Montana Aluminum Plant to shut down, resell powergreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
Plant to shut down, resell power
By CHRIS PETERSON Lee Montana Newspapers
Columbia Falls Aluminum Co. will reopen in a year at half production
COLUMBIA FALLS - Managers at the Columbia Falls Aluminum Co. announced Monday they will shut down the plant by week's end, with plans to reopen in a year at 50 percent production.
The shutdown comes in the wake of a deal with Bonneville Power Administration that allows CFAC to resell BPA power at a considerable markup.
"The power is just so much more valuable than the metal," said CFAC general manager Steve Knight.
CFAC will pay BPA $60 million as part of the deal.
CFAC managers have purchased 165 megawatts of BPA electricity at about $25 per megawatt, and will resell that power into a deregulated market that was commanding prices of about $500 per megawatt-hour on Monday.
"What we're trying to do is use these high power prices to our advantage," Knight said.
A large portion of the money generated by the power sale will be used to cushion the blow to CFAC employees, who will continue to receive full pay and benefits through the remainder of 2001. The employees also can draw unemployment on top of their salary, Knight said.
In addition to paying $60 million to BPA and keeping employees on the payroll, the deal also allows CFAC to create a nest egg to pay for federal power in the future.
Currently, Knight said, the plant can make more money selling the BPA power than producing aluminum.
How much money CFAC can expect from the sale depends on the future power market - a market that has swung from $140 per megawatt to more than $500 per megawatt in the past two weeks. But, Knight said, the $60 million paid to BPA could represent approximately one-third of the proceeds. The remaining two-thirds will be used for paying salaries and plant bills, and stockpiling cash for future power purchases.
If CFAC could sell at the high end of the price spectrum - around $500 per megawatt - "that would turn out to be a very good deal for us," Knight said.
BPA, in a prepared news release, said the deal would free up power next fall and early winter and will help "alleviate some of the supply-demand stress that has driven up prices on the West Coast."
While other aluminum plants in the region expect to be back online by October, the deal brokered between CFAC and BPA requires the aluminum company to remain dark through the fourth quarter of the calendar year, helping to offset anticipated electricity shortages.
The deal also stipulates that CFAC cannot argue for rights to federal power after its newly negotiated contract expires in 2006 - a concession the company didn't want to make, Knight said.
The company plans to restart at 50 percent production in January 2002, provided the power market will accommodate the plant and the plant can operate profitably, Knight said.
"What we're trying to do is buy time for this power market to settle itself out," he said.
Terry Smith, president of the Aluminum Workers Trade Council at the CFAC smelter, said that "given the current energy situation, CFAC and BPA seem to be moving in the right direction in trying to preserve these good-paying jobs, with good benefits, into the future."
CFAC's managers first began shutting down operations in September, dropping production by 20 percent. In December, another 30 percent of the plant was idled, bringing CFAC to a 50 percent shutdown.
That resulted in the loss of about 180 of the plant's 585 jobs, although those laid off continued to be paid through profits from power sales. They were to be cut loose in June, but under the terms of the most recent BPA deal, all employees will receive full pay and benefits through 2001.
Those laid off in previous cutbacks have been sent home; those affected by the most recent shutdown will continue to punch the clock, working to prepare for restarting the plant, on-the-job training and completing plant improvement projects.
When the plant returns to 50 percent production a year from now, Knight said, those now punching the clock will return to their former jobs. Those laid off previously will not necessarily have work at the plant, and the wages and benefits will cease.
The deal with BPA to sell federal power and later reinvest the proceeds in more, hopefully cheaper, federal power closes next January. After that, Knight said, the company no longer will have that option and would have to renegotiate with BPA if power prices have not stabilized.
For that reason, he said, managers fully expect to return to 50 percent production January 2002, using power already purchased on contract with BPA. Bringing more than half the plant on line, Knight said, is highly unlikely.
Knight said he was optimistic that the plant would survive, despite the tightening power market.
"As soon as the (power) market is back in check," he said, "I think there's a very reasonable chance that there will be an aluminum market out there," adding, however, "It looks bleak right now."
The bleak outlook is shared throughout the region, where a handful of aluminum plants have responded to skyrocketing power costs by closing shop. Hundreds of thousands of pounds of aluminum are not being produced, Knight said, which is beginning to have an effect on the market with what Knight called a "definite upward movement" in aluminum prices. With a shutdown through the fourth quarter, he said, CFAC will not have the opportunity to capitalize on those enhanced metal prices.
CFAC's recent decision to drop from 50 percent operation to a full shutdown will drop regional aluminum production by 85,000 metric tons.
The plant, which drains about 20 percent of the electricity used in Montana, began producing aluminum in 1955 as the Anaconda Aluminum Co.
Chris Peterson is editor of the Hungry Horse News in Columbia Falls
-- Martin Thompson (email@example.com), January 24, 2001
First Kaiser aluminum and now Columbia Falls. I wonder how many plants have shut down because its cheaper to resell the energy.
I guess that's what the new millenium is all about. Instead of manned trips to Mars and beyond, we're going to have shortages, overpopulation, systematic destruction of our environment, etc, etc. Welcome to the new millenia. The sad part is that its not going to get better because we'll never have zero population growth.
-- Guy Daley (firstname.lastname@example.org), January 24, 2001.