Washington Water Power Co., in a precedent-setting transaction, will supply 70 megawatts of electricity to the Northwest Aluminum Co. in The Dalles, Ore.
The deal represents the first break away from the Bonneville Power Administration by one of the region’s nine smelters, which buy thousands of megawatts of energy from the federal power-marketing agency.
It also shows how vulnerable rate hikes and other measures have left the once dominant agency. An aluminum company decision to buy from anyone else would have been unthinkable a few years ago.
“There is a brave new world out there,” Northwest President Brett Wilcox said Thursday. “This gives them a better understanding of where the market is.”
In a letter to BPA Administrator Randy Hardy, Wilcox explained the economics of his decision.
WWP will supply the electricity from August through February at a cost of 2.55 cents per kilowatt-hour. The rate is fixed throughout the five-year term of the contract, which begins in February 1997.
By comparison, BPA will charge 2.8 cents per kilowatt-hour next year, with no guarantee rates won’t increase.
The WWP power is also more reliable, Wilcox noted.
He said several other suppliers also could have beat BPA’s rates, and added that he may supplement the WWP megawatts, which will cover less than half Northwest’s load, if the agency cannot get its costs under control.
Tom Johns, who helped negotiate the deal for WWP, said the utility will also compete for the right to sell power to Northwest during the spring and summer months, when Wilcox is counting on river runoff to make cheap power available from a number of sources.
Although the agreement with Northwest is the first of its kind in the region, Johns predicted other smelters and companies that buy their electricity direct from BPA will soon make similar deals.
The federal agency, he said, has already taken steps that will make it easier for the smelters to shop for energy.
“I would expect to see a lot of announcements,” agreed Steve Waddington, deputy director of the Direct Service Industries, which represents BPA’s major industrial customers.
With the decision by Congress and the Federal Energy Regulatory Commission to open the nation’s transmission grids to all comers, the West Coast electricity market has become highly active, he said.
“It’s going to be a very interesting next several months,” Waddington said.
Susan Ashe, spokeswoman for Kaiser Aluminum Corp., said the company has been meeting with potential new suppliers to the company’s Mead and Tacoma plants, but has reached no agreement.
Kaiser did take some incremental power from BPA on a short-term basis to add enough production at Tacoma to replace output lost at a smelter in Ghana and during a recent strike against facilities in the United States, she said.
Spokeswoman Dulcy Mahar said BPA is trying to be a better provider. A waiver that allowed the smelters to buy as much as 250 megawatts of electricity from other sources prior to October was granted recently to show greater flexibility on the agency’s part, she said.
Several environmental groups and two Native American tribes last week filed a suit in the 9th Circuit Court of Appeals challenging those waivers.
“We’re in a fight to stay in business,” Mahar said. “We think we’ve made a lot of progress.”