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Senators Seek Power for CFAC

by Michael Jamison
The Missoulian, January 8, 2009

A Columbia Falls Aluminum Company worker is seen in this file photo. KALISPELL - Montana's top Democrats are seeking help for one of the Flathead's top industries, in the form of affordable power at a local aluminum smelter.

"Columbia Falls Aluminum Co. is a critical business partner for companies throughout the Northwest," Sens. Max Baucus and Jon Tester wrote in a letter Monday. "In these challenging economic times, the first step to getting the economy back on track is to keep the good-paying jobs already in the region."

Late last month, CFAC - which had been operating at just 20 percent of capacity - announced it would close its doors, laying off the last of its 200 employees by mid-February.

The company cited several reasons for the shutdown, including the high cost of raw materials and sagging aluminum prices. As homebuilders, automotive plants and airplane manufacturers have slowed production, worldwide demand for aluminum has plummeted, driving profits downward.

A few months ago, aluminum sold for more than $4,000 per ton. Recently, prices have dropped into the neighborhood of $1,400 per ton.

But the CFAC closure announcement was not simply a function of global commodity markets and widespread economic turmoil. According to company spokesman Haley Beaudry, the plant also relies heavily on affordable electricity - the catalyst for turning alumina powder into aluminum - and a recent court ruling has jeopardized that cheap power.

In their letter to Bonneville Power Administration, Baucus and Tester asked the power broker to find new ways of providing low-cost electricity to CFAC, a company they said "has been an anchor of the regional economy for nearly 55 years."

Bonneville markets electricity from the region's many federal hydroelectric dams, and it's no accident that power-hungry outfits such as CFAC have grown up alongside those reservoirs of energy.

At its peak, CFAC was drawing nearly 25 percent of all the electricity used in Montana, and BPA was providing cheap power at a bulk rate. In fact, many big industrial users - Bonneville calls them "direct service industries," or DSIs - came to rely upon BPA's cut-rate electricity.

Large smelters such as CFAC have historically provided hundreds of jobs, driving whole economies from the bottom up, and so the quasi-governmental BPA invested in the subsidy as a form of economic development.

But in recent years, population in the Northwest has boomed and demand for energy has surged, leaving less and less juice available for DSIs such as CFAC.

As recently as 1995, the five-year BPA contracts set aside more than 3,000 megawatts for the big users. That year, contracts were reduced to 2,000 megawatts. In 2002, they were cut to 1,500.

The last blow came in 2006, when Bonneville set aside no power at all for DSIs, offering instead the cash equivalent of just 560 megawatts - about $59 million. That translated to nearly $15 million at CFAC, to be used for buying down the rising price of power.

At the time, Beaudry said the offer was, if not what he'd hoped, at least better than nothing.

"It gives us a fighting chance to continue operating," he said in 2006.

Beaudry's fighting chance was knocked out, however, by a recent ruling in the 9th U.S. Circuit Court of Appeals. The Dec. 17 decision came in response to a suit filed by a coalition of electric utilities, who have long complained that subsidies for big industrial users came at too great a cost for regular customers.

The court, according to BPA's Scott Simms, came to two conclusions.

The first was good news for CFAC: BPA does, in fact, have authority to provide some assistance to DSIs.

The second, however, was very bad news: The current DSI assistance agreement is overly generous.

Bonneville has based DSI assistance on a preferred rate of about $27. The court ruled subsidies should be based on an industrial rate of about $34. The $7 difference is substantial, running into many millions of dollars per year on CFAC's power bill.

"We were on the phone with CFAC the day after the ruling," Simms said. "We absolutely understand the urgency of this, in terms of jobs and communities."

Baucus and Tester, in their letter to BPA boss Stephen Wright, urged Bonneville to quickly renegotiate a new power contract with CFAC, within the confines of the court ruling.

"BPA has historically been a good neighbor and business partner for Montana and Columbia Falls Aluminum Company," the senators said in their letter. "This relationship can and should continue."

Less than a week after the 9th Circuit's ruling, CFAC management announced the plant would close in 60 days. More than 200 workers got the word just two days before Christmas.

"And we were engaged in discussions immediately," Simms said, "saying, 'Guys, we've got a problem, and we've got to talk.' "

Simms said BPA is acutely aware of the jobs lost, not only at CFAC but also at Washington state's Alcoa aluminum plant. "This is," he said, "a sooner-rather-than-later kind of issue, and we know that."

In their letter to Wright, the senators urged BPA brass "to work quickly to implement an amended contract" with CFAC, "to ensure that Columbia Falls Aluminum Co. stays open for business."

Whether the economics can be made viable, however, remains to be seen.

"People are at the table right now, as we speak, trying to figure out how this is going to play out," Simms said. But with so many marketplace pressures on CFAC, and such narrow court confines within which to work, "no one knows what we can do for them."

When crafting the most recent contract in 2006, Wright acknowledged there is no longer enough cheap federal power in the system to satisfy all of today's customers.

"On the one hand," he said, "low-cost federal power keeps important jobs in the region and helps support the economy of many Northwest communities. On the other hand, we have a responsibility to the rest of the region's ratepayers not to inappropriately shift costs to them."

Prior to the recent court ruling, Wright thought he had struck a fine balance.

But everyone knew it was precarious, at best.

"It's never easy to get around the power-cost issue," Beaudry said at the time. "There's never enough, and it's never cheap enough."

And even with a DSI subsidy, he said, "the possibility that we might have to close, that possibility exists all the time. That never goes away."

Michael Jamison
Senators Seek Power for CFAC
The Missoulian, January 8, 2009

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