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CFAC says BPA Deal
Needs some Tweaking

by Chris Peterson
Hungry Horse News, February 22, 2006

While a Bonneville Power Administration plan to subsidize power costs for aluminum plants could help the Columbia Falls Aluminum Company, a company spokesman said it needs some serious tweaking to actually work.

The company would like to see some accounting methods in the plan change, CFAC spokesman Haley Beaudry said Monday.

The BPA has come up with a plan to "monetize" power costs for aluminum plants in the Pacific Northwest. In short, it will pay out $59 million annually over three years to two aluminum producers - CFAC and Alcoa, to help lower those plants' power costs.

Of that $59 million, CFAC would see $14.7 million annually. The deal as it sets now, works like this: The market rate for wholesale power right now is about $58. The BPA money would allow CFAC to buy down power to about $46 a megawatt hour, assuming its running two potlines.

But the plant can't run two potlines and make a profit at $46, Beaudry noted. It needs power at $30 a megawatt hour, to run successfully, he said.

The plant could just keep the one potline it is running, which would amount to a subsidy of $24 a megawatt hour, but even then, it isn't enough, Beaudry noted. That still amounts to a wholesale cost of about $34 a megawatt hour, which is too high.

So what the company would like to see is an accounting method change, that would allow CFAC, at least on the books, to use more of the allocated funds in the first year, and then less in the next two years.

This would be a bookkeeping measure, Beaudry said.

"We don't want the money up front," he said.

But the company needs the flexibility to front load the expense in today's wholesale market. However, Beaudry noted, the company believes that in the coming years, wholesale power prices will come down, as more power plants go on line.

The deal is also a "use it or lose it" proposition. Meaning that if the plant doesn't take the funds, they will simply go to another plant - supporting jobs in Washington and Oregon rather than here in Montana, he said.

Beaudry said the prospects of tweaking the deal appear to be good. BPA makes a final decision on the plan when it sets rates in July.

On the other side of the coin, the aluminum price right now is good, at about $1.20 per pound, according to prices posted on the London Metal Exchange. But the cost for raw materials and other expenses are higher as well, Beaudry noted.

The impact of the entire program is about 74 cents a month on the average residential customer. Meanwhile, CFAC employs about 120 people and has a payroll of about $7.5 million locally.

CFAC is also looking for a long-term power supply, possibly by purchasing power directly from a plant, with BPA's help, Beaudry noted.

BPA spokesman Ed Mosey said change in the contract is possible.

"Until the rate process is done, (the contract) is not set in stone," he said.

But not everyone is accepting the idea of subsidizing aluminum plants.

Marilyn Showalter, executive director of the Public Power Council, which represents public utilities, said her organization is concerned about the deals. They are worried about the amount offered to aluminum companies, and the dangers of front loading.

If the benefits are front loaded, she said, there's the possibility of two things: The companies will simply ask for more funds if the power rates go up, or the companies will simply default, leaving other customers paying the bill.

She said the Council also had philosophical differences with the plan. While the deals may save jobs at CFAC, "It costs jobs elsewhere."

"It works hardship on other plants with other employees."

Chris Peterson
CFAC says BPA Deal Needs some Tweaking
Hungry Horse News, February 22, 2006

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