Ohio Consumers' Counsel Opposes Level of Ormet Electric Discount to be Paid by AEP Customers

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An electric discount proposed for one company could cost all Ohio customers of American Electric Power (AEP) as much as $2.8 billion over 10 years.

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The OCC wants a balanced solution that promotes economic development through electricity rate discounts while assuring reasonable rates for all the other customers who must subsidize those discounts.

Columbus, Ohio (Vocus)An electric discount proposed for one company could cost all Ohio customers of American Electric Power (AEP) as much as $2.8 billion over 10 years. The Office of the Ohio Consumers' Counsel (OCC) called the proposal by Ormet Primary Aluminum Corp. excessive in a brief to be filed later today with the Public Utilities Commission of Ohio (PUCO).

This discount equates to spending $473,579 per Ohio employee at Ormet. The Hannibal, Ohio company has approximately 600 employees that both reside and work in Ohio.

The OCC will be joined in its filing by the Ohio Energy Group, comprised of large energy users throughout the state.

"Ormet's proposal could result in residential and business customers of AEP paying the aluminum manufacturer's entire electric bill, or even paying millions of dollars for Ormet to use electricity," said Consumers' Counsel Janine Migden-Ostrander. "The OCC wants a balanced solution that promotes economic development through electricity rate discounts while assuring reasonable rates for all the other customers who must subsidize those discounts."

The deal proposed by Ormet and considered by the PUCO would, beginning in 2010, vary the price Ormet pays AEP for electricity based on the price of aluminum. The lower the market price of aluminum, the lower Ormet's electric rate would be. In times of low aluminum prices, the subsidy could more than offset Ormet's electric bill.

Estimates for the price of aluminum in 2010 would alter Ormet's electric costs to a magnitude that would require AEP customers to pay Ormet up to $77.1 million per year for it to use electricity. The extraordinary subsidy could include the annual payment of Ormet's out-of-state pension costs and $2.4 million in salaries and bonuses to its top three executives.

Under Ormet's proposal, the price of aluminum would have to increase by 65 percent before it would pay anything for the massive amount of power it consumes.

The OCC recommends a cap on the subsidy to Ormet equal to $32.7 million per year, the approximate value of the company's Ohio payroll. Any agreement should be shortened in length from 10 to five years. In addition, a credit proposed by Ormet to all other customers when the price of aluminum rises should be enhanced to provide a maximum credit of $16.35 million per year.

Ohio's electric policy law adopted in 2008 permits reasonable arrangements based on unique circumstances, if the arrangements are filed and approved by the PUCO. Ormet bears the burden of proving its request is reasonable and should be approved.

About the Office of the Ohio Consumers' Counsel

The Office of the Ohio Consumers' Counsel (OCC), the residential utility consumer advocate, represents the interests of 4.5 million households in proceedings before state and federal regulators and in the courts. The state agency also educates consumers about electric, natural gas, telephone and water issues and resolves complaints from individuals. To receive utility information, brochures, schedule a presentation or file a utility complaint, residential consumers may call 1-877-PICKOCC (1-877-742-5622) toll free in Ohio or visit the OCC Web site at http://www.pickocc.org.

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