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Intalco Tells BPA it Could Shut Down in Weeks Without Rate Cut by John Stark Bellingham Herald, April 9, 2009

Smelter wants to tie its electricity bill to price of aluminum

The Alcoa Intalco Works aluminum smelter could shut down within weeks unless the Bonneville Power Administration is prepared to offer the plant a break on electricity costs, company officials said Thursday, April 9, at a public meeting at BPA's headquarters in Portland, Ore.

Jack Speer, a former Alcoa vice president who is now working as a consultant for the company, said the smelter west of Ferndale is losing money today because the price of power is too high and the price of aluminum is too low. Without the promise of a price break under a new BPA rate that takes effect Oct. 1, 2009, the plant has little chance to survive, he said.

"We're better off shutting the plant down right now," Speer said. "It is a good plant. It has an excellent workforce and a supportive community ... It should operate for years. Yet here we are in this situation we have to deal with."

Alcoa wants BPA to agree to link the company's electric bill to the world price of aluminum. They want that new rate in place by Oct. 1 at the latest, and they hope the variable rate can be a part of a longer-term power contract that would take effect in 2011.

But Alcoa's prospects for getting the deal it wants appear uncertain at best.

Both BPA staffers and representatives of other power users argued that such a complex issue could not be resolved between now and April 17, when BPA is supposed to file its formal response to Alcoa's proposal for power rates taking effect Oct. 1. The BPA staffers favored starting up a new process to resolve financial and legal implications of such a deal, giving rival Northwest power users the chance to study it and offer rebuttal. That could take many months.

Bill Oplinger, an Alcoa vice president, said that wasn't fast enough.

"Every day we delay this decision is a day we lose more money," he said. "We have weeks, not months."

Speer agreed that the company can't wait on a lengthy decision-making process.

"I think the smelter will be closed by that time," Speer said. "The question is, would it reopen?"

Oplinger noted that Alcoa has already trimmed production at its U.S. aluminum plants by about 30 percent in recent months. Without a better price for the power it consumes, Intalco would be "very much at the top of the list for the next level of production cutbacks," he said.

The Alcoa spokesmen said the company is now paying about $60 per megawatt for power that it contracted to buy from other sources between now and 2011.

That is too high for the plant to make a profit. Alcoa has been keeping itself afloat with a $15-per-megawatt cash subsidy from BPA, but the legality of that arrangement has been called into question, and the plant is still losing money even with the subsidy.

Speer and Oplinger said the company can't afford to pay $60 for power between now and 2011, when a still-to-be-negotiated long-term power contract is supposed to be in place.

"The shutdown-now option is a terrible option," Oplinger said. "We think that's a loser for everybody. ... We don't want to shut down the plant, but we can't continue to have the losses that we have currently."

But representatives of the Northwest's public utilities object to price breaks for Alcoa, since that would mean some increase in the power rates that other BPA customers would pay. They argue that cheap power for Alcoa would come at the expense of their own industrial customers, who are also struggling with higher power costs and lower prices for many of the commodities they produce.

"Why is it that transferring a cash-flow problem from you to them helps the region?" one man asked.

Mike Rousseau, Intalco plant manager, replied that electricity accounts for about one-third of the operating costs of an aluminum smelter.

"A little increase impacts us significantly more than the other power users," he said. "We're in a loss situation. We're bleeding badly. The only alternative to reduce our losses is to go after the power."

After the meeting, Rousseau noted that Alcoa posted a $480 million loss on its worldwide operations in the first quarter of 2009. He said he had been disappointed to hear BPA staff talking about delaying a decision on power price relief for the local smelter. Rousseau said Intalco's fate could hinge on what BPA says April 17, in its formal response to the company's variable-rate proposal. A refusal to take a position could be the same as "no" for Alcoa, he said.

"In our opinion they've got full authority to make the decision," Rousseau said. "It's clearly in their court ... We're just not going to pour money down the drain without hope of getting it back. We do not want to have to make that decision (to close the smelter), but BPA is making that decision for us."

Meanwhile, the nearly 500 people who make their livelihood at Intalco can only wait and worry.

"Alcoa is providing a roof over our heads for my family and a college education for both of my sons," Intalco employee Dawn Parson told BPA officials.