Felman meets requirement six because it does not provide reasonable Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 13
~~~~~~ ~
1 evidence of the continued development that would help keep power rates low for all
consumers of electric power. Felman’s Special Rate shifts the cost of Felman’s electricity in addition to a return of 1m on invested capital
4 (above 20 1 1 and 20 12 expense levels) while APCo/WPCo’s rate payers supplement the
5 Special Rate. Although not supported by any evidence in this proceeding, there is a
6 likelihood the Special Rate could possibly affect other West Virginia workers working
7 for Eramet Marietta, Inc. (Eramet). Eramet is located in Marietta, Ohio. Eramet is the
8 only other SiMn producer in the United States. Staff has a serious concern that Felman
9 has not provided reasonable evidence that a Special Rate of this magnitude would not
10 provide a competitive advantage over Eramet because the cost of electricity is such a
11 substantial cost component in the production of SiMn. Staff believes this argument to be
12 relevant and that Felman’s petition must provide reasonable evidence to support that the
13 Special Rate does not adversely affect Erament’s employees which could likely be West
14 Virginia residents. Felman is located on the border of Ohio and is an employer of Ohio
15 residents. Like Felman, Eramet is also located on the (W.Va./ Ohio) border with easy
16 access making it likely West Virginians do cross into Ohio to work for Eramet. In
17 addition, a competitive advantage could also create the possibility of material damage to
~ 18 an already sensitive or vulnerable SiMn market in the United States. The most apparent
19 reason Felman does not meet the goals of The Act mentioned within number six is
~ because Felman does not meet the requirements of subsection (g), meaning the tax credit
mechanism is not available to provide a source of funding to support Felman’s Special
Rate, which results in any additional discount to Felman’s electricity rate will be even Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 14
1 more burdensome to all the APCo/WPCo customers. Staff maintains Felman’s petition
2 does not provide reasonable evidence the Special Rate as proposed does not impose an
3 unreasonable burden upon electric public utilities and their other customers.
4
5 Q. IS FELMAN ELIGIBLE TO RECEIVE A TAX CREDIT PURSUANT TO
6 SUBSECTION (g) OF THE ACT?
7
8 A. No. Subsection (g) has set five goals or limitations to meet. I will explain each of the five
9 goals or limitations set by subsection (g) of The Act and explain each as well as if
10 Felman meets the goals and limitations for a Special Rate.
11 1. A special rate is necessary for the creation, preservation or retention of jobs by the
12 energy intensive customer.
13 8 Felman meets this goal as it has proposed to keep limited operations for the creation of
14 some of the prior jobs laid off under curtailment and the preservation and retention of its
15 current jobs.
16 2. In connection with the Special Rate that is authorized by the Commission, the energy
17 intensive customer will increase the number of persons it employs (previously employed
18 or not previously employed) by at least one hundred and fifty persons as result of the
19 Special Rate.
20 e Felman specifically does not meet this goal or limitation. Felman has proposed to only
21 initially increase the number of persons it employs by 59 persons (1 55 employees minus
22 96 current employees). Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 15
1 3, The energy intensive customer will employ no fewer than three hundred persons
2 (which may include newly hired or rehired pursuant to the preceding clause).
3 0 Felman has stated “employment could total as much as 200 employees” which means
4 Felman does not meet this particular goal or limitations set by section (g).
5 4. The energy intensive customer has a contract demand of at least two hundred fifty
6 thousand kilowatts of electricity at its West Virginia facility.
7 0 Felman’s Barry Nuss’s states “Under the 2006 contract, Felman Production can utilize up
8 to 110 MW.” Staff has found this to be or is of the belief this is an error and that Felman
9 has a contract demand of up to 110 kilowatts (KW). Staff also believes the proposed
10 contract demand of 150 megawatts to be incorrect. Staff assumes Felman has proposed a
11 contract demand of 150KW which does not meet the goal or limitation of 250 KW
12 contract demand.
13 5. The energy intensive customer’s special rate for electricity will provide a revenue
14 shortfall,
15 a Felman has proposed a shortfall of up to the fixed cost contribution in this particular case
16 which is proposed to be $9.5 million dollars. Felman does meet this requirement as it
17 does create a revenue shortfall for APCo/WPCo.
18
19 Q. DOES FELMAN QUALIFY FOR THE TAX CREDITS MADE AVAILABLE
20 UNDER ARTICLE 13CC SHORT TITLE $ll-13CC-l?
21 Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 16
1 A. No, under the Article 13CC Short Title $11-13CC-1, (Article) section 3, a tax credit
2 mechanism will only be available after Felman receives a special rate pursuant to
3 subsection (g) of The Act. Felman simply does not meet the limitations and goals set by
4 The Act to receive a Special Rate especially subsection (g). In addition, Felman has not
5 proposed to maintain a level of 300 employees which is required to receive the tax credit.
