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Intalco Says BPA's Offer Not Good Enough
to Keep Ferndale Smelter Running

by John Stark
The Bellingham Herald, May 2, 2009

The grim prospects for the Alcoa Intalco Works aluminum smelter and its 500 jobs got a bit grimmer Friday, May 1, when the company announced that a Bonneville Power Administration proposal would not provide enough electric power to run the plant efficiently.

The BPA proposal came two weeks ago, as a counter-offer to an earlier proposal from Alcoa suggesting that the company pay a variable rate for the power supply it needs to make aluminum at the facility west of Ferndale.

The counter-offer, developed by BPA staff, accepted the notion of a power price that would be linked to the price of aluminum in world markets. But the BPA proposal offers half the quantity of power that Alcoa is seeking. The price break when aluminum prices are low -- as is the case today -- also would be far less than what Alcoa requested.

BPA is the federal agency that markets the low-cost power produced by federal dams on the Columbia River system. Decades ago, when that cheap power was plentiful, aluminum smelters sprang up across the region, because they need vast amounts of power to produce the lightweight metal.

Today, BPA no longer has enough cheap power available to meet regional demand. As a result, most of the region's aluminum smelters shut down years ago. Now, BPA officials must decide if Alcoa's Intalco smelter should continue to have access to that power, and on what terms.

In formal testimony filed Friday with BPA as part of a rate-making process to determine power prices that would take effect Oct. 1, Alcoa representative Jack Speer said Intalco needs both the bigger price break and the larger power supply to operate economically under today's conditions.

In an interview, Intalco Plant Manager Mike Rousseau put it bluntly.

"We're still evaluating, but our initial blush is, that thing is very close to being dead on arrival," Rousseau said about the BPA proposal.

Intalco operates today at about two-thirds capacity. The company had wanted a BPA commitment to provide enough affordable power to keep operating at that level. Instead, the BPA staff offered only enough for operation at one-third capacity.

Rousseau said that's not good enough: The smelter can't be operated efficiently at that level. Cutting back to one-third capacity also would mean deep cuts in payroll, he said, and there is no likely source of low-cost power for the smelter other than BPA.

"When we saw the BPA (staff proposal) we were very disappointed and very concerned," Rousseau said.

But he noted that the federal agency's staff doesn't have the final word. That will come this summer from BPA Administrator Stephen Wright, who is scheduled to issue a draft proposal for BPA power rates June 23, followed by a comment period and final decision July 21.

Rousseau said BPA officials are still requesting additional information from Alcoa, and that could be a hopeful sign. He hasn't given up hope that Wright will decide to offer Alcoa a better deal than what his staff recommended.

Wright visited the smelter in September and heard the pleas from its workers. He expressed a willingness to try to work out a power supply deal that would give their employer a chance to remain viable.

But Wright also hears very different messages from other BPA customers: the public utilities elsewhere in the region that distribute BPA hydroelectric power to homes and businesses in their service areas. Representatives of those utilities insist that lower-cost power for Alcoa means higher rates for the industries they serve.

"While we cannot state with assurance that this will result in a net loss of jobs throughout the region, it can be stated that at best it is a break-even proposition trading jobs in one community for those in another," according to written testimony submitted to BPA by Western Public Agencies Group, representing several small public utilities.

With conditions in the aluminum industry remaining bleak, is there any assurance that Alcoa will keep the Intalco smelter operating until the company gets the last word from BPA's boss?

"There's no assurances on anything right now," Rousseau said. "No guarantees."

For Whatcom County, the loss of Intalco jobs would be a heavy blow.

Western Washington University's Center for Economic and Business Research estimates that the indirect impact of an Intalco closure could eliminate another 1,000 jobs on top of the 500 that would be lost at the smelter. That would push the county's unemployment rate to 10.4 percent.

Meanwhile, Pittsburgh-based Alcoa, the world's largest aluminum producer, remains under pressure to cut costs to trim its losses. The company reported a loss of $497 million in the first quarter of 2009 and has already cut its aluminum production by one-fifth.

But industry analysts say that there is still too much aluminum in world markets, as a global recession saps demand.

John Stark
Intalco Says BPA's Offer Not Good Enough to Keep Ferndale Smelter Running
The Bellingham Herald, May 2, 2009

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