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BPA's New Rates Could Make or Break Smelters by Steve Wilhelm Portland Business Journal, June 17, 2005

Washington's remaining aluminum smelters are bracing for the possibility of higher electricity rates, which could make the difference between the survival or the end of the state's aluminum industry.

The Bonneville Power Administration is expected to announce a rate change early next week.

The core question is whether the BPA will sell enough cheap electricity for aluminum smelters to operate. Industry leaders say smelters are viable if they pay about $30 a megawatt hour, while full market rates are now about $40 to $50 per megawatt hour.

The new rates are to start in October 2006 and continue through 2011.

"There's a lot of upward (price) pressure, and we're very concerned about that, because power rates are crucial to the operation of our smelters" said Jack Speer, Northwest vice president for government and energy affairs for Alcoa Inc. "In the long run, we expect that smelters won't be able to operate with power costs, including transmission, of over $30 a megawatt hour."

To be sure, the local industry is facing many other challenges, including foreign competition, the high price of the raw material alumina and a possible slide in aluminum prices.

Alcoa, which is based in Pittsburgh, is currently operating one of three pot lines -- pots where the aluminum is made -- at the company's smelter at Ferndale, near Bellingham. The company is buying 175 megawatts from BPA to operate the plant, and paying about $34 a megawatt hour, according to Ed Mosey, BPA spokesman in Portland.

In Vancouver, Wash., the Evergreen Aluminum plant, previously known as Vanaclo Inc., is not running. The Evergreen plant is owned by Glencore International AG of Switzerland.

Stakes are even higher in Eastern Washington, where for years aluminum smelters provided the best-paid and most stable jobs in their communities. Alcoa is operating a single pot line at another plant at Wenatchee, which is getting power from the Chelan PUD.

Dana Peck, director of economic development for Klickitat County, wistfully remembers the time, about four years ago, when 700 people were employed at the Goldendale aluminum smelter in Goldendale, Wash. Now the plant is empty except for a few watchmen. Most of the former employees, who make up 10 percent of Goldendale's population, haven't found comparable work.

Peck has been closely watching the BPA deliberations, which he considers the key to turning his region's economy around.

"On our side of the river we hope like crazy that the Goldendale smelter, with four pot lines, will somehow be opened," he said.

Parent company Golden Northwest Holdings, based in The Dalles, Ore., emerged from Chapter 11 bankruptcy protection in April. Chief operating officer Mac Seyhanli said starting the Goldendale plant will come down to the numbers, to the balance of the price of aluminum on world markets, the price of the raw material alumina and the price of power.

"Currently, price is in a reasonable range, but alumina is on the high end and power is still high," he said. "We'll need to look at what they (BPA) are offering, and we'll make our decision them."

The Northwest's aluminum industry has dropped from using 8,000 3,000 megawatts of power six years ago to just 500 megawatts now.

High demand drove aluminum prices upward to record levels during 2004, but since then a combination of slackening demand and new supplies has been pulling prices down. Much of the new supply is coming from China, and from areas of the world with cheap hydropower or isolated natural gas fields that can be used to generate cheap electricity.

BPA's deliberations have been complicated by months of public input and by conflicting demands among other power users. Other industrial users contend that they would in effect subsidize smelters if the aluminum industry's rates were to be lower than their own.

Ken Canon, executive director for Industrial Customers of Northwest Utilities, a Portland organization of non-smelter companies, said his members are vulnerable because their need for power is growing at a time when available power from BPA is limited due to salmon mitigation and other factors.

"We have said they should allow the smelters to buy on the market, and not ask the other public power customers to subsidize the cost of the smelters" he said. The BPA's Mosey said the agency is trying to balance the business needs of non-smelter companies with the needs of communities that for years have depended on the smelters for economic stability.