Firm to shut smelters, sell electricity

Kaiser's powerful profit motive
By NELSON ANTOSH
Copyright 2000 Houston Chronicle

Kaiser Aluminum is shutting down smelting operations in Washington state and idling 400 workers after deciding it is more profitable to sell cheap federal electric power than use it for making aluminum.

In response, the workers, through their United Steelworkers of America union, Monday complained about windfall profits and unjustified profiteering.

"We need immediate intervention at all levels of government to ensure that the current power crisis on the West Coast does not result in the abuse of an important public resource such as the federally owned and operated Bonneville Power Administration," said David Foster, a district director for the Steelworkers.

Kaiser for the last five years has been able to buy cheap electricity from the federal agency and, through its contract, is able to remarket what it doesn't use.

Although Kaiser is offering full benefits and up to 70 percent of base pay, depending upon length of service, the company could easily afford full pay, said union spokesman Ron Bloom. Earlier electricity sales netted it $100 million, the union estimates.

The company Sunday announced the sale of additional electric power under contract from the Bonneville Power Administration, basically what remains of December, back to the agency for $52 million.

With this sale, it will shut down what capacity still was in operation at its smelter in Mead, Wash., in addition to a smelter in Tacoma that has been idled since June.

Mead's employment was 676 and Tacoma had 270 working there, said company spokesman Scott Lamb in Houston. The $52 million doesn't include money that will go to workers for what is called "sub-pay," he said.

The levels of compensation are defined in the union contract, Lamb said.

Kaiser declined to disclose the selling price per kilowatt, but a spokesman for Bonneville said the market in the Oregon-California border area has been in the $875 to $1,000 range.

There is a power crisis in the area, with electricity emergencies in California and prices at unprecedented levels for this time of year. The supply of electricity is so tight that Californians were asked not to turn on Christmas lights until after 7 p.m.

This situation provides "a very compelling economic opportunity to sell power," said Lamb, adding that it will add to the company's long-term health.

But each month will be a different situation, casting doubt on the union's prediction that electricity sales will reap Kaiser $300 million over the next nine months.

Kaiser and two other aluminum companies that operate in the Northwest purchased the electricity for $22.50 per kilowatt hour in 1995 when the power market was in a slump, said agency spokesman Ed Mosey in Portland, Ore.

And they were able to write in a clause allowing remarketing the power in case of curtailments, for reasons that could include low prices for aluminum.

Kaiser, which is 63 percent owned by Charles Hurwitz's Maxxam, is able to buy Bonneville electricity cheap because most of it is produced by dams built in the 1930s and 1940s.

The 190 megawatts just sold by Kaiser will displace power that Bonneville during the West Coast power shortage would have had to purchase, Mosey said. This amount is equal to approximately 15 percent of Seattle's power requirements.

For Kaiser, the result is the complete cessation of smelting operations in the Northwest, a curtailment expected to last through the end of September.

This leaves it with two large smelters in operation-- one in Ghana and one in Wales.

But this electric power remarketing will cease on Oct. 1 when a new contract goes into effect, because it doesn't have the remarketing clause, Mosey said.

The two other companies, Columbia Falls Aluminum of Kalispell, Mont., and Golden Northwest Aluminum of The Dalles, Ore., also have resold electric power but not to the extent of completely shutting down their smelters, he said.

The two have been talking about building gas-fired generating plants.

Kaiser hasn't yet approached the agency with such a plan, Mosey said, but Chief Executive Raymond Milkovich wrote in a statement that "our longer-range efforts also could potentially include involvement in economically viable power generation projects that address the supply deficit, accommodate regional growth and preserve industry jobs."