Aluminum Officials Spurn BPA Plan to Idle Smelters
Summary: Shutting down the plants for two years could do irreparable damage to the industry in the Northwest, executives assert
Officials of aluminum smelters operating in the Northwest are resisting a plan to shut down for as long as two years and release their rights to scarce quantities of electricity.
"It does not seem to be a balanced approach," said Scott Lamb, a spokesman for Kaiser Aluminum. The Houston-based company operates two of the region's 10 smelters.
The call for the shutdowns comes from Bonneville Power Administration, the Portland-based federal agency that markets almost half the electric power consumed in the Northwest. BPA maintains it needs the power from the energy-intensive smelters to squeeze through the West's energy crunch without huge rate increases.
If opposition from the aluminum industry hardens, BPA may be forced to redesign a plan it claims is the Northwest's best answer to its energy woes.
The aluminum smelters' participation "is absolutely a critical element" of BPA's energy-saving strategy, said Mike Hansen, a BPA spokesman.
The agency, which markets power from 29 federal dams and one nuclear power plant, provides low-cost power. But new five-year contracts, to begin in October, commit BPA to the sale of about 12,000 average megawatts of electricity -- 3,000 more than it generates.
The agency must buy the extra megawatts on the wholesale market, where prices
are 10 times year-ago levels. If it can reduce its exposure to the market, it can keep
rates lower.
Most of the agency's power is sold to publicly owned utilities. But aluminum companies -- also referred to as "direct service industries," or DSIs -- and investor-owned utilities such as Portland General Electric and PacifiCorp also are substantial customers.
In a public announcement Monday, BPA called on all its customers to cut back on the amount of electricity they planned to buy from the agency.
"Some of these steps are painful," BPA's acting administrator, Steve Wright, said in his announcement. "But unless we take action now, we face consequences that I believe are unacceptable."
Wright said that without the reductions BPA would be forced to increase its wholesale rates by 200 percent to 300 percent. Retail rates, paid by consumers and most businesses, wouldn't increase as much but would vary depending on the circumstance of each utility that buys from BPA.
Wright asked publicly-owned and investor-owned utilities to reduce power purchases by 5 percent to 10 percent. But it turned to the aluminum companies for the biggest sacrifice with the request to release the full BPA allotment for the first two years of the five-year contract.
In exchange for the 1,500 megawatts of power, BPA promised to provide compensation for the aluminum companies' 6,000 employees. The agency has yet to settle on how much such a commitment is worth.
Already, most of the smelters have curtailed operations or shut down, citing exorbitant energy costs. Some are even reselling power on the wholesale market. Until the BPA announcement, many intended to restart production in October because new contracts held the promise of cheaper power. The contracts do not include energy remarketing rights.
BPA maintains aluminum smelters are better off closing the smelters for two years and compensating workers than they are facing huge rate increases.
"With the kind of increase we're talking about, they're not going to operate anyway," BPA's Hansen said.
Aluminum officials and union representatives counter that a two-year shutdown could just as quickly doom the industry.
"It is very difficult for any business to be sidelined for two years," said David Foster, a spokesman for the United Steelworkers of America. "If demand is filled by smelters in other parts of the world, we may never have a viable aluminum industry in the Northwest again."
John Arthur Wilson, a spokesman for the Northwest Power Alliance, an organization that counts several aluminum companies among its members, said BPA is unfairly targeting an industry that has operated in the region for 60 years.
"When they say 'We want to shut you down for two years,' that's not curtailment, that's forcing an industry out of business," Wilson said.
Aluminum officials say rates could be designed to spread the impact more evenly among all classes of customers. The industry supports what it calls a "tiered" rate, under which BPA would sell its low-cost power first -- enough to meet about 75 percent of the commitment to each type of customer -- then the remainder at market rates.
Even a higher initial rate -- for a short period of time -- might be acceptable, aluminum officials said.
"We've looked at the economics of running at higher rates, and we may be prepared to do that," Kaiser's Lamb said.
McCook Metals, which recently purchased a smelter in Longview, Wash., from Alcoa, agreed in February to shut down operations until April 2002. After that date, it intends to restart production, despite BPA's request.
"We do plan to operate and to make aluminum beginning in April," said Paul Frank, a spokesman for McCook.
Other BPA customers support the agency's treatment of aluminum companies. They reject the idea of tiered rates.
Under tiered rates, the aluminum companies would buy only the low-priced power and curtail operations accordingly, said Jerry Leone, manager of the Public Power Council, an association that represents 114 consumer-owned utilities. Public utilities can't control demand so easily, certainly not by 25 percent, she said.
Tiered rates, Leone said, "are a special deal for the DSIs."
Leone criticized the aluminum companies for trying to leverage the contract commitments into more lucrative deals. The longer the industry holds out, the more BPA might be willing to pay to get the power back, she said.
"I think it's a dangerous game," she said. "They're playing roulette with their union members."