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Jobs at Columbia Falls Aluminum Co. Relied on Ratepayers' Subsidies by Michael Jamison The Missoulian, November 1, 2009

"I don't know the answer. But there's an old saying:
When it comes to taking a stand on an issue, where you stand depends on where you sit."

COLUMBIA FALLS - In these days of recession and stimulus, here's a question about how best to invest in jobs:

Does it make sense for electricity ratepayers to subsidize jobs, at the annual cost of about $100,000 per worker, for a Swiss-based multinational, the world's biggest commodity trading company, a company that registered earnings of more than $1 billion during the first half of this year?

Or ...

Does it make sense for households to invest the price of a couple cups of coffee per year to retain nearly 100 of Montana's highest-paying manufacturing jobs, and to keep alive a primary industry that brings millions of dollars to the state?

"That's really a very good question," said Joe Unterreiner, president of the Kalispell Chamber of Commerce. "I don't know the answer. But there's an old saying: When it comes to taking a stand on an issue, where you stand depends on where you sit."

In other words, the farther you sit from the benefits, the less the investment makes sense.

Haley Beaudry sits at Columbia Falls Aluminum Co., which long has enjoyed cheap hydropower because of electricity subsidies.

His plant finally closed on Friday, after years of struggling to turn a profit amid rising energy prices. The move came just weeks after the last of the company's rate subsidies expired.

The cheap power ended, in large part, because other ratepayers argued it wasn't fair, and that it cost jobs in other industries. The courts agreed.

"No one wants to see these jobs go away," said Bill Drummond, "but there's been a real sense of inevitability about CFAC's closing. The economy of the Flathead Valley, and all of western Montana, is so much bigger and more diverse than it was. These aren't the 1960s, and it's been a long time since CFAC was operating anywhere near full production."

It's been years, too, since Bonneville Power Administration - which markets energy produced at the Pacific Northwest's federal hydroelectric dams - counted on CFAC as a much-needed customer.

Drummond is manager at the Western Montana Electric G & T Cooperative, an advocacy group representing six local electric cooperatives and one tribal utility, with a combined 105,000 consumer members. At those cooperatives, he said, the price of power represents a full half the cost of doing business.

"The larger issue, of course, is to what degree Bonneville should favor any one industry over all others," Drummond said. Subsidies to CFAC, he said, "came on the backs of all Bonneville ratepayers, including the industrial customers."

To understand how the subsidies were created, and why they eventually were whittled away to nothing, both Drummond and Beaudry begin at the beginning.

Back in 1955, when CFAC started turning out aluminum, Bonneville had more hydropower than it knew what to do with. Making aluminum requires a tremendous amount of electricity - at its height, CFAC consumed about 25 percent of all the power used in Montana.

And so BPA historically steered thousands of affordable megawatts to manufacturers such as CFAC. That power dwindled, however, as the region's population boomed and demand outstripped Bonneville's supply.

Eventually, cutbacks and court cases combined to end the subsidies altogether. CFAC was left to buy on the open market, and "we just couldn't make it at those prices," Beaudry said.

Complicating matters is a rule that effectively blocks CFAC from leaving BPA and joining the local utility. "It's impossible," he said.

Beaudry insists that the subsidy - most recently $8.5 million for 88 workers - is insignificant when spread across all of BPA's customers. "Pennies per person," he said.

Drummond counters that eliminating it reduces electric rates by a full 3 percent or 4 percent, "and every little bit counts when you're an industrial ratepayer trying to scratch out a living."

At its height, CFAC burned up 300 megawatts (enough to light the entire Missoula Valley and then some), making a million tons of aluminum per day and employing hundreds.

More recently, running at 10 percent of capacity, the plant contributed less than 1 percent of the nation's aluminum production, and is considered by some an "industrial graybeard."

It's far from raw materials, far from markets, far from ports, aged, with a payroll easily undermined by newer Chinese smelters. The trend line, since Swiss giant Glencore International AG bought CFAC in 1999, has been decidedly downward. But its closure, according to Pat Barkey, still represents "a significant event."

Barkey is chief economist at the Bureau of Business and Economic Research on the University of Montana campus in Missoula. And while he admits "you'd be hard-pressed to find an economist who likes subsidies," he also says "there are a couple of ways you can look at this argument."

Utilities, he said, "have been instruments of tax policy for decades. CFAC is certainly not the only beneficiary of what is, essentially, a tax - or a cost shift."

Electricity ratepayers pay for winterizing homes, and for wintertime heat assistance, and for wildlife conservation efforts. "The aluminum company isn't the only one with a subsidy, but at least they're providing jobs," Barkey said.

Those jobs are especially important because the aluminum is sold worldwide, Barkey said, bringing new money to town and making CFAC a primary economic engine of "outsized importance."

So should some subsidy remain in today's broader economy? Again, it depends on where you sit.

Drummond and lawmakers elsewhere in BPA's Pacific Northwest service region mostly think not, but Montana's congressional delegation continues to negotiate on behalf of the plant.

Aaron Murphy, a spokesman for Sen. Jon Tester, said that "for Jon, this boils down to jobs in Montana that stay in Montana." The Democrat "stands by CFAC because he believes in keeping America's manufacturing base here at home, and he believes in securing jobs in places like Columbia Falls instead of outsourcing them."

On Oct. 19, Tester joined Montana's senior Democrat, Max Baucus, in an appeal to Secretary of Energy Steven Chu, noting that since the recent court decisions "CFAC has struggled mightily to stay in business."

The senators went on to urge the Department of Energy and Bonneville "to expediently negotiate a workable contract for CFAC so that it can keep its doors open."

"Time," they wrote, "is running out for CFAC."

Beaudry, however, remains optimistic, and "can't believe that BPA and CFAC can't figure out a deal we can live and work with."

Katie Pruder-Scruggs, a spokeswoman at Bonneville, is likewise hopeful, but warns that "any decision will be made with input from the other stakeholders."

In fact, BPA once again sent a proposal out for comment on Friday, asking the region's ratepayers what they think of a short-term 18-month deal that would guarantee CFAC at least enough affordable power to run at 20 percent capacity, and possibly enough to operate at 40 percent.

But Beaudry had hoped for a longer contract, saying "the bank won't give you a five-year loan on a short-term contract, no matter who you are."

Pruder-Scruggs said this latest comment period will run two weeks, through Nov. 9, and she stressed the "valuable relationship" CFAC and BPA have shared in the past. But she also referred to "this brave new world, where there's so many more demands on the system. This is a situation in flux."

Especially in Columbia Falls, where the lights went dark on Friday, and the plant went cold, even as BPA's new power deal went out for input from people who sit so very far from where Beaudry stands.