Saturday, March 17, 2001, 12:00 a.m. Pacific

Aluminum's power play over energy

by Kevin Galvin Seattle Times Washington Bureau

WASHINGTON - Aluminum-plant operators in the Pacific Northwest are lobbying for favorable electricity rates from the Bonneville Power Administration, warning that expected rate increases could shutter the industry.

But critics say the operators, some of whom profited by idling plants and reselling cheap BPA power on the open market this winter, are trying to shift costs to other industries and homeowners at a time when every constituency in the region will have to suffer from an energy shortfall.

No 'special deals'

"We just cannot afford to give them a special deal," said Rep. Pete Defazio, D-Ore. "I'm not going to jack up the rates on my residential ratepayers and my businesses that are on the edge to subsidize the aluminum industry."

The issue is likely to come to a head Wednesday when regional congressional leaders meet behind closed doors with business leaders, environmentalists, BPA officials and others. The meeting was quietly organized as an overview of the regional energy issue, but the aluminum industry is expected to be one of the most contentious issues.

Supply, demand gap

The aluminum companies argue BPA should spread a rate increase evenly so it doesn't devastate high-energy-demand industries. But BPA officials know reducing supply to aluminum plants will go a long way toward meeting the expected gap between overall supply and demand.

"The aluminum industry has become so politicized that people are rejecting a good idea," said Brett Wilcox, chief executive officer of Golden Northwest Aluminum in Klickitat County. "There are some people that are saying, 'Geez, if we could just kill off the aluminum industry we wouldn't have to buy 3,000 megawatts; we'd just have to buy 1,500 megawatts.'"

According to current estimates, BPA could face a 3,000-megawatt deficit in its next rate period, and it would have to bridge that gap by purchasing power on the open market. The aluminum contracts amount to roughly 1,500 megawatts.

Currently, BPA melds the cost of power it produces through the Columbia Basin hydroelectric dams with the cost of power it is forced to purchase on the open market.

Two-tiered rate system sought

The aluminum companies are seeking a two-tiered rate system, under which all customers would pay for 75 percent of their power at the lower BPA rate, and then a prevailing open-market rate for 25 percent.

But BPA officials reject that approach, saying it's easy for industrial customers like the aluminum plants to shut down part of their operations to avoid the higher rates, thus passing along increased costs to the public and investor-owned utilities that BPA is legally required to serve.

"In the environment we're in now, where the demand for power is exceeding the supply, it just wouldn't work for us to provide a preferential rate to an industry," said BPA spokesman Hugh Moore. "That just wouldn't fly. That would be a very egregious inequity."

Thousands of aluminum workers were idled in the Northwest this winter when plant operators found it more lucrative to slash production and sell the power they had contracted from BPA.

BPA persuaded several aluminum companies to share up to 30 percent of their resale revenues with other BPA ratepayers. Golden Northwest also promised to pay workers' health-care benefits and the difference between unemployment benefits and their salaries. BPA failed to reach agreement with Kaiser Aluminum in Spokane, which locked out 1,200 workers and stands to earn as much as $500 million from reselling power.

David Foster, regional director of the United Steelworkers, said the union was supporting the two-tier rate proposal, saying some access to reduced rates was needed to protect jobs.

But the union was insisting any company that benefits from BPA rates must agree to compensate workers during shutdowns, invest in energy-efficient upgrades at its facilities and eventually move off the public power grid.

While BPA seems to have closed the door to any special considerations for the aluminum industry, congressional staffers and lobbyists say the Northwest delegation has yet to reach consensus on the issue.

Anger at the companies

There is anger at the companies that profited at the expense of other ratepayers over the winter, but also recognition they employ 7,500 constituents.

Rep. Brian Baird, D-Vancouver, for example, said that while he was angered by Kaiser's stance, he believed Golden Northwest deserved a boost for trying to be fair to both ratepayers and its workers. "To paint (them) all with one brush would be a mistake," he said.

On Tuesday, members of the Northwest Energy Caucus will get a chance to weigh in on the crisis with Vice President Dick Cheney, who is leading the administration's interagency energy task force. Rep. Jennifer Dunn, R-Bellevue organized the meeting.

Kevin Galvin can be reached at 206-464-8550 or kgalvin@seattletimes.com.

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-- Martin Thompson (mthom1927@aol.com), March 17, 2001