Ormet looking to produce it own electricity
HANNIBAL – As Ormet Corp. prepares to move forward under new ownership, President and Chief Executive Officer Mike Tanchuk hopes the company will be able to generate electricity independently using natural gas by the end of 2015.
Following a federal bankruptcy court judge’s decision to allow Smelter Acquisition LLC, a subsidiary of Minnesota-based Wayzata Investment Partners, to purchase the Monroe County aluminum producer for $221 million, Ormet now wants the Public Utilities Commission of Ohio to allow it to build a $450 million on-site power generating facility.
Tanchuk said the move would allow Ormet – which buys its electricity from American Electric Power – to assume control over its energy source and no longer rely on state assistance with those costs, which represent about 40 percent of the company’s expenses.
“I think it can be done. We need the runway to get there,” he said. “There’s a lot of natural gas available in the region, and we want to use it here. We don’t want to be sending it overseas.”
For this to happen, however, Tanchuk said Ormet needs PUCO to grant further relief from its already-discounted electricity rates and terminate the agreement at the end of 2015.
“It may impact our operating level if we can’t get that relief. I’m hoping we can. … We need that agreement to proceed,” he said.
Its current agreement provides the company lower rates based on the price of aluminum through the end of 2018. Even with the lower rate, Ormet last year said it might have to lay off about 1,000 workers due to an anticipated $20 million surge in annual costs. Those layoffs did not occur.
That crisis was averted when the commission agreed in October to allow Ormet to defer millions of dollars in looming electricity bills until at least 2014 – with the stipulation the company ask for no further relief without providing a long-term plan to exist without rate payer support. The current agreement, according to the Ohio Consumers Council, is expected to cost other American Electric Power rate payers about $305 million over the course of the agreement.
The discount saved Ormet $54 million last year alone, according to PUCO.
For now, Tanchuk expects Wayzata to continue normal operations at the Hannibal plant, with four of the facility’s six potlines running and 800-850 combined union and management workers on the job. He’s cautiously optimistic that increasing worldwide demand will lead to higher aluminum prices by next year, potentially allowing Ormet to return to full production.
“Right now the price is still pretty flat. … For today, I think people should be relieved that there’s a step forward, but we have to watch the metal prices and see where this takes us into the future,” he said.
Despite struggles with the price of electricity and low metal prices, it was the company’s underfunded pension plans that prompted February’s bankruptcy filing, Tanchuk previously noted.
He blames low interest rates for Ormet’s inability to keep up with pension liabilities despite contributing $175 million to its retirement programs over the last five years.
Tanchuk said the federal Pension Benefit Guaranty Corp. – which had objected to Ormet’s sale based on a reported $235 million unfunded liability – will take over the plan, and going forward the company will move to a defined contribution program.
Wayzata has agreed to assume the existing collective bargaining agreement with only minor changes, United Steelworkers District 1 Director Dave McCall previously said, leading to expectations of a smoother transition. The transition was anything but smooth when Ormet last went through bankruptcy in 2004, as a 20-month-long strike resulted from the former owner’s attempt to implement a contract that included significant wage and benefit reductions.
Tanchuk, who has been with the company since 2007, attributes the difference to the company’s effort to be “absolutely open” with union members throughout the process.
“They stepped up to the plate, and they ratified three-to-one the changes, and they’ve been, I would say, our greatest supporter. … I think they understand the situation,” Tanchuk said of the union. “The main issue is the metal price and the power cost. It’s not us trying to do anything against the employees. The process we set up was designed from the beginning to have a minimal impact on employees and retirees. I know it’s caused people to worry and concern of families, and I wish it was something we could avoid. But we can’t. … I know it’s not easy for anybody through this process.”