VANALCO MAY CLOSE DOORS

Thursday, November 2, 2000
By MIKE ROGOWAY, Columbian staff writer
Vanalco's anticipated electricity deal has gone sour, so the company says it will part permanently with most of its 600 workers and may shut down by the end of the year.

This could be the end for the Vancouver aluminum smelter, one of Vancouver's biggest employers and most prominent corporate citizens for the past 60 years.

Nearly all of Vanalco's employees were laid off last summer after a sudden sharp rise in Northwest electricity prices. In September, Vanalco announced it had a tentative deal for cheaper power, but the company now says its unnamed supplier has raised prices.

"We have to give you the unhappy news that this means termination of employment for most Vanalcans," the company wrote in a letter to employees dated Tuesday. It said most workers will receive notices by the end of December.

Vanalco continues to operate at a low level and is seeking a new power deal, but says it's still losing money. Chuck Reali, Vanalco general manager, said Wednesday that chances are high the plant will shut down for good at the end of this year.

"That's what I think," he said. "That's not a for-sure situation."

Vanalco shut down most of its production in June after Northwest electricity prices skyrocketed. The higher prices were triggered by growing demand for electricity throughout the West and deregulation of the California power market, which competes with the Northwest for regional power.

Aluminum is an extremely power-intensive industry. Vanalco, for example, consumes about 230 megawatts roughly half the average power consumption of all the rest of Clark County.

Unlike some other Northwest aluminum smelters, which had fixed-price power contracts with the Bonneville Power Administration, Vanalco bought almost all its electricity on the wholesale power market to take advantage of then-lower prices. That left the company fully exposed when power prices shot up last spring.

"It's an unfortunate situation because, you know, the plant has been running magnificently," Reali said. "There were these outside forces that one has no control over."

Vanalco's troubles reflect a crisis facing the aluminum industry throughout the Northwest, said Whidbey Island metals analyst Robin Adams, adding that demand for electricity is rising, but few new generators have been built.

"Obviously the people who were running Vanalco simply didn't see this happening and they've been caught short by it," Adams said. "They're not alone in this deal."

Since last spring's surge in electricity prices, six Northwest aluminum smelters have cut back or ceased production. About 1,500 workers have been laid off.

Opened by Alcoa in 1940, the Vancouver aluminum smelter was the first of 10 built in the Northwest to take advantage of the cheap power generated by the region's hydroelectric dams. The Vancouver smelter closed once before in 1986, when Alcoa failed to reach a contract agreement with its union.

Alcoa called that closure a "permanent shutdown," but a private group of investors bought the smelter and reopened it the next year as Vanalco. Adams said the plant might reopen in the future, possibly under a new owner.

"I think it could, but not until power prices return to reasonable values," he said. "It think it could be two or more years, because you've got to build more power stations."

Vanalco general manager Reali said he doesn't know what the smelter's owners plan to do with the plant if it does close. He said high power prices would deter prospective buyers.

"If they try to make aluminum, they're going to have the same problem."