Northwest Workers Paying a Steep Price for California's Energy Crunch Kaiser Aluminum furloughs employees, resells electricity

Kim Murphy, Los Angeles Times Wednesday, December 20, 2000 ©2000 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/12/20/BU68764.DTL&type=business

Seattle -- Skyrocketing energy prices and California's recent demands for the cheap federal hydropower that fuels the Pacific Northwest's $4 billion-a-year aluminum industry have unleashed widespread resentment in Washington and Oregon -- which are just beginning to feel the downside of the deregulation movement.

Both states, whose residents traditionally have enjoyed some of the cheapest electricity rates in the United States, face the same soaring rates that are plaguing California. And Energy Secretary Bill Richardson's order last week to ship Northwest electricity southward comes as a cold, clear autumn has rendered the region's own power picture uncharacteristically bleak.

In the surreal new economics of the Western power grid, it turns out, companies such as Kaiser Aluminum can make more money temporarily shutting their plants down and selling the surplus electricity than by simply making aluminum.

For the past few months, Kaiser has made more than $135 million selling its surplus power -- opening a new debate over whom the Northwest's traditionally cheap electricity really belongs to.

Kaiser's decision to shut down its smelters near Spokane and Tacoma, Wash., and sell some of its subsidized electricity to help meet California's power demands will mean laying off hundreds of workers who recently came back to work after a two-year strike. While employees with more than 10 years of service will continue to draw a salary, many others could be cut off after Jan.

31.

"I'm frustrated with the whole thing. I don't see how they can sell their power just . . . to make money, when I'm a single parent and I just don't know what I'm going to do to make ends meet right now," said Austin Waggy, who was laid off from Kaiser's aluminum smelter near Spokane.

Power sharing with California is nothing new. For years, excess power generated by dams on the abundant rivers of the Northwest has moved southward in the spring and summer months, when river flows are plentiful. California typically repays the favor in the winter, in fact paying back twice the power it borrows.

The crunch came this winter as both regions experienced heavy power demands in a deregulated market that has sent electricity prices soaring.

The result: Northwest officials who had urged their citizens to conserve were faced -- as a result of the energy secretary's order -- with the politically unpleasant task of sending that conserved electricity to California.

Moreover, a region that has imposed drastic and highly controversial logging and building limits to protect the salmon could see many of those efforts jeopardized this spring if the federal hydropower system is forced to lower its reservoir levels too far -- thus endangering the migration.

And perhaps most controversial -- because it has been so immediately visible -- is the move to remarket federally subsidized power by companies such as Kaiser, part of a select group of industrial users able to buy cheap power directly from the Bonneville Power Administration. Soaring demand in California and unprecedented prices have turned that contractual right into an extremely valuable commodity.

The Pacific Northwest has always enjoyed a special relationship with the BPA, the federal agency that markets power generated by 29 dams on the Columbia River system. Hydropower from the dams has traditionally been provided to Northwest utilities at low rates -- both because the region was giving up its free-flowing rivers to generate the power and because the influential Northwest congressional delegation kept the deal in place.

The aluminum industry has been part of the arrangement since the dams were built in the pre-World War II years, when there was a clear national need for aluminum to build airplanes and an obvious benefit in locating their power- intensive facilities near generation sources.

Dan Russell, president of the United Steel Workers, said the union expects Kaiser to pay employees full wages throughout the time the plant is shut down, not only until Jan. 31.

"They stand to make $500 million in the next 10 months just selling power. They can easily afford to apply some of it to their employees," Russell said. He said the present agreement will keep about 70 percent of the workforce at full pay. "There's another 30 percent out there that are going by the wayside."

In fact, Northwest industries took a big gamble when they cut the deal with BPA that gave them access to the low-cost power.

In 1996, when the current contract was signed, BPA power was far from a bargain. Utility customers were flocking to other, lower-cost providers that had sprung up under deregulation, and BPA sought to hang onto the big, easy-to- serve industries that were among its best customers.

To persuade them to sign a long-term contract, BPA offered industrial users such as Kaiser the right to resell their electricity if market prices escalated. The catch: Industries had to contract to buy a certain amount of power, even if it turned out they didn't need it -- and even if BPA's power proved to be more expensive than other sources could provide.

A new contract, scheduled to take effect Oct. 1, allocates only 1,500 megawatts to the direct service industries and does not permit any resale. Forsyth said the new contract will provide Kaiser with 20 percent less power at prices that are 35 percent higher.

The new contract terms are expected to cost Kaiser $45 million a year, a cost the company hopes to hedge against with the electricity sales.

"The survival of the industry could be at stake," Forsyth said.

-- Martin Thompson (mthom1927@aol.com), December 20, 2000