6
7 Q. DESCRIBE STAFF’S CONCERNS OVER THE RATE MECHANISM
8 PROPOSED BY FELMAN.
9
10 A. Staff has many concerns about the Target Rate. Staffs first concern is that Felman has
11 somehow manipulated the intention of The Act by not basing a Special Rate entirely on
12 the SiMn market price. Also, Staff is concerned that Felman already has a special
13 contract rate which provides a significant discount to Felman’s cost of electricity.
14 Felman has not reflected this amount and or taken into consideration the discount amount
15 received to date. This discount which is reflected on JBM Exhibit 4 in the amount of
16 [Begin confidential] -[End confidential] million dollars or a [Begin confidential]
17 ] in savings, Staff should emphasize is already subsidized by
18 other APCo/WPCo customers. So when Felman states it is only taking a discount up to
19 its fixed cost from the “Standard Rate” or the contract rate it is adding $9.5 million dollar
20 discount to its current discount of [Begin confidential] -[End confidential]million for
21 a total discount of [Begin confidential] -[End confidential] million dollars. Staff
22 strongly opposes APCo/WPCO customers subsidizing Felman’s fixed cost let alone Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 17
1 Felman’s fixed cost and an additional discount. This proposal as it has been presented is
2 not reasonable and is extremely burdensome. APCo/WPCo customers should not have to
3 subsidize Felman’s operations especially beyond Felman’s fixed costs. Felman’s fixed
4 costs of [Begin confidential] -[End confidential] million is presented on JBM
5 Exhibit 5. With this being said, Staff firmly believes this to again be a reason for the
6 Commission to deny the petition.
7
8 Q. DESCRIBE THE SUBSIDY IF THE SPECIAL RATE IS APPROVED?
9
10 A. Staff has prepared JBM Exhibit 1 to reflect the premium or discount Felman would have
11 received from January 201 1 through June 2013 with the proposed Target Rate of [
12 confidential] m[End confidential], JBM Exhibit 1 varies compared to Felman’s
13 mainly because Staff utilized actual billings from APCo/WPCo to reflect the MW’s and
14 the cost of electricity. JBM Exhibit 1 utilized the Target Rate of [ I
15 ] to calculate the total discount from January 201 1 through June
16 2013 to be [Begin confidential] [End confidential] dollars or a total of 17 [Begin confidential] -[End confidential] dollars if 201 1 was limited to $9.5 18 million. JBM Exhibit- 2 reflects the discount under the target gross margin rate of $749 to
19 be [Begin confidential] [End confidential] million dollars for the same time period.
20 The variance between the two amounts is [Begin confidential] [End confidential]
21 million dollars. Staff emphasizes this variance is the additional discount needed to cover
22 variable expenses and Felman’s return. If a ten year contract is approved as it has been Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 18
1 proposed Felman would require a total subsidy of upwards of $139.8 million which is
2 completely unreasonable.
3
4 Q* WOULD FELMAN’S PROPOSED SPECIAL RATE RESULTED IN FELMAN
5 PAYING A PREMIUM FOR ELECITRICTY DURING THE JANUARY 2011
6 THROUGH JUNE 2013 PERIOD REVIEWED BY STAFF?
7
8 A. Yes, a premium would have been calculated for the months beginning in April of 20 12
9 through July of 2012. The total premium calculated for that time period was $2.5 million
10 dollars.
