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Power Deal Deadline Looms for Ferndale-area Smelter by John Stark Bellingham Herald, September 6, 2009

With a deadline apparently looming for completion of a new power supply contract between Alcoa Intalco Works and the Bonneville Power Administration, doubts persist about the survival of the aluminum smelter and its 500 jobs.

Alcoa's current contract with BPA expires Sept. 30. Until recently, Alcoa and BPA seemed to be on track to finalize a new seven-year power supply contract that would provide Alcoa with enough low-cost power to keep the plant west of Ferndale operating at two-thirds capacity.

A draft version of the seven-year deal had been issued for public comment, and Intalco recalled 24 workers who had lost their jobs in earlier rounds of corporate cost-cutting.

But on Sept. 17, BPA announced that an August ruling from the Ninth Circuit Court of Appeals appeared to invalidate the key feature of Alcoa's existing BPA contract. Under that contract, the federal power agency had been providing Alcoa with a cash subsidy to enable the firm to purchase more expensive electric power on the open market. BPA's Sept. 17 letter announced that BPA would not make the final two monthly payments to Intalco in light of the court's ruling.

That prompted fears among both Alcoa management and workers that the hoped-for new power supply contract might also be in jeopardy.

But as of Friday, Sept. 25, both Alcoa and BPA said contract talks were continuing.

BPA spokeswoman Katie Pruder-Scruggs said the federal power agency has not yet made a decision on a power supply contract for Alcoa. BPA's goal is to develop a contract that will give Alcoa a chance to keep the Intalco smelter open, without excessive power cost increases for other BPA customers.

Intalco spokeswoman Jodie Read said talks with BPA are ongoing, but she declined to provide additional information.

Some of the 24 recalled workers quit other jobs or dropped out of school or job training programs to get their smelter jobs back, said Pat Flaherty, representative of the International Association of Machinists and Aerospace Workers Union local that represents Intalco workers. Now, they and the rest of the Intalco workforce are again facing an uncertain future.

This spring, Intalco plant manager Mike Rousseau and other Alcoa officials warned that if a long-term power supply contract was not hammered out quickly, the Intalco smelter could fall victim to the global economic malaise that has pushed down the market price of aluminum, making the local smelter uneconomical to operate.

Alcoa wants a long-term power supply that will give it a chance to recoup losses once economic conditions improve.

BPA is the federal agency that markets the low-cost power produced by federal dams on the Columbia River system. Decades ago, when that cheap power was plentiful, aluminum smelters sprang up across the region, because they need vast amounts of power to produce the lightweight metal, and BPA was eager for their business at a time when no other customers were clamoring for affordable electricity.

But the Northwest's population and industrial base has grown a lot since then. BPA no longer has enough cheap power available to meet regional demand. As a result, most of the region's aluminum smelters shut down years ago as their power costs rose too high.

In recent years, officials from public power systems around the Northwest have argued that Alcoa Intalco Works should be pushed off the BPA power system too, to make more cheap power available for their customers. They have tried to get federal courts to order BPA to do just that. Public power attorneys argue that the law gives public utilities preference in the allocation of the cheap power, and Alcoa should get nothing if there isn't enough of that power to go around.

BPA officials acknowledge that if they supply Intalco, they will have to buy additional power on the open market at much higher prices to make up the supply shortfall. The cost of that additional power would be borne by all BPA power customers, not just Intalco.

Scott Corwin, executive director of the Public Power Council, contended that the Ninth Circuit rulings have restricted BPA's authority to offer long-term power supply contracts to Alcoa. Corwin said the court has ruled that BPA must be able to provide a sound economic rationale for supplying power to the smelter, and he does not believe that BPA has met this burden.

Daniel Seligman, a Seattle attorney who has represented public power systems, noted that BPA has estimated that a seven-year power deal with Alcoa could add more than $400 million in power supply costs that other power users would pay.

"It's not that people are being hard-hearted about jobs in Whatcom County," Seligman said. "It's a huge cost shift."

An aluminum smelter's appetite for power is enormous. At two-thirds capacity, Intalco uses 320 megawatts of power. That's enough power to light up 320 million 100-watt bulbs, and is roughly equivalent to about one-fourth of the power consumption of the city of Seattle.

Few other industries use anything near that much. The now-departed Georgia-Pacific Corp. pulp and paper mill on Bellingham Bay, with more than 1,000 jobs at its peak, used about 40 megawatts.

Alcoa is the world's biggest aluminum producer. According to information on the company Web site, Alcoa owns all or part of 10 U.S. smelters. Five of those have been shut down "temporarily," while three more, including Intalco, are operating at reduced capacity.

Alcoa has 15 smelters outside the U.S., including facilities in Australia, Brazil, Canada, Iceland, Italy, Norway and Spain.