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Alcoa Planning $20 Million Upgrade to PUD Grid by Christine Pratt Wenatchee World, January 19, 2010

WENATCHEE -- Alcoa will spend some $20 million by about mid-2012 to make the power grid that supplies its Wenatchee Works smelter more reliable.

Improvements are part of an "interconnection agreement" approved Monday by Alcoa and the Chelan County PUD.

The proposed improvements will make the grid hardy enough to support Alcoa's plan to start a third "pot line" at the smelter -- a move that could come in late 2012 and is expected to add a still-undetermined number of jobs.

Monday's agreement defines the needed improvements, how they'll be funded and carried out. The work is a required precursor to the PUD's new 17-year power-sales contract with Alcoa, which begins in November 2011.

Monday's agreement requires Alcoa to:

• Pay to modernize the 30-to-60-year-old equipment at the McKenzie Substation, which supplies about half the smelter's electricity.

• Buy the lower-voltage half of the Valhalla Substation, currently owned by the Bonneville Power Administration. The PUD will own and operate the substation.

Chad Bowman, transmission system manager for the PUD, said that PUD-ownership of the Valhalla Substation will reduce the transmission, operations and maintenance costs that Alcoa currently pays to Bonneville.

This would make Valhalla a lower-cost backup system for Alcoa when power is interrupted along a main PUD transmission line that supplies the smelter from Rocky Reach Dam.

This line, called "Columbia 2," is on the Douglas County side of the Columbia River. It was damaged in July 2008 by wildfire. Power was out for nearly 19 days.

Bob Huber, Alcoa's Northwest energy manager, described Monday's agreement as the "nuts and bolts" of each side's responsibilities for grid upgrades and connection.

Commissioner Randy Smith said Monday's agreement was like an acknowledgement by Alcoa that "We know this recession isn't going to be here forever, and we're here for a long time."

Commissioner Ann Congdon added, "This is a confirmation of Alcoa's commitment to stay in the valley and get that third pot line going."

"There aren't many marriages that survive 60 years," Commission President Dennis Bolz said of the PUD's relationship with Alcoa, which dates to 1952. "It shows a willfulness on the part of both sides. We appreciate the commitment and are certainly willing to do our part."

Alcoa employs some 360 people at the smelter, which currently operates two pot lines.

Hit by the world recession and slumping aluminum prices, Wenatchee Works has laid off 36 employees since early 2009.

The new power contract gives Alcoa a 26-percent share of the power generated by the PUD's Columbia River dams, Rock Island and Rocky Reach -- enough to run a third pot line.

The contract will be in effect from late 2011 to late 2028.

If Alcoa doesn't start the third pot line, the PUD will sell the excess power and bank the proceeds in a credit account for Alcoa. All the power or proceeds from sale of Alcoa's power must be used at Wenatchee Works, the contract says.