April 20, 2001

Power resale puts smelters on hot seat

By SUSAN PALMER The Register-Guard

Northwest aluminum smelters stand to make $1.4 billion this year - not for producing aluminum, but from shutting down and reselling their unused electricity, either on the open market or back to the federal Bonneville Power Administration, from which it came.

With the price of electricity skyrocketing across the region, the windfall profits for an industry that has enjoyed low electricity rates for years strike many as unfair, Oregon 4th District U.S. Rep. Peter DeFazio said Thursday in Eugene.

DeFazio called a news conference to urge residential ratepayers to protest special breaks for the aluminum smelters. "That's $1.4 billion in profits for producing nothing and reselling our public power," he said.

But Scott Lamb, a spokesman for Kaiser Aluminum in Houston, said the industry hasn't been subsidized at all. Smelters merely benefited from unexpected market conditions that sent the cost of energy through the roof, he said Thursday.

California's energy crisis, coupled with the worst drought in 72 years, have pushed the wholesale price of electricity from about $22 per megawatt hour to $300 per megawatt hour.

The aluminum industry's contracts, negotiated five years ago, include the right to resell power on the open market or back to the BPA. When energy prices shot up earlier this year, many smelters shut down their operations, laid off workers and resold their power for huge profits.

New contracts go into effect in October, at prices still to be negotiated.

The smelters have indicated that they'll need 1,500 megawatts of power over the next two years but the BPA is already looking at an electricity shortfall of 3,000 megawatts during that period.

Rather than buy that power on the open market, the agency wants the smelters to go dark for two years, until additional electricity from new power plants becomes available.

DeFazio said the BPA is being heavily lobbied by the aluminum industry to compensate the smelters for staying closed or to create a two-tiered rate structure in which the first 75 percent of power consumed would cost less than the last 25 percent.

The idea would be to encourage everyone to conserve, but he said the system would unfairly benefit the aluminum companies, which can more easily scale back their consumption than public utilities that serve residences and businesses and can't cut power use on demand.

"They should pay the same price for electricity as the hospitals, the schools, the mills and everyone else," DeFazio said, adding that BPA officials need "to hear from the ratepayers on the other side."

Five local utilities launched a public campaign last week aimed at ending the aluminum industry's cheap rates and requiring it to pay the same amount for electricity as everyone else.

A mailer was sent to 140,000 customers of the Lane Electric Cooperative, Springfield Utility Board, Eugene Water & Electric Board, Emerald People's Utility District and Blachly-Lane Electric Cooperative.

The mailer included a postcard urging action by the BPA. Rick Crinklaw, Lane Electric general manager, said about 15 percent of the postcards had been returned.

The BPA provides about half the electricity in the Northwest from 29 dams and a nuclear plant.

Aluminum smelters and some small chemical companies are the only industries permitted to buy power from the agency; the rest is sold to local utilities such as EWEB.

EWEB spokesman John Mitchell said the BPA is required to serve the utilities but has no obligation to provide power to the aluminum companies.

The companies say shutting down for two years would put 9,000 employees out of work. But a study produced by the Public Power Council indicated that regionwide job losses could reach 50,000 if the cost of power jumps 100 to 200 percent next fall as expected.

DeFazio said aluminum industry lobbyists have already contacted the vice president in their effort to keep their electric rates low and avoid shutting down.

"They're trying to subvert us by going to Dick Cheney and saying it's a national issue. If it's a national problem, the nation should help pay for it," he said.

ESTIMATED PROFITS FROM RESALE

Kaiser: $426 million

Goldendale/Northwest: $344 million

Columbia Falls: $292 million

Alcoa: $210 million

Longview: $173 million

Atofina $4 million

Oremet: $2.5 million

Vanalco: $900,000

http://www.registerguard.com/news/20010420/1a.powerstudy.0420.html

-- Martin Thompson (mthom1927@aol.com), April 21, 2001