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Intalco Smelter Gets Some Breathing Room, Support on Power Deal by John Stark The Bellingham Herald, December 21, 2009

The Alcoa Intalco Works aluminum smelter west of Ferndale will remain open under the terms of a deal between Alcoa and the Bonneville Power Administration that will provide enough low-cost power to keep its 528 workers on the job for another 17 months.

The deal will provide Intalco with up to 320 megawatts in its first phase. BPA stands ready to offer the smelter five more years of low-cost power after that, if federal courts approve. While that is far from assured, Gov. Chris Gregoire told workers Monday, Dec. 21, that the state will argue on their behalf if other regional power users mount legal challenges to the deal, as is expected.

"We will be in the Ninth Circuit, we will be in the U.S. Supreme Court," Gregoire told a boisterous, jubilant crowd of hard-hatted workers and their families gathered in the smelter's cavernous cast house, flanked by stacks of aluminum ingots and cylinders.

BPA Administrator Steve Wright and Gregoire came to the smelter Monday to announce the deal.

Wright has had several much-less-friendly meetings with Intalco workers during earlier power crisis episodes that put the future of the plant and its workers at risk. For one such meeting, workers donned T-shirts bearing the slogan, "Wright is wrong."

On Monday, Wright got the most out of this happier moment. He told the workers he had their power contract on the lectern before him, and he asked for a voice vote on whether he should sign.

Whoops and whistles resounded through the giant metal-walled building.

"I'm not sure I can hear you," a grinning Wright responded, touching off a louder outburst.

Workers then stood and applauded as Wright signed the contract.

"Atta boy, Steve!" someone bellowed.

Wright noted that BPA's approval of the power deal is based on the idea that BPA ought to be able to weigh the overall economic benefits of providing a share of federal hydropower to Alcoa, instead of focusing narrowly on how Alcoa's massive power consumption might increase power bills elsewhere in the Northwest.

Wright said Gregoire's pledge of support for BPA's legal position made a difference in his decision to offer a deal to Alcoa in the face of a likely court challenge.

It's a stance not without political risk for Gregoire. Elsewhere in the state, public utility district officials contend that they and their customers are legally entitled to get preference in BPA's distribution of the region's scarce hydropower supply. As they see it, setting aside a big chunk of low-cost hydropower for Alcoa could mean higher power costs for the homes and industries they serve.

That's because aluminum smelters use far more power than any other industry. Alcoa's 320 megawatts is roughly enough to power up one-fourth of the city of Seattle. If BPA provides that much power to Alcoa, the federal agency might need to buy more expensive power to meet all its customers' demands.

Past rulings by the Ninth Circuit Court of Appeals have restricted BPA's ability to offer power deals to Alcoa. Wright said the deal announced Monday was designed to be responsive to the court's concerns, but he also expressed the hope that further court rulings will uphold BPA's right to take into account the economic benefits that Alcoa and its jobs provide to the region.

He also noted that the contract announced Monday has the support of U.S. Energy Secretary Steven Chu.

In a brief interview after her appearance at the smelter, Gregoire downplayed the issue of what impact Alcoa's power consumption could have on power costs elsewhere. She noted that economic analysis indicates that the Intalco smelter creates a total of 2,000 jobs, counting both direct and indirect economic impact.

"This is about the entire state," Gregoire said. "Loss of 2,000 jobs here would be absolutely devastating."

Wright took a similar stance when Seattle television reporters asked him if the Alcoa deal would raise their power bills. "Any time anybody in this region uses electricity, they can increase the cost to another ratepayer," Wright said.

Wright said BPA's analysis of energy markets indicates the first 17 months of the Alcoa power deal won't have a noticeable impact on rates paid elsewhere, partly because demand for power has been reduced by the economic slump.

"It comes down to, are we a community or not," Wright said.

Intalco workers have been living with job insecurity for years as Alcoa, BPA and other BPA power users wrangled over how much cheap hydroelectric power should be allotted to the smelter here, and under what terms.

Workers at Monday's event welcomed the breathing room in the new power contract.

"It's been a roller-coaster that's been real hard on the employees," said Carl Ratcliff, a 35-year veteran of Intalco. "The people just keep putting their nose to the grindstone, putting out a product."

Michael Andersen, who wore the green hard hat of a new hire, said he started work at Intalco in September 2008, only to be laid off two months later amid corporation-wide cost-cutting measures in the face of the global economic slump. He was called back two months ago.

"I think Intalco is one of the best jobs in Whatcom County," Andersen said. "I'm glad to be part of the work force, and I hope it continues."

ABOUT INTALCO

Alcoa Intalco Works
Location: 4050 Mt. View Road, west of Ferndale.

Production: The facility produces aluminum metal either in billets (logs that are later transformed into a variety of products, such as bicycle frames) or foundry material for specialty products. The plant has three operational potlines, one of which has been idled in recent years.

Capacity: The smelter is capable of producing about 278,000 metric tons of aluminum metal per year. With two potlines, the facility produces about 180,000 tons.

Employees: About 500 people work at the facility. Before the energy crunch in 2000, the plant had about 1,100 employees when running at full capacity.

A timeline of major events for the Alcoa Intalco Works aluminum smelter:

1966: The Ferndale-area facility begins operations as Intalco Aluminum Corp., owned by Alumax, Pechiney and Howmet.

June 1998: Alcoa Inc. and Alumax merge, creating Alcoa Intalco Works.

May 2000: Alcoa executives consider building their own power plant to fuel Intalco out of concern over rising energy rates.

May 2001: Not able to cope with high energy prices, Intalco decides to close the plant for two years, keep its employees and sell its power back to Bonneville Power Administration to aid in the energy crisis. BPA pays for the wages and benefits of nearly all the workers plus $1.75 million to cover Intalco's tax burden.

May 2002: After being shut down for six months, the facility reopens two potlines.

October 2003: Alcoa shuts down a potline because of high energy costs, cutting 200 jobs and leaving only one of the three potlines in operation.

February 2004: Mike Rousseau takes over operations as plant manager of the facility, replacing Mike Tanchuk.

June 2006: Alcoa becomes full owner of the facility, buying out remaining partners.

August 2006: Alcoa signs a five-year contract with BPA ensuring continued work for its 450 employees.

February 2007: The Ferndale facility restarts its second potline, increasing employment to 575 employees.

October 2008: BPA proposes a long-term contract deal to supply power to Intalco.

October/November 2008: In response to the economic recession and less demand for aluminum, the Ferndale facility institutes a series of budget cuts, including cutting about 100 jobs.

January 2009: Alcoa and BPA are unable to reach a long-term agreement proposed by BPA in October.

March 2009: Intalco officials say facility is at an "extreme risk" of closing unless BPA approves company proposal for new power contract.

July 2009: BPA and Intalco reach tentative power agreement for enough low-cost power to operate the plant at or near two-thirds capacity for seven years, guaranteeing at least 528 full-time jobs.

September 2009: After an August court ruling restricting BPA's authority to share power with Intalco, the July proposal appears to be in jeopardy.

December 2009: BPA approves a two-phase power contract that guarantees enough power to keep 528 workers employed for 17 months. After that, BPA could offer five more years of power if courts approve and economic conditions permit.