Kaiser Cuts Production While It Resells Power Company To Lay Off 130 More While Potlines Are Shut Down

Because selling power is more lucrative now than making metal, Kaiser Aluminum Corp. said Monday it will resell some of its Bonneville Power Administration electricity and lay off 130 workers at its Mead smelter.

The layoffs, effective at midnight today, follow other production cuts at Mead and the closure of Kaiser’s Tacoma smelter to allow reselling power from sources other than BPA.

The new plan calls for Kaiser to sell enough of its coveted electricity from BPA to earn about $47 million during the next 12 months.

Kaiser Vice President Pete Forsyth said that means shutting down another 1-1/2 potlines at Mead.

Kaiser has been operating only 5-1/2 of its eight potlines at Mead and now will operate just four lines.

It is part of a long-term strategy to balance power sales on the open market with its bedrock business of making aluminum.

Caught in the middle will be members of the United Steelworkers of America union, laid off just as the holiday season begins.

“It’s not totally a surprise because things are really unsettled,” said Dan Russell, president of Local 329 representing Mead Steelworkers. “Everyone that works there knew something was going to go down, but it happened so fast. It was a little shocking.”

The layoffs are in addition to 350 other Mead Steelworkers who were not recalled last month following a two-year labor dispute.

Forsyth said the additional cuts at Mead won’t affect operations at the company’s Trentwood rolling mill.

Kaiser sold part of its Bonneville electricity load - the first time it has done so - as it prepares to operate next fall under a new contract with the federal power marketing agency.

That contract, covering Oct. 1, 2001, through Sept. 30, 2006, will allocate enough electricity to meet 40 percent of Kaiser’s overall needs in the Northwest. And it will cost more.

The new BPA contracts raise prices to 2.7 cents per kilowatt hour, up from 2.25 cents. Kaiser will sell 100 megawatts of its 350-megawatt current load from BPA. (One megawatt equals 1 million kilowatts.)

Forsyth said the consequence of the new contract providing less BPA electricity at a higher price forced management to slow production and capitalize on a seller’s market.

“It’s a bad time to be buying power. If you’re an energy marketer, though, I’d say it’s a good time to sell,” Forsyth said.

He added: “But at Kaiser, we’re not an energy marketer. We’re an aluminum maker.”

Russell said Steelworkers won’t like the news that Kaiser is reselling federal power to make money while workers are sent home for a year.

“If you live in Spokane, you’ve seen a lot of PR and what a great place Kaiser is to work,” he said. “But then they turn around and sell power just to make money. That won’t sit well with people.

“People will be upset that the company has sold their livelihood so that some guy with who knows how many millions can get millions more. But the reality is there’s not much you can do about it but be angry.”

As Kaiser exercises its right to resell Bonneville electricity and make money, Russell said its workers will worry about their jobs.

“Who’s to say they won’t shut the whole place down and sell power to make money?” he asked.

In a prepared statement, Kaiser CEO Ray Milchovich said the company is acting so that it won’t have to make such a choice.

Milchovich said the $47 million in net proceeds from the sale of BPA electricity will cover some of the costs for laid-off workers. They will retain benefits such as insurance coverage, and many veteran Steelworkers will still draw 70 percent of their normal wage, as provided in the new contract.

Also, Milchovich said the money will cover other costs and offset the higher electricity prices Kaiser expects to pay next year when its more expensive BPA contract takes hold and open market buys are needed to supplement power demands.

“We regret the negative impact of this action on our employees and other stakeholders who have accomplished so much to enable these plants to remain competitive,” Milchovich said.

Bonneville spokesman Ed Mosey said Kaiser opted to sign a riskier contract than many other BPA customers, basically pledging to buy a set amount of electricity for a fixed rate regardless of whether the company needed all of the power.

If other companies didn’t need all their contracted power, they could return it to Bonneville for a fee.

Kaiser, however, agreed to buy its Bonneville electricity without the option of giving it back. If, for some reason, the company didn’t need all the power, it still had to buy it and then try to resell it to defray losses.

In today’s volatile electricity market, Kaiser can offset some of its problems by selling BPA power at prices far higher than it paid.

Higher demand, along with what Forsyth called a power generation shortage, has fueled sky-high prices. Last week, for example, the price for electricity in the Northwest was 10 times as high as a year ago.

“When they signed the contract in 1996, we weren’t a red-hot deal,” Mosey said of Bonneville. “What they’re doing now is looking at how much money they can make by making aluminum versus what they can make by selling power and it behooves them to get in the power business.”