Kaiser seeks release from BPA pact
Company denies request is a sign that smelter won't be restarted
John Stucke
Staff writer
Kaiser Aluminum Corp. has asked a bankruptcy judge to void its five-year electricity contract with the Bonneville Power Administration.
The company said the move does not signal plans to abandon the idled Mead smelter. But Steelworkers feared it was another bad sign that the company has no plans to restart the smelter and recall some 900 workers anytime soon.
"We're sitting here dead in the water, not knowing what our future is," said Dan Russell, president of Steelworkers Local 329. "If their motivation was to be able to go out and on the open market buy some power and operate, this would be a good thing.
"But the Kaiser we have today, who knows? We don't know what their motives are."
In February, Kaiser filed for Chapter 11 bankruptcy protection. With $3.1 billion in liabilities and poor aluminum prospects, the company is attempting to restructure.
Kaiser spokesman Scott Lamb cautioned that its motion to reject the Bonneville contract is simply a cost containment measure. He said Kaiser believes it can get a better deal on electricity from private companies than it can from Bonneville.
"Our effort to reject the Bonneville contract has no bearing on the operating status of the smelters," Lamb said. "It's truly a reorientation to market-based power purchases."
The company is obligated to buy 291 megawatts from Bonneville through October 2006. If it refuses the electricity, Bonneville is set to enforce what's called a take-or-pay clause.
Basically, Bonneville will sell Kaiser's allotment on the open market. If the federal agency doesn't get as much money for the megawatts as Kaiser was obligated to pay, Bonneville charges Kaiser the difference.
Kaiser CEO Jack Hockema said unless the contract is rejected through bankruptcy court action, the company could be on the hook for $1million to $2 million each month.
Last year, Kaiser received a 12-month waiver on its take-or-pay contract from Bonneville. It expires in October.
Bonneville has turned down similar waiver requests from at least two other aluminum companies. It has no intention of extending Kaiser's.
So Kaiser turned to bankruptcy court. Hockema said the company should be allowed to shop for cheap electricity when it is ready to restart the smelters.
"We believe that market-based power prices and availability in the Pacific Northwest are likely to be comparable to or more favorable than the prices and availability offered under the current Bonneville contract," Hockema said. "We also acknowledge that even market-based power prices in the region may still pose a long-term challenge for aluminum smelters."
Historically, federal power produced by Columbia River dams and sold through Bonneville has played a critical role in the region's aluminum industry. Smelters such as those Kaiser owns in Mead and Tacoma require hundreds of cheap megawatts to be profitable. One megawatt is enough to serve about 650 homes.
By blending predictably priced electricity from the federal government with more power from more volatile private sources, the smelters were profitable ventures for five decades.
Bonneville said that while it respects Kaiser's right to pursue contract relief in bankruptcy court, the agency will aggressively pursue damages.
"Once the court says they have the right to reject our contract, we'll calculate the damages over the four remaining years and then ask for that amount," said Bonneville spokesman Mike Hansen.
"Kaiser said they would not be subject to the take-or-pay provisions. We disagree and will pursue them."
Bonneville is listed as a creditor in Kaiser's bankruptcy case, owed more than $1 million.
Russell is worried that Kaiser has written off its Washington smelters.
"We're sitting here watching Kaiser try to get out of its Bonneville contract, and thinking that we're next," Russell said. "I'd certainly like to see them come up with something to give the employees, at least at my plant, that there's a future."
When Kaiser let go energy specialist and vice president Pete Forsyth of Spokane last spring, Steelworkers and some people in the business community considered it an omen for Mead.
"Surprised by all this?" Russell said. "No, not really."