Smelters' power play will reap dividends
Two aluminum plants will cut production so unused electricity sales can benefit the company, workers and BPA customers
Wednesday, December 27, 2000
By Stu Watson, Correspondent, The Oregonian
THE DALLES -- Two aluminum smelters on opposite sides of the Columbia River announced plans Tuesday to shut down big portions of their operations so they can benefit from the Bonneville Power Administration's sale of unused electricity.
In a regional electricity market plagued by shortages and radically inflated prices, power-hog aluminum companies have found themselves in an unusual situation. If they continue to use low-cost power from federal dams, they could teeter on the edge of unprofitability.
If they resell that power on the open market, they could reap huge windfalls. When Kaiser Aluminum did that, it drew cries of "foul."
Union, state and federal officials, however, hailed the innovative nature of plans by the management of Northwest Aluminum in Oregon and Goldendale Aluminum in Washington.
Brett Wilcox, chief executive of Golden Northwest Aluminum, the parent company of both companies, said the company will reduce operations so the BPA can resell contracted power on the open market.
Production at both plants will be reduced from 60 percent of capacity to about 10 percent of capacity. Cutbacks will continue until Oct. 1, 2001, at which time the company expects to return production to about 50 percent of capacity.
Wilcox said the BPA will split the profits three ways, in roughly equal amounts.
Part of the money will be used to supplement unemployment benefits of workers that will be laid off at the two plants. The plan ensures that laid-off workers will continue to receive the rough equivalent of a full-time paycheck. Wilcox estimated that 400 to 500 of the 1,100 people now working at both plants would temporarily lose their jobs. Remaining employees will shift away from smelting raw ore and focus on recycling and casting operations.
Part of the money will be channeled into three new power-generating operations --two gas-fired power plants and a wind-power generating complex -- designed to make the two aluminum plants energy self-sufficient by 2006.
The third part of revenues will go directly to the BPA to help reduce costs for its other customers.
"It's a landmark kind of approach to these kinds of issues," said David Foster, who helped broker the deal on behalf of the United Steelworkers of America. "I can't say that I ever have encountered anything like this."
Ed Mosey, speaking for the BPA, said Golden Northwest now pays $22.50 a megawatt hour under a contract that ends Sept. 30, 2001. The current regionwide energy crunch has seen wholesale prices ranging from $200 to $1,000 a megawatt hour, depending on demand and time of day.
"Any time we've got a situation where the government is selling something at one price, and a private entity can turn around and sell it at 10 times the price, we've got a situation that could look bad," said Roy Hemmingway, energy policy adviser to Oregon Gov. John Kitzhaber.
"But given the circumstances here, we think Bonneville Power is doing the right thing, and Brett Wilcox is doing the right thing."
Several Northwest aluminum companies had similar contract language that allowed them to resell contracted energy at market prices. When Kaiser Aluminum recently announced closure of its Mead smelter in Spokane, it said it could earn $52 million from power resale, which led union officials to brand the company a "profiteer."
Unlike other situations, Mosey said, Wilcox and Golden Northwest have developed a plan that shares benefits with the region and employees while at the same time helping expand regional generating capacity.
"This is the kind of responsible use of this windfall that we're looking for," Mosey said.
At capacity, both plants need 476 megawatts of power, Wilcox said. A new BPA contract to begin Oct. 1, 2001, will cover about half that. As a result, he said the company is aggressively trying to create or contract affordable, stable power sources for the other half.
Wilcox said the company hopes to get all of its power from non-BPA sources by 2006. To do that, it has contracted with National Energy Systems Co. to buy power from a new 248-megawatt gas-fired plant to be built near Goldendale, Wash., and go on line in 2002.
Golden Northwest also is working with Public Utility District 1 of Klickitat County to pursue "environmentally responsible" development of wind-power generators in the Columbia River Gorge. Windfall profits would support that plan and development of a third steam-powered generator somewhere in the Northwest. Both projects are in the exploratory phases.
As details of the proposal became public Tuesday, plant workers and local union officials in the mid-Columbia region offered reactions ranging from cautious optimism to nervous applause.
"It's an interesting way of going about generating revenue for the long-term life of the company, as well as looking out for the well-being of the employees at the plant," said Mike Keith, 51, president of Steelworkers Local 9170, which represents workers at Northwest Aluminum.
Mike Hennesey, 25, has been a cell line operator for three years. Even though he figures to lose his job through seniority-based layoffs, he says relations between management and the union are remarkable.
Even so, he says the uncertainty of the energy and aluminum markets has him looking back with a certain fondness on his six years in the Army infantry.
"I didn't want to raise my family in the military," he says. "I got the job up here, and now the military is looking more stable for my family. Yet I want to stay in the local area. The schools are good; people look out for each other."
Constant fears of layoffs have led him to look into other careers. But hourly wages of $17 and more are a rare find in The Dalles, a blue-collar town of 12,000.
"I think Brett's dedicated to saving our jobs," Hennesey says, "but only time will tell."