Bpa Offers Plan That Will Help Troubled Smelters Kaiser Says It Will Use System That Offsets High Power Costs

The Bonneville Power Administration has agreed to offer its hard-pressed industrial customers a way to reduce their electricity bills.

Amendments to newly signed contracts would allow aluminum smelters and a few other industries that buy their power directly from Bonneville to return a portion during periods when rates are raised to cover higher costs at the agency.

Bonneville would resell the power and credit any profits to the smelters as a way of shaving the cost of electricity needed to produce aluminum at the potlines that continue operating.

Power comprises one-third of the cost of converting alumina into aluminum, and that cost has been soaring. Prices for one megawatt - 1 million kilowatts - have historically ranged between $20 and $30. Since spring, prices some days have exceeded $1,000. Prices for longterm deliveries have climbed to between $40 and $50.

Smelters cannot afford to operate at those prices, and several of the 10 in Washington, Montana and Oregon have shut down entirely or cut production. The Kaiser Aluminum smelter at Tacoma is idle, and output at Mead is at 70 percent of capacity.

Last month, smelter owners signed contracts with Bonneville that raised prices to about 2.7 cents per kilowatt hour, up from 2.25 cents. The five-year contracts take effect next Oct. 1.

But Bonneville announced last week that prices to all customers would be bumped another 15 percent. Public and private utilities plus industry customers signed up for more power than federal dams on the Columbia River system can generate, so BPA has been forced to buy expensive wholesale market electricity to satisfy demand.

Paul Norman, Bonneville’s senior vice president for power, said Friday that the new agreement will provide some relief to the smelters without harming agency revenues. The rate adjustment announced last week could force more smelters to shut down, he said.

“It seemed to us like a win all the way around,” Norman said, adding the amendments should be ready for signing soon.

Kaiser vice president Pete Forsyth said the company will use the new plan to make the best of a bad situation. Managers already are trying to determine how best to reconfigure Mead operations to squeeze as much benefit as possible from the offer, he said.

“It’s not a panacea,” Forsyth said.

Reselling power was one of several ideas floated by a group organized in July to assess the future of the aluminum industry in the Northwest, where 40 percent of U.S. production was built to exploit Bonneville’s once-cheap and abundant power.

Now growth in West Coast states has exhausted an energy surplus that dates to the late-1970s. Little new generating capacity has been added since then, and supplies are suddenly scarce and expensive.

The smelters, which consume enough power at full output to meet the needs of three cities the size of Seattle, are among the worst-hit of the region’s energy consumers.