BPA subsidies for aluminum industry under siege

The latest chapter in the perennial battle over Bonneville Power Administration's power sales to aluminum companies is drawing to a noisy close. The BPA is looking to sign 20-year contracts with customers in January. And in a public comment period that closed last week, Oregon's governor, public utilities and ratepayers advocates from around the region blasted a proposal by the federal power marketing agency to provide electricity discounts of as much as $66 million annually to Alcoa Inc.'s smelter in Ferndale, Wash., until 2028. The agency also proposed $33 million in annual subsidies for the Columbia Falls Aluminum Co. in Montana, though it's unclear whether that proposal will go forward. BPA Chief Executive Stephen Wright said he will consider public comments in drafting final contracts with the smelters. When that contract is released in the next 60 days, the public will have another opportunity to comment. The smelter subsidies, which could come in discounted power or monetary transfers, amount to about $140,000 a year for each guaranteed job at Alcoa. Public utilities contend they'll end up paying for them in higher rates, which would force job losses among their own industrial customers that are struggling to get through the recession. "We're not sure why, but it appears the BPA values the aluminum industry jobs more than they do other industries," said Mark Howe, a spokesman for the Oregon Trail Electric Consumers Cooperative, based in Baker City. The proposal also comes when the BPA is preparing to sign 20-year contracts that will substantially reduce the system benefits going to residential customers of private utilities such as Portland General Electric and PacifiCorp, which make up 60 percent of the electricity demand in the region. Alcoa has lobbied heavily and sued the BPA to maintain its historical access to cheap hydropower. It argues that the proposal provides only half the electricity needed to operate its Ferndale plant, while other industrial customers who have not been in the Northwest for nearly as long continue to have all their power needs met with BPA power as customers of public utilities. Alcoa has committed to maintaining 480 jobs at its Intalco Works plant if it gets the power. It also argues that its $48 million payroll and operations directly and indirectly support more than 2,000 jobs in the Northwest. "I really challenge people to stand back and look at this from a fairness and equity standpoint," said Mike Rousseau, manager of the Intalco plant. "We believe we have a right to this power." Washington's governor and several members of its congressional delegation agree. They applauded the BPA proposal, saying it would "maintain family wage jobs while not placing a significant economic burden on other customers in the region." Wright said he has felt no political pressure within the region, or from Washington, D.C., to reach a particular outcome. Rather, he said, he is looking to make the best policy decision for the Northwest. "When you sit in a job like mine, you do think about the impact on real people," Wright said. "Even if it's a small positive impact, it's probably worth pursuing." Controversy has swirled for years around the BPA's electricity sales to its so-called direct service industries, a group of energy-intensive industrial customers -- mostly aluminum companies -- that traditionally purchased all their power directly from the BPA. The direct service industries' heavy demands provided financial viability for the BPA in its early years. Moreover, their contracts allowed the BPA to interrupt their service during periods of peak electricity use, giving the agency more flexibility to manage its overall demand. Only three of the original 10 aluminum smelters that once dotted the Columbia basin remain today. Though Alcoa disagrees, most customers contend the BPA no longer has any statutory obligation to serve the smelters. When the agency made big payments to the smelters during the 2001 energy crisis to buy back power, most of the smelters laid off their work forces and shut their plants for good. Most BPA customers figured that was the end of the direct service industries subsidies. The BPA commissioned an economic study in 2006 that concluded there would be a short-term economic benefit to supplying cheap power to the aluminum companies. The study concluded, however, that the benefit would be offset in the long term by other activities. In fact, the authors were so uncomfortable with their ability to predict the future of the aluminum industry that they essentially disavowed their conclusions at the public meeting called to discuss them. "Even if you do this, it's not clear Alcoa is viable here," said Scott Corwin, executive director of the Public Power Council, an advocacy group that represents public utilities in Oregon and Washington. Underscoring that debate, Alcoa announced 50 layoffs at the Intalco plant three weeks after the BPA power sale proposal was released in October because of the falling price of aluminum worldwide. ---www.oregonlive.com