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
AEP has said the
changes proposed by Ormet violate bankruptcy law and what the
Columbus, Ohio-based utility considers to be a contract with
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.
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
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
Under the terms of the
agreement, AEP consented to supply Ormets Hannibal
facilities with up to 540 MWh of electricity per hour through
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.