11
12 Q. DOES STAFF KNOW WHAT CAUSED THE INCREASE IN SiMn THAT
13 CAUSED THE PREMIUM SITUATION?
14
15 A. Yes, a major South African producer/ importer/ supplier of SiMn into the United States
16 curtailed its production of SiMn in February of 2012. The ITC 4354,2. Supply
17 Conditions, on page 24 states “Over the period of review, South Africa was the largest
18 U.S. supplier of imported silicomanganese to the U.S. market. U.S. importer BHP
19 Billiton accounted for*** of US. importers’ US. shipments of silicomanganese in 201 1.
20 However, in February 20 12, BHP Billiton announced the permanent closure of
21 silicomanganese production at its Metalloys facility in South Africa. Georgia and
22 Australia were the second and third largest sources of nonsubject imports, and both Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 19
1 countries increased their supply of imported silicomanganese into the US. market from
2 2006 to 201 1.” The ITC 4354 report goes into further detail on page 24 under reference
3 number 188 that “According to Felman, the closure in South Africa resulted in prices
4 increasing to approximately 72 cents per pound in the U.S. market that lasted from March
5 through June 2012 until other nonsubject sources of supply entered the market. Id. and
6 Hearing Tr. at 80, 169-170 (“indeed as the domestics had testified this morning, imports
7 flowed in from Europe ....what countries did they flow from in Europe? Norway, related
8 to Eramet .... Georgia, related to Felman.”); Felman’s Final Comments at 13 11-58 quoting
9 Hearing Tr. at 80 (“{Prices} went up to approximately 72 cents per pound. But then
10 imports from Europe {and} from all other markets came into the United States and
11 reduced price down, and now we experience price at the level of 58,59.5 cents per
12 pound.” Staff having found this does not believe prices will fluctuate upward unless the
13 demand for steel increases or a suppler carrying the magnitude such as South Africa shuts
14 its doors. Staff also emphasizes Felman has provided no such market assessment and or
15 given any projections of SiMn. If Staff would not have found this information, the
16 Commission could have been lead to believe that prices of SiMn do fluctuate upwards
17 and that Felman would possibly have periods when it would pay a premium for
18 electricity. Staff firmly believes Felman will not receive a premium electricity rate thus
19 Felman’s proposal is one sided or heavily weighted in the direction of a rate payer
20 subsidy.
21 Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 20
1 Q- HAS FELMAN BEEN ABLE TO SELL SIMN SINCE IT SHUT DOWN ITS
2 PRODUCTION IN JUNE 2013?
3
4 A. Yes, Felman had a build up of SiMn inventory before ceasing production. Barry NUSS’S
5 testimony in the ITC 4424 Hearing, on page 34, lines 6 - 11 states “Felman Production
6 announced at the end of June that it was shutting down all three of its furnaces for a
7 period of three months. The company made this difficult decision due to a combination
8 of depressed market conditions, increased costs of production, and a build up of
9 inventory.” Barry NUSS’Stestimony in the ITC 4424 Hearing, on page 36, lines 16 - 18
10 further states “During the shutdown we’re continuing to supply US. -made product to
11 our customers from inventory.”
12
13 Q* HAS FELMAN GIVEN A DETAILED DESCRIPTION OF THE THREE
14 FURNACES USED TO PRODUCE SiMn?
15
16 A. Felman described the three furnaces as a whole and did not describe each furnace
17 separately. Staff found through John Konrady’s testimony in the ITC 4424 Hearing, on
18 page 42, lines 7 - 12 which states “Felman Production’s facility is comprised of three
19 furnaces which we refer to as the No. 2, No.5, and No. 7 furnaces. No. 2 is the largest
20 based on output, 51 MVA, or million volt amperes, while the No. 5 and No. 7 furnaces
21 have 24 and 27 MVA, respectively.” Staff believes this information to be important to Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 21
1 the Commission when deciding this case as Felman has not proposed which furnaces it
2 would run if it did receive the special rate.
3
4 Q. IS FELMAN CONSISTENT IN ITS METHODOLOGY FOR DETERMINING A
5 RETURN ON INVESTED CAPITAL AND THE GROSS MARGIN INDEX?
6
7 A. Absolutely not Felman has proposed to earn a return on invested capital and cover all
8 operating costs at 201 1 and 2012 levels. Staff argues Felman should be allowed at best a
9 return on its invested capital minus its fixed costs. If Felman shuts down, it will still incur
10 its fixed costs. Felman’s proposal obviously is not consistent on how it determines the
11 Target Gross Margin and the costs that Felman is liable to pay to APCo/WPCo. Staff
12 believes it is unreasonable to allow the customers of APCo/WPCo to be subject to this
13 inconsistency at a minimum. A slightly different approach is the fact that if Felman can
14 earn a return on invested capital of one dollar it is better off than being closed down.
