Louisville, Kentucky (Platts)--29Jan2013/555 pm EST/2255 GMT

In another blow to Century Aluminum and Rio Tinto Alcan, Kentucky regulators Tuesday denied a request to reduce their revenue requirements as part of a Big Rivers Electric rate case.

The Public Service Commission largely reaffirmed its November 2011 rate adjustment case for Big Rivers, a Henderson, Kentucky-based generation and transmission co-op that supplies more than 800 MW of electricity to Century's 244,000 mt/year Hawesville and Alcan's 180,000 mt/year Sebree smelters in western Kentucky.

That rate order allowed Big Rivers to increase annual revenue by about $26.75 million, or about 6%.

Both Big Rivers and the Kentucky Industrial Utility Customers, a statewide trade group that represents Century and Alcan, challenged the order, and the commission granted Big Rivers' rehearing request on four issues.

Circuit Court to set aside the decision. The court refused to do so and sent the matter back to the PSC, which issued the rehearing order.

KIUC, arguing that the $11 million subsidy paid by the smelters could cause them to become uneconomic and possibly close down, asked for a reallocation of the subsidy to Big Rivers' rural customer class.

The industrial group also warned the volatility of the London Metal Exchange "contributes significantly to the operational risk of the smelters, and risk to Big Rivers and its remaining customers."

Century notified Big Rivers last year it intends to cancel their longstanding power purchase agreement on August 1.

Nevertheless, the PSC found no basis to modify the smelter's revenue allocation or reduce the subsidy.

"The smelters voluntarily signed long-term power contracts in 2009 which provided for the payment of rates to Big Rivers that would be above cost-of-service," the commission ruled. "As KIUC has acknowledged, there is no statutory requirement that rates be set based solely on cost of service; determining cost of service is an exercise in judgment; and factors other than cost of service, such as gradualism, can be considered when setting rates."

KIUC attorney Michael Kurtz said he had not yet seen the PSC order and would have no immediate comment.

Both the Hawesville and Sebree smelters are paying about $50/MWh for Big Rivers power, well above the average US smelter price of about $35/MWh.

--Bob Matyi, newsdesk@platts.com --Edited by Richard Rubin, richard_rubin@platts.com