Power crunch petrifies Addy Town depends on Northwest Alloys Inc.

John Stucke - Staff writer

ADDY, Wash. _ The news from Manhattan wasn't good: Making magnesium is a money-loser.

And now the cost of producing this already unprofitable metal at Northwest Alloys Inc. is poised to soar as the regional electricity disaster spreads like a spring cold.

It's enough to put a knot in the stomach of Jerry Turnbow, a 31-year Alcoa employee who manages the plant.

The first words out of his mouth when he locks in a stare are "we're going to make it. I just know it."

But the next few months are make-or-break for Northwest Alloys, which sits atop a rich dolomite deposit that workers mine and smelt into steel-strengthening magnesium.

Elizabeth Fessenden, who oversees the plant as president of Alcoa's allied businesses division, brought that message from her Park Avenue offices to Addy, a tiny town of mobile homes, a few houses and restaurants, and a gas station.

Two things must happen to keep the Addy plant open. First, the U.S. government must impose higher import duties on cheap foreign shipments of magnesium.

Second, the region's aluminum industry must be guaranteed a cheap supply of federally subsidized electricity from the Bonneville Power Administration. The Addy plant is considered part of the state's aluminum industry, of which Alcoa is a major player.

Alcoa has joined an industry alliance working to kill a BPA plan to idle regional aluminum plants until late 2003.

During meetings Thursday with community leaders and smelter supply businesses, Alcoa found a sympathetic audience.

Northwest Alloys is the largest private employer in Stevens County and offers many of the best jobs. Its 325 workers earn annual wages above $30,000.

"I'm going to make contact with our (political) representatives, you bet," said Lynn Derosier, who operates CenturyTel, a telephone service. "The plant is one of the five major users of our service."

County Commissioner Malcolm Friedman said the county, one of the poorest in Washington, needs Northwest Alloys. The plant pays more than $900,000 in property taxes to the county, second only to Avista Utilities.

In fact, the plant's financial reach is regional.

Larry Stinson, owner of Silver Needle Inc. in Kellogg, Idaho, shuddered at the prospect of a shutdown. He sells protective clothing to Northwest Alloys and regional aluminum producers.

"To us, it's unbelievable that BPA would do this," he said. "It would be ruinous."

What BPA is doing is offering blended rates to all customers. The federal agency markets about 8,000 megawatts, but has to buy another 3,000 megawatts of high-cost power on the open market to fulfill its supply contracts.

By blending the costs of its cheap in-house power with that of market-purchased power, BPA's math results in a rate hike of at least 250 percent. Since aluminum companies could never pay such a rate and run profitably, BPA is asking the companies to simply stand down for two years -- until the energy situation is expected to settle.

The plan to shut down smelters would cut 1,500 megawatts from BPA's supply obligation -- about half the amount it must buy on the open market. It would allow the agency to lower the blended rate to remaining customers, primarily public and private utilities that serve homes and businesses throughout the Northwest.

Aluminum companies are shocked by the idea, claiming they have been unfairly singled out. So they are pushing a different plan called tiered rates.

Under this plan, each customer would be treated equally and could buy 75 percent of their electricity at the BPA price of production. Any more power purchases from BPA would cost whatever price the volatile electricity market fetches.

Such a plan would slap homeowners, other businesses and critical services with severe price hikes, say critics like Rep. Peter DeFazio, D-Ore.

While aluminum companies may be able to switch off potlines and lay off workers relatively easily, utilities can't force customers like hospitals into 25 percent rate reductions, DeFazio noted.

Opponents of the tiered rate proposal contend aluminum companies are trying to shift billions of dollars in costs to other ratepayers.

BPA acting administrator Steve Wright said the blended rate plan is designed to pass along costs incurred from buying power, steering the agency clear of an energy struggle like the one that has brought rolling blackouts to California.

"California very late discovered the impact of paying those kinds of prices and it led to $13.3 billion in debt," he said. "If you are in the market, (you must) set rates high enough to recover costs."

The two sides are engaged in a high-stakes gamble that threatens broad segments of the Northwest's economy.

The aluminum industry employs about 7,500 workers, including those in Addy. Direct spin-off jobs account for thousands more.

Even if aluminum companies convince BPA to use the tiered rate plan, there's no guarantee any power will flow to Addy.

Alcoa operates aluminum smelters in Ferndale, Wash., and Wenatchee, and may decide those are more lucrative recipients of precious megawatts than the Addy plant.

Northwest Alloys uses 35 megawatts, compared to hundreds used by the aluminum smelters.

Fessenden made no promises about keeping the plant open.

The power situation is just one hurdle faced by Northwest Alloys, Fessenden told the community. An equally tough challenge is the magnesium market.

The Addy plant is one of just two magnesium producers in the United States. About 80 percent of its $150 million in annual revenues comes from sales to other Alcoa plants throughout North America.

Other magnesium-producing countries -- especially China, Russia and Israel -- beat U.S. production costs with lower labor, material and power expenses.

To keep the American industry competitive, the U.S. government is considering putting duties on magnesium imports. The pending decision is what Northwest Alloy employee Patrick Graham called a "big-hitter" for the Addy plant.

"It's just one of many issues, but it's one that if favorable will help our survival," he said. "We've been informed that it very well could make the difference."

Graham, a 25-year employee, drafted a letter that turned into a petition asking for import duties. It was signed by 198 Addy employees.

The petition joined similar filings to the U.S. Department of Commerce from the Magnesium Corp. of America and the United Steelworkers of America.

Alcoa, however, remains neutral on the subject of import duties.

Despite formerly calling itself the Aluminum Company of America, Alcoa is an international business that doesn't take sides in trade disputes, Fessenden said.

Turnbow, who helped design the Addy plant in the early 1970s and helped hire the initial crew, also said he couldn't comment on the petition.

A decision by the Commerce Department and the International Trade Commission on magnesium import duties should be made soon, said Joe Dorn, a lawyer representing the petitioners.

-- Anonymous, April 21, 2001