Alcoa cuts production in NW to sell back power
With the additional production cutback, Alcoa's sale of power back to the Bonneville Power Administration (BPA) will be extended to Oct. 1, the company said, noting no layoffs are expected as a result of this action.
By Carole Vaporean
NEW YORK, March 20 (Reuters) - Aluminum giant Alcoa Inc. (NYSE:AA - news) said Tuesday it will extend and add to production cutbacks at its Ferndale, Wash. smelter for another five months and sell back high-priced electricity to the power-desperate U.S. West.
Alcoa, the world's largest aluminum producer said it will replace some of this production by restarting the final potline at its operations in Warrick County, Ind., near Evansville, which have been idle since 1993.
All five primary aluminum producers operating in the Northwest region have had to reduce production because of the power crisis that sent electricity costs soaring and forced a series of rolling blackouts in worst-hit California.
At the Intalco smelter in Ferndale, Alcoa said it will extend the production cutback announced in January and lower 2001 output of the 61 percent-owned smelter an additional 70,000 tonnes, bringing capacity for the year down to 130,000 tonnes.
Intalco's total production capacity is about 275,000 metric annual tonnes.
The plant's other owners are a consortium of Japanese companies led by Mitsui & Co. .
With the additional production cutback, Alcoa's sale of power back to the Bonneville Power Administration (BPA) will be extended to Oct. 1, the company said, noting no layoffs are expected as a result of this action.
In agreeing to trade in power and curtail energy-intensive smelting operations, Alcoa will make available a total of 281 megawatts of electricity -- enough to power a quarter of a million homes -- for distribution elsewhere in the West through the critical summer months.
In December 2000, hydroelectric provider BPA - a U.S. government agency -- began discussions with some of its heaviest industrial power users as it searched for ways to extend its unusually low water supplies.
In January, it worked out a deal with Alcoa to participate in a short-term arrangement to sell back power. BPA would pay Alcoa for the electricity under the deal.
A BPA spokesman said Tuesday that short-term arrangement will be extended to Oct. 1. Both sides make out he said, because BPA is, ``saving a bundle over what we would have to pay in the open market,'' and Alcoa makes money from the sale.
Then, the Pittsburgh-based aluminum giant announced it would cut back production through April at Intalco, but said it anticipated a return to peak production in May.
Also in January, BPA announced a separate arrangement involving no payments, in which Alcoa would shift part of its scheduled power from January and February to March and April, to make more power available to consumers during the heavy- demand of the winter months.
Under a 1995 contract, Intalco had been getting about 70 percent of its power from BPA and Alcoa was not allowed to sell power back to Bonneville.
After Tuesday's announcement, total curtailments in the U.S. Northwest amount to more than 1.2 million annual tonnes of primary aluminum smelting capacity, as a result of high power costs. The region has about 1.6 million tonnes of total capacity.
Analysts said Pacific Northwest smelting accounts for about a quarter of Western World aluminum capacity.
Also in January, Alcoa announced a ``temporary'' curtailment at its Wenatachee, Wash., smelter designed to cut production 80,000 tonnes, freeing 150 megawatts of power over an undisclosed time frame.
Alcoa said then the production cuts and resulting power sale backs, ``will result in a positive, incremental gain for 2001, which will not be material to the company's earnings.''
Asked about the terms of the power transactions Tuesday, spokeswoman Joyce Saltzmen declined to elaborate.
She was also unable to provide further details on the Wenatachee production cuts.
On April 1, Alcoa said, the Warrick smelter will restart the last of its six potlines, resulting in about 25,000 tonnes per year of additional capacity. The smelter will then be operating at its 300,000 tonne per year nameplate capacity. About 40 production workers will be added.
Cinergy (NYSE:CIN - news) will provide the power for the additional potline through a wholesale contract with Alcoa Generation, the aluminum company's wholly-owned power company, Saltzman said.
Alcoa's stock finished $0.35 higher at $36.28 on Tuesday.