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Smelter Must Learn to Share, BPA Warns by Gail Kinsey Hill The Oregonian, February 10, 2001

The power marketer tells Kaiser Aluminum to put some money from power sales
toward employees and operations

Bonneville Power Administration officials this week warned Kaiser Aluminum that they might cut off future electricity commitments unless the company shares recent windfalls with employees and reinvests profits in operations.

Kaiser, which late last year curtailed operations at two aluminum smelters in Washington because of crushing electricity costs, has been reselling the federal power and will pocket -- by the BPA's estimate -- $500 million.

"Kaiser's insistence on enriching itself rather than investing in the smelter bodes ill for the future viability of its Northwest operations," Paul Norman, the BPA's senior vice president of power, wrote in a Feb. 8, sharply worded letter to Kaiser's vice president of external affairs, Pete Forsyth.

Forsyth on Friday said he hadn't received the letter but considered the BPA's assessment of the negotiations inaccurate and overwrought.

"In this kind of energy crunch, it makes perfect sense to share, and we think we're doing that," Forsyth said.

Souring relations between the BPA and Kaiser are the latest signs that the energy shortage and accompanying sky-high electricity prices are putting power providers and businesses increasingly at odds.

In five-year contracts negotiated in 1996, the BPA sold Kaiser and other aluminum smelters in the Northwest electricity for about $22.50 a megawatt hour, the going price at the time. The BPA continues to market cheap hydropower from 29 dams on the Columbia-Snake River Basin, but it also buys electricity on the wholesale market where prices now are far in excess of $100 a megawatt hour.

Kaiser bought additional electricity on the market while smelters were operating. The exposure to the wholesale market forced the closure of facilities in Tacoma and Spokane. More than 800 workers were laid off.

Under the BPA contract that covered the Spokane plant, Kaiser could resell the power rather than use it for the production of aluminum.

"At the time, we never anticipated there would be a shortage and such huge costs," said BPA spokesman Ed Mosey. Instead, contract provisions were designed to make the contracts more competitive.

The BPA figures that Kaiser will net $500 million from the sale of unused power from January through September. The BPA wants Kaiser to give about 20 percent to 30 percent back to the federal agency, which would use the money to help defray the costs of future high-priced power purchases. In turn, ratepayers would benefit from lower-priced power.

Smelter disputes figures The BPA also wants Kaiser to use some of the money to compensate laid-off workers and to make smelter operations more efficient.

Kaiser disputes the BPA's profit estimates. The company paid employees for full 40-hour weeks through Jan. 31 and plans to do more, though negotiations with the steelworkers union have broken down, Forsyth said.

In addition, Kaiser has sold power to the BPA and to other utilities in the region at a "significant discount," Forsyth said.

"When you add all this up, we think that the value is in the range of what BPA has asked us to do."

In new contracts with the BPA, set to go into effect Oct. 1, Kaiser and other aluminum companies agreed to share some of the profits they might make this year from resold power in a variety of ways, including compensation to employees. Failure to do so could invalidate all or portions of the new commitments, which last until 2006.

In its letter to Forsyth, the BPA maintained Kaiser had not met the remarketing provisons and that the contract was in danger of being nullified.

"We think we absolutely meet that contract," Forsyth countered.

Even so, Forsyth said he is worried that Kaiser may find the new rates, yet to be determined, too high to allow smelters to operate profitably.

Steve Powers, staff representative with the Steelworkers of America, said the 550 laid-off workers of the Mead smelter in Spokane are upset about the way they've been treated by Kaiser and are worried about their future.

Kaiser "is making exorbitant sums, but they're unwilling to do anything to help out workers," Powers said.