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Aluminum Industry Powering Down by Gail Kinsey Hill The Oregonian, March 11, 2001

Electricity prices have weakened Northwest smelters,
hastening their demise, but the region may not feel the loss too deeply

Potlines stretch through the cavernous Goldendale aluminum smelter in eerie silence, gray, massive and unusually cold.

Outside, along the Columbia River and the tawny hills of Washington's Klickitat County, the quiet deepens. Few cars. Few people. More cold.

When the Goldendale, Wash., aluminum smelter operates at capacity, this neck of the Columbia River Gorge smolders with activity. Potline cells bubble with molten aluminum, billets slide from castings like silvery logs, and hundreds of workers mill about.

But those days are gone, possibly for good. Parent company Golden Northwest recently slashed production by 90 percent and laid off half the work force. Across the bridge and 30 miles west in The Dalles, it closed another smelter, except for limited casting operations.

Soaring electricity prices have crippled the Northwest's aluminum industry, a voracious consumer of megawatts. Smelters, lured here in the 1940s with promises of cheap hydropower, have become victims of the very commodity they treated so freely in the past.

What's more, the smelters may have become expendable.

To a growing number of critics, the aluminum industry, once an economic pillar, has become a pariah. The demise of the smelters, critics point out, would free up as much as 3,000 megawatts of electricity, enough to significantly ease the current energy crunch. And, according to a newly released economic study, the loss of the industry to the region carries little more than a blip of an economic consequence.

"Everyone's pretty scared right now," said Steven League Sr., 61, a 29-year veteran of the Goldendale smelter, who hung onto his job but watched as hundreds of co-workers -- including one of two sons -- were let go.

The scenario of idled workers and shuttered smelters repeats itself throughout the Northwest, a region that until last year accounted for 40 percent of primary aluminum production in the country and 17 percent worldwide.

In about a year, these companies have idled 80 percent of production capacity and threw thousands of workers off the job. Talk of a jarring shakeout dominates the conversations of boardrooms and smelter compounds alike.

The industry is notoriously cyclical. What looks like doom one day can turn to boom the next. But the current situation is so severe, even old-timers such as League Sr. can't remember tougher times or a more precarious future.

"There have always been valleys," said Arthur "Butch" Hert, who rose through the ranks and now manages Goldendale Aluminum's cast house. "But this is a much darker valley."

Signs last year
The shadows began appearing in May when electricity prices launched themselves skyward. Prices climbed to 10 times their usual levels -- much higher when demand spiked -- and have yet to come down.

As the summer progressed, smelter after smelter announced cutbacks.

Company officials said they could ill-afford double-digit multiples for an expense that under normal circumstances sucks up one-third of their operating budgets. They were used to paying $22.50 a megawatt hour for electricity and producing a product that sold for 70 cents a pound on the London Metals Exchange. Shelling out $40 a megawatt hour, let alone $100 a megawatt hour, was unthinkable, particularly in a competitive global environment, they said.

Many of the companies continued to pay idled employees, who now number more than 3,000. The workers say they welcome any wages they can still pocket, but even a full 40-hour-a-week paycheck -- on average, $50,000 to $60,000 a year -- is less than most usually receive because overtime is so common.

Everyone's anxious about the future.

"They'd rather be working," said Gaylan Prescott, field representative for the United Steelworkers of America, which represents workers at eight of the 10 Northwest smelters. "They don't like the uncertainty."

When Gary Beck, 45, was laid off at the Troutdale smelter in November, his pay dropped from $64,000 a year to about $22,000 a year, the amount provided by unemployment insurance.

"We tried to pay every bill we could before this thing hit," said Beck, who lives in Sandy with his wife and two children. "We had to concentrate on eliminating things we didn't need."

Beck spent more than 28 years in aluminum smelters in several states, including Arkansas and Oregon, and he has been through downturns before. But he isn't waiting this one out.

"I don't think there's enough power in the Northwest to get (the smelters) back," he said.

Training for a new career
With federal Nafta money available for workers displaced by foreign competition, Beck enrolled in a training program in heating and refrigeration at Portland Community College.

"I'm excited about it," he said. "Hopefully, it's a long-term industry."

Beck isn't alone. Many of his co-workers have returned to school or are considering shifts into other jobs that already might be available.

Steven League Jr., 34, who kept his job and works in the casting pit, hopes to stay in Goldendale, where he was born and raised. He's a reserve police officer, and says he might apply for a full-time position. Otherwise, like his 30-year-old brother, David, he might look for work elsewhere.

"I want to stay here," he said as he took a break from the pit and brushed alumina dust from his clothing. "But the outcome's so uncertain."

