Aluminum companies play from same book
The Ohio Valley manufacturing sector took hit earlier this month as another one of its major aluminum producers said it was closing its doors.
Ormet Corp. announced Oct. 4 that it would immediately shut down its 270,000-ton-per-year aluminum smelter, located across the river from New Martinsville in Hannibal, Ohio, due to historically low aluminum prices and "uncontrollable" power costs.
It's an unfortunate but familiar refrain for residents in our region.
Century Aluminum said the same thing when it shuttered its Ravenswood smelter in 2009. Felman Production is currently singing a similar tune before the state Public Service Commission in an effort to save its Mason County steel-additive plant.
Ormet had been restructuring under Chapter 11 bankruptcy protection for a few years, and said it might finally emerge from the process if the Ohio Public Utilities Commission approved a new power rate plan.
Ohio power customers had already paid more than $300 million in subsidies to the plant since 2009 through higher power rates. While Ohio regulators approved a lower rate plan, it was not as low as what Ormet wanted. So the company pulled the plug.
It was the latest outcome in a series of high-stakes electric bargaining games that have played out in recent years.
The Wall Street Journal reported aluminum companies in several states have used the threat of shutting down and laying off hundreds of workers as a bargaining chip for cheaper power.
"Someone in the aluminum industry put out a playbook, and they're all doing the same thing," Marty Littrel , spokesman for Big Rivers Electric Corp., told the Journal.
Littrel would know. The Kentucky co-op lost its battle with Century Aluminum when regulators let Century to break its existing power contract and purchase power directly from the open market.
In losing Century, Big Rivers was forced to hike rates for its remaining 112,000 utility customers by nearly 20 percent.
While the arguments are likely to continue until global aluminum prices recover, Forbes contributor William Pentland argued last week these situations could have been avoided.
"The tragedy of the Ormet closure is that it did not need to happen," Pentland said.
"Unlike cheap labor and lower taxes, there is no excuse for energy-induced industrial decline," he said. "If anything, America's abundant supply of natural gas should be driving a domestic resurgence of industrial activity."
Pentland said decades ago, America's electric power grid gave birth to the rust belt's industrial base. Now, an older, weaker and more expensive version of that grid is threatening to destroy it.
He said Ormet appeared to be on the cusp of finding a separate solution, but ran out of time to implement it.
"Ormet was in the early stages of building an onsite natural gas power plant, which would likely have alleviated the problems that led to its closure substantially," Pentland said.
"By replacing the electric grid with onsite power generation, cheap natural gas could have kept Ormet competitive and effectively eliminated the need for electric ratepayer subsidies burden it had placed on other ratepayers."
Contact business editor Jared Hunt at firstname.lastname@example.org or 304-348-4836.