Power Deals Give Kaiser A Boost Contracts Involving Bpa, Wwp Ease Concerns About Future Production

Kaiser Aluminum & Chemical Corp. Monday disclosed the signing of precedent-setting agreements with the Bonneville Power Administration and Washington Water Power Co.

Together, the pacts should enhance prospects for continued full-scale production at the Mead smelter, which last month began restarting capacity idled since January 1993.

They also expand an alliance between two or Spokane County’s largest employers.

While Kaiser has stressed the importance of new power contracts to the ongoing operation of its facilities in Washington, Northwest Power Manager Pete Forsyth cautioned that the agreements announced Monday are intended to increase management flexibility at the Mead and Tacoma smelters during a period of flux in energy prices.

Kaiser had been among a group of major industrial customers balking at proposed new contracts with Bonneville that would take effect next Oct. 1.

The agency offered a 12 percent rate reduction and the guarantee takers would be free of risks associated with high-cost generating plants “stranded” by customers fleeing to cheaper producers.

To make the rate cut work, the agency wants industrial customers to commit 80 percent of their total load to its system for five years. And in a major departure from the past, the customers must pay for the electricity whether or not they use it. In return, they no longer risk losing one-quarter of their electricity when extreme demand or absence of supply create a regional shortage.

Bonneville, in turn, will be able to stabilize its revenues in an increasingly competitive energy marketplace, and solidify its ability to repay its obligations to the U.S. Treasury.

Forsyth said the amount of energy Kaiser was willing to take from Bonneville for five years was short of the 80 percent threshold.

The key to making the deal, he said, was a separate power purchase by WWP which Bonneville agreed to count towards Kaiser’s total. Kaiser is not obliged to buy the electricity from the Spokane utility, Forsyth said.

In addition, Kaiser bought 100 megawatts of power for one year that will energize the newly restarted production capacity at Mead, he said.

After that, Forsyth said, “We’ll be in the marketplace.

“We’re going to be constantly looking for electricity.”

The Mead and Tacoma smelters consume more than 600 megawatts at full production, more than enough to meet the needs of the city of Spokane.

The company also operates the Trentwood rolling mill.

Although Kaiser may or may not buy some of the power WWP takes from Bonneville, Forsyth said the aluminum maker is bound to buy other services such as transmission capacity.

And those relationships will likely lead to more power-supply contracts with WWP, he said.

“I’m quite sure there’ll be additional business,” he said.

WWP officials were enthusiastic about the three-way arrangement.

“We think the Bonneville deal, for our purposes, would stand on its own,” said spokesman Rob Strenge.

He said the utility, as a wholesale power marketer, will be better able to resell the energy purchased from the federal agency than Kaiser would if the smelter does not need it.

“We think it was a real good deal,” Strenge said.

“This is a very unique type of transaction,” added WWP marketer Tom Johns.

Kaiser is the first major industrial company in the Northwest to turn to a third party for the services WWP will provide, he said.

Not only will the contract generate about $5 million per year in revenues, he said, the experience could be a valuable in establishing similar arrangements with other companies.

“That could be a big business opportunity,” he said.

Bonneville Administrator Randy Hardy said the Kaiser agreement, along with those reached with most of the agency’s other major industrial customers, should produce annual revenues of $495 million.

The program has been attacked by other customers who fear the rate breaks given industry will mean higher rates for them.

Bonneville officials say the alternative is losing industrial customers, and increasing the pressure on its financial position.

, DataTimes