Third Northwest aluminum firm reduces output to sell power

Jan. 3, 2001—Golden Northwest Aluminum Inc. becomes at least the third aluminum maker to curtail production at smelters in the Pacific Northwest to remarket at higher prices electricity it buys wholesale from the Bonneville Power Administration (BPA).

Golden Northwest Aluminum purchases electricity under contract from BPA to produce aluminum at smelters in Goldendale, Wash., and The Dalles, Ore. The resale of power through September should generate about $400 million in revenue, the company said, with the actual amount depending on market prices.

Brett Wilcox, CEO of Golden Northwest, said the agreement was necessary because of unprecedented high electricity prices in the West. The company reduced production by about 40% in September due to the cost of non-BPA power purchases needed to run the plants at full capacity. In this current round of curtailments, production is being cut back to about 10% of capacity.

Earlier, Norsk Hydro ASA reduced production 75% at its smelter and Kaiser Aluminum Corp. shut down a facility outside Spokane to sell electricity instead of aluminum. Norsk has had a tolling arrangement since 1987 with Goldendale Aluminum Co. which owns the plant.

Under Golden Northwest’s agreement with BPA, proceeds from the sales would be used as follows:

• To benefit Northwest ratepayers by dedicating 20-25% of the proceeds, or about $100 million, to BPA to help defray the agency’s costs of operating in the current market, which is characterized by high and extremely volatile costs.

• To invest up to $100 million in a new gas-fueled combustion turbine and a wind energy project that will benefit the Northwest’s power system.

• To continue paying wages and benefits to employees of the smelters during the period that the smelters are operating at a reduced level of production.

• To cover the costs of curtailing operations at the plants.

• To make other investments that improve the long-term competitiveness of the plants.

Stephen Wright, BPA administrator, said the agreement is a positive outcome for Northwest ratepayers given the fact Golden Northwest has a right to remarket the power under existing contracts.

He said the added revenues will help offset BPA’s increasing costs due to skyrocketing market prices. In the longer term, Wright said, the revenue should also help Northwest Aluminum secure its own sources of power so it no longer has to rely on direct purchases from BPA to operate economically.

Wright said two other aluminum producers in the region, Kaiser and Columbia Falls Aluminum, have similar remarketing rights under contracts signed in 1995. The contracts allow them to remarket the power to mitigate the risk of having to buy firm power from BPA power when aluminum markets are poor and production is curtailed. When BPA executed these agreements in 1995, no one contemplated that power markets would be as high and as volatile as they have been in recent months, Wright said.

Under the