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Ormet, AEP in dispute over power deal

Keywords: Tags  Ormet, American Electric Power, AEP, bankruptcy, sale, electricity, power rates, aluminum Wayzata Investment Partners


CHICAGO — Ormet Corp. and utility American Electric Power Co. (AEP) are at loggerheads over a power deal for the bankrupt aluminum producer.

The Columbus, Ohio-based utility accuses Ormet of reneging on a contract, while Ormet contends that AEP’s objections to proposed changes to its power rates or power provider could jeopardize its ability to operate as a going concern, according to court documents filed this week in U.S. Bankruptcy Court in Delaware.

The two sides even disagree on whether their current agreement constitutes a contract, according to the documents.

A hearing is scheduled for July 16, according to a court order signed July 10 by U.S. bankruptcy judge Mary F. Walrath.

AEP, one of Hannibal, Ohio-based Ormet’s biggest creditors, contends that Ormet and its purchaser, Smelter Acquisition LLC, aim to first amend an existing contract to the aluminum producer’s benefit and then to terminate the agreement with the utility effective Jan. 1, 2014.

Ormet filed for Chapter 11 bankruptcy protection in February, citing high legacy and power costs and low aluminum prices (amm.com, Feb. 26). The company’s sale to stalking horse bidder Smelter Acquisition LLC, a company owned by Wayzata Investment Partners LLC, Wayzata, Minn., was approved by the U.S. Bankruptcy Court in Delaware last month (amm.com, June 4).

The current deal between Ormet and AEP lists the utility as the aluminum maker’s “exclusive supplier of generation service” through 2018, AEP said.

“All of the amendments sought ... to the AEP contract are favorable to the debtor and the purchaser and detrimental to AEP,” the utility said, arguing that the proposed changes are in violation of bankruptcy law and the terms of the contract.

AEP had been in discussion with Ormet and its purchaser before the company’s sale was approved, but the two sides have since “been unable to resolve their differences,” the utility said.

Ormet has said that AEP’s objection should be overruled, arguing that the contract modifications Ormet seeks are necessary, consistent with Ohio regulations, and are already before the Public Utilities Commission of Ohio (PUCO), which has final authority on the matter.“Access to affordable power is necessary ... to operate the company as a going concern,” the company said, noting that the cost of electricity can be more than one-third of its operating expenses.

Among Ormet’s aims are a fixed power rate for the rest of 2013 equal to what Ormet paid in the first quarter of the year and permission to buy power on the open market beginning in the January 2014 billing period, Ormet said in court documents. The existing agreement with AEP need not be assumed after the sale because the Ohio Supreme Court has already determined that a “unique arrangement” among PUCO, AEP and Ormet “is not a ‘contract’” but instead “merely memorializes” terms of a 2009 order, the company said in court documents.

“Quite simply, a unique arrangement is not a contract under Ohio law,” the company said. “PUCO has final and continuing authority ... and the terms can be imposed on the utility.” AEP’s objections to Ormet’s sale also amount to an “attack” on PUCO’s jurisdiction and the decisions of the Ohio Supreme Court, the company alleged in court documents.

Under terms of the agreement, AEP consented to supply Ormet’s Hannibal facilities up to 540 MWh of electricity per hour through 2018.

Ormet’s Hannibal smelter can produce up to 270,000 tons of primary aluminum per year at full capacity (amm.com, May 28).

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