HANNIBAL - American Electric Power officials say they don't want to see Ormet Corp. - their largest customer in Ohio - fail, but they believe the Monroe County aluminum producer's most recent demand for cheaper electricity has gone too far.
Tom Froehle, vice president of external affairs for AEP Ohio, said the additional relief Ormet is requesting, if granted in its entirety, could result in higher rates for AEP's other 1.4 million customers all over the Buckeye State - including an average surcharge of $36 to $48 per year for residential customers.
"A lot of them, in this case, are saying, 'I live on a fixed income, I live 20 counties away and I have a steel company right in my backyard that seems to be doing fine. ... Why am I being assessed $40 a year for Ormet?'" Froehle said.
File photo by Scott McCloskey
Ormet Corp. employees chat inside the aluminum producer’s Monroe County smelting plant.
The company's response comes as a hearing on Ormet's June 14 request for discounted power rates is set to begin this morning before the Public Utilities Commission of Ohio, with about 900 jobs potentially on the line. Ormet officials have said the Monroe County aluminum smelting plant could shut down entirely if it cannot get the relief it is seeking and emerge from its second bankruptcy in the past decade.
According to Ormet, the company's electricity rate has increased 58 percent since the current arrangement was established in 2009, and Ormet CEO Mike Tanchuk has said electricity represents 40 percent of the plant's total operating cost.
Based on information in Ormet's PUCO filings, however, Froehle believes the relationship between electricity rates and Ormet's plight has been overstated.
"The commission could have granted (Ormet) free electricity since March of this year, and they still would not be making money. ... The market for their product is not there," he claimed.
Per a 2009 agreement, Ormet is slated to receive a total of $120 million in discounts from AEP for 2013 through 2017, with zero discount for 2018, the final year of the arrangement.
Ormet is seeking to receive that entire discount over the remainder of 2013 and 2014, and terminate the agreement three years early, at the end of 2015 - by which time the company hopes to be producing electricity independently at a $450 million on-site, natural gas-powered generating facility.
In addition to advancing the $42 million in discounts due to it between 2015-17, Ormet is seeking an additional $53.5 million in relief through measures including a rate freeze, a $4.5 million monthly discount for the first five months of 2015 and credits allowing Ormet to shop for electricity on the open market in the event its on-site power facility is not up and running by June 1, 2015.
"The discount that they're asking for exceeds their salary and wages for a year," Froehle said.
Ormet's filings with PUCO indicate the company pays about $66 million in annual wages and salaries when operating at capacity. It's unclear what that cost would be under current conditions, with only two of the plant's six potlines now operational.
If Ormet receives the relief it is requesting, Froehle said AEP would seek to recover as much of that lost revenue as possible by requesting a rate increase for its other Ohio customers.
"That is clearly up to the PUCO. ... Our rates are approved by (them), and we don't have the ability to deviate from that," Froehle said.
Froehle acknowledged it would not be in his company's best interest to see a customer as large as Ormet fail.
He doesn't deny Ormet's importance as Monroe County's largest employer and a vital contributor to its tax base, but he believes the company's demand for cheaper electricity "exceeds rational behavior."
The upcoming hearing, Froehle hopes, will provide more information about the viability of Ormet's business plan moving forward, allowing PUCO to arrive at a well-reasoned decision.
"And we just haven't been there yet ... ," Froehle said. "People are just trading insults at this point."
A federal judge in June approved Ormet's sale to Minnesota-based Wayzata Investment Partners, for a reported $221 million, following the aluminum company's Chapter 11 bankruptcy filing in late February.
On Aug. 21, PUCO ruled Ormet could defer a portion of its electric bills for August and September to "mitigate Ormet's immediate cash flow problem" as it awaited today's hearing on its request for additional relief. Froehle expects the proceedings could take a couple of weeks, with a final decision within a couple months.
PUCO spokesman Jason Gilham previously said American Electric Power also could seek to increase other customers' power rates if Ormet Corp. is closed.
Paul Prater, community affairs manager for AEP Ohio, responded it is "way too premature to discuss" whether AEP would seek to raise other customers' rates if Ormet shuts down.