the film
Economic and dam related articles

BPA Deal Offers Hope to Industrial Producers

by Michael Jamison
The Missoulian, June 6, 2006

COLUMBIA FALLS - The region's largest supplier of cheap hydropower is offering a cut-rate deal to big aluminum producers, and the industry remains hopeful the savings will be enough to keep its plants up and running.

"It gives us a fighting chance to continue operating," said Haley Beaudry, external affairs manager for Columbia Falls Aluminum Co. "There's no guarantees, but at least we have a fighting chance."

For decades, the Bonneville Power Administration has sold cheap electricity in bulk to big industrial users, also known as "direct service industries." The DSIs, in fact, have become heavily reliant upon Bonneville, a quasi-governmental agency that markets the power generated at the region's federal hydroelectric dams.

In recent years, though, demand for electricity has increased along with the region's population, leaving less electricity available for the big DSIs.

With current contracts set to expire in a matter of months, industrial operators have been anxiously awaiting word on how much power they could count on from the BPA.

Turns out, they can't count on any power at all - but they can count on millions of BPA dollars to help them subsidize power purchases on the private market.

Last week, Bonneville announced it would set aside $59 million, the equivalent of about 560 megawatts, to be shared among the region's three remaining aluminum plants.

Aluminum smelters are notoriously power hungry, as electricity is the catalyst for turning alumina powder into aluminum. At one time, when operating at full capacity, Columbia Falls Aluminum consumed about a quarter of all the electricity used in Montana.

That percentage has shrunk dramatically, though, with market pressures forcing the company to cut back in recent years. Currently, CFAC operates at just 20 percent, with one of five "potlines" active.

Under the Bonneville deal, CFAC will receive cash equivalent to about 140 megawatts, to be used for buying power on the open market. Divide that into the total $59 million, and then divide that by the 8,760 hours in a year, and it comes to about $12 per megawatt-hour.

Problem is, Beaudry pegs the current market price at about $58 per megawatt-hour.

That means even with the $12 stipend, CFAC management is still looking at power in the $46 range.

There's no way, Beaudry said, the company can operate in today's marketplace if the plant's buying $46 power.

Aluminum prices are high, which helps, but raw material prices are also high, making $46 power simply too steep.

There is, however, a silver lining: BPA has set aside cash enough to subsidize 140 megawatts at CFAC. But it takes just half that - 70 megawatts - to run a potline.

According to Beaudry, Bonneville is allowing CFAC to take the money offered for 140 megawatts, but to purchase only 70. That would essentially give the company twice the $12 stipend - or $24 per megawatt-hour - buying down the market cost to a price closer to $34.

Previously, Beaudry said, the plant's future would require power in the $30 range, but now he thinks CFAC might make a go of it with BPA's offer.

"That's what we're going to try to do," he said. "That's our goal."

Another goal will be to find private-market power at something less than $58, making the deal even sweeter.

There are, however, some caveats.

Bonneville Power will not allow the DSIs to buy down the cost of market power to a price below BPA's "preferred rate," which is the rate paid by public utilities and cooperatives. Currently, that puts the lowest possible price, including the subsidy, at around $30.

But after recent negotiations, Beaudry said, Bonneville did agree to build some flexibility into that deal.

If the market rate falls low enough that the subsidy would push the price below the preferred rate, he said, then CFAC can choose not to use its full allocation in any given year. Instead, the smelter can "move the money around, from year to year."

The catch: CFAC would first have to "lock in" to a power price in a three- to five-year contract, and would have to forfeit a full 8 percent of its cash allocation.

Nevertheless, Beaudry said, the new flexibility "is what made this deal a go for us. It gives us the flexibility to handle fluctuations in the rate. That's very important for us."

Bonneville top boss Steve Wright noted that his agency has no obligation to help big industry, but added that there is a long history of cooperation and partnership between BPA and the DSIs.

That history has been strained in recent years, as there is no longer enough low-cost federal hydropower to satisfy everyone's needs. Too much help for industry, he has said, would put the pinch on other ratepayers. Not enough help for industry, and jobs important to the economy would suffer.

The current offer, Wright said, gives big aluminum the "fighting chance" that Beaudry talked about, while "not unduly burdening other regional consumers."

It is a precarious balance, and in recent years it has tipped away from industry's favor. Prior to 1995, the five-year BPA contracts set aside more than 3,000 megawatts for the big users. Then, in that year, contracts were reduced to 2,000 megawatts. In 2002, they were cut to 1,500. The latest promise of cash equivalent to 560 megawatts is a low point for direct service industries.

But, Beaudry said, it should at least allow CFAC to continue operating at 20 percent, with one potline employing some 150 men and women.

Likewise, it will buy down the cost of 320 megawatts at Alcoa's aluminum plant, and 100 megawatts at the Golden Northwest Aluminum Co. The three companies should begin receiving the cash benefits Oct. 1.

Michael Jamison
BPA Deal Offers Hope to Industrial Producers
The Missoulian, June 6, 2006

See what you can learn

learn more on topics covered in the film
see the video
read the script
learn the songs
discussion forum
salmon animation