By Stephanie Gleason
A new problem has emerged for Ormet Corp. as the aluminum
producer begins winding down its operations: power to its Ohio
smelter could be shut off on Friday, potentially flooding the
groundwater with chemicals such as arsenic and cyanide.
At a hearing Monday, American Electric Power Co. Inc. (AEP),
Ormet's electricity provider, told Judge Mary Walrath of the U.S.
Bankruptcy Court in Wilmington, Del., that without payment of at
least $1.4 million, electricity to Ormet's Hannibal, Ohio, facility
would be shut off on Friday.
That facility, which has halted operations and is being
liquidated, has maintained interceptor wells since 1973 to prevent
harmful chemicals from leaching out of the facility and into Ohio
groundwater. Those wells require electricity to continue
pumping.
"We are very concerned about the dispute because it threatens
the [interceptor wells]," Alan Tenenbaum of the U.S. Department of
Justice said Monday at the hearing.
The EPA wasn't able to provide additional information on the
situation Tuesday, but it said in court documents that stopping the
pumping system "could pose substantial risks to public health and
safety."
Judge Walrath, however, said she can't hold another hearing on
the issue before Friday because she'll be attending the National
Conference of Bankruptcy Judges' annual conference in Atlanta.
She's the group's secretary.
That leaves Ormet and its lenders with only a few options: pay
the bill, let the power be turned off or negotiate a deal to keep
the power on until everyone can return to court.
A deal with AEP would require the approval of the Ohio
regulator, which isn't likely to happen before Friday, Ormet's
bankruptcy lawyer said during the hearing.
Neither Ormet nor its lawyers responded to requests for comment
Tuesday.
AEP and Ormet haven't had success negotiating other deals
recently. Earlier this year, the companies were unable to reach an
agreement on discounted electricity for Ormet to compensate for low
aluminum prices. That caused Ormet's $221 million deal to sell its
assets to Wayzata Investment Partners LLC to fall apart.
The utility said it's owed close to $40 million in unpaid
electric bills and wants $1.4 million to keep the power on. The
power company said it can't guarantee that power won't be turned
off if it doesn't receive payment.
"Ormet has an outstanding bill for electric service, and we
intend to disconnect service unless the company pays at least the
uncontested portion of its bill. We are abiding by our contract
with Ormet and if they don't pay their bill, we have a
responsibility to our other ratepayers to disconnect a non-paying
customer. The earliest we could disconnect service is Friday," the
company said in a statement Tuesday.
Ormet is out of cash, meaning payment of the bill would have to
come from Ormet's lenders, Wells Fargo & Co. (WFC) and Wayzata,
which together are already owed more than $180 million.
At Monday's hearing, a lawyer representing for Wayzata said he
couldn't guarantee that either lender would step up and pay the
bill.
"I'm not going to sit here and say that Wayzata and Wells are
prepared to ultimately fund those payments under the budget," said
Scott Alberino of Akin Gump Strauss Hauer & Feld LLP. "It would
be incredibly helpful if we had the ability to avoid a power cut
off. Give us a week, 10 days to move to an alternative arrangement
here."
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Stephanie Gleason at stephanie.gleason@wsj.com
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