BPA planning to idle smelters
Federal power agency suggests Kaiser alone may not be eligible for payroll compensation
John Stucke - Staff writer
Northwest aluminum companies should stay idled until late 2003 or prepare for a tripling of electricity prices beginning in October, according to the Bonneville Power Administration.
The BPA insists this isn't the end of an important regional industry that employs thousands and creates spinoff work for thousands more. But it may mean that Kaiser Aluminum Corp. is left without power for its Mead and Tacoma smelters.
The federal source of cheap electricity for energy-hungry smelters, the BPA must jettison aluminum companies from its customer rolls as part of a two-year strategy, said Steve Wright, BPA's acting administrator.
The BPA is responsible for supplying more power than it produces, so it has to make up the difference by purchasing power on the open market.
In the roiling energy market, that arrangement has been an expensive obligation that has shaken the BPA's financial stability.
During the past year, the BPA has patched together enough energy cutbacks and conservation measures to make it through October. That's when new contracts begin, allowing the BPA to raise rates to offset its own costs of buying power on the open market.
On Monday, Wright sounded an alarm: Without drastic actions, the BPA, which supplies about half the region's power, might have to raise its rates by at least 250 percent.
Residential power bills could double and many businesses would close and lay off their workers. Poor people would be especially hit hard by a sudden rate increase, Wright said. And public support for environmental protection surrounding energy issues -- unpopular when the economy lags and energy becomes expensive -- also might suffer.
"I don't believe these consequences are acceptable," Wright said, outlining an action plan for the next 60 days.
.9So the BPA will wield the threat of such rate hikes in attempt to force the idling of aluminum companies.
"It is our expectation that the companies would not be able to operate given a potential tripling of our rates anyway," Wright said. "I know this will be tough, but the consequences will be tougher."
To make it easier, the agency will give money to the companies earmarked for employee payrolls -- with a caveat reserved for Kaiser Aluminum Corp.
BPA will treat Kaiser differently from the other aluminum companies operating in the Northwest. Wright didn't offer specifics, however the agency has a long-running dispute with Kaiser regarding the company's use of proceeds netted from the resale of federal electricity.
In its contract that expires Oct. 1, Kaiser had the right to resell its allotment of BPA megawatts. The deal created a $400 million windfall for the company.
BPA wanted Kaiser to more generously share the money to help offset regional energy problems. The two sides failed to reach terms.
Kaiser spokesman Scott Lamb said BPA's inference that Kaiser Steelworkers wouldn't be eligible for compensation was unfair.
"I think that is an insult to our employees," Lamb said. "To suggest to us that they will treat us differently in this regard just doesn't make sense."
Even before Monday's announcement, the BPA was considering a legal strategy against Kaiser. It included the possibility of withholding power beginning in October, leaving the company without a power supply for its smelters in Mead and Tacoma.
Such a punitive measure, according to the BPA, would leave the smelter with smelter assets in excess of $200 million without a power contract to run them.
Negotiations reached an impasse and neither side has announced progress.
BPA repeatedly has picked aluminum companies for curtailment, said Kaiser's Lamb, sending a not-so-subtle message that the industry is more expendable than others.
"We recognize the predicament BPA is in," he said. "But we can't help but feel they have singled out the aluminum industry and we would hope they would be sensitive of those effects, both directly and indirectly."
Wright said there's no attempt to push the industry out of the Northwest, where companies produce about 30 percent of the nation's aluminum. The cutbacks have not affected the world supplies or prices, which are commonly tracked by markets in London. The curtailments may, however, have cost the United States its place as the world's largest producer, Lamb said.
The agency, Wright said, does want aluminum companies to leave the federal system and build or buy their own source of electricity within the next five years.
Wright said the BPA needs to serve the region's retail electric utilities first. Those needs, he said, are by themselves outgrowing the agency's generation capability.
As the BPA tries to find more wiggle room, it is asking public utilities to trim 5 percent to 10 percent of their power purchases. While some sort of rate hike should spur conservation, the BPA also is prepared to pay users who conserve.
The agency is asking private utilities to help, too.
While aluminum companies ponder curtailment or much higher power costs, companies that supply the industry are struggling, too.
In Spokane, the Coeur d'Alenes Co. is laying most of its industrial fabrication workers.
Joel Simpson, vice president of the division, said when smelters quit operating they quit buying his company's materials such as heavy carbon steel, stainless steel and aluminum plate weldments.
He laid off about about 13 of his workers and in turn isn't buying supplies from other companies. None of these affected workers will receive compensation from the BPA for the aluminum industry shutdown.
"The future is an unknown, but it's reached what I would call a crisis level," said Simpson. "And not just for our particular company, but the whole Northwest.
"We're just seeing the start."
Such worries have reached Gov. Gary Locke, who made an unrelated trip to Spokane on Monday.
During a talk to the Spokane Valley Chamber of Commerce, Locke echoed Wright's call for conservation and touched on the worries of supply businesses like Simpson's.
"Kaiser closing its Mead plant is obviously a blow to the Spokane economy," he said. "While hundreds of Kaiser workers are still receiving their paychecks, local suppliers of these plants have had their businesses curtailed."
Locke said the region must to more to conserve.
"Every bit of electricity you save is ... electricity that your utilities do not have to purchase on this volatile, expensive market."