Company cites inability to work out favorable power rates with state agency as key reason for closure.
The aluminum smelting firm Ormet
has announced that following an Oct. 2, 2013, ruling by the Public Utilities Commission of Ohio (PUCO) denying the aluminum producer a request for an energy transition plan, it will close its aluminum smelter, in Hannibal, Ohio, where the company is headquartered. Ormet had sought an arrangement that would have allowed it to operate while constructing an on-site natural-gas-based power generation facility.
Ormet says that in light of PUCO’s decision, it will not be able to emerge from bankruptcy protection and will immediately shut down operations.
The company adds that it filed for bankruptcy protection Feb. 25, 2013, in light of low metal prices and exceedingly high and uncontrollable power costs. The Ohio Power industrial rate, which establishes the base rate for Ormet to procure power, has increased from $39.66 per megawatt hour (MWh), when the unique arrangement was established in 2009, to $60.83 per MWh in September 2013, an increase of more than 53 percent. During the same period, wholesale power costs in the region have decreased by more than 10 percent, the company says.
According to Ormet, the arrangement was created as an economic incentive to maintain and create jobs, which Ormet has successfully done to date.
Mike Tanchuk, Ormet president and CEO, says, "The economic impact of PUCO’s decision is simply a restructuring of the existing economic incentives already pledged to Ormet for maintaining the jobs and does not address the continued rate increases from AEP. It is not sufficient to maintain, let alone increase, operating levels at Hannibal and begin construction of an on-site power plant.”
He continues, “The chairman and one of the commissioners went out of their way to insult Ormet’s efforts to reduce costs. I want to set the record straight and recognize that the USW (United Steel Workers) and secured creditors have coordinated in a collaborative effort with the company to reduce the company’s financial liabilities by almost $300 million. The PUCO commissioners never mentioned in their comments that Ohio’s energy policy transition to market has massively increased energy costs and is misguided.”
Countering Ormet’s assertion, PUCO Chairman Todd Snitchler notes that Ormet’s request was predicated on its assertion that with the additional requested assistance it would be able to achieve prosperity and would no longer need subsidized by AEP-Ohio’s other ratepayers.
While acknowledging the importance of Ormet to the community, the commission reached a decision that it says balanced Ormet’s needs and the fairness of other AEP-Ohio ratepayers. “While several federal, state and local elected officials from the region have urged the Commission to do more, today’s order reflects what is justifiable given the above mentioned considerations. However, I encourage these officials to contemplate what can be done through their authority to do more for Ormet if they feel more is appropriate,” Snitchler says.
“Today’s order grants Ormet some of what is requested in the June 14 Motion to Amend, or as it would be more appropriately captioned, an application for a new unique rate arrangement. In its request, Ormet requested substantially greater assistance from ratepayers, and based on the record that additional assistance was valued at between $56 and $119 million. This additional assistance is over and above the $308 million already awarded to Ormet in 2009, of which $232 million in rate subsidies and an additional $27 million in deferrals granted in 2012, and up to another $10.5 million in deferrals granted this summer to ensure continued operations during the pendency of this proceeding have already been consumed. In total, the Commission has already approved $346 million in financial support to Ormet over the past four years,” Snitchler says.
“This rate keeps Ormet’s pricing in line with the other large industrial customers, and strikes the right balance of support and maintaining jobs without unduly burdening other ratepayers.”
Steve Lesser, another PUCO commissioner, expressed disappointment that Ormet failed to meet its corporate responsibility as promised and testified to in prior proceedings before the Commission.
He pointed out that Ormet was granted more than $346 million dollars over the last four years from AEP and, to a greater extent, other Ohio ratepayers.
Despite this, Lesser points out, “Ormet returns with a new set of promises and scenarios that require new and accelerated financial support to keep the company afloat.”
Further, he notes, despite expressions of support from federal, local and even West Virginia officials, there have been no offers to share the financial burden of subsidizing Ormet’s electric rate.