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Bonneville Offers Smelter Financing

by Rodger Nichols
The Dalles Chronicle, June 2, 2006

Deal includes The Dalles, Goldendale

Bonneville Power Administration announced Thursday it won't be selling any more power to Northwest-based aluminum plants after Oct. 1 this year, but will subsidize their purchase of power on the open market for a five-year period.

That subsidy, capped at $59 million annually, would be given to three aluminum companies -- Golden Northwest, which operates plants in The Dalles and Goldendale; Alcoa, with plants in Wenatchee and Ferndale, Wash.; and Columbia Falls Aluminum Co. near Whitefish, Mont.

It's too soon to tell whether the offer will allow local smelters to resume operations.

Alcoa will receive the value of up to 320 average megawatts; Columbia Falls up to 140 average megawatts; and Golden Northwest up to 100 average megawatts.

"This has been in the works for a while," said Golden Northwest's Brett Wilcox. "I'm glad Bonneville finally got it down."

He described the plan as a credit toward power purchase, not an actual allocation.

The subsidy allows aluminum companies to apply the offset to current market prices in order to bring them down no lower than the $30 per megawatt hour BPA now sells to public utilities -- municipals, cooperatives and PUDs.

"Golden Northwest's share is relatively small compared to Alcoa and Columbia Falls," Wilcox said. "And it's not really 100 megawatts of power. Power markets are in the mid-50s, so for all practical purposes, it's more like 50 megawatts, which is half a potline."

At that point, Wilcox said, "We don't have economies of scale."

He said both power and aluminum markets have been in a state of flux lately. "Alcoa had a possible strike, and prices went up in anticipation." Alcoa and the union averted the potential strike, so prices will have to settle out for a while, Wilcox said.

"Right now we can't say we will or won't [reopen either plant]. It's not my decision, but the company will be assessing both the power and aluminum markets. This definitely is good news, but limited good news. I think the major thing is that BPA finally got it down."

Mike Hansen, a BPA spokesman, said Thursday the deal will improve chances that the aluminum smelters, battered by high electricity prices, will operate in the future.

Beginning this fall, BPA will provide $59 million per year to the aluminum companies that will allow them to buy up to a daily average of 560 megawatts of electricity for a year on the open market. The BPA for decades provided electricity directly to the aluminum companies, but now wants to save its power for other customers, such as public utility districts.

A fourth former direct service industry (DSI) customer, Port Townsend Paper Company, will continue to receive power directly from BPA.

"Because the amount was so small - 17 average megawatts - everybody agreed they could remain," said BPA spokesman Mike Hansen Friday.

"This decision gives the aluminum companies and their employees a fighting chance to continue operations, while not unduly burdening other regional consumers," said Steve Wright, BPA administrator in Portland, Ore.

Companies must use the BPA money to make aluminum, not to buy and resell power, Hansen said.

"This can only be used if your plant is operating, and for power," he added Friday. "We've been through that before, and we're not going to do that again."

During the massive power cost increase crisis caused by Enron market manipulations, several aluminum companies with locked-in favorable BPA rates, stopped producing aluminum and resold the power on the open market for high profit. That will not be possible under the new subsidy program.

The BPA is a quasi-governmental agency that markets power generated at the region's many federal hydroelectric dams.

Wright said the aluminum companies may not use the $59 million to drive their cost of electricity below the price paid by BPA's customers.

The BPA was not required to help the aluminum companies, but the decision recognized that the companies have been steady customers of BPA for decades, Hansen said.

The companies can begin receiving the money on Oct. 1.

If the aluminum companies take their full allocation of 560 average megawatts of benefits, BPA's public utility customers will see about a $1 per megawatt-hour increase over what their costs would have been absent the benefit, the BPA said. The wholesale rate for utilities is approximately $30 per megawatt-hour.

Rodger Nichols, Associated Press
Bonneville Offers Smelter Financing
The Dalles Chronicle, June 2, 2006

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