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Intalco Power Talks Stall with BPA

by John Stark
The Bellingham Herald, January 23, 2009

First Wind letter withdraws application

Hopes of a quick resolution to electric power supply problems at Alcoa Intalco Works faded Thursday, Jan. 22, after Alcoa and the Bonneville Power Administration jointly announced they have so far been unable to reach an agreement to firm up a long-term power supply contract that had been tentatively outlined last October.

"While both BPA and Alcoa worked very hard to reach an agreement, the parties were unable, within the time allotted, to settle on terms that would serve the long-term interests of both parties adequately," BPA and Alcoa stated in a letter to U.S. Rep. Rick Larsen. The letter bore the signatures of BPA administrator and CEO Stephen Wright, and John Thuestad, Alcoa's president for U.S. primary products.

"The current economic recession, which has reduced worldwide demand for aluminum and cut the price of aluminum by more than half in the last several months, has caused Alcoa to reassess the risks of operating its facilities at less than optimal levels," the letter continued. "Based on this analysis, Alcoa was unable to sign a contract based on the proposed framework, but remains committed to working with BPA to secure a long-term contract."

After three rounds of job cuts since October, the aluminum smelter near Ferndale still provides high-paying industrial jobs for about 500 people. But if Alcoa can't get a low-cost power supply deal for the period beginning Oct. 1, 2011, the prognosis for those jobs would be grim.

When BPA announced a tentative deal in early October, the future of those jobs appeared bright. That deal would have supplied the company with enough lower-cost BPA hydroelectric power to operate the plant at half-capacity for 10 years beginning Oct. 1, 2011, plus a somewhat smaller amount of power for the seven years after that.

In exchange for BPA's power supply commitment, Alcoa had tentatively agreed to invest $125 million or more in modernizing the smelter, while maintaining a minimum $48 million payroll - enough for about 480 jobs.

Plant Manager Mike Rousseau downplayed the failure to finalize that deal.

He said Alcoa and BPA would keep on trying to work out a long-term power supply agreement.

"We're absolutely committed," Rousseau said. "Everybody wants to see a long-term deal. ... The long-term deal has to be right. We're close." He said Alcoa could not make financial commitments that would be money-losers.

"The current economic crisis really opened our eyes," Rousseau said. "Even though the long-term outlook for aluminum is great, you have to have protection from a downturn."

Allen Burns, BPA's vice president of bulk marketing, sounded less upbeat than Rousseau. Asked about the prospects for hammering out a long-term power deal, he replied, "I think it's probably uncertain."

Even at the best power price BPA could offer, Alcoa would lose money at current aluminum prices, Burns said.

He described the breakdown in power talks as "a significant speed bump," but not a disaster.

"We're going to go back to work," he said. "It's too soon to tell. ... If prices stay down where they're at, it will make it much more difficult. I won't say impossible."

Rep. Larsen, D-Everett, urged BPA and Alcoa not to give up.

"Although I recognize that the aluminum market has been hit hard by the current recession, it is important that BPA and Alcoa reach an agreement as soon as possible to provide long-term stability for Intalco workers and their families," Larsen said in a written statement. "I urge them to return to the table immediately."

John Stark
Intalco Power Talks Stall with BPA
The Bellingham Herald, January 23, 2009

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