NW aluminum industry in crisis

POWER COSTS: High price of electricity could be undoing of one of region's cornerstone industries

11/10/2000

Al Gibbs; The News Tribune

The aluminum industry, a foundation stone of the Northwest's economy for half a century, is threatened with extinction by high electric energy prices that will rise even higher next year.

Kaiser Aluminum's mill on Tacoma's Tideflats isn't likely to reopen unless power prices fall. Other plants that have closed in the region also are expected to remain shut.

And Wednesday's announcement by the Bonneville Power Administration that it will raise energy prices by 15 percent next year leaves the fate of the $4 billion industry in serious doubt.

"It's a stark, tough environment," said Pete Forsyth, Kaiser's regional vice president for external affairs. "Something dramatic has to change" for the business to continue.

The average price of power for aluminum plants worldwide is about $20 per megawatt hour. When Bonneville's latest announced increase kicks in next October, the Northwest price will rise to about $30.

Electricity is about one-third the production price of aluminum.

Kaiser has shed all but about 40 percent of its production capacity at its other aluminum mill near Spokane.

"At best, we're sort of hanging on," Forsyth said. "I can't deny it: this is a very, very bleak power market."

Other industries, mostly chemical plants and pulp and paper mills, also have suffered since prices on the West Coast's energy markets spiked to many times normal early last summer.

Tacoma's Pioneer Chlor-Alkali, for example, has operated at less than full capacity since then.

Energy-intensive industries located in the Northwest largely because of cheap electricity, much of it generated at hydroelectric dams in the Columbia River Basin.

For a variety of reasons, including efforts to save endangered salmon, the price of operating those dams has increased.

Bonneville this year decided to allocate 1,500 megawatts of power to the direct-service industries beginning next year, even though Bonneville's utility customers have a legal right to the power and the industries do not.

Other utility customers questioned whether the industries should get any of Bonneville's power, which even with the increase will remain some of the cheapest in the nation.

The decision to provide some power to the industries reportedly was made by federal Energy Secretary Bill Richardson after fierce lobbying by the industry and its labor unions.

"Politics makes for strange results, particularly in that case," said C. Clarke Leone, executive director of the Public Power Council.

Others say loss of the aluminum industry wouldn't be much felt by the Northwest economy. The industry employed only about 9,000 workers as late as last year.

"But look at the communities where the plants are," Forsyth said.

In many plant areas - Wenatchee or Goldendale, for example - the mills are a substantial portion of the local economy. Shutting them down has been or would be analogous to the loss of the timber industry in other towns in the region.

Forsyth said Kaiser officials are studying a variety of options. "We have made no decision to shut anything down," he said.

But the signs are becoming ever stronger that, in the Northwest, the aluminum industry has become a dinosaur facing an impending Ice Age.

"Before (the price spikes) wasn't a good environment," Forsyth said. "It's a worse environment now.

"I'm not going to conclude you can't run energy-intensive industries in the Northwest. We're not ready to give up yet."