HANNIBAL - Noting he believes American Electric Power will raise the company's electric bill by $20 million a year, Ormet Chief Executive Officer Mike Tanchuk said the aluminum producer must curtail operations.
In conjunction with the Worker Adjustment and Retraining Notification Act notice Ormet filed last month, Tanchuk's Tuesday announcement could eventually lead to the company laying off nearly 1,000 workers at the Hannibal Primary Aluminum Reduction Plant by the end of the year.
"We have been working very hard with AEP and the state of Ohio over the past several months to formulate a solution to the rising electricity prices, but unfortunately could not come to agreement for any of the alternatives developed," Tanchuk said. "The current issue is that AEP's electricity rates have increased so much that Ormet needs additional assistance to keep employment levels up."
Initially, Tanchuk said, Ormet is going to shut down two of the six potlines at the Hannibal facility as the company continues searching for alternatives to its power supply problems. The rate increase - which AEP officials acknowledge will occur while declining to confirm its amount - is the result of a recent ruling by the Public Utilities Commission of Ohio.
Earlier this month, the PUCO decided to freeze AEP's base generation rate at current levels until May 31, 2015. Under the terms of the order, AEP is directed to file with the PUCO a detailed competitive bidding process by Dec. 31. Customers will still see a 6 percent to 7 percent increase in monthly bills this year, but no resident or business will be responsible for more than a 12 percent increase.
Tom Byers, president of United Steelworkers Local 5724 at Ormet, said both potlines set for shutdown should be out of operation by the end of today. He emphasized Tuesday, though, that no one has been laid off to this point.
"We are just trying to get a handle on all of this. The ultimate outcome may not be good if the power rates go up by that much," Byers said.
The WARN notice states the first round of job cuts will take place by Sept. 18, with the remainder to take place by the end of the year. It further states the "curtailment of operations and reduction in force is expected to be indefinite."
"The current aluminum market and the dramatically increasing cost of electricity in Ohio have forced us to make additional reductions in operating levels at the Hannibal operation. The people of Ormet and the surrounding communities are very grateful for the support we have received in the past from our energy contract," Tanchuk added Tuesday.
AEP Ohio spokesman Jeff Rennie said this energy contract has afforded Ormet discounted rates since October 2009. He said his company has been "incredibly supportive of Ormet with their very attractive electric rate arrangement ..."
"We understand the challenges that rate increases can have on Ormet, given how difficult conditions are today in the global aluminum market. However, the majority of the nominal increase in AEP Ohio's rates is for recovery of the cost of power generation fuel that was used by Ormet and other customers but has not yet been recovered, and other investments in the electric infrastructure that support our customers and Ohio's energy economy," Rennie said.
AEP announced plans last year to close the Kammer Plant south of Moundsville, citing increased air pollution regulation by the U.S. Environmental Protection Agency. The Kammer facility opened in the late 1950s, primarily for the purpose of supplying electricity for the Ormet plant, though it does not do this anymore. Rennie said the closing of the Kammer Plant - slated to be complete by June 1, 2015 - has nothing to do with the Ormet situation. He said Ormet would need to ask the PUCO for more assistance with power rates if the company needs it.
Ormet posted a $1.1 million net loss for the first three months of 2012, but company officials spent $1.9 million during that time to reline 22 pots at the Hannibal facility. In the first three months of the year, workers shipped 67,981 metric tons of product, compared to 58,079 tons during the same time in 2011.
Tanchuk also said the actions taken at Hannibal could impact the operating level of Ormet's Burnside Louisiana refinery, affecting an additional 252 employees there.