Ky. utility's biggest customer set to go offline

LOUISVILLE, Ky. (AP) -- A western Kentucky aluminum smelter is moving closer to ending its power purchasing agreement with a Kentucky utility that depends on the massive plant for more than a third of its annual revenue.

The loss of Century Aluminum Co. will mean significant rate increases for more than 113,000 Big Rivers Electric Corp. residential and commercial customers in 22 western Kentucky counties. Big Rivers this week said it has finalized an agreement with Century that must be approved by the Kentucky Public Service Commission, which regulates the state's utilities.

The commission was holding hearings in Henderson, Owensboro and Brandenburg on Thursday to hear from the public about the proposed rate increases. A fourth hearing will be in Paducah next week.

Opponents of the rate increases say Big Rivers should cut down on its power production so customers don't have to pay more to offset the loss of the smelters.

The utility, which is owned by three electric distributors, is asking for rate increases that would total $74.5 million. That would mean a 19 percent rate hike for residential customers, about $24 a month for an average customer, and 17 percent increases for businesses.

About 40 people attended the public hearing Thursday afternoon at a middle school in Henderson, said Andrew Melnykovych, a spokesman for the PSC. He said about a half-dozen people, including a representative from Tyson Foods, spoke at the meeting in opposition to the rate increases.

"They don't feel the rates are justified," Melnykovych said of the speakers at the 90-minute hearing.

A group of businesses in the region has organized to oppose the proposed rate hikes. Fair Rates Kentucky has an online petition that has garnered 650 signatures in about a month.

Steve Henry, a member of Fair Rates Kentucky and general manager at Domtar Paper in Hawesville, said the proposed rates would increase his facility's energy bill by $1.6 million a year.

"Any increase in the cost of production at Hawesville increases the likelihood that we may be asked to temporarily halt production," Henry told the PSC in testimony last month.

The finalized agreement filed with the Public Service Commission this week would allow Century Aluminum to buy electric power on the open market.

Century Aluminum's smelter in Hawesville and another in Sebree, Ky., generated $360 million, or 64 percent, of Big Rivers' revenue in 2012, Big Rivers CEO Mark Bailey said this week at an appearance in Henderson. The Hawesville plant's power contract ends next month. Century, based in Monterey, Calif., recently bought the Sebree smelter from Rio Tinto Alcan, and that facility's power contract with Big Rivers ends in January.

Century Aluminum spokesman Mike Dildine said Thursday that the Sebree smelter's contract with Big Rivers ends in January. The Sebree smelter will also buy electric power on the open market, Dildine said.

Dildine said access to market-based power was essential for the smelters to continue operating in Kentucky. The two facilities employ a total of 1,150 workers.

Bailey said allowing the smelters to buy on the open market means Big Rivers will have the chance to sell the unused power to other clients, making it possible to lower rates in the future.