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BPA Proposes Long-term Deal for Intalco by Samantha Bates The Bellingham Herald, October 11, 2008

In a week of horrific economic headlines, the Bonneville Power Administration has delivered some good news for Whatcom County: a proposed electric power supply deal that could keep the Alcoa Intalco Works smelter and its workers secure for many years.

If the proposed deal gets final approval in January, it won't guarantee the aluminum smelter's long-term survival. But it does appear to provide a long-term power supply that could be cheap enough to keep the smelter in business.

Mike Rousseau, Intalco's plant manager, said the BPA proposal is a big step toward a more secure future for the plant west of Ferndale and its 660 employees.

"It's a framework of something that works," Rousseau said.

If the power supply deal emerges as a firm contract after a public review process, the company has agreed to invest between $125 million and $160 million in modernizing the plant, while maintaining a minimum $48 million-a-year payroll. That's only enough to cover about 480 of the plant's current 660 workers, but Rousseau said the company could supplement the BPA power supply with electricity from other sources to maintain higher production and payroll if market conditions warrant.

The big investment in modernization would mean a cleaner and more efficient operation.

"It significantly reduces our greenhouse gas footprint," Rousseau said.

The terms of the deal, as announced by BPA:

• The company would be able to buy 240 megawatts of lower-cost BPA power for the 10-year period beginning Oct. 1, 2011 - enough to run the plant at about half capacity. The company could seek other power sources to operate at more capacity.
• The company could buy a supply of 160 megawatts for the seven years after that.
• The company's actual power costs will be determined in the next couple of years as BPA negotiates purchases of power from other sources to supplement hydro, which isn't plentiful enough to serve the region's needs.
• If BPA's cost to purchase power from other sources rises too high, the deal could be terminated.

This deal appears to fit that description.

Intalco gets none of BPA's cheap hydropower today. Instead, BPA has been giving the smelter a cash subsidy to compensate for Alcoa's costs in buying higher-priced power elsewhere, enabling Alcoa to keep two of the plant's three potlines running.

But that arrangement expires at the end of September 2011. Until BPA's announcement on Friday, Oct. 10, the plant's future beyond 2011 appeared cloudy.

Allen Burns, BPA's vice president of bulk marketing, said the draft power proposal faces a 30-day review before it is drawn up as a contract, and the contract then faces 30 more days of review. He also stressed that the review and comment period is more than a formality: BPA administrator Wright will have to weigh those comments seriously before making a final decision.

Burns said the power proposal tries to strike a balance between two opposing views on making cheap federal hydropower available to Intalco. The company's partisans argue that the smelter should get all the power it needs to operate at full capacity, given the company's long relationship with BPA, going back to 1966. But officials of public utility districts and municipal power systems argue that federal law gives them first claim on BPA power. As they see it, Intalco's power supply comes at their expense, forcing them to find more expensive sources of electricity for their own residential and industrial customers.

"This proposal is somewhere in the middle," Burns said. "We're trying to balance that somewhat."

In a press release, the BPA acknowledged that the deal with Intalco, if finalized, would raise power rates for its other customers, but that increase would be less than 2 percent. The release also says that an independent economic analysis found that continued operation of the smelter shows a net economic benefit to the region, despite Intalco's appetite for scarce power.

As recently as the mid-1990s, BPA was supplying more than 3,000 megawatts to 10 smelters in the Pacific Northwest - close to three times the total power demand for the city of Seattle today. But when the price of power from non-BPA sources soared in 2000 and 2001, the federal power agency no longer had enough power to meet demand, and most of the smelters had to shut down.

BPA's Burns said much will depend on economic forces. A recession would likely lower the cost of supplementary power that BPA must purchase. But recession would also likely lower the price of aluminum - the other big variable in the economic equation for any aluminum plant.

Rousseau agreed.

"We're constantly going to be looking at market conditions on all those fronts," Rousseau said.

While market uncertainties remain, Intalco workers were cheered by the latest developments.

"It's the first positive we've had in a long time, with the power struggles we've been going through," said Pat Flaherty, a high-performance work organization coordinator with the International Association of Machinists and Aerospace Workers local that represents Intalco's labor force. "I actually saw smiles on people's faces. ... They have no guarantees, but reason to be optimistic."

Dan Timmer, a 30-year Intalco veteran, said he was especially happy for new workers enrolled in training programs.

"Last week I was training three new people that just came into the facility," Timmer said. "I think 'exciting' would be the right word to use at this point."

Connie Siedschlag, who has worked at the plant for about 20 months, said smelter work is a big improvement on her former job driving a tractor to take care of manure lagoons at local dairies. She's grateful for the education and training that Alcoa has provided.

"They've really opened up my horizons for me and done wonders for me," she said.

Rob Macdonald, maintenance and engineering manager, has been at Intalco about 18 months. He was working at the Goldendale Aluminum Co. smelter when it shut down in 2001.

"It's a very ominous feeling when you walk through a plant and it's dark," Macdonald said. "The building makes sounds you never heard, because it was so noisy before. ... It just wasn't a happy feeling."

Macdonald said Intalco appears to be surviving because company officials formed a coalition with the union, state and local elected officials and the community, to help make their case. That never happened in Goldendale.

"They weren't able to pull off the grass roots that Intalco did," he said.

U.S. Rep. Rick Larsen, D-Everett, said he's optimistic that the proposed BPA deal can survive potential challenges from other power consumers, thanks to the company's commitment to maintain payroll and invest in environmental upgrades.

"There is an investment Alcoa will have to do on the environmental side of things that will make this attractive to the region," Larsen said.