15
16 Q. IS IT REASONABLE TO USE FELMAN’S PROPOSED RATE MECHANISM IF
17 THE COMMISSION DETERMINES IT IS NECESSARY TO GIVE FELMAN A
18 SPECIAL RATE?
19
20 A. No. Felman’s Target Rate proposed in this petition does not reflect limited protections
21 normally afforded to ratepayers under utility regulation. If approved Felman, would be
22 given approval to earn a return over expense levels from 20 11 and or 20 12 without any Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 22
1 guarantee of the prudence of the level of expenses which would be verifiable through an
2 audit. Felman is extremely vague when referencing the expense levels. Felman never
3 reveals what it has determined as its cost of service. Barry Nuss’s testimony, page
4 number 11, lines 7-10 states “ we calculated the level that the Gross Margin Index Value
5 needs to remain at for Felman Production to recover its expenses plus earn a [
6 confidential] =[End confidential] return on invested capital. We used data from 201 1
7 and 2012 to make this calculation.” Without filing a cash flow and or a schedule
8 detailing the expenses used in this particular calculation makes it impossible for the
9 Commission to determine reasonableness. It is also Felman’s responsibility to reflect
these levels and provide detail of any adjustments. For one to just consider Felman’s ~ lo
11 expenses without knowing the full detail (bonuses, legal fees, payroll, etc.) is
unreasonable and violates utility rate making guidelines for determining reasonableness
of rates. In addition, Felman has failed to give any detail about what makes up the
invested capital which they base their return upon or that the amount is even reasonable.
Staff also makes it a point of emphasis that Felman has proposed multiple revenue and
cost changes within its petition that should be recognized before a Target Rate is set in
this proceeding, The fact that Felman has only proposed to run two furnaces instead of
three, to decrease at least 85 employee’s (240-155), has hefty legal fees that may need to
be allocated between affiliates (two U.S.I.T.C. SiMn antidumping investigations
throughout 20 11 & 20 12), added improvements to the high efficient fan and motor assembly on No. 5 bag house with a proposed cost saving of around [ 1
-[ 1, with the same improvements planned if not already Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 23
1 completed on bag house Nos. 2 and 7 which Felman proposes to provide a total annual
2 savings of [Begin confidential] [End confidential], and again Staffs emphasis 3 on the [Begin confidential] - 4 [End confidential] as possible adjustments for determining a 5 -reasonable level of expenses. Felman also has or should have additional revenues related 6 to the slag processing facility. Also, equally troublesome is not having a cash flow to
7 verify if the inflated target rate is sufficient to cover Felman’s cost of service and the
8 overall rate of return proposed within its petition to insure viability.
9
10 Q. DESCRIBE TO THE COMMISSION WHY CAUTION MUST BE EXERCISED
11 WHILE REVIEWING FELMAN’S TARGET RATE?
12
13 A. Staff believes the Commission should also use extreme caution with regard to allowing
14 Felman the opportunity to reduce the market price of SiMn by the raw materials
15 (manganese ore, coke nut, and Appalachian coal) to form a Target Margin Index rate.
16 Staff is of the opinion Felman in relation to Felman Trading has a much more intricate
17 supply chain than Felman’s petition has lead the Commission to believe. Barry Nuss’s
18 testimony, page number 4, lines 8- 1 1 states “Felman Production operates in a global
19 market in which prices for raw materials purchased and finished products sold are
20 volatile and beyond its control. In other words, Felman Production does not have pricing
power in purchasing raw materials, nor in selling SiMn.” Felman’s statement is
22 misleading. One must understand the relationship between Georgia American’s business Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 24
1 structure which includes Felman Trading as the logistics operating authority to purchase
2 raw materials and sell SiMn not Felman Production. The ITC 4354 page 8 under
3 reference number 57 states “The Privat Group, owned by Ukrainian businessmen
4 Hannady Boholiubov and Ihor Kolmoisky, is currently the majority shareholder in all the
5 Ukraine-based ferroalloy enterprises. Privat’ s owners also control U. S. enterprises
6 Felman Production, Inc and CC Metal Alloys, LLC; Georgian Manganese, based in
7 Georgia; SC Feral SRL in Romania; and the manganese ore producer Consolidated
8 Mineral (Consmin) in Australia. Brazilian respondent interested party, response to
9 September 19,201 1 Letter Regarding Response to Notice of Institution, October 5, 20 11,
10 p. 1-2, exhibit 2 (Ukraine Business Weekly article).” Therefore it is possible that Felman
11 or an affiliate could manipulate the cost components to ensure Felman receives a discount
12 for electricity. The ITC 4354 report also reveals if you read further Felman
13 acknowledges common investors in both the Ukrainian producers and Felman. Felman
14 Trading’s website also states “Felman Trading has exclusive sale arrangements with the
15 world’s largest, longstanding alloy producers like SC Feral SRL, located in Romania
~ 16 (SiMn, HC FeMn, and Ferrochrome). Nikopol Ferroalloy Plant, Zaporozh’ ye Ferroalloy
17 Plant, and Stakhanov Ferroalloy Plant in Ukraine (SiMn, HC/MC FeMn, FeMn, FeSi,
18 and Mn metal).” JBM Exhibit 3 is an article detailing the Georgia Manganese merger
19 and the cost synergies that will be provided to Georgian American Alloys. The article
20 states “Georgian Manganese, LLC and Vartsikhe 2005 LLC (collectively “GM’) is the
21 country’s top producer and exporter of silicomanganese. GM is comprised of three
22 divisions: 1) Chiatura Manganese Mine, a manganese ore mining operation; 2) Zestafoni Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 25
~
1 Ferroalloy Plant, a silicomanganese processing plant; and 3) Vartsikhe, the hydroelectric
2 facility which powers the Zestafoni plant and Chiatura mine. The Company’s unique
3 organizational structure allows it to control all facets of the silicomanganese production
4 process, providing it significant cost and operational advantages.” Relationships of this
