BPA's new rate hike plan may jeopardize aluminum cos

By Carole Vaporean

NEW YORK, Nov 14 (Reuters) - The stakes were raised again for Northwest U.S. aluminum smelters when Bonneville Power Authority (BPA) announced last week another proposal to increase power rates.

BPA's latest rate adjustment plan would add another 15 percent to its customers' power costs. For the five aluminum companies operating in the region, that means the deliverable cost of power would go up to $29.50 per megawatt hour (MWh).

The aluminum smelters had objected to the increase to $23.50 a megawatt hour, plus a $3.00 delivery charge, in their recently signed five-year contract with BPA that begins in October 2001.

Of the smelters in the area, Alcoa (NYSE:AA - news) with other power sources is probably the best positioned for power. Kaiser Aluminum (NYSE:KLU - news), a large power consumer, has said it is not satisfied with the BPA contract it signed in late October. Vanalco, Columbia Falls, and Golden Northwest, three small privately-owned smelters, may suffer the biggest hit from the new contract, as well as the additional increase.

Under the latest plan, they will now have to pay a deliverable rate of $29.50 a megawatt hour, if they want to receive Bonneville's power. Aluminum smelters have cited $30/MWh as their breakeven rate for power costs.

Bonneville said it amended a rate increase proposal that was filed with the Federal Energy Regulation Commission (FERC) earlier this year.

``It's a general rate increase to make sure BPA derives sufficient revenues to meet its obligations with the U.S. Treasury,'' said BPA spokesman Ed Mosey.

Mosey said the power adjustment amendment was filed with FERC when it tallied the requirements of all of its public agency customers, which have a right to receive power from Bonneville.

``It turned out they needed about 1500 more megawatt hours than they had said they would need,'' Mosey said.

That meant BPA would have to purchase the additional power in the open market.

``To recover the cost of these purchases, the agency proposes to tack a 15 percent charge onto wholesale rates that go into effect Oct 1, 2001,'' said BPA senior vice president Paul Norman.

Bonneville has 8,800 MW of its own resources, and a load, or contractual obligations to supply about 11,000 MW of power.

FERC will probably not decide on the proposal until June.

In the meantime, the aluminum companies still have the option to protest the rate increase before a judge, who will review the plan before submitting it to an administrative panel. The panel then sends it on to FERC for review sometime this spring.

``I don't think that there's any question that some of the aluminum companies are in dire straits. But, FERC would be indifferent to that problem,'' said BPA's Mosey.

He explained that FERC's priority is to make sure that Bonneville is able to meet its financial obligations to the U.S. Treasrury.

Mosey said the 15 percent additional charge is separate from a proposed Cost Recovery Adjustment Clause (CRAC) that is still being sorted out. That cost, as well, will probably not be decided until the spring.

Under current proposals, CRAC will probably add another $1.00/MWh to power charges. It represents the additional amount BPA may have to pay if it purchases power in the open market after 2002.

It all depends on the amount of financial reserves BPA has, said Mosey. When reserves fall below a certain amount, the CRAC would be triggered. For now, BPA thinks it has sufficient reserves to cover open-market purchases through 2002.