The cutbacks and the questions about the future already have shaken up the economies of Klickitat and Wasco counties where the Goldendale and The Dalles smelters dominate the business base.

Wasco County's unemployment rate is above 10 percent, more than double the statewide average. In The Dalles, the county's largest town and the home of Northwest Aluminum, home prices have begun to waver and spending on everything from dining to pickups has begun to falter.

"Nothing's moving," said Hert of The Dalles' housing market. "It's totally dead."

Hert lives in The Dalles and commutes daily to the Goldendale smelter.

Mac Seyhanli, with a home on the Washington side of the Columbia River, says the situation is sure to get worse as smelter cutbacks continue.

"We're it as far as any significant employment is concerned," says Seyhanli, vice president of Goldendale Aluminum. In 1987, when the Goldendale smelter closed down before being purchased and reopened by new owners, unemployment jumped to 20 percent, Seyhanli remembers. It's now above 10 percent.

Last year, a study by the Mid-Columbia Economic Development District concluded that the even partial closure of the Goldendale and The Dalles smelters "would have a devastating impact on Wasco and Klickitat counties."

In Wasco County, where the smelter accounts for about 4 percent of total employment, the plant's closure would push the unemployment rate to almost 20 percent as the effect rippled through the community, the report concluded. In Klickitat, where the smelter accounts for almost 8 percent of employment, unemployment could soar to close to 30 percent.

"The reality of this is, we drive those economies," said Brett Wilcox, who owns the two Columbia Gorge smelters and insists he will ramp up production as soon as electricity prices allow.

Utilities vs. smelters
Yet, outside these rural communities and away from corporate promises, sentiment is growing that the Northwest would be better served if aluminum workers found other jobs and potlines turned cold for good.

Public power utilities have become ardent adversaries. They buy most of their electricity from the Bonneville Power Administration and regard smelters as power-guzzling interlopers.

"The aluminum companies are notoriously inefficient users of energy on a per-job basis," Steve Loveland, general manager of the Springfield Utility Board, wrote in a scathing letter to Oregon's congressional delegates and to Gov. John Kitzhaber.

"It is an absolute shame that the Northwest has been squandering its precious low-cost energy to subsidize such a small number of jobs and the profits of a handful of favored aluminum companies."

A recent study commissioned by the BPA found that a few counties would suffer disproportionately from smelter closures but that "the total impact for each state and the Pacific Northwest region as a whole was very small.

"If the impacts are averaged over the 20-year analysis, they blend into the background noise of the other business shutdowns and start-ups that naturally occur in a vibrant economy," the report states.

Smelter workers cringe at the analysis.

"Hydro drew us here, and now they want to dump us," said League Sr., who moved to the mid-Columbia River Gorge from California in the 1960s and worked a variety of jobs before snagging a spot at the Goldendale smelter, then called Harvey Aluminum, in 1972.

"People are turning against us," he continued. "It's hard to put into words. The aluminum industry has supported the Northwest, provided a good tax base . . . and now they're saying, 'Heck, we don't need you, go build computers.' "

Survival plan
Wilcox says he's determined to survive.

"We've got a fighting chance to make it," he said.

Short-term, Wilcox and aluminum company colleagues are trying to persuade the BPA to provide electricity at prices the industry can afford when new five-year power contracts with the agency begin Oct. 1. Negotiations already have become heated. The BPA, which must supplement its low-cost hydropower with wholesale purchases, has warned that rates easily could jump above $50 a megawatt hour.

Long term, Wilcox plans to build gas-fired electric generation of his own, which will allow him to deliver megawatts to his smelters without reliance on the BPA.

"We're in a race to develop our own power before time and money run out," he said.

Raymond Milchovich, president and chief executive officer of Houston-based Kaiser Aluminum, says he also is committed to the region. He may announce within weeks a plan to develop a generating plant to fuel the company's two Northwest smelters.

Milchovich rejected speculation that Kaiser's recent cutbacks signal an intent to shutter its Northwest smelters for good.

"We're absolutely not prepared to say we've made our last pound in the region," he said. "There's a whole lot of people who are counting on this company to be here."

Yet even bullish industry executives admit these are dismal times.

"It's very problematic for all of us," said Milchovich.

Randy Hardy, BPA administrator from 1991-97 and now an energy consultant based in Spokane, says only those companies that invest in their own generation and wean themselves from the BPA will survive long-term. Even then, the industry may never be the same.

"We're down to a fundamental survival level," Hardy said. "Under the best of circumstances you'll see about half of them still around in five years."