5 magnitude provide many ways Felman or Felman Trading could possibly shift more
6 costly raw materials to Felman to insure Felman or Georgia American takes full
7 advantage of a Special Rate. As an alternative Staff would recommend the rate
8 mechanism be based only on the SiMn market price. This is if and only if the
9 Commission deems Felman to actually meet all requirements and limitations set within
10 The Act to receive a Special Rate and decides it to be reasonable to shift the costs to the
11 APCo/WPCo ratepayers, which Staff does not believe nor support.
12
13 Q. SHOULD THE COMMISSION USE CAUTION IN DETERMINING THE
14 OVERALL DISCOUNT AVAILABLE TO FELMAN IF A SPECIAL RATE IS
15 APPROVED?
16
17 A. Most certainly, ITC 4424 and ITC 4354 have deemed the selling price of SiMn to
18 continue to be the number one factor in purchasing decisions. Given that SiMn is a
19 fungible commodity product, price fuels the competition between suppliers. The ITC
20 4424 Hearing transcript of Peter Rochussen, Vice President of Eramet North America,
21 Pg. 27, lines 13-22, states “Our customers almost always purchase silicomanganese using
22 a bidding process in which they issue requests for bids, RFQ’s, on a monthly, quarterly, Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 26
1 semiannual, or annual basis, typically using an ASTM specification. In the bidding
2 process, suppliers compete for sale on the basis of price. Purchasers typically receive
3 bids from at least three to six suppliers, and a price difference of half a penny per pound
4 or less can determine who gets the sale.”
5 Staff is of the opinion Felman has not given a true interpretation of the market share or
6 influence it has within the United States. This goes back to Staffs point in Barry Nuss’s
7 testimony on page 4 that states “Felman Production operates in a global market in which
8 prices for raw materials purchased and finished products sold are volatile and beyond its
9 control. In other words, Felman Production does not have pricing power in purchasing
10 raw materials, nor in selling SiMn.” Staff found in ITC 4424, Price Leadership, page V-
11 5, states “Purchasers were asked to identify price leaders in the silicomanganese market.
12 Seven of 13 purchasers reported price leaders and listed one or more suppliers, including
13 Felman (reported by 4 firms), BHP Billiton (4 firms), Felman Trading (2 firms), Eramet
14 (2 firms), and Minerals (1 firm).” Also testimony presented at the ITC 4424 Hearing on
15 page 17 & 18 asserted Felman is currently the largest domestic producer of SiMn and that
16 Ryan’s Notes has reported that Felman and Georgia Manganese now control half of the
17 U.S. market for SiMn. This should further shine a light to the Commission that Felman
18 has more influence that it has led us to believe. This could be interpreted any number of
19 ways but should definitely be a factor in the determination of reasonable by the
20 Commission.
21 Staff understands the Commission’s determination of a Special Rate carries a delicate
22 balance, Staff believes in this case the determination is even more delicate. A decision Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 27
1 one way or the other can have serious effects on the SiMn market which is already very
2 sensitive coming out of the recession. The economic impact could possibly be
3 detrimental if the right balance is not met.
4 Felman having proposed a discount equal to the fixed cost contribution proposed
5 currently at $9.5 million dollars could possibly provide too much cushion. This is
6 extremely likely as Felman’s petition asserts that the cost of electricity is between $20-
7 $23 million dollars annually. If a SiMn producer reduces its cost of electricity anywhere
8 from 47.5% to 41.3%, a possible competitive advantage may be born. Staff is merely
9 throwing caution to the wind that the Commission should fully understand the SiMn
10 market and all the factors involved to maintain such an industry combined with an
11 adjustment of this magnitude likely resulting in any number of impacts good or bad.
