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BUSINESS: Shutdown would eliminate 1,200 high-wage jobs.

John Stark, The Bellingham Herald

The Alcoa Intalco Works aluminum smelter will close Oct. 1 unless the Bonneville Power Administration changes its stance on the cost of the company's power supply, a top company official said Monday.

BPA is expected to announce its proposed rate in May, and make the rate final June 23. An Intalco shutdown would eliminate 1,200 high-wage jobs and slash the tax revenue of Whatcom County and Ferndale School District.

The grim prognosis came from Lloyd Jones, president of U.S. smelting operations for Alcoa Inc. Jones explained that a new BPA five-year electric rate schedule will take effect Oct. 1, and the price increases BPA is now discussing would make the Intalco plant uneconomical.

"Any price being offered would be so high that we could not afford to operate the smelter," Jones said. He visited the Cherry Point smelter Monday to discuss the situation with workers, and later visited The Bellingham Herald. Jones said he urged workers to contact elected officials to put pressure on BPA to change its stance.

"The BPA is a political body, and they (workers) have a say," he said. "They can influence their future." But the BPA's position on power for the Pacific Northwest aluminum industry appears to be hardening. Also on Monday, acting BPA Administrator Steven Wright called on all of the region's aluminum plants to shut down for the next two years so their share of BPA's cheap hydropower could instead be made available for public utilities that also rely on BPA.

In a news release, BPA promised unspecified "funding for employee compensation to minimize impacts on local communities" during the proposed two-year shutdown.

Jones said the compensated closure plan was unacceptable to Alcoa. Restarting the smelter after a two-year shutdown would be difficult and costly, he said, adding that there was no assurance the region's energy woes would be over in two years.

Even if enough natural gas-fired plants can be built to alleviate West Coast power shortages within two years, Jones said that power isn't likely to be cheap enough for aluminum plants, because gas prices are high. The temporary shutdown Wright is proposing would probably be permanent for Intalco, Jones said.

Instead of a two-year shutdown, Alcoa and other aluminum companies are proposing that they have access to at least a portion of cheap BPA power for another five years. Jones said the companies would need that much time to develop affordable new power sources to free them from their traditional dependence on BPA.

The aluminum industry has been arguing for a so-called tiered rate, in which all BPA customers would get 75 percent of their power needs at traditional low rates, based on the BPA's relatively low cost of power production at Columbia River dams. The customers would pay much higher market prices for the remaining 25 percent. The figure is set at 75 percent because the dams can supply no more than 75 percent of the power BPA customers are signed up to receive.

The aluminum industry proposal has drawn stiff opposition from public utilities, which say their customers would have to pay much more if the cheap power were shared with aluminum companies.

Jones said BPA is taking a tough stance with the aluminum companies for political reasons, saying it's easier to punish a handful of aluminum companies than to impose rate increases on public utilities that serve millions of people in communities ranging in size from Seattle to Blaine and Sumas.

Jim Frederick, general manager of the Alcoa Intalco smelter, said the difference in electric bills for public utility customers would probably not amount to more than a few percentage points, while eliminating the aluminum industry could directly or indirectly cut one out of 24 jobs in the state.

But as the BPA's Wright explained it, the aluminum companies are in a no-win situation. If BPA needs to go into the market to provide enough power for the aluminum smelters and all of its other customers, BPA could be forced to charge prices 250 percent above the current level of $22.50 per megawatt hour. That could double rates for many homeowners in the region, Wright said, while also making it impossible for aluminum smelters to operate.

Wright's position assumes that BPA would charge all of its customers one rate that is a combination of low-cost hydro and the much higher prices BPA would have to pay to buy additional power on volatile spot markets. Wright did not discuss the aluminum industry's tiered rate proposal. Call to BPA headquarters in Portland, Ore., were not returned Monday.

Wright said BPA is about 2,500 megawatts short of the power it needs to meet all of the demands of its customers. Cutting off the aluminum smelters would eliminate about 1,500 megawatts. Frederick said Intalco alone can use almost 480 megawatts at peak production.

"The point we're making is, why us?" Jones said.

He charged that BPA's current rate proposals seem to be calculated to get rid of the aluminum companies. Besides the proposed higher prices, Alcoa is also troubled by BPA's announced intention to recalculate power rates every six months. Jones said the company can't tolerate that kind of unpredictability.

"It's just cynically calculated to make sure we go off the air," he said. "I think it's up to our employees to challenge that (BPA) process."

Frederick argued that the tiered rate proposal would give everyone an incentive to conserve power, to avoid the much higher price on power above 75 percent of current demand. "There is a tremendous amount of wasted energy in this country," he said.

He noted that Whatcom County Courthouse cut its power use by 25 percent after county Executive Pete Kremen ordered a cutback in lighting and a lowering of thermostat settings. If everyone got serious about conservation, the tiered rate proposal need not raise anyone's power bill, Frederick said.

Alcoa is an aluminum industry giant, and Intalco provides less than 10 percent of the company's aluminum supply, Jones said. The company has seven other smelters in the United States and three in Canada.

But Intalco is perhaps the most efficient smelter in the country, Jones said. "Without the power situation, this would be an extremely competitive smelter," he said. The grim news from Intalco comes less than two weeks after Georgia-Pacific Corp. announced the closure of pulp and chemical operations at its Bellingham mill, eliminating more than 400 jobs.

Reach John Stark at jstark@bellingh.gannett.com or call 715-2274.

-- Swissrose (cellier3@mindspring.com), April 10, 2001