Trade Court Says Commerce Must Pick Clear Standard to Review Allegation of Off-Peak Electricity Sale for LTAR

In the opinion, the judge also sent back Commerce's decision not to treat POSCO Plantec, an affiliate of POSCO, as a cross-owned input supplier related to its provision of scrap and the converter vessel to POSCO.

In the review, the Korean government said that when a company consumes electricity when the load factor is low, the tariff drops since electricity could be generated by using cheap fuels. Nucor alleged, using data from news reports and the Korean Power Exchange, that electricity demand was more evenly divided between on- and off-peak hours, meaning the provision of off-peak electricity provided a benefit to POSCO. The petitioner relied in part on the absence of fluctuation in the system margin price (SMP) to show that lower cost generators established the SMP less than 4% of the time, even during off-peak hours.

Nucor noted that the SMP serves as a "reasonably available and conservative proxy" for what the price of electricity should be at any specific time of day, since it reflects the variable cost of electricity generation. Commerce refused to start the investigation, finding that Nucor did not account for certain factors, including capacity price, while adding that any cost-based benchmark should include these factors, since the Korean electricity provider's costs are based on them. The court initially remanded this decision, finding the agency's discussion of Nucor's claims to be "cursory."

On remand, the agency said the issues are whether the pricing could amount to a subsidy distinct from Nucor's previous allegation regarding the sale of electricity and whether the allegation met the threshold for starting an investigation into such a program. While Commerce said it treated Nucor's allegation as a separate subsidy program and applied the standard set in RZBC Group, whereby the agency must treat a petition like a civil complaint, Barnett said there was a disconnect between the standard of review Commerce used and the RZBC Group framework.

The judge ruled that there is no need for a strict choice between the RZBC Group standard and a heightened standard for initiation, though Commerce must be consistent in the standard it uses. Barnett held that the agency showed "inconsistency in this regard," prompting a further remand. While Commerce initially appeared to accept the "premise of Nucor's allegation" -- that a particular time period within a time-of-use system could be reviewed as a separate subsidy program -- Commerce suggested it viewed the situation differently. Instead of giving further explanation, the agency instead "faulted Nucor for failing to address certain reasonably available information," and sought to apply the RZBC Group standard.

In the review, Commerce also initially declined to attribute to POSCO subsidies for Plantec based on its supply of scrap since the affiliate generated scrap as a by-product and sold it via an intermediary, further declining to attribute Plantec's subsidies to POSCO based on Plantec's supply of raw materials, fixed assets and services. The court remanded the issue since Commerce's past decisions seemed to support Nucor's arguments regarding the attribution of Plantec's subsidies to the respondent.

On remand, Commerce said the agency's decisions are case-specific, listing several factors relevant to the analysis. For instance, Commerce said that scrap given by Plantec was not "primarily dedicated to the production of the downstream product." Barnett acknowledged that neither statute nor regulation defined "primarily dedicated," and that Nucor did not substantively argue against the consideration of various factors in the analysis beyond saying Commerce reached different conclusions in different cases involving the provision of scrap to POSCO.

However, the judge said other parts of Commerce's analysis require more consideration. In the review, Commerce compared scrap provided by Plantec with the scrap processing services given by Pohang Scrap Recycling Distribution Center Co., a cross-owned input supplier of POSCO's. Commerce distinguished processed from unprocessed scrap and, on that basis, set apart its decisions regarding Plantec and Pohang. Barnett ruled that the agency failed to back its finding that the unprocessed scrap here is "more 'generic' than processed scrap."

The agency's decision "suffers from two flaws," the judge noted. The first is that Commerce distinguished the present case from those where multiple companies provided scrap to a downstream producer, implying that the production of scrap by those companies is a piece of an overall production chain to give scrap to the affiliated downstream producer. In this case, there were at least two firms supplying scrap to POSCO, though Commerce didn't explain why this isn't enough to find an overall production chain, the court said.

The second flaw was that because Commerce "failed to demonstrate that Pohang SRDC processed scrap specifically for POSCO, Commerce’s differential treatment of Pohang SRDC and Plantec appears arbitrary."

The judge lastly remanded Commerce's finding that the converter vessel is not mainly dedicated to the downstream product's production despite finding that the vessel could be used in making the downstream product. Barnett said the agency "must reconsider or further explain its reasons for considering factors other than 'whether the supplier produced the input' and, if necessary, reconsider or further explain its decision on several other factors."

(Nucor Corp. v. United States, Slip Op. 23-119, CIT # 21-00182, dated 08/21/23; Judge: Mark Barnett; Attorneys: Alan Price of Wiley Rein for plaintiff NucorCorp.; Elizabeth Speck for defendant U.S. government; Brady Mills of Morris Manning for defendant-intervenor POSCO)