12 Staff has given this as warning to its earlier point that if Eramet goes out of business
13 somehow as a result of the Special Rate it is likely other West Virginian’s may also lose
14 their jobs.
15
16 Q. SHOULD FELMAN BE ABLE TO ACCUMULATE ANY UNUSED DISCOUNT
17 FROM A PRIOR PERIOD?
18
19 A. Absolutely not, for the reasons already stated above. The cost of electricity is such a
20 large cost component to Felman and other producers in the industry. The risks that this
21 change could influence the SiMn market are too high. Staff believes giving Felman the
22 opportunity to receive an even deeper discount than the proposed $9.5 million (which, in Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 28
1 Staffs opinion is already too high) in addition to its current discounted rate is not
2 reasonable and is overly burdensome to the other US. producers. As an example if
3 Felman has two years of available discounts or $19 million the total discount practically
4 eliminates Felman’s whole cost component for electricity compared to another producer
5 who has to pay for all of its cost of electricity results in an overwhelming competitive
6 advantage. In no such form should Felman have the opportunity to have available a
7 discount of this magnitude. Felman should have known this and set a reasonable floor to
8 the proposed discount.
9
10 Q* COULD FELMAN PRODUCE FERROSILCON AT ITS FACILITY?
11
12 A. Yes. In the U.S. International Trade Commission, publication 4244, dated September
13 201 3, Investigation Nos. 73 1-TA-929-93 1 (Second Review), Silicomanganese from
14 India, Kazakhstan, and Venezuela, (ITC 4424) referenced John Konrady on page 11-4
15 note 10 states “John Konrady of Felman reported that silicomanganese and ferrosilicon
16 are both produced in submerged arc furnaces, and that a submerged arc furnace that is
17 capable of producing ferrosilicon can be converted to produce silicomanganese. He stated
18 that this process can be completed in 24 to 36 hours. Felman’s post hearing brief, p. 6 and
19 exhibit 3 .” Felman has not provided any information pertaining to shifting between SiMn
20 and Ferrosilicon. Staff notes Eramet has been known to shift its production.
21 Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 29
1 Q. DOES STAFF BELIEVE THERE IS A REASONABLE BALANCE AVAILABLE
2 TO THE COMMISSION IF IT DETERMINES A SPECIAL RATE IS
3 NECESSARY?
4
5 A. With the lack of information provided by Felman a balance in this proceeding would be
6 hard to determine. Staff believes it is only reasonable for the Commission to deny
7 Felman’s petition.
8
9 Q. SUMMARIZE YOUR TESTIMONY AND STAFF’S FINAL RECOMMENATION
10 IN THIS PROCEEDING.
11
12 A. Staff firmly believes Felman did not provide the information required to qualify for a
13 special rate under the Act. Staff also believes that if the Commission decides Felman
14 somehow does qualify for a Special Rate the revenue shortfall proposed in Felman’s
15 petition is overly burdensome and unreasonable especially since it is unable to utilize the
16 tax credit mechanism as a tool to minimize the impact to the APCo/WPCo customers.
17 Therefore Staff recommends the petition be denied. Staff supports its argument that
18 Felman’s proposed discount is actually [Begin confidential] =[End confidential]
19 million a year which is completely unreasonable. Staff also supports the many economic
20 factors the Commission must take into deep consideration before Felman can receive a
21 special rate of this magnitude. Staff does not support a rate shift to Felman but
22 recommends to the Commission if it decides to approve a special rate the discount taken Non-Confidential version CASE NUMBER: 13-1325-E-PC
DIRECT TESTIMONY OF: JONATHAN MCGUIRE PAGE NO. 30
1 should be limited to the fixed cost and the discount should be from the standard tariff
2 rates not Felman’s current contracted special rates. Staff also recommends to the
3 Commission that the special rate it decides should be based on just SiMn market price
4 and any discount found to be reasonable should not be given the ability to be
5 compounded from one year to the next. Staff further recommends and supports Felman’s
6 special rate be denied.
7
8 Q- DOES STAFF HAVE ANYTHING ELSE IT WOULD LIKE TO SHARE?
9
10 A. Yes, Staff would like to close out its argument with JBM Exhibit 6. JBM Exhibit 6 is a
11 news article titled “‘WORSE’WOULD RILE UTILITY CUSTOMERS” (News
12 Article). The News Article talks about West Virginia American Water’s 201 3 7 percent
13 rate increase as well as the cost to each rate payer if Century’s special rate would have
14 been accepted. The News Article states “According to Appalachian Power’s filings last
15 year, if the price of aluminum would have stayed where it was - $1,957 a ton - the
16 average ratepayer would have had to chip in an extra $12.65 on each month’s bill to i 17 make up the company’s $61.5 million gap.”
