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August 21, 2014
Testimony by Principal Bob Mudge Key to Ameren Win in $500 Million Rate Dispute Before Missouri Public Service Commission

Testimony provided by Brattle principal Bob Mudge underpinned key criteria cited by the Missouri Public Service Commission (Commission) in a unanimous ruling against Ameren’s largest customer, Noranda Aluminum, Inc. Noranda had sought a rate reduction that could have transferred as much as $530 million in cost burden to other Ameren stakeholders over a ten year period, according to the Commission order.

Per the Commission’s order:

“[Noranda’s] request is founded on three contentions: 1) Noranda Aluminum, Inc.’s aluminum smelter is crucial to Missouri’s economy; 2) the smelter cannot be sustained without the rate relief requested; and 3) all Ameren Missouri ratepayers will directly benefit from the relief requested because granting that relief is more beneficial compared to Noranda leaving the Ameren Missouri system. While there is substantial evidence in the record regarding the impact of the smelter on southeast Missouri and on the state, the evidence does not support the second and third of Complainants’ contentions.” [emphasis added]

Mr. Mudge’s testimony principally focused on Noranda’s contentions addressing liquidity and competitiveness in connection with the requested rate reduction. The order cited his testimony repeatedly in concluding that Noranda had overstated the liquidity challenge posed by the existing rates, basing its financial analysis on inappropriate indices for future aluminum prices and unsupported forecasts of capital spending requirements. Importantly, forecast assumptions made by Noranda in its complaint were at variance with those made contemporaneously to the financial community. The order also concluded that Noranda had overstated its claim of competitive disadvantage, citing a Brattle analysis showing that Noranda’s electricity costs were only slightly above the average for its U.S. peers and that all production costs were below average.

Separately, the commission echoed Brattle’s observation that some of Noranda’s problems were self-inflicted: the result of its history of private ownership and large dividends. Ultimately, the commission recognized that Noranda was seeking a long-term cost advantage based on the pretext of a short term crisis.

In addition to Mr. Mudge, the Brattle team included principal Kevin Hearle, senior associate Mike Kline, associate John Tsoukalis, and research analyst Ashley Palmarozzo, with key contributions by principals Yvette Austin-Smith and Ira Shavel.

The Commission's report and order can be viewed here.