NEW YORK The Public Utilities Commission of Ohio voted on Wednesday to approve Ormet Corp's (ORMTQ.PK) revised power deal with energy supplier American Electric Power Co Inc (AEP.N), saving the U.S. aluminum producer from likely closure.
The commission added, however, that it was modifying parts of Hannibal, Ohio-based Ormet's request for a unique subsidized power arrangement, as it works to emerge from bankruptcy.
PUCO Chairman Todd Snitchler said at the commission's weekly meeting, monitored by webcast, that approval was also contingent on Ormet employing at least 650 full-time workers through 2018.
Ormet is the region's largest employer, as well as Ohio's largest energy user.
In February, Ormet filed for bankruptcy protection. Cutting the high cost of energy to run its 270,000-tonne-per-year aluminum smelter was the final hurdle on the path to emerging from bankruptcy.
On June 3, Smelter Acquisition, LLC, a portfolio company owned by Wayzata Investment Partners, said it would acquire Ormet. U.S. based Wayzata's requirement to close on the acquisition also depended on approval of Ormet's new power plan.
"We authorize Ormet to assign its interests to Smelter Acquisition, LLC, according to terms under the existing unique arrangement," Snitchler said.
He added that the commission granted Ormet relief with the understanding the aluminum company, or its successor, "would maintain employment levels at or above 650 full-time employees throughout the term of the agreement ending December 31, 2018."
The commission said it recognized Ormet's economic importance to the region, but wanted to balance those interests with the concerns of local rate payers, who would be subsidizing part of Ormet's power costs with increases to their own bills.
Ormet's request for a new unique rate arrangement was valued between $56 million and $119 million dollars, over and above the $346 million in financial support already granted by the commission since 2009.
Given that Ormet's latest request for subsidies would add to earlier increases in the monthly bills of individual rate payers, the commission voted to approve a modified arrangement for the aluminum producer, Snitchler said.
Ormet had asked for an average fixed rate of $45.89 per megawatt-hour, but the commission capped the rate at $50 per megawatt-hour, excluding the discount, through December 2014.
From January 2015 through 2018, Ormet will be billed according to the terms of the current arrangement, keeping its pricing in line with other large industrial power users.
The commission also approved Ormet's request to front load a discount that would have been spread over the next five years. Instead, $66 million will be moved up to 2013 and $54 million to 2014, giving Ormet, "time to sustain operations until it returns to profitability, make its deferral payments, and construct its own power plant to mitigate and stabilize its power costs."
The commission also modified Ormet's discounts to say that AEP Ohio ratepayers would receive a refund if benchmark aluminum prices exceed Ormet's break even level of $2,200 per ton.
With London Metal Exchange aluminum prices at $2,200 to $2,500 per ton, Ormet will pay 104 percent of the AEP Ohio tariff rate. If aluminum rises above $2,500 a ton, Ormet will pay Ohio ratepayers at 108 percent of the rate.
LME aluminum closed on Wednesday at $1,838 per ton.
"While repayment is not typically required, the extraordinary relief offered to Ormet creates a question of fairness that should be resolved in favor or ratepayers," Snitchler added.
(Reporting by Carole Vaporean; Editing by Gerald E. McCormick and Andre Grenon)