Power buyback idles smelter
The BPA deal halts operations at a Longview, Wash., plant for more than a year
Friday, March 2, 2001
By Gail Kinsey Hill and Erin Middlewood of The Oregonian staff
The new owners of a Longview, Wash., aluminum smelter Thursday announced plans to shut down the 925-employee plant for at least 14 months and sell back to the Bonneville Power Administration $226 million worth of unused electricity.
McCook Metals Group, a Chicago-based company that earlier this week bought the Longview smelter from Alcoa, will use the cash to pay workers full wages and benefits during the shutdown, invest in new generating plants and modernize production.
Company officials said they hope to begin operating again in April 2002 and eventually draw power from generating plants McCook plans to develop.
"This was a brilliantly structured transaction," said Michael Lynch, chairman of McCook, who made the announcement at BPA headquarters in Northeast Portland.
Stephen Wright, BPA's acting director, and Gaylan Prescott, field representative of the United Steelworkers of America, touted the agreement as beneficial to all parties. Yet, workers remain uneasy about when they will return to work and whether the aluminum industry will remain an economic force in the Northwest.
The deal, like others recently forged by BPA, underscores the depth of the Northwest's electricity shortage and the lengths to which BPA will go to free up resources.
Under a contract scheduled to expire Sept. 30, BPA had promised to deliver to the Longview smelter a continuous supply of 420 megawatts of power at a cost of $23.50 a megawatt hour.
Those 420 megawatts can keep the facility running at capacity, producing 204,000 metric tons of aluminum a year. Used elsewhere, those megawatts could light up a city one-third the size of Seattle.
BPA, which markets almost half the electric power consumed in the Northwest, has been trying to buy back power it committed to the electricity-intensive aluminum industry. The freed-up megawatts reduce the likelihood of shortages this summer and next year. It also reduces BPA's need to buy power on the wholesale market where prices are more than $200 a megawatt hour.
The Northwest's energy crunch is the result of a variety of factors, from climbing consumer demand to near-drought conditions and depleted reservoirs. During the past 10 years, no new generation has been built to ease the squeeze between supply and demand.
California, facing a shortage of its own, has further driven up electricity prices.
Under the agreement, which took effect Thursday, BPA will pay McCook $105 a megawatt hour for 420 average megawatts through Sept. 30.
BPA pleased with deal
Although BPA is paying far more than the initial selling price, agency officials said they got a good deal -- less than half the going wholesale price.
The deal, therefore, helps lower costs for ratepayers throughout the Northwest, Wright said. If the power isn't needed by other customers, the water otherwise used for generation can aid endangered fish runs, he said.
"We're dealing with some extraordinarily difficult problems," Wright said.
In October, when new five-year contracts between aluminum companies and BPA begin, McCook has agreed to a phased-in plan. For the first six months, the Longview smelter -- now called Longview Aluminum LLC -- will remained idled and receive no power.
Beginning in April, the smelter will receive 100 average megawatts, and from July 1 through the remainder of the contract period it will receive 280 average megawatts.
The price has yet to be set.
After 2006, BPA will end all power sales to the smelter. "That's a critical part of this agreement," Wright said.
BPA hopes to terminate sales to the entire industry by 2006, gaining 1,500 average megawatts.
Longview Aluminum intends to begin partial operations in April 2002, gradually ramping up to full capacity by June 2003, Lynch said.
McCook will develop two gas-fired combustion turbine plants, each capable of producing 1,100 megawatts, Lynch said. Enron Corp. will be a partner in one of the projects.
The new generation won't be available for several years. When it comes online, any power not used at the smelter will be sold on the market.
In Longview, workers had hoped the announcement would clear up uncertainty about their future. But several said they still don't know if they're coming back to work next week to help with the shutdown or with improvement projects, and if they aren't, when they might.
The mood at the plant is "miserable," said Bill Cochrane, 46, a machinist who has worked there for 13 years.
Employee retraining
McCook plans to offer worker retraining, something that cheers James McGregor.
"I'm young. I can reschool," said McGregor, 25, who has worked as an anode caser at the plant for almost two years. "I'll take the pay while I'm at it if they'll give it to me. I've got a son. I can't sit back and do nothing."
The smelter's future has been uncertain since Alcoa, the world's largest aluminum producer, acquired it in May as part of a $5.58 million merger with Reynolds Metals. Antitrust regulators required the aluminum giant to sell at least a 25 percent interest in the Longview plant.
McCook, an affiliate of Chicago investment group Michigan Avenue Partners, engineered a purchase of the entire facility. No price was disclosed. The deal became final Tuesday.