the film forum library tutorial contact

BPA Deal will Help CFAC by Chris Peterson Hungry Horse News, June 7, 2006

The Bonneville Power Administration announced last week that it had finalized a deal that will subsidize power costs for the Columbia Falls Aluminum Co. and other aluminum producers in the Northwest.

Under the deal the BPA plan will "monetize" power costs, paying out a maximum of $59 million a year to three aluminum producers, CFAC included.

Of the $59 million, CFAC could see about $14.7 million annually.

That money can then be used to pay down the rate it pays for wholesale power.

The subsidy amounts to about a $12 per megawatt hour reduction in price, assuming the plant is running two potlines which use about 140 megawatts of power. Right now the plant is running one potline, so the benefit is double that - $24 a megawatt hour.

The benefit is locked in at 140 megawatts, no matter what the plant actually uses, explained BPA spokesman Mike Hansen.

CFAC wanted to be able to "front-load" the benefit. Which is to say, take more of the money now, at least from an accounting standpoint, and apply it to power rates, with the anticipation that power rates would drop in the future. The BPA did not allow that deal, however, Hansen said.

The deal has been tweaked from earlier versions, however.

BPA will now allow the benefits a smelter receives to be based on the cost of power for purchases they "lock in" for a multiyear period. If this lock-in provision is used by a company, it must agree to reduce its maximum benefits by approximately 8 percent for the first three years.

The lock-in provision recognizes that the company will realize at least some risk - as power prices could drop.

If a company does not lock in purchases, the available benefits will continue to be calculated each year based on annual market prices, up to the $59 million cap.

In addition, the aluminum companies will be able to access benefits at lower operating levels than what was originally proposed, BPA said in a prepared release.

What does this mean?

It means that CFAC will likely stay in business for at least a few more years. The plant is currently running one potline and employs about 150 people with a payroll of about $7.5 million.

Aluminum prices are also high. A check of the London Metal Exchange on Monday reports prices at $2,630 a metric ton, or about $1.19 pound.

In addition, the wholesale power market has dropped in recent weeks as well. With a good water year shaping up, wholesale power prices have dropped to $35 to $40 a megawatt hour in this region.

It remains to be seen if CFAC can actually lock in rates anywhere near that, as long-term wholesale rates have generally been running in the $60 a megawatt hour range.

Company spokesperson Haley Beaudry said the deal, which is not an actual contract yet, was positive.

"This is one aspect of the business decision ... It's positive. It gives us a fighting chance to continue operating," he said.

He declined to comment, however, on whether the company would expand to two potlines.