The Utah Public Service Commission heard testimony Friday in a case that could have far-reaching effects on rate structures for industrial power users.
The case involves Nucor Steel in Box Elder County and Utah Power & Light Co. Nucor finds itself in an enviable position. Recently annexed to the town of Plymouth, it has indicated it may help the city form a municipal power company if UP&L fails to rework the city's contract. A reduced contract would lower Nucor's payments to UP&L by about $3 million, of which $1 million would likely affect other ratepayers unless it is recouped through other revenue sources.If the company leaves the system entirely, about $14 million in revenues could be lost. That money instead would go to Plymouth and its proposed power company. UP&L could recoup some revenue if it became the wholesale supplier to Plymouth.
Nucor is not the first major industrial customer to seek rate reductions on a power contract. The trend began last year when BMT, the new owners of Geneva Steel in Utah County, successfully negotiated a two-year reduced rate contract before beginning operations. A similar agreement with AMAX Corp., a mineral extraction firm on the west side of the Great Salt Lake, and Monsanto soon followed.
Shelley R. Flaigel, vice president for marketing and pricing for Utah Power & Light and for Pacific Power & Light, said other large industrial users are expected to follow suit in the near future, although the company is nearing the ceiling on the number of such contracts it can handle.
The reduced rate contracts carry a provision that allows UP&L to interrupt power deliveries to the companies if that power is needed elsewhere in the system. In the case of BMT, there is an eight-hour notice provision before power can be cut. The Nucor contract carries a 10-minute notice clause. This immediate enforcement provision is one reason a lower rate is being proposed.
The proposed contract would allow UP&L to eliminate deliveries for 1,314 hours during the calendar year, or 15 percent of the time. Similar time frames are included in contracts with greater notice provisions.
What sets the Nucor request apart from the others is its proposed length - 10 years. Other industrial users will likely seek similar long-term deals, including Pepcon, a rocket fuel manufacturer that is building a new plant near Cedar City. With the power market becoming more and more competitive, more lucrative deals are likely.
PSC Chairman Brian T. Stewart said testimony on the proposal should conclude Tuesday, and the commission hopes to have a final decision by Thursday. Nucor has set Jan. 17 as the date it wants a final decision, but Stewart said that expectation is not realistic.
Flaigel said Nucor has agreed to a $5 million buyout of its existing contract, which has 16 months left to run. Flaigle said that is a major step forward in the 30-month-old negotiations.
Nucor wants a quick PSC decision in order to take advantage of a Federal Energy Regulatory Commission ruling that took effect Jan. 5. That ruling allows potential customers 90-days to present UP&L with contract requests for unused capacity on the company's transmission system. Nucor would use the 90-day period to seek an alternate supply source, which could include municipal power.