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BPA Plan to Increase Power Rates Adds to Unknowns by Michael Jamison Missoulian - November 11, 2005

COLUMBIA FALLS - A proposal to sell electricity from federal dams at near-historic high rates has many businesses energized for a fight, but the big power users at Columbia Falls Aluminum Co. say it might not impact their already flagging bottom line.

"To be honest, I really don't know how much it will even affect us," said Haley Beaudry, spokesman for CFAC. "There are still so many unknowns."

On Tuesday, Bonneville Power Administration announced it would like to peg the average cost of wholesale power at about $30 per megawatt hour. That's a dollar more than current rates, and just shy of $32 highs a few months ago.

By comparison, BPA rates were about $23 per megawatt hour just five years ago.

The proposal brought sharp criticism from the Northwest Coalition for Affordable Power, a group pushing for rates in the range of $27. The coalition is made up of dozens of businesses, utilities and cities throughout the region - including the Montana State Grange, which worries $30 power would leave rural businesses and farmers in the dark.

But at CFAC, the base rate might not matter much, thanks to a new BPA proposal that would help energy-hungry industries buy down their costs.

BPA markets power from the region's many federal hydroelectric dams, and it's no accident that outfits such as CFAC have grown up alongside those reservoirs of power.

For decades, Bonneville has sold cheap electricity in bulk to big industrial users, also known as "direct service industries." The DSIs, in turn, have become heavily reliant upon Bonneville.

The big smelters have historically provided a whole lot of jobs, driving economies from the bottom up, and so quasi-governmental BPA has invested in subsidies as a form of economic development.

But in recent years, population in the Northwest has boomed and demand for energy has surged, leaving less juice available for direct service industries such as CFAC. Current contracts expire a year from now, and Beaudry has been anxiously waiting word on how much future help he can count on from BPA.

Tuesday's announcement, he said, may not be good news for many, but it also may not affect his operation much.

Last spring, BPA floated a new arrangement that would pay cash to aluminum producers, helping them subsidize their huge power bills on the open market.

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, CFAC consumed about a quarter of all the electricity used in Montana.

Under the proposal, Beaudry said, Bonneville would allocate CFAC $14.7 million, enough to buy down 140 megawatts by $12, or 70 megawatts by $24. A single "potline" producing aluminum requires 70 megawatts. CFAC has five potlines, only one of which is currently active, employing 150 people.

The catch is CFAC could not buy down the market price to a cost below BPA's average wholesale rate. That rate, as proposed Tuesday, would be $30.

But currently, Beaudry said, private market power is up over $70 per megawatt. Even if he used the full $24 subsidy, he'd only get the cost down to $46 or so, and that's not enough.

At that point, he said, it doesn't matter if BPA sets its base rate at $27 or $30 or even $40, so far as CFAC is concerned.

Surely, he said, the $14.7 million power allocation will help, but it might not be enough to keep the plant up and running.

Currently, CFAC is enjoying high aluminum prices, Beaudry said, with the metal selling for about 80 cents per ton. That's the good news.

But fuel prices are high, pushing shipping bills into the red. And the primary raw material - alumina - "is very high," Beaudry said. "It's way out of whack, double the historic norm."

Alumina, he said, is going for about 20 cents a pound, and it takes two pounds of alumina, or 40 cents, to make one pound of 80-cent aluminum.

Factor in the shipping costs, the labor costs, the operating costs and, most importantly, the electricity costs, and margins get mighty tight.

Is there a profit?

"Well," Beaudry said, "you try to profit, of course, but it's no big secret that the aluminum company is not profitable now, not today."

And so while other segments of the state's economy might shudder at the thought of $30 wholesale power, Beaudry and CFAC apparently have bigger fish to fry. In fact, he'd love to have a mainline of $30 power straight into all five potlines.

Trouble is, there's not enough federal BPA juice to go around, and so he'll have to buy on the open market. Too much help for CFAC, administrators say, and other ratepayers would feel the pinch.

"It's never easy to get around the power cost issue," Beaudry said. "There's never enough, and it's never cheap enough."