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Economic and dam related articles

Saving Aluminum at What Cost?

by Robert T. Nelson, business reporter
Seattle Times, February 27, 2001

(Greg Gilbert) Aluminum ingots imported from Russia at the Port of Grays Harbor in Aberdeen The question is this: In the overall scheme of things, just how important is Howard Scartozzi, a 36-year-old safety-and-loss coordinator who with his wife, Janet, is raising four children on the $45,000 a year he makes at the Goldendale Aluminum smelter in Klickitat County?

For that matter, how important is all of Goldendale, population 3,550, which Scartozzi thinks would pretty much dry up and blow away should the aluminum industry die out as a result of the current energy crisis?

Workers like Scartozzi and towns like Goldendale are but two of the arguments being used to justify an intense lobbying effort in Washington, D.C., to pressure the Bonneville Power Administration (BPA) to allow the region's aluminum companies to profit over the next five years from the power they don't use.

Aluminum companies say they need the money to buy down the electric rate that will go into effect Oct. 1. They argue they need relief to make the production of aluminum affordable at mills from Tacoma to Spokane, and to preserve a $4.4 billion industry in Washington state that serves local customers, employs more than 7,000 people and makes Paccar, Boeing and the nation's defense industry less reliant on foreign products.

Opponents of the proposal argue it would cost public and private utilities and other ratepayers an additional $3 billion over the five years of the contract. "We understand very well why they're looking for some means of covering their energy costs," said Ed Mosey, spokesman for the BPA, the Portland-based federal agency that transmits power from hydroelectric dams on the Columbia and Snake rivers.

"Given the rate increase we're proposing, it's going to be difficult for them to operate profitably. But while we understand that, what they're proposing would cost other ratepayers about $3 billion. We just don't think our other customers are willing to expose themselves to that kind of cost."

Jerry Leone, a member of the Public Power Council in Portland, composed of Oregon utilities, said the aluminum industry is asking for special treatment not being afforded industries that employ more people and are far more important to the region's economy.

"Whoever wants a special deal from Bonneville, our mantra is No! No! No! No special deals," she said. "We're all in the same boat. Businesses served by publicly-owned utilities, all the industries and businesses and commercial accounts that provide hundreds of thousands of jobs. Why should the aluminum companies get a better deal than those industries?"

Brett Wilcox, chief executive officer of Golden Northwest, which operates aluminum mills in Goldendale and The Dalles, Ore., denied that the industry is asking for special treatment.

He said mills simply want the BPA to sell locally-generated energy at cost, thereby forcing customers to conserve so Bonneville doesn't have to go to the open market to purchase more expensive power. Locally-produced hydropower costs about $26-a-megawatt hour. Power purchased on the open market is going for $225.

Bonneville calls the proposal a "tiered rate scheme" that's illegal and punishes growing businesses and utilities. For the past 20 years, the BPA has been required by the Northwest Power Act to provide the Northwest aluminum industry with most of the power it consumes. That law expires Sept. 30. But at the urging of the U.S. Department of Energy, the BPA will continue to provide a significant amount of the industry's electricity for five more years. After that, said Mosey, the industry's on its own.

What is still up in the air is what the electricity will cost during the five-year contract that will take effect affect Oct. 1. Federal dams and the BPA are capable of generating and transmitting about 8,400 megawatts of power. The BPA's customers require about 11,000 megawatts, which means the federal agency will have to buy about a quarter of the power it sells to public and private utilities, and to Northwest industries.

About 1,500 megawatts of the BPA's power will go to aluminum mills in Washington, Oregon and Montana. The companies operating those plants have asked for a credit for the power they don't use. They would use that credit to lower their energy cost to the point where they could make a profit on the aluminum they produce.

What the BPA would like them to do is use some of the windfall profits they've made by closing plants and reselling energy this year. According to Mosey, Kaiser Aluminum alone, which has shut down smelters in Spokane and Tacoma, has made a half-billion dollars since last summer by reselling the electricity it didn't use.

Susan Ashe, Kaiser's spokeswoman in Spokane, denies the $500 million figure, saying the company has obligations that will shrink that number considerably.

When the federal government set out to dam the Columbia and Snake rivers 67 years ago, it did so in the belief that the massive hydroelectric projects would provide Depression-era employment and convert the Pacific Northwest from a timber- and fishing-based economy to an industrial and agricultural giant.

