BPA lets Kaiser keep power profit windfall
Deal also shifts risk of electricity price fluctuations from company to agency
John Stucke - Staff writer
Kaiser Aluminum Corp. and the Bonneville Power Administration have settled a yearlong dispute that had jeopardized electricity supplies for the Mead smelter.
The deal allows Kaiser to keep $460 million it netted during the past year selling electricity produced from federal dams.
Also, the deal reworks Kaiser's new "take-or-pay" contract obligations for a year. If Kaiser does not take its allotment of BPA electricity, the company won't be responsible for paying the difference if the agency must sell the power for a loss.
The deal shifts the the financial risk of expensive power from Kaiser onto BPA just for the one year to help the aluminum firm weather the economic downturn.
"The guts of the deal are this: Kaiser can avoid paying damages if it does not take the power," said BPA spokesman Ed Mosey. "Given the volatility of the situation, it became a question of, `Do we hold them accountable for damages?"'
The answer was "no," he said, when Kaiser agreed to give BPA what are called interruption rights -- basically the ability for BPA to take Kaiser electricity when supplies are extraordinarily tight or when the agency needs power to save money.
News of the settlement stunned Steelworkers, who were laid off while Kaiser profited from reselling electricity.
"We're just wondering how (Kaiser) pulled it off," said Dan Russell, president of Local 329. "Especially given the fact all the other companies in the Northwest went the extra mile to do things for their employees and communities.
``Here we have Kaiser somehow just walking away from all this.''
Officials for Golden Northwest Aluminum and Alcoa Inc. couldn't be reached for comment Tuesday evening.
Both companies shared millions of dollars -- earned from remarketing contracts similar to Kaiser's -- with BPA.
This year, Alcoa and Golden Northwest smelters are sitting idle as the region suffers through an energy shortage. For shutting down the power-intensive smelters, BPA agreed to pay affected employees.
No such arrangement has been extended to Kaiser, which is paying most of its workers about 70 percent of base wages.
Kaiser spokesman Scott Lamb characterized the agreement as a way to improve the chances of restarting the smelters in Mead and Tacoma.
Currently, low aluminum prices have made aluminum production a money loser.
Should markets rebound and metal prices rise, Lamb said the agreement would help smelter operations make economic sense.
``We are hopeful that the longer-term outlook will improve,'' he said. ``And we are pleased that we were able to work with Bonneville and find terms that both parties were agreeable to.
``We have a long history and relationship with Bonneville. We want it to continue.''
Steelworkers, Russell said, believe BPA caved to Kaiser wishes because of outside pressure from senior government officials.
``After all that's happened during the past year, Kaiser got the best of everything,'' Russell said. ``We're scratching our heads wondering how this happened. I'm sure the other aluminum companies who shared proceeds and cooperated are wondering, too.''
Mosey said that although officials from the Department of Energy were aware of the negotiations, BPA officials were not pressured.
``It wasn't as if we were coerced or browbeaten and ordered,'' he said. ``It was the right decision.''
Mosey said priorities have changed in the past month.
``With the economic situation in the country, it made sense,'' he said. ``Right now, this country does not need to discourage any industrial capacity from surviving and operating.''
Kaiser, according to Mosey, showed BPA that it was interested in future Northwest operations. The company spent some of the remarketing proceeds on an alumina refinery in Gramercy, La., that underscored intentions to remain an aluminum concern in the Northwest.
``It was apparent to us they are trying to stay in operation as a company,'' he said. ``We know they are in bad financial shape and to have us on their backs ... we didn't feel pursuing old claims at this time was prudent.''
Kaiser is scheduled to report third-quarter revenues next week.
Besides the struggle with BPA and low aluminum prices, Kaiser is attempting to retire or refinance more than $625 million in debt coming due within 17 months, according to a company filing with the U.S. Securities and Exchange Commission.