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Aluminum Smelters can Compete
if Power is Cheaper, Study says

by Bill Virgin
Seattle Post-Intelligencer, March 14, 2003

A consultant hired by the United Steelworkers of America says idled aluminum smelters in the Pacific Northwest could be restarted and compete in world markets if they get a break on power prices.

While the study looked specifically at Kaiser Aluminum's Mead smelter, which has been out of operation since December 2000, its sponsors say the conclusions and recommendations apply to an industry that at one time provided thousands of well-paying jobs in Washington, Oregon and Montana.

Since the start of the West Coast energy crisis three years ago, in which power prices soared and electricity-hungry smelters were shut, "the question has been 'is the era of aluminum production over?' " in the Northwest, said David Foster, director of Steelworkers District 11 in Auburn.

The study comes as the industry continues to struggle with low product prices and, in the Northwest, high power costs.

Kaiser, which is in Chapter 11 bankruptcy court proceedings, recently announced a deal to sell its closed Tacoma smelter to the Port of Tacoma. Longview Aluminum is also in Chapter 11.

Things aren't much better for those smelters that are operating. Foster said Columbia Falls Aluminum in Montana and Goldendale Aluminum in Washington have both announced plans to reduce production capacity.

The Steelworkers union, Kaiser and the Washington state Department of Community, Trade and Economic Development hired Robin Adams, president of Resource Strategies, a consultant to natural resources industries, to conduct a "prefeasibility" study on restarting Mead.

At a news conference held yesterday to unveil the report, Adams said the key to the industry's survival in the region is driving down power costs to less than $30 per megawatt hour. With Northwest power prices at more than $35 per megawatt hour, "these plants don't have any future."

Those power prices could be driven down, Adams said, by reining in the Bonneville Power Administration's costs, and through new pricing plans that would give the smelters a break in exchange for interruptions of electricity at peak-demand hours or in low-water periods.

Aluminum companies have been talking about a long-term solution of developing their own generating resources and weaning themselves from Bonneville.

"If we look five years from now, I think that's perfectly viable" for the Mead smelter, Adams said. "The problem is getting from here to there."

Adams said lower power costs, flexible work rules and the capital already invested in Mead should more than make up for any competitive disadvantage against larger, newer and lower-wage smelters.

But the plan faces hurdles. Because Kaiser is in bankruptcy court, any plan for reviving, recapitalizing or selling the smelter must win approval from creditors and the judge.

Bonneville's flexibility in offering rate breaks may also be limited. It has announced another round of rate increases to take effect later this year. It has been trying to cut costs to limit the increase, but is under fire from groups who don't want fish recovery and conservation programs cut.

There is also a long-held belief by environmentalists that the aluminum industry has been subsidized by other ratepayers, so rate structure changes would likely inflame debate.

And while the BPA is dealing with high-price contracts it signed during the power crisis, a BPA spokesman noted that spot market prices are now much higher than the target cited in Adams' report.

While there's no current market demand for more aluminum-producing capacity, Adams said new smelters will be needed to supply growth in aluminum consumption for cars, construction and drink containers.

"If you abandon these plants, they'll have to be built somewhere else," Adams said.

Foster said the union and Kaiser will form a task force to push the report's recommendations. The union also plans to meet with BPA Administrator Steve Wright later this month to discuss the report's findings.

P-I columnist Bill Virgin. His column appears Mondays and Wednesdays.
Aluminum Smelters can Compete if Power is Cheaper, Study says
Seattle Post-Intelligencer, March 14, 2003

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