18
19 Q. DOES THIS CONCLUDE YOUR TESTIMONY?
20
21 A. Yes JBMEXHIBIT 1 FELMAN PRODUCTION JBM Exhibit I CASE NO. 13-1325-E-PC Annual Premium or Discount Calculation [Begin Confidential]
[End Confidential]
FELMAN PRODUCTION JBM Exhibit 2 CASE NO. 13-1325-E-PC Annual Premium or Discount Calculation [Begin Confidential]
[End Confidential] JBMEXHIBIT 3 Felman Production JBM Exhibit 3 Case No. 13-1325-EPC Page 1 of 2 News Article
Establishes Operational Foothold in Eastern Europe
Adds to GAA's Growing Portfolio of Leading Ferroalloy Companies
April 22, 2013 09:OO AM Eastern Daylight Time
MIAMI--(BUSINESSWIRE)--In a cross-border merger, Miami, FL-based Georgian American Alloys, lnc ("GAA" or the
"Company"), a leading manufacturer, supplier and trader of ferroalloys, today announced that it has acquired 100 percent ownership interest in Georgia=based-GeorgmdhqmeeTttC-ad~~c2005 LLC (cv;'sIt 1 top producer and exporter of standard and high-grade silicomanganese
"We are eager to take hll advantage of GAA's financial capabilities and distribution platform, in order to better serve our clients through stronger, more comprehensive offerings and more reliable service than ever before."
GM is compromised of three separate divisions including Chiatura Manganese Mine, a manganese ore mining operation;
Zestafoni Ferroalloy Plant, a silicomanganese processing plant; and Vartsikhe, the hydroelectric facility which powers the
Zestafoni plant and Chiatura mine. This unique organizational structure allows GM to control all facets of the production process, providing it significant cost and operational advantages.
GAA's strategic acquisition of GM establishes the Company's growing network of complementary ferroalloy businesses, which includes Felman Production, LLC, Felman Trading, Inc. and CC Metals & Alloys, LLC. GAA has previously provided management oversight of GM, and this history gives GAA the intimate knowledge necessary to ensure a seamless integration of GM into its portfolio.
"We are very happy to complete this acquisition, as it directly aligns with GAA's long-term goal of building the world's premier ferroalloys source," said Mordechai Korf, chief executive officer of GAA. "The rare combination of a mine, refining facility and power plant creates a number of unique competitive advantages and cost synergies. Furthermore, the addition of
GM solidifies GAA's international presence and capabilities, and strengthens the relationship the US enjoys with Georgia." Felman Production JBM Exhibit 3 Case No. 13-1325-EPC Page 2 of 2 News Article
The added production capacity will help GAA meet its demand for silicomanganese. GM's divisions will continue to operate under their existing management teams. Felman Trading, GAA's ferroalloys trading company, will continue to serve as the primary distributor of silicomanganese produced by GM.
"We are pleased to join the GAA family, and look forward to contributing to the Company's history of operational excellence," said Velvel Lozynskyy, director of Georgian Manganese. "We are eager to take full advantage of GAA's financial capabilities and distribution platform, in order to better serve our clients through stronger, more comprehensive offerings and more reliable service than ever before."