It worked.

Apples and potatoes are grown east of the Cascade Mountains because the dams made possible reclamation projects that irrigated parched land. West of the mountains, Boeing assembles planes here because just prior to World War II the Defense Department came to the energy-rich Northwest and started an aluminum industry.

Today, when electric rates are reasonable and the smelters are up and running, the 10 mills in the Northwest are capable of annually churning out about 40 percent of the aluminum produced in this country.

But as the energy crisis has worsened, there is a growing sense the industry's impact on the region's economy isn't worth the vast amount of power its uses. Most of the aluminum Boeing buys is purchased on the spot world market, and the company says it has long-term contracts that protect it from the recent shutdowns here.

Crown, Cork and Seal, the Olympia-based company that supplies 1.4 billion cans annually for soft-drink bottlers on the West Coast, buys its aluminum from Alcoa rolling mills in Indiana and Tennessee.

In December, a study commissioned by the BPA concluded the aluminum industry has relatively little economic impact in the region beyond the salaries for about 7,000 workers.

"The aluminum smelting industry appears to be an industry almost separate from the rest of the Pacific Northwest," concluded George Backus and Susan Kleemann in a study they prepared for The Aluminum Industry Study Group. "The aluminum ingots are a world commodity, and it appears that the mills and downstream industry (aluminum customers) are relatively unaffected by the loss of the smelters."

Paul Norman, a senior vice president at the BPA, puts it more bluntly.

"They're not that tied to the regional economy, anymore," he said. "The raw product doesn't come from here, and the bulk of the product isn't used here."

That is a distinction the BPA, local utility districts and environmentalists are trying to get across to the public as a debate rages over whether the aluminum industry's contribution to the region's economy is worth all the high-priced power it consumes.

In a case of dueling studies, the aluminum companies have produced findings of their own that show the industry does business with 1,500 suppliers and contributes $4.4 billion annually to this state's economy. Nowhere is that impact felt more than in remote counties like Klickitat, where $45,000-a-year blue-collar jobs are rare.

"The vast majority of citizens in this state want this industry to stay here, and they understand the importance of these family-wage jobs," says Kaiser's spokeswoman Ashe. "We need to focus on the real problem here. The region doesn't have the energy to meet the demand. We don't think the appropriate solution is to drive industries off the system. We need to be looking at strategies that preserve jobs instead of sacrificing them. We aren't the only industry that uses vast amounts of energy. Who can survive at the kind of rates planned for the future? And who will we pick next to sacrifice, and where does it stop?"

Though recent studies of the problem don't answer that question, they do attempt to lay the public-relations groundwork for decisions that could result in the permanent closure of older, less-efficient aluminum smelters. Evaluating the various studies, Terry Morland, at the Northwest Power Planning Council, a consortium of interest groups, concludes that in a dynamic economy, businesses and industries come and go, and that when they go they are replaceable.

There already are signs that is happening.

At the Port of Everett, some longshore workers face the prospect of losing their jobs if the port can't find a replacement for alumina, the primary ingredient in the making of aluminum. With the mills shut down, there is no longer a need to import the material. But in Aberdeen, the Port of Grays Harbor saw an opportunity to diversify and recently unloaded a dock full of aluminum ingots from a Russian ship.

"This allows us to diversify and add jobs," says Shelli Hopsecger, spokeswoman for the port.

"In the past, logs were our main cargo, and in the distant past it was our only cargo. We see this as another piece of the mix that diversifies our shipping industry. It's a product we're definitely interested in handling. The discussion about having an entire industry leave a state is a very frightening topic, but from the shipping angle, markets and jobs shift. We're just happy to be able to take advantage of the swing."

Nobody thinks all of the Northwest's aluminum smelters will go away, but there is widespread speculation that the oldest, least efficient ones won't reopen.

"I think we're going to have to face the fact we cannot sustain, at any price, the amount of aluminum produced now," said Dan Ogden, former power marketing coordinator at the BPA.

"Some of them are going to have to close down permanently and not continue. More efficient ones will continue, but they'll be right on the margin."

Robert T. Nelson, business reporter
Saving Aluminum at What Cost?
Seattle Times, February 27, 2001

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