Magnesium Corp. of America officials and supporters said Wednesday that the company's future is in doubt if it cannot avoid a power rate increase that PacifiCorp wants.
During a Utah Public Service Commission hearing, company officials said Magcorp — currently in bankruptcy proceedings — may not be able to secure a buyer to keep operations running if it faces substantially higher electricity rates.
Others, including several state representatives, stood behind Magcorp in urging the PSC to keep the magnesium producer in business.
Magcorp has offered to accept a rate increase but not as high as the 70 percent rise — adding about $8 million to Magcorp costs — that PacifiCorp is seeking, said Michael Legge, Magcorp's president and chief executive officer.
"I urge the commission to err on side of caution, gradualism and reason," Legge said. "Virtually no industry struggling to compete in the existing tough world economy can survive a 50 to 70 percent cost increase to one of its key, primary production inputs. In my view, it's simply unreasonable to impose such a price increase on a customer."
Legge said Magcorp has 370 employees and contributes $100 million to the Utah economy annually.
Nineteen state senators and 52 House members have written separate letters to Gov. Mike Leavitt in support of Magcorp. Several said Wednesday that the state needs to do what it can to help big business.
"This state and this commission has a history and a tradition of over a generation now of supporting these reduced rates for our major industrial manufacturers and employers in the state," said Sen. Ron Allen, D-Stansbury Park. "It has served us well."
"I don't believe significantly increasing the cost of energy for a company like Magcorp is to the benefit of the state of Utah," Rep. Chad Bennion, R-Murray, said.
Magcorp is one of a handful of large companies that have special contracts with PacifiCorp. Since its first contract in 1968, it has received a rate lower than that of other industrial customers in exchange for a willingness to have power interrupted during power system emergencies.
The most recent contract expired at the end of 2001.
The company wants its business operations to continue, and three parties are interested in obtaining the company's assets. "All of this hinges on several key issues, one of which is the electrical contract going forward," Legge said.
The company generally wants to continue through 2004 with interruptible service and other terms and conditions it has had in the past, but with some conditions.
It has paid rates of $16 to $18 per megawatt-hour in the past four years and is willing to pay $21 per megawatt-hour. It has been subject to interruption at any time and is willing to be interrupted during system emergencies and costly spot-market periods up to two hours each weekday, or 520 hours per year.
"We should not be asked to absorb more than that," Legge said.
Power costs are about one-fourth to one-third of manufacturing costs, he said. During interruption periods, the company can choose to buy power on the spot market in order to maintain operations. The 520-hour figure is more than the company has experienced during the past 30 years combined, said Lee R. Brown, Magcorp vice president.
The odds that the company would be liquidated will increase if Magcorp faces the higher power costs, Legge said.
"Anything's possible in the world, and certainly we're the last magnesium producer in the U.S., and in 1998 there were three. I think that is, in and of itself, a significant fact."
PacifiCorp, meanwhile, wants more than 2,400 hours annually available for interruptibility of Magcorp.
Bruce Griswold, director of energy contracts for PacifiCorp, was asked if other special-contract customers have faced a 70 percent increase in rates in the past few years. "No, but they didn't have the low starting point that Magcorp has," he said.
Griswold said one contract customer will get a mid-40 percent increase, and another faces a 25 percent rise. "What we've intended to do and tried to do is treat Magcorp as we've treated all other special-contract customers," he said.
But Magcorp attorney Gary Dodge questioned those increase percentages. "We may have to bring them in here because that's certainly not what they're telling us," he said.
Any action that stems business growth in the state is detrimental, said Rep. Eric Hutchings, R-Kearns. "My concern would be that if Magcorp goes away and this (increase) makes it the kind of environment where they can't survive, who's going to replace them?" he said. "If Magcorp goes away, they don't come back."
Dennis Rockwell, chairman of the Tooele County Commission, and Cody Brown, president of United Steelworkers Union of America Local 8319, also expressed concern for the company's future.
"It's valuable to our entire country that we keep them in business so we don't have to rely totally on foreign materials coming into our country," Rockwell said.
"If PacifiCorp gets the increases of the 70 percent they're asking," Brown said, "there's no way Magcorp can stay in business."
However, Jeff Fox, utility analyst for the Crossroads Urban Center, said the company is in bankruptcy "for reasons other than what their electricity rates were."
"We're here talking about one entity that couldn't make it under a sweetheart contract that they had for several years, requesting that they be treated in a similar manner, with the rest of the rate customers picking up the difference," he said.
Fox said he worries about the precedent that would be set if Magcorp gets what it wants. "If we set this up," he said, "we establish a precedent so that any large industrial user can come back in and argue, based on the Magcorp case, that their rates should be much lower."
E-mail: bwallace@desnews.com