BPA, smelters face off
Aluminum industry says BPA is using it as a scapegoat
John Stucke - Staff writer
In the next six weeks, the Bonneville Power Administration will put a new sticker price on power.
If the price is too high, and it likely will be, communities like Spokane, Addy, Wenatchee and Goldendale stand to lose thousands of aluminum jobs and scores of related businesses that have served as an economic stalwart in the Northwest for six decades.
It's happening so fast that normally staid aluminum companies are reeling. In an escalating war of words, the companies paint themselves as scapegoats for a mismanaged government agency.
"Unnecessary," "unfair," and perhaps worst of all, "unexpected," the companies say about their unfolding dilemma.
So far, BPA has shaped the debate over how the Northwest copes with the worsening power problems and upcoming price blitz. Its main argument: Aluminum companies are power hogs that stand to ruin broad segments of the regional economy if they don't cooperate and keep plants idled.
By putting the onus of massive rate hikes on smelters, BPA has created an "us versus them" struggle, said Paul Murphy, a lawyer working for the aluminum industry.
"You know, the aluminum industry didn't do anything to create or contribute to the power shortage that developed over the year," he said. "These companies have been here all along."
The industry's public relations effort, manifested in what's called the Northwest Power Alliance, began airing radio spots last week that blame energy problems on BPA officials they call blundering "federal bureaucrats."
Sharon Kanareff, Alcoa Inc.'s manager for Northwest government affairs, said the industry is working every angle to restart production.
"We're still looking for the right answer," she said.
Aluminum companies aren't used to surprises. Because massive amounts of electricity are needed, power is essentially a raw material. Companies have supplies locked in for years.
So when the energy crisis startled most everyone last year, the companies were prepared.
Some acted on expiring contract language to idle plants and resell federal power to collect hundreds of millions of dollars in profits. Others struck similar deals with BPA.
Some of the arrangements were characterized as positive and a necessary move to help the region through unheard of power woes. Regardless, the notion of buying cheap electricity from the federal government, then reselling it for enormous profits proved controversial.
Kaiser Aluminum Corp. has been at the center of criticism, failing to strike an agreement with BPA over how its $400 million in proceeds should be spent.
With impressive cash flows from power sales, the companies expected to restart smelters in October, albeit with fewer yet pricier megawatts from federal dams.
Some planned to spend their power resale profits to absorb moderately higher prices.
It all stands to change in six weeks. With plenty of political backing, BPA said it needs to raise electrical rates more than 250 percent.
The agency will not purchase power on the open market to serve its customers without passing along the enormous costs. That leaves it with about 8,000 megawatts to sell during this drought year.
Since such rates make smelting aluminum unprofitable, the agency expects the companies to close. The relief would help BPA's other customers, namely the residential and commercial customers of public utility districts that serve cities in Washington and Oregon. The Spokane area isn't directly affected by BPA rates.
Perhaps more than any other factor, a three-page "fact sheet" posted on BPA's Web site has drawn the ire of the aluminum industry and others.
It's a finger-pointing paper that claims job losses, higher electricity prices and blackout risks if aluminum companies don't stand down for two years.
Upset with the fact sheet is Tom Trulove, chairman of the economics department at Eastern Washington University and a former Northwest Power Planning Council chairman.
"Your failure here is one of focusing solely on the short term and deciding to find a convenient scapegoat," Trulove wrote to BPA acting administrator Steve Wright.
"Your challenge should be to find fair solutions that spread the shortages equitably in the short term while devising a longer-term strategy that gives hope to all those dependent upon BPA."
Wright can't talk specifically about the price BPA will charge for power. The agency has, however, said rates could triple. Any rate hike has to pass muster with the Federal Energy Regulatory Commission.
"BPA is in a difficult situation, no doubt about that," Murphy said. "Now it doesn't want to say, `We made mistakes."'
Those mistakes inherited by Wright, Murphy said, include a blown power-plant project called Tenaska.
The gas-fired project was BPA's first major undertaking since the multibillion-dollar Washington Public Power Supply System financial disaster, which was caused by the abandonment of two nuclear plants.
The Tenaska project was to be built near Tacoma by a Nebraska developer, Tenaska Washington Partners II.
BPA, which sells power from 29 federal dams in the Columbia River Basin, is required by law to meet the energy needs of its customers. While the agency can't own power projects, it can help finance them in part to encourage development by shouldering some of the risk of private investment in a business arena dominated by government.
So BPA signed a $2.3 billion, 20-year contract to buy power from Tenaska in 1994. Later, it pulled out when the economics of starting a natural gas plant were feared too risky.
The legal fallout cost BPA more than $100 million.
The political fallout has left the region's dominant power player gun-shy about financing new generation, Murphy said.
"It scared Bonneville, and other companies didn't like it either," Murphy said. "The job had been bungled so badly."
It's one of the reasons the region has a power deficit.
Now, Murphy said, the agency is ignoring its past role and focusing on aluminum companies to make it through this next crisis.
"BPA has gotten much more strident and is relying on coloring and distorting public perception," he said. "I certainly believe that BPA has decided it is politically easier to develop a set of rates that will force aluminum companies off the system rather than look at other alternatives ... That's just absurd."
Aluminum companies don't carry the sort of clout of yesteryear.
The region has blossomed into one of the nation's premier energy-hungry, high-tech centers.
Compromising an underpinning of the New Economy isn't an option.
Part of the problem is BPA's charge. Like it or not, according to the agency, the public has first rights to federal hydropower -- not the aluminum companies.
Even as public utility districts come and go off BPA's customer rolls after failed attempts to find cheaper electricity elsewhere, they are always guaranteed a spot.
So BPA's Wright needs two years to resurrect the sort of power scenario that has helped the Northwest prosper. In five years, he wants aluminum off the federal grid.
Aluminum companies have their own idea.
They propose tiered rates beginning in October, which lump all BPA customers together. Each receives 75 percent of their BPA allocation priced at the agency's cost of generation and delivery.
Companies would not be able to resell the megawatts for proceeds as they are now doing.
Any power needs above the 75 percent would be purchased on the soaring, volatile spot market.
Because BPA also acts as the impartial political agency that listens to such rate proposals, Wright can't comment on the plan to make cheap power available for aluminum smelters.
In most regions, an outside government agency oversees rate cases when utilities seek more money from customers. In this case, BPA is overseeing its own rate hike.
Murphy said the Federal Energy Regulatory Commission will take a look at the proposal, but is most interested in assuring BPA captures enough money from power sales to repay the federal Treasury for the building of the hydropower project.
Other BPA customers, however, can comment on the tiered-rate proposal. And they call it a scheme to shift huge costs onto residential and commercial users without harming aluminum companies.
The public utility districts claim they can't simply reduce power consumption by 25 percent without devastating their members. The tiered rates could cost every residential customer an extra $247, and each business $1,500.
Job losses are estimated at about 60,000.
"It's one of the worst proposals I have ever seen," said Shorty Womer, president of Nespelem Valley Electric. "We're all feeling the pain of the energy crisis, but that's down right greedy and grossly unfair to our people who already live in an economically depressed area."