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PUCO Modifies Ormet’s Application For A Unique Arrangement

By Staff | Oct 3, 2013

On Wednesday the Public Utilities Commission of Ohio modified and approved Ormet Primary Aluminum Corporation’s application for a unique arrangement.

PUCO ruled that Ormet’s monthly billed rate should not exceed a fixed generation and fuel rate cap of $50 per megawatt hour, beginning with the company’s October 2013 bill through 2014.

PUCO also approved the acceleration of the remaining maximum discount available to Ormet under their current unique arrangement with PUCO. The origin of the unique arrangement begins in 2009 when PUCO approved $308 million in electricity discounts. These discounts were to last from 2009-2018, on a sliding scale. (See accompanying graphic)

In October 2012, PUCO approved Ormet’s emergency request for the deferral of its October and November 2012 electricity bills, a total of $27 million, which Ormet proposed to begin repaying in January 2014, without any additional interest or carrying charges.

In June 2013, Ormet filed an application to amend the 2009 unique arrangement with AEP-Ohio and a request for emergency relief. In the application, Ormet emphasized that the requested relief is necessary to enable Ormet to emerge from a recent bankruptcy sale and to continue its operations in Ohio. In July 2013, Ormet filed a motion to defer its monthly bill payments for the company’s August and September 2013 electricity bills.

In August, PUCO approved Ormet’s request for deferred payments, which includes a $5 million deferral of Ormet’s August electricity bill and up to a $5.5 million deferral of its September electricity bill.

In Ormet’s June 2013 application, the company separated its proposal into two portions: emergency relief which Ormet stated is intended to enable the company to emerge from bankruptcy; and non-emergency relief which Ormet claimed was needed to make the company viable on a long-term basis.

Emergency relief requests included the following: the term of the unique arrangement be shortened to end on Dec. 31, 2015, rather than Dec. 31, 2018; a fixed average generation rate of $45.89 per megawatt hour for the entire calendar year of 2013; the company be permitted to break its current contract with AEP-Ohio and transition to retail choice, effective Jan. 1, 2014; Ormet receive monthly discounts of $5.5 million for the remaining months of 2013 and receive monthly discounts of $4.5 million for 2014, accelerating its remaining discounts; the assignment of its interests in the amended unique arrangement to Smelter.

Non-emergency relief requests included: an additional $4.5 million monthly discount the first five months of 2015; permission to purchase full power requirements from a competitive retail electric service (CRES) provider, should Ormet reopen its idle potlines; amend 2012 deferral payments schedule from monthly installments of 1/17 to monthly installments of 1/24; adjust the set target price of the London Metal Exchange (LME) that would trigger discount repayment by Ormet to AEP-Ohio ratepayers; provide commission with more detailed information regarding construction of on-site power plant; and ability to shop for power from CRES providers should power plant construction fall behind schedule.

PUCO did not approve of a discounted electric rate of $45.89; however, as previously stated, PUCO will allow Ormet to purchase power at a discounted rate of $50, a decrease from its current rate of $60.

Also, the acceleration of discounts is intended to sustain Ormet during the period leading up to Ormet’s projected return to profitability in late 2014 and early 2015, which PUCO hopes will enable Ormet to make its deferred payments.

PUCO also approved Ormet to assign its interest to Smelter Acquisition LLC; the commission also modified a lower target price of the LME that would trigger discount repayment by Ormet to AEP-Ohio ratepayers.

PUCO denied Ormet’s proposal to extend its 2012 deferral repayment schedule; denied the request for an additional $4.5 million discount the first five months of 2015; and denied Ormet’s request to transition to retail choice. Thus, the company must honor its current contract with AEP-Ohio through December 2018.

However, PUCO did rule that if Ormet succeeds in its plans to construct and operate the proposed power plant prior to the expiration of the unique arrangement on Dec. 31, 2018, Ormet may seek the necessary amendments to the unique arrangement.

“It is important to note that many voices have offered support for Ormet and the significance of Ormet’s operations in southeast Ohio,” PUCO Chairmen Todd A. Snitchler noted. He later added: “While several federal, state, and local elected officials from the region have urged the commission to do more, today’s order reflects what is justifiable . . . I encourage these officials to contemplate what can be done through their authority to do more for Ormet if they feel more is appropriate.”

“Ormet requested an average fixed rate of $45.89 per megawatt hour. The commission modifies that figure to cap at $50 per megawatt hour for fixed generation and fuel, plus all applicable riders, distribution charges, excluding the discount, beginning with the October 2013 bill and continuing through December 2014,” Snitchler added. “For the period from January 2015 through 2018 Ormet will be billed in accordance with the terms of the current arrangement, as otherwise modified by this Order. This rate keeps Ormet’s pricing in line with the other large industrial customers, and strikes the right balance of support and maintaining jobs without unduly burdening other ratepayers.”

Snitchler also stated that the commission authorized Ormet to assign its interest to Smelter Acquisition according to the terms of the existing unique arrangement. “In granting this relief, the commission’s expectation is that Ormet or its successor shall maintain employment levels at or above 650 full-time employees throughout the term of the agreement ending Dec. 31, 2018.”

Snitchler’s final request was that “based on the fact that Ormet is seeking a third request for additional assistance within a single year, the Commission finds that continuation of the delta revenue credits from the current arrangement should be modified and continued pursuant to this Order, in order that AEP-Ohio ratepayers, who have funded these discounts for Ormet, to potentially receive repayment.” The commission ordered that “should the LME price of aluminum exceed the break-even price of $2,200 per ton but not more than $2,500 per ton, Ormet shall pay 104 percent of the AEP-Ohio tariff rate.” The commission ordered that when the price is greater than $2,500 per ton, Ormet will be required to pay 108 percent of the AEP-Ohio tariff rate.

“This is an important employer in southeast Ohio and the Commission’s commitment to taking every reasonable effort to support the company will continue,” Snitchler noted. “It’s my hope, however, that at some point there is recognition from other states of the extraordinary support that Ohio and Ohio ratepayers have provided to these other states’ citizens and that that recognition results in appropriate action.”

“I sign today’s order not because of any confidence in Ormet’s management, but because of the potential devastating impact of the region’s largest employer closing,” Commissioner Steven D. Lessler stated, scolding Ormet.

Despite PUCO’s ruling yesterday, the ball appears to be in Wayzata’s court right now.

Wayzata, based in Minnesota, agreed to purchase Ormet out of bankruptcy for $221 million earlier this year, pending the aluminum plant’s ability to lower its electricity bills from AEP.

“It’s all up to Wayzata now,” said Tom Byers, president of United Steelworkers Local 5724, in a statement to The Intelligencer. “People need to be able to know what is going to happen. Now we just need an answer from Wayzata to see if this is going to be enough for them to follow through on their end,” he added.

Ohio State Senator Lou Gentile responded to a request for comment on the ruling. He stressed that PUCO’s ruling was not exactly what Ormet wanted and now the situation is a matter of seeing if Ormet can continue to operate with what PUCO gave them in terms of a discounted electricity rate.

Most of all, Gentile emphasized that he was with Ormet employees, their families, and the surrounding community every step of the way.

When asked about PUCO’s reference, in their ruling, to state and federal representatives speaking out for Ormet, Gentile stated that he did feel like the representatives’ reation was very important “in terms of elevating the issue.” Gentile stated that Ormet’s situation has been one of the most important, if not the most important, matter in his office for the past several months.