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Lack of Power in the West Proves a Boon for Some By SAM HOWE VERHOVEK

SEATTLE, Dec. 28 — Of all the ways in which the West's electricity problems are creating havoc in the marketplace for power, here is one of the strangest: there is a fortune to be made these days in not producing aluminum.

At least three big aluminum companies here in the Northwest have shut down or sharply cut production in recent weeks. Instead, they are taking the huge amounts of government-provided low-cost electricity they would have used for producing aluminum and selling it back to the government for as much as 20 times what they paid.

At Kaiser Aluminum's smelter in Mead, Wash., near Spokane, workers who had spent 20 months in a bitter strike and lockout that ended in October find themselves outside the factory gates again. Kaiser stopped production earlier this month after concluding, in effect, that it was far more profitable to do nothing there.

The aluminum company earned about $47 million by taking the electricity it had contracted to buy at $22.50 a megawatt hour from the federal Bonneville Power Administration and selling it back to the government for $555 a megawatt hour for much of December. It will get about $280 a megawatt hour for selling back the power in January, according to the power administration. A megawatt is enough to power about 1,000 average-size homes.

Under pressure from local and federal officials, Kaiser has agreed to pay its employees their regular wages and benefits for now, though it is unclear how long the company will continue to do so, as is the matter of when the plant will reopen. Its current federal contract could allow Kaiser to reap a windfall from reselling electricity through next October.

"This whole thing is a business deal, I understand, but it still feels like a slap in the face," said Joe Lerch, a maintenance millwright with 22 years of experience at the smelter, where his father, brother and son have also worked. "I'd rather be working. I really would."

With California hovering near a breakdown in its electricity supply system in recent weeks, and with Northwest suppliers under orders by the federal government to ship power south, the decision to curtail electricity-intensive industries like aluminum producers is not irrational, federal power planners say.

And the low-cost contracts that were signed years ago, guaranteeing the industries a set amount of electricity at a set price, were generally regarded at the time as important economic tools to keep industry and jobs in the region.

That was before the wholesale price of electricity skyrocketed because of the shortage.

"Some people are asking now, Why would you sign a contract like that way back in 1995?" said Mike Hansen, a spokesman for the Bonneville Power Administration, a federal agency that distributes hydropower from 29 dams in the Northwest. "The answer is, we needed them as much as they needed us back then."

Under their contracts, the power administration says, Kaiser and other companies are required to keep much of any windfall in the community, in part by continuing to pay workers and in part by reinvesting proceeds to improve their plants.

For instance, power officials said today that they were close to concluding an arrangement with Golden Northwest Aluminum, a major producer with plants in The Dalles, Ore., and Goldendale, Wash.

Under the deal, the two plants plan to shut most of their operations for several months and resell the electricity.

Part of the proceeds are to be reinvested in upgrading the plants and in financing new power-generating capacity, including gas- and wind-powered generators that would make the plants energy self-sufficient by 2007. The 1,200 workers are to be paid full wages, with most working on the upgrading project or in other jobs at the plants. Some revenue, depending on fluctuations in the market price of electricity, would be refunded to the power administration, letting it lower rates elsewhere.

The deal is still in negotiation, but federal, company and union officials all agreed that it was a responsible way to improve the plants' efficiency and keep jobs in those communities.

"It's really an example of good corporate citizenship," said David Foster, the Northwest regional director of the United Steelworkers of America. "The needs of ratepayers, workers and the regional economy are all being addressed in this."

Mr. Foster said he hoped that Kaiser would make the same commitment.

But the future of Kaiser's smelter, and of the workers, remains uncertain. Scott Lamb, a spokesman for Kaiser, which is 63 percent owned by the Maxxam Inc. of Houston, said the company "certainly wants to do what is right and fair" at the plant.

Under their contract, most workers are guaranteed least 70 percent of their base pay after Feb. 1, even if they remain out of work, while the company is likely to continue reselling its electricity through October.

At that point, its government contract expires. Under new contracts, negotiated in recent months as demand for electricity intensified, Kaiser, Golden Northwest and Columbia Falls Aluminum of Montana — which has also cut back on manufacturing and resold power — will not be allowed to resell unused electricity.

Mr. Hansen said the power administration believed that Kaiser had "contractual obligations" to keep the revenue it derived from reselling power in the local economy.

Mr. Lamb, the Kaiser spokesman, noted that Kaiser had undertaken a risk by signing long-term fixed-price contracts five years ago, at times paying more than the market price it could have gotten for electricity elsewhere.

"Unequivocally, it is economically more feasible to sell the power now," said Mr. Lamb. "The company is trying to manage its assets to maximum potential, and in this case we find ourselves in an unusual situation where we can generate far more cash by selling electricity than we can by making aluminum."

After Oct. 1, Mr. Lamb said, Kaiser intends to restart the smelter at at least 40 percent of its full capacity.

Dan Russell, president of Local 329 of the Steelworkers, said the company should use its profits from reselling power to upgrade the plant.

"If they take that money and do the right thing, a year or two from now we could say that was a good move, you took care of us, you took care of the plant and we're all better for it," said Mr. Russell, a crane operator with 32 years at the plant. "That's my optimistic viewpoint of what they'd do. But we'll just wait and see. They could also just take the money and run."

http://www.nytimes.com/2000/12/29/science/29POWE.html?printpage=yes

-- Martin Thompson (mthom1927@aol.com), December 29, 2000