BPA Failure to Respond to Proposal to Help Reduce Power Rates
Company to Evaluate New Rates, with Preference to Restart Smelter Capacity
HOUSTON--(BUSINESS WIRE)--June 28, 2001--Kaiser Aluminum & Chemical Corporation said today it was disappointed that the Bonneville Power Administration (BPA) has either failed to accept or has chosen to ignore an offer by Kaiser to help address near-term power shortages in the Pacific Northwest. The company had offered to keep its smelter capacity curtailed for six months beginning Oct. 1, 2001 to help meet the region's need for more power.
The BPA has failed to respond to the terms of the company's proposal, despite the fact that Kaiser's proposal was comparable to other buy-back agreements reached by BPA with other Northwest aluminum companies and utilities. In some areas, Kaiser's proposal was actually more favorable to the BPA than the other agreements. In particular, the compensation requested in Kaiser's proposal was substantially less than what BPA has agreed to pay many of its other customers. Kaiser's proposal would enable BPA to reduce regional power rates by $1/mwh.
Kaiser has offered to waive 241 megawatts of power (the amount it would use to operate Northwest smelter capacity) for six months in exchange for a payment of $27.40 per megawatt hour, a rate considerably below the $38 rate BPA agreed to pay some customers. The company's proposal was designed to cover Kaiser's estimated ongoing costs during the six-month period and would have provided basic full compensation for affected employees and continued curtailment-related spending for vendors, suppliers and communities. Kaiser's proposal was the first and only such proposal to attempt to help mitigate impacts on vendors and suppliers.
BPA's earlier offer to Kaiser was $3 to $4 per megawatt hour, a value that is approximately 90 percent less than the agency agreed to pay Golden Northwest. BPA's offer is indicative of BPA's lack of good faith in its discussions with Kaiser. Indeed, at no point has BPA even provided Kaiser with a written proposal, nor has it made any substantive response to the Kaiser proposal it received on June 25.
If BPA chooses not to accept Kaiser's curtailment proposal, which would reduce regional power rates, the company has offered an alternate proposal: Kaiser would agree to forego 10% of its contracted power for six months in exchange for the same compensation BPA had agreed to pay its other customers. This is the same percentage of power that BPA asked other customers to conserve. BPA also has not responded to this alternative.
The origin of the BPA power problem is the agency's decision to sell 3,000 megawatts more than it could generate in the 2001-2006 contract period. Instead of obtaining the power it needed to fulfill its customer obligations, BPA pressured customers to give back power. In some cases BPA agreed to buy power back from customers over a five-year period. With power prices coming down, these five-year arrangements could place BPA in a future financial bind. This mistake could be just as expensive to the region's ratepayers as BPA's failure to see the energy crisis coming in the first place.
Although Kaiser is willing to have further discussions with BPA on this matter, the company will evaluate the power rates to be announced on June 29 with a strong preference for restarting a portion of its Northwest smelter operations beginning Oct. 1, 2001. The company has repeatedly indicated that it may be preferable to run smelter operations, even at high power rates, to avoid the significant ongoing costs of curtailment.