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BPA's Aluminum Power Deals Stir More Debate by American Metal Market Metal Bulletin, November 17, 2008

The Bonneville Power Administration (BPA) proposal to provide nearly $100 million in annual power subsidies to the aluminum industry has stirred up another round of debate in the Pacific Northwest.

BPA has proposed providing electricity discounts of up to $66 million annually to Alcoa Inc.'s Intalco aluminum smelter in Ferndale, Wash. The agency has also proposed $33 million in annual subsidies for Columbia Falls Aluminum Co. LLC in Columbia Falls, Mont.

In October, Pittsburgh-based Alcoa and the BPA signed a memorandum of understanding that provided the framework for a contract that would begin in October 2011 and run through 2028 to provide up to 240 megawatts of direct power sales, enough to operate the facility at 50-percent capacity, contingent upon BPA buying additional power to augment the Northwest power system, within certain threshold price levels.

The Intalco smelter has a nameplate capacity of 279,000 tonnes.

Under the terms of the contract, Alcoa would commit to minimum payroll levels, based on the amount of power supplied. In addition, assuming at least 10 years of power can be assured prior to the contract start, Alcoa would commit to spending between $125 million and $160 million by 2028.

During the past month a number of parties, including Oregon Gov. Ted Kulongoski, regional public utilities and consumer advocates, have expressed concern over the deals during a public comment period. The basic arguments are that discounts, which work out to about $140,000 per job per year, unfairly favors aluminum industry jobs over those in other industries.

"Selling large amounts of below-market power to two companies by raising rates for all other businesses may in turn jeopardize the survival of some other businesses," Kulongoski said in a statement.

Werner Buehler, general manager of the Oregon Trail Electric Consumers Cooperative (OTECC), said the current contract proposal, if approved, would ultimately result in a rate increase to its non-aluminum customers of about 3 percent.

"The reality is that the BPA is attempting to subsidize an industry that is struggling right now and is looking for inexpensive power. Industries and individuals within the OTECC service territory are struggling as well, though," he said.

Alcoa countered that this type of contract is necessary for it to maintain 480 jobs at its Intalco plant, adding that it has a $48-million payroll and indirectly supports more than 2,000 jobs in the area. The company claims its plant is responsible for about $189 million in Washington state gross domestic product.

Mike Rousseau, manager of the Intalco plant, said that Alcoa doesn't view the contract as a subsidy.

"This proposal would reduce BPA's Alcoa loads to below half of that needed to operate Intalco Works at capacity, while other industrial customers who have not been in the Northwest for nearly as long continue to have all of their existing power needs met at lower rates with BPA power through local utilities," he said, adding that the contract is at a rate that is currently 38 percent higher than BPA rates to preference customers and higher than comparable power rates with industries served by preference customers.

The BPA proposal has a sizable list of supporters, including Washington Governor Chris Gregoire and most of the state's congressional delegation. They argue that the contract will help maintain a large number of good paying jobs and won't place too large of a burden on other power customers in the region.

Another public comment period will take place when the contract is released in the next 60 days.

The past several months have been difficult in the North American aluminum industry, as prices and demand have dropped off significantly. Alcoa recently announced plans to curtail another 350,000 tonnes in annual production as the slowdown in the aluminum market shows no signs of abating.