About Georgian American Alloys, Inc.:
Georgian American Allovs, Inc. ("GAA"), headquartered in Miami, FL, owns and operates a number of companies, both ~~~~ - domestic and international, which manufacture and supply various grades of ferrous alloys, elements essential in the manufacturing of steel. Companies under the GAA umbrella include North American-based Felman Production, LLC,
Felman Trading, Inc., CC Metals & Alloys, LLC, and Eastern European-based Georgian Manganese, LLC which is comprised of Chiatura Manganese Mine, Zestafoni Ferroalloy Plant, and Vartsikhe Hydroelectric facility. With a diverse portfolio of complementary businesses and marketing arrangements, GAA is a global leader in the ferroalloy industry, offering seamless, reliable delivery of quality products at competitive prices. For additional information please visit: www.gaaIlovs.com
About Georgian Manganese, LLC:
Based in Georgia, Georgian Manganese, LLC and Vartsikhe 2005 LLC (collectively "GM") is the country's top producer and exporter of silicomanganese. GM is comprised of three divisions: 1) Chiatura Manganese Mine, a manganese ore mining operation: 2) Zestafoni Ferroalloy Plant, a silicomanganese processing plant; and 3) Vartsikhe, the hydroelectric facility which powers the Zestafoni plant and Chiatura mine. The Company's unique organizational structure allows it to control all facets of the silicomanganese production process, providing it significant cost and operational advantages. GM is an indirect, wholly-owned subsidiary of Miami, Florida-based Georgian American Alloys. Inc. ("GAA") a leading manufacturer, supplier and trader of ferroalloys. GM's products are distributed to steelmakers across the globe through Felman Trading,
Inc., its sister company under the GAA umbrella, which also includes Felman Production, LLC and CC Metals & Alloys, LLC. http://www. businesswire.com/news/home/20130422005465/en/Georgian-American-Alloys-Acquires- Georgian-Manganese-LLC JBMEXHIBIT 4 Case No. 13-1325-E-PC Staff 2-01 Attachment 1 Page 1 of 1 JBM Exhibit 4 [Begin confidential]
[End confidential] I
Feiman Production JBM Exhibit 5 Case No. 13-1325-E-PC Fixed Cost Contribution
Appalachian Power Company West Virginia Class Cost of Service Calculation for Contribution Towards Fix Cost for Feiman Production Period Ending December 31,2009 Case No. 10-0699-E42T
(Begin Confidential]
0
[End confidential] JBMEXHIBIT 6 Felman Production JBM Exhibit 6 Case No. 13-1325-E-PC Page 1 of 2 News Article
'WORSE' WOULD RILE UTILITY CUSTOMERS
Publication: CHARLESTON DAILY MAIL Published: Thursday, July 11 2013 Page: IC Byline: JARED HUNT BUSINESS EDITOR
After West Virginia American Water's 7 percent compromise rate increase settlement was announced Tuesday, Consumer Advocate Division Director Byron Harris basically said, "It could have been worse."
"Nobody's happy to have an increase in rates, but a 7 percent increase is better than a 20 percent increase like the company filed for," Harris said that afternoon.
t a $3 increase.
The sentiment that it could have been worse had the company actually got what it asked for made me think back on the biggest case the commission dealt with last year: Century Aluminum's request to pass costs from its Ravenswood plant to other power customers.
Century proposed tying its power costs to the price of aluminum and also wanted regular ratepayers to help cover its costs when aluminum prices fell below $2,400 a ton.
The PSC balked at that idea. But what if it hadn't?
According to Appalachian Power's filings last year, if the price of aluminum would have stayed where it was - $1,957 a ton - the average ratepayer would have had to chip in an extra $1 2.65 on each month's bill to make up the company's $61.5 million gap.
Century officials said at the time that aluminum prices were at a rare low and prices would eventually rebound.
Wrong.
Aluminum prices are more than $200 cheaper now, trading around $1,700 - a price not seen Since the 2009 recession.
Though Century said this was unlikely, Appalachian Power went ahead and ran the numbers in case it did. Felman Production JBM Exhibit 6 Case No, 13-1325-E-PC Page 2 of 2 News Article
At today's prices, West Virginia ratepayers would have had to fork over nearly $17.82 more each month - about $214 a year - to help make up the power company's $126.7 million revenue gap under the Century plan.
Imagine the consumer outrage had that happened.
Also, don't forget both Century's and the PSC's final plan still included about $35 million in severance tax credits that the state would have had to pay out to ease the plant's power costs - had it actually reopened.
Given the state's $90 million revenue deficit from the last fiscal year - including a nearly $52 million shortfall in severance taxes alone - that payout would have been a difficult one.
' ' ' ' .. The law giving the company those tax credits remains on the booKs. i- .' be interesting to see if lawmakers decide to nix the Century subsidy ~~~i~~~~%~
n--
CNBC released its annual "Top States for Business" this week, and West Virginia was again near the bottom at 48th.
The survey has long given the state low marks for business friendliness, education and labor policies, and did so again this year.
"Workers there are the nation's least educated, population growth is stagnant, and the state's heavy union presence -West Virginia is a non-right-to-work state - hurts it in the (Workforce) category,'' the CNBC report said. "Even in its strongest category, Cost of Doing Business, West Virginia can manage no better than 19th place."
Link:
http://li brary.cnpapers.com/cgi- bin/texis/search/timeuJCye5h btq3qnDB1GOawclMoD1MqzmxwwwmFqr~MdDBr5h FqOeRGlnGeRRHm qwceRkHmGprveRDxxLo5eRDwmtXWXtFqnGocnrFqw/storypage. html?id=Sldfcc2lba&key=b24193678 9f3982e7d45b02350ebla37