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Alcoa's Energy Deal With Bonneville Quashed by Court by Staff Bloomberg, August 28, 2009

Bonneville Power Administration's agreement to pay Alcoa Inc. $32 million this year to buy power from a competitor, driving up energy rates for other customers, was invalidated by a federal appeals court.

The payment from Bonneville, a U.S.-owned power utility based in Portland, Oregon, to Alcoa amounted to a "gift" that demonstrated unsound business practice, a federal appeals court said in a ruling today. The payment was part of an amended power contract for Alcoa's aluminum smelter in Washington state.

A provision of a 2007 contract had been tossed out by the same court last year because it provided cash payments to Alcoa based on a formula that let the company pay below-market rates. That resulted in higher costs for other customers.

Kevin Lowery, an Alcoa spokesman, said the company and Bonneville have negotiated a new power contract, which is open for public comments. The contract doesn't provide for any cash payments and calls for Alcoa to pay Bonneville's industrial power rate, Lowrey said in a phone interview. He declined to comment on the ruling.

New York-based Alcoa is the largest U.S. aluminum producer.

Katie Pruder, a spokeswoman for Bonneville, didn't return a message left at her office.

The case is Pacific Northwest Generating Cooperative v. Bonneville Power Administration, 09-70228, U.S. Court of Appeals for the Ninth Circuit (San Francisco).