CHICAGO Ormet Corp. might cut production at its aluminum smelter in Hannibal, Ohio, and alumina refinery in Burnside, La., after Ohio officials failed to grant the bankrupt aluminum producer changes to its electricity agreement with American Electric Power Co. (AEP).
The Public Utilities Commission of Ohio (Puco) decided July 11 against giving Ormet the emergency power-rate relief it sought, instead opting to hold a hearing on the matter Aug. 27, according to Puco documents.
AEP has said the changes proposed by Ormet violate bankruptcy law and what the Columbus, Ohio-based utility considers to be a contract with Ormet (amm.com, July 12).
The delay has Ormet facing uncertainty about its power situation until October at the earliest, leaving the company "no choice but to take all actions necessary to properly prepare and begin the process of curtailing operations," Ormet said in documents filed July 15 in U.S. Bankruptcy Court in Delaware.
Ormet is "losing money on a daily basis" as aluminum prices on the London Metal Exchange continue to fall and the price of electricity increases, Ormet said in court documents, noting that LME aluminum prices stood at $2,003 per tonne when the company filed for bankruptcy protection but have since fallen to less than $1,800 per tonne.
The LMEs cash aluminum contract closed the official session July 15 at $1,761.50 per tonne.
Production curtailments could include "shutting down some or all of the operating potlines at the Hannibal smelter" and reducing or ceasing operations at Burnside, according to court documents.
Given depressed aluminum prices, cheaper electricity is an urgent issue for Ormets survival, Ormet said in the court filings. Without affordable electricity, Ormet is "unable to operate the company as a going concern" because Wayzata Investment Partners LLC and its entities have advised Ormet that they are "unwilling to move forward with the sale" without a better power deal. Wayzata, Minn.-based Wayzata Investment Partners is the parent company of Smelter Acquisition LLC, which last month was approved as Ormets stalking horse bidder (amm.com, June 4).
Ormet filed for Chapter 11 bankruptcy protection in February, citing high legacy and power costs and low aluminum prices (amm.com, Feb. 26).
Ormet also filed an appeal with Puco and requested that the hearing be moved up to the week of July 22. The company contends it faces "an imminent liquidity" crisis if its terms arent met before July 31 as it requires a $1-million cash infusion by the end of July and $13 million by the end of August to continue operations, according to a document filed with Puco July 15.
Ormet "at a minimum" is faced with reducing its two operations to two operating potlines within the next 30 days and potentially "a complete shutdown," according to the document. Without changes to its power arrangement with AEP, "substantial harm" will befall Ormet and the state of Ohio, jeopardizing 800 jobs at Ormet, 2,000 jobs indirectly related to the company and the loss of hundreds of millions of dollars in wages, worker benefits and tax payments, the company said.
The catch is that Ormets sale contains one key condition: the company getting a "fair market price for electricity," which Ormet sees as a fixed rate for 2013 of $48.59 per megawatt hour, the amount it paid in the first quarter of the year, and permission to purchase power from a third party effective with the January 2014 billing cycle, according to the Puco documents.
Wayzata and related entities have provided $30 million to Ormet since February to cover operating losses and bankruptcy administrative expenses, Ormet said. They wont "provide additional capital to Ormet without reasonable assurance that Ormets energy costs will be rationalized," the company said in a Puco filing.
Under the terms of the agreement, AEP consented to supply Ormets Hannibal facilities with up to 540 MWh of electricity per hour through 2018.
Ormets Hannibal smelter can produce up to 270,000 tons of primary aluminum per year at full capacity, and its alumina refinery in Burnside can produce 540,000 tons of smelter-grade alumina annually.