Creditors trying to work out Kaiser-BPA deal
They worry company's value will plummet without it having access to Bonneville's power
John Stucke
Staff writer
Banks, businesses and labor unions owed hundreds of millions of dollars by Kaiser Aluminum Corp. want the troubled company to remain a customer of the Bonneville Power Administration.
Worried about Kaiser's motion in bankruptcy court to void a contract with the federal agency, the company's creditors want an agreement between the company and the BPA that would defer penalties -- more than $1 million per month -- if Kaiser declines power deliveries. A hearing on Kaiser's bankruptcy filing is scheduled for Sept. 23 in Delaware.
If an agreement can't be reached, it is feared that Kaiser's smelters in Mead and Tacoma are destined for permanent closure.
Such a scenario would douse any hope in Spokane that 900 Steelworker jobs and many management positions might return, along with millions in lost taxes.
Creditors fear that without a BPA contract, Kaiser's plants will lose significant book value should the company's Chapter 11 bankruptcy case end with asset liquidation to pay debts. The smelters need massive amounts of power, and BPA has long been a low-cost, reliable provider.
The company sought bankruptcy protection in February, listing debts and liabilities of $3.1 billion.
A lawyer representing creditors such as Bank of America, State Street Bank & Trust Co., J.P. Morgan Chase and U.S. Bank Trust National Association told bankruptcy Judge Judith Fitzgerald that all parties would benefit from a settlement.
Negotiations, though, have so far failed.
"We met with BPA a number of times and explored a number of options with them before we got to the point of filing the motion," said Kaiser spokesman Scott Lamb.
Kaiser's BPA contract contains a take-or-pay penalty provision.
Basically it works like this: Beginning in October, if Kaiser refuses delivery of its 290 megawatt allocation, Bonneville will sell the power to other buyers based on market prices. If the open-market price is less than Kaiser was obligated to pay BPA for the power, the company must make up the difference.
Currently, open-market power costs less than BPA electricity. In the motion, Kaiser said it doesn't have plans to restart its power-intensive smelters soon. It estimated its take-or-pay penalties at $1 million to $2 million a month.
BPA spokesman Ed Mosey said Bonneville is ready to consider proposals.
"Sure, if they help our ratepayers," Mosey said.
BPA bumped rates by 40 percent last year as power prices spiked. The higher costs were passed along to home and business customers.
Mosey said that if a direct service industry (DSI) such as Kaiser leaves the BPA system, it won't be allowed back as a customer.
"That's why the creditors committee is coming back to us," he said. "Once a DSI contract is dead, it's permanently dead. They're not preference customers, and there's no coming back."
BPA began weaning these so-called DSI customers -- mostly aluminum companies -- from federal power supplies in the 1990s as Bonneville projected greater electricity demands from rapidly growing cities on the West Side.
Kaiser's 290 megawatt allocation from BPA, for example, is enough to light, heat and cool 174,000 family homes.
While Bonneville may want aluminum smelters off its system in four years, the companies -- which also include heavyweights such as Alcoa Inc. -- retain measurable economic and political influence. Smelters pay workers more than $40,000 a year and have long been among the best big-labor jobs in the state.
Mosey said any deal with Kaiser has to be good for BPA, which is in line as a Kaiser creditor and owed more than $1 million.
"It has to be something that looks better than waiting for the liquidation of assets and getting paid something," he said.