Alcoa Inc. cuts deal with BPA
Company will shut its Ferndale smelter, but Northwest Alloys gets a reprieve
John Stucke and John Craig - Staff writers
Alcoa Inc. struck an agreement with the Bonneville Power Administration on Wednesday, shutting down its Ferndale aluminum smelter for two years and splintering an industry alliance.
The deal signaled a retreat from the rising rhetoric that has pit the Northwest's well-connected aluminum companies against the BPA and public utility districts that serve millions of people.
While Alcoa quits making aluminum through 2003, the agreement offers hope for its Stevens County magnesium plant in Addy, Northwest Alloys.
"If all the stars line up right, we might be all right," Northwest plant manager Jerry Turnbow said.
Alcoa will resell power to BPA for an undisclosed sum until October. Then, the company will waive its contracted right to about 400 megawatts for two years as the region solves its energy problem.
As part of the agreement, Alcoa can still purchase about 25 megawatts from BPA to keep the Addy plant running. It's up to company executives to determine whether power prices and metal markets can combine to make magnesium production profitable.
The outlook isn't as good for Kaiser Aluminum Corp.
BPA spokesman Ed Mosey said the agency is after similar agreements with every other regional aluminum company -- except Kaiser.
The federal power marketer won't budge from its blended rate proposal that stands to hit all customers with massive rate hikes, he said. Such power prices will be beyond the means of energy-intensive aluminum smelters.
Alcoa realized this and reached terms with BPA, said Sharon Kanareff, Alcoa's Northwest government affairs manager.
"We're going to do everything we can to look at ways we can reopen this plant," she said. "And without this agreement, we certainly didn't think the chances were as good."
In return for a two-year closure, BPA will pay full wages and benefits to many of Alcoa's 1,200 workers, and write a check to local communities to help offset tax cutbacks.
In Alcoa's case, that equals tens of millions of dollars in wages to hold the Ferndale smelter crew together during the closure, along with a $1.75million payment for local government taxes.
"Anybody who claims in these smelly ads that BPA is trying to put companies out of business and hurt workers is just wrong," Mosey said. "This should show that we're out there doing everything we can, under this extraordinary energy situation ... to keep these families paid so they can stay in communities and support local businesses and their communities."
BPA will not offer Kaiser -- and subsequently its corps of Steelworkers and the Spokane community -- any such deal. At least, Mosey said, until the company shares its proceeds of $468 million netted from the resale of federal power since last fall.
The two sides remain at loggerheads as the weeks tick by and the energy situation worsens. Every other company reselling power has reached a revenue-sharing deal with BPA.
"At first glance, it's the kind of deal that makes sense for Alcoa," Kaiser spokesman Scott Lamb said.
Kaiser, however, has different circumstances than other companies, Lamb said. Kaiser and BPA are still talking, he said.
"Beyond that, I don't care to comment on the nature of meetings or discussion."
The Alcoa deal shouldn't water down the aluminum industry argument -- namely, that BPA mismanaged its affairs and is now asking the aluminum industry to suffer, he said.
"We've said this before. Our preference is to run," Lamb said.
Even as Alcoa reached the deal with BPA, company Vice President Al Renken was critical of BPA's stance.
"While this agreement is not our preferred outcome, it is more advantageous to employees, communities and shareholders than the long-term closures we would have experienced under Bonneville's blended-rate approach," he said. "We still find it unacceptable as public policy that the aluminum industry has been asked by BPA to shutter its facilities, thus carrying a disproportional cost, while other customers are being asked only to reduce their usage by 5 percent to 10 percent."
Stevens County, meanwhile, has its fingers crossed.
Northwest Alloys is the biggest economic player in the region, with 325 employees who earn wages far exceeding the poor county's average.
Northwest Alloys also pays about 6 percent of the county's property tax collection, and much of its $18 million payroll is spent at local businesses.
"The nice thing about Northwest is they have family wage scales" and good benefits, said Gene Schalock, former owner of Chewelah Insurance Agency. One of his sons now runs the agency and another owns a real estate company.
The Schalocks, like many other area residents, realize they depend on Northwest Alloys to keep the local economy buoyant.
"If (Northwest Alloys) went down, that would pretty much shut down this whole area," said Michelle McBee, a waitress at Chewelah's Shanghai Inn. "Even if they stay open just a little bit, that will help."
Chewelah Mayor Gloria Davidson added that if the plant stays open, "We probably would have a victory dance."
Plant manager Turnbow said the plant will continue operating at about 70 percent capacity.
Scaling back or ramping up depends on what power will cost in October. But that's not the only hurdle for the company. The price of magnesium is important, too.
The U.S. Department of Commerce and the International Trade Commission are investigating whether foreign countries are dumping the metal into the U.S. market and driving down prices.
If the allegations are true, the United States might charge import duties on magnesium from China, Russia and Israel.
That would make the Addy plant more competitive and give it a better chance of staying open.
Alcoa is neutral on the case, although its workers have signed a petition urging higher tariffs on magnesium.
A decision is expected in early autumn.
"The good thing about all of this is that there were a few megawatts carved out for us," Turnbow said. "It's kind of a high price to pay, and we're looking at it as more of a blessing and less as a gift."