BPA will wean industry from subsidized power
ALUMINUM: Dramatic changes in energy market make for new equation in Northwest
12/29/2000
Linda Ashton; The Associated Press
YAKIMA - Hydropower and an energy market dramatically altered in just five years have put the Northwest aluminum industry in a unique position to sell back electricity to the Bonneville Power Administration.
The federal power marketing agency can use the extra supply, faced with this winter's soaring electricity prices, California's power shortage and increasing regional demand.
But five years ago, it was a different story. BPA's rates were higher than market rates, and the aluminum companies were threatening to bolt.
"They said, 'We want to buy from the market. We don't want to purchase from you anymore,'" said Ed Mosey, a spokesman for BPA in Portland. "We negotiated to retain as much business as possible."
BPA was in danger of going bankrupt, Mosey said, and one of the enticements the agency used with the aluminum industry was giving the companies, under contract, the opportunity to resell power if they were forced to shut down production, something that had occurred periodically because of low aluminum prices.
"They were taking a risk," Mosey said. "They had to pay us for power whether they used it or not."
Then came the summer of 2000, when a California heat wave, a deregulated wholesale electricity market and some unplanned generation outages, started driving up prices.
Kaiser Aluminum Corp. has said it can make more money - $52 million - selling electricity back to the BPA than it can making aluminum, so it shut down its Mead smelter outside Spokane.
"We went from being the high-priced supplier to being the rock-bottom-priced supplier," Mosey said. "Had we anticipated that you'd be seeing $500 a megawatt power on the market when we were charging $23, we probably would have put a cap on how much revenue they could earn from a resale."
"No one dreamed at the time that this would happen. It's unprecedented."
This week, Golden Northwest Aluminum, with two plants in the Columbia River Gorge, said it was reducing production to 10 percent and would sell back power to BPA.
"This is different than what Kaiser did," said Brett Wilcox, chief executive officer at Golden Northwest. "All the proceeds will stay in this region and will be used to assure the long-term survival of the communities and the company."
Mosey said details were still be worked out, but the proposal calls for revenue to be divided three ways - for new power-generation to make the two aluminum plants energy self-sufficient by 2006; for BPA to reduce costs for ratepayers, and for supplementing unemployment checks for laid-off workers in Goldendale and The Dalles, Ore.
"To his credit, Wilcox is trying to do something for the region, not just pocketing the revenue," Mosey said.
"We're hoping that Kaiser will follow suit. Columbia Falls (in Montana) has the same right under its contract."
Kaiser and BPA are talking, said Kaiser spokeswoman Susan Ashe.
"Those discussion haven't concluded. I would rather not get into details. We've got some ideas," she said.
"Clearly we understand what our contractual rights are ... and what obligations we have. We're comfortable we're meeting those requirements to date," Ashe said.
Two weeks ago, the Columbia Falls Aluminum Co. in northwestern Montana said it was cutting production and returning more than 100 megawatts of power to the grid.
No one from the Columbia Falls plant returned a call seeking comment Thursday.
Northwest aluminum plants are able to buy power straight from BPA, unlike other industries in the region who must purchase it from utilities and often pay substantially more.
It was a post-World War II economic development measure for a timber-dependent area, and the Northwest Power Act of 1980 guaranteed the federal supply to the industry for another 20 years, expiring Sept. 30.
BPA provides about half the electricity consumed in Washington, Oregon, Idaho, Montana and Nevada, and aluminum producers consume about one-quarter of the electricity available from BPA.
Things will change next year. The Northwest's aluminum plants have signed new contracts, effective Oct. 1, for less power.
"One of the conditions of the contracts is any windfall revenue from current market situations has to go for the benefit of their employees, their plants, the future of the communities and ratepayers," Mosey said.
"If they don't do that, we have the right under the new contracts to reduce their allocation. So we do have a lever to use."
Under the new five-year contracts, "It is our intention to wean them from the federal system entirely. That's why the Golden Northwest proposal is so attractive," Mosey said.
"Golden Northwest would invest in sufficient new power to serve most, if not all, of its energy requirements. We're trying to encourage the aluminum companies to find other sources of power."