Montana CFAC cutting production(aluminum)

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CFAC cutting production

By MICHAEL JAMISON of the Missoulian

Aluminum company cites high power costs

COLUMBIA FALLS - In the face of steep power prices, the Columbia Falls Aluminum Co. is cutting production by one-fifth, although no worker layoffs are expected.

Yet.

"No employees will be laid off this year," said Bob Brown, spokesperson for CFAC. "But after the first of the year, there is the probability of some layoffs then."

The problem, Brown said, is that the cost of electricity is "several times higher than it has been historically."

And that's a big problem for a plant such as CFAC, where roughly 20 percent of the state's power is consumed.

The plant is home to five "potlines," or links of giant pots where electricity is used as the catalyst to turn alumina powder into aluminum. Each potline is home to 120 pots, all linked by a powerful electrical current.

Thursday, CFAC workers began the slow and costly process of shutting down one of those five potlines, hoping the 20 percent cutback in production will allow the remaining four lines to continue production despite high power costs. It is a pre-emptive move, Brown said, made due to the extreme expense of shutting down and starting up the lines.

CFAC, he said, is at the tail end of a five-year power contract which provides the plant with relatively cheap power. The months of February and March 2001, however, remain big question marks, as the plant has not secured the power needed for those months.

If the plant continued to operate until February, Brown said, managers might be forced to shut down as many as 2 1/2 lines, only to restart them when CFAC had secured power at the right price. To close one line for an extended time, he said, made more sense than to close multiple lines for a short duration.

The plan, Brown said, offers some "stability for the future. It makes the best of a difficult situation."

By closing the single potline, Brown said, the plant will curtail aluminum production by about 33,000 metric tons per year. At maximum capacity, CFAC produces about 165 metric tons annually, or enough aluminum to make 29 million soda cans every day.

Workers affected by the shutdown will be kept busy bringing the pots off-line, he said. Once that chore is complete, they will turn to plant projects designed to make CFAC more energy efficient.

Those projects, however, may not be enough to keep everybody busy into the new year; after the first of the year, CFAC could be forced to follow other Pacific Northwest smelters with employee layoffs.

With CFAC's announcement, five of the region's 10 aluminum smelters have seen production cutbacks due to high power prices.

"And we probably won't be the last one, either," he said.

Last spring, when power prices first spiked, Vanalco's aluminum plant in Washington laid off about 500 workers; Kaiser Aluminum cut 400 workers at two Washington plants; and Alcoa sliced more than 500 from its Oregon work force.

It is unknown how many of CFAC's 600 or so employees might be affected if the situation continues.

The shutdown scenario is likely to repeat in coming years, industry analysts predict, as Bonneville Power Administration has placed a priority on providing cheap power to residential customers, not industrial customers.

Electricity, which was selling as low as $16 per megawatt-hour just a few years ago, peaked at more than $1,000 per megawatt-hour.

Today's lowest prices are much higher than the highest prices a year ago, and even at those prices, power can be hard to come by. CFAC managers have said there simply isn't enough power out there to meet the demands of a dry, hot summer.

Many blame deregulation, not just in Montana but throughout the Pacific Northwest.

Initially, deregulation and privatization seemed like a good deal for aluminum producers. In 1996, CFAC began purchasing about 20 percent of its power from private companies, locking in the other 80 percent through BPA at a reduced rate on a five-year contract.

At the time, BPA was selling electricity for just under $25 per megawatt-hour, and private companies were coming in six or seven dollars cheaper. But the season's heat waves drained electricity supplies at the same time demand spiked, and the market responded by increasing prices.

Previously, regulated power plants were required to be built large enough to handle spikes in demand. That meant power plants rarely operated at maximum, but could always crank up the wattage in an emergency.

The costs of building for extreme moments, however, are considerable, and in an unregulated market private companies have proved unwilling to make such investments. The result is many smaller plants which, when combined, still cannot handle peak demand.

Add to that a growing West Coast population hooked to air conditioners and other major appliances, and you begin to have supply and demand problems.

Also, BPA has only a limited amount of inexpensive, at-cost power it can sell to customers. The aluminum industry and other industries that buy bulk power - known as direct service industries - use a combined 3,000 megawatts throughout the region. Currently, 2000 of those megawatts are purchased at a reduced rate from BPA.

But in a recent decision, BPA decided to offer just 1,500 megawatts to the DSI customers between 2001 and 2006.

That means that while CFAC is buying 80 percent of its power at a reduced rate today, it might be buying only 50 percent at that price a year or two from now. If forced to buy half or more of their power on the open market, many aluminum plants - including CFAC - might not make it, plant managers have said.

And in many ways, operations like CFAC have become the canary in the proverbial coal mine; the power supply problems that are now impacting CFAC might soon come home to residential customers.

In a January 2000 report by the Northwest Power Planning Council, researchers indicated a 24 percent chance that the region's power supply will fall short in coming winters, causing entire regions to flicker or go dark.

If that happens, aluminum plants and other large power consumers might be asked to sell even more of their share back onto the grid.

"The future," Brown said, "is very uncertain. We're doing everything we can to find some stability in a very unstable situation."

Reporter Michael Jamison can be reached at 1-800-366-7186 or at http://www.missoulian.com/display/inn_news/news03.txt



-- Martin Thompson (mthom1927@aol.com), September 22, 2000

Answers

Wasn't there an earlier story about Alcoa
closing two plants in WA?

-- spider (spider0@usa.net), September 23, 2000.

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