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BPA Subsidy by Ted Sickinger The Oregonian, September 9, 2006

Power - Both sides claim jobs will be lost,
depending upon what the agency decides about continuing the cut rates

SALEM -- The Bonneville Power Administration invited all comers to its headquarters Friday for a final public flogging of one of its hot button issues: whether it should continue providing cut-rate electricity to aluminum companies after 2011.

That's still five years off, but the issue is the subject of fierce debate between the public utilities and customers served directly by BPA because everyone assumes there won't be enough low-cost hydropower to go around. The federal agency is expected to issue a final decision this winter on whether and how much it will continue to subsidize its so-called direct service industries.

For decades, those energy hungry customers have purchased power directly from the BPA at close to cost. They say they need the low-cost power for their aging plants to remain viable. If they get it, they say the plants will preserve thousands of family-wage jobs in the region -- a claim emblazoned on the T-shirts of union members who packed Friday's hearing at BPA's Lloyd District headquarters.

But aluminum companies' 20-year rights to low-cost power, established by the Northwest Power and Conservation Act of 1980, expired in 2000. Now the public utilities that still have the rights to BPA power want to cut the aluminum companies off altogether.

Otherwise, they contend, their customers are directly subsidizing profitable multinationals such as Alcoa, because they have to replace whatever the aluminum companies are allocated by buying power at market prices. Higher power costs for their customers mean a loss of jobs in other industries, they say.

"Is an (aluminum company) job more important than a pulp and paper job?" Melinda Davison, an attorney for the Industrial Customers of Northwest Utilities, asked at the hearing. "The northwest aluminum companies are already on the edge. It's highly unlikely they'll survive."

The aluminum industry is a shadow of its former regional presence. Although it once employed about 8,000 workers in 10 smelters scattered around the region, six of those plants have closed permanently, and the other four are either closed or operating at a fraction of capacity.

Much of the discussion Friday centered on a series of economic impact studies sponsored by both the aluminum companies and the public utilities. The BPA hired three economists to evaluate the studies' validity. They concluded that there were probably some short-term benefits in employment and income from keeping the smelters open, but very little long-term impact if they closed.

Jack Speer, a vice president for Alcoa who spoke at Friday's meeting, said the issue was one of fairness. Other industrial customers such as pulp and paper mills benefit from the preferential rates that their public utility districts get from Bonneville. The aluminum companies, he said, are only looking for a similar deal, rather than paying market rates that are almost double that level.

"There are net job gains if the BPA serves our industry, that's the bottom line," Speer said. "We grew up with preference power, and every neighbor we're looking at gets preference power. The question is whether they should take it from us."

With or without subsidized power, the aluminum companies may not be able to continue to operate here. Even heavily subsidized rates are insufficient to give the aluminum companies a return on any new investments in their aging plants, according to economic impact studies reviewed Friday.

Under the scenarios being contemplated, the aluminum companies would be subsidized to the tune of about $71,000 to $110,000 per year for every job they directly created, said Marilyn Showalter, executive director of the Public Power Council, which represents public utilities.

"It's ratepayers providing the aluminum companies with free labor," she said. Continuing the subsidies "is a recipe for letting the plants go downhill to the point where they're no longer viable."