Jefferson City, Mo. — Last month, Ormet — an aluminum manufacturing company — announced it was closing the last aluminum smelter in Ohio. In its bankruptcy filing, they cited historically low metal prices and exceedingly uncontrollable power costs. This has created question about Missouri’s own manufacturers and utility rates.
During the past five years, Missouri utilities have approached the legislature looking for ways to raise rates in order improve its infrastructures and recover infrastructure investment expenses faster, but were ultimately unsuccessful — in part do to consumer groups such as Noranda, an aluminum smelter in New Madrid.
Ormet employed 670 workers in a low-income area of eastern Ohio, most of them members of the United Steelworkers Union. American Electric Power Co. and the Public Utilities Commission attempted to extend a package of rate reductions to keep the facility operating, but the reduced rate was not low enough to bring the operation to profitability. AEP had previously given the Ormet facility rate reductions due to the massive quantity of power it purchased from AEP.
Noranda employs 970 workers of the same United Steelworkers union and an estimated 330 million in annual economic impact.
“Competitively priced power is vital to the success of any smelter,” said Kip Smith, CEO of Noranda Aluminum. “We are no different. As I understand it power costs are about a third of their costs as it is for Noranda. However, I believe their actual rate was less than ours. It is certainly an alarm bell in both the aluminum and utility industries.”
CEO of Ormet Mike Tanchuk said he sees several similarities between Ormet’s situation and many others in the aluminum manufacturing industry.
“I am somewhat familiar with the situation and unless state leaders step in to protect jobs by providing competitive power costs no aluminum smelter is in a safe position,” Tanchuck said.
However, under most state’s Public Service Commissions guidelines those steps to incentive job growth some at a cost, “Any job loss or plant closing would not be good for Missouri’s economy,” Irl Scissors with Missourians for a Balanced Energy Future says. “With regard to energy, whether it is large corporations or residential consumers, a broader conversation needs to take place to address our long range energy future. We need to have energy policies in place that attract new businesses, encourage investments to upgrade aging infrastructure and protect Missouri consumers.”
“Ameren for us has been a very reliable supplier, very reliable, and our rate is lower because the cost of service is lower,” Smith said. “At one location, we buy about the same power as Springfield, Missouri coming in at a steady rate 24 hours a day, seven days a week, 365 days a year”.
As the loss of nearly 700 jobs in low-income area begins to become a reality, the soon to be unemployed Ormet workers are now pressuring the PUCO and the Governor to step in.
Led by USW Local, 5,724 workers have targeted the governor’s office with demands he step in. Ohio Governor John Kasich — who was elected on the platform of
increasing jobs — is blaming the loss of jobs on free market trends. His spokesman said there is nothing the state can do. The five person PUCO board currently has of four Kaisch appointees sitting on it and it was two days after the PUCO board failed to reach an agreement between AEP and Ormet that the closing was announced.
Richard Craighead, Legislative Coordinator for the United Steelworkers District 11, said the USW would do the same in Missouri in a similar circumstance as the Ormet closing.
“We would absolutely go the governor and our elected officials and demand they step in to protect jobs in situation like the one the people are facing in Ohio,” Craighead said.
However, there is a growing national trend of smelters closing in the United States. Approximately 30 years ago, there were 32 smelters operating in the United States. The price of aluminum is set as a commodity and many market analysts are not projecting any spikes upward in the near future. Ron Ferguson with Barclays tells investors: “The price of aluminum as most base metals are tied to the demand and production levels in China. However, American aluminum production faces and uncompetitive balance in power costs against most foreign competitors”.
Going forward, many smelters in the United States are resetting their electric rates. Currently seven of the nine remaining smelters have received or are negotiating a reset in its rates. After the next series or resets, Noranda will have the second highest power rate among American smelters.
There are success stories in the American aluminum manufacturing sector, in Washington state, the Wenatchee aluminum smelter announced a plan add jobs to its plant bringing the number of employees at the plant to nearly 600. The announcement was part of the unveiling of an agreement with its power supplier — Chelan County Public Utility District — on a 15-year power contract.
“This is an excellent example of a community working together with industry to help secure the future for family wage jobs in Wenatchee,” said John Thuestad, president of Alcoa’s U.S. Primary Products.
In Messina, N.Y., Gov. Andrew Cuomo, Sen. Charles Schumer, USW leaders, NYPA and Aloca worked together to sign a long-term power agreement.
After the agreement was signed, Sen. Schumer commented: “I am confident that Alcoa is committed to long-term investment and expansion in Massena…knowing how exceptional the Alcoa workforce is, and the low-cost power contract with NYPA this is how American manufacturing thrives into the future.”
When asked if there was anything that the state could do to secure the long-term viability of aluminum manufacturing in Missouri, Smith concluded: “We will always turn to the Public Service Commission first. We are believers in the PSC process, and want to work to find a rate that is competitive for Noranda, sustainable for Ameren, and in conjunction with the needs other rate payers in Missouri.”
Scott Faughn is the publisher of The Missouri Times, owner of the Clayton Times in Clayton; SEMO Times in Poplar Bluff; and host of the only statewide political television show, This Week in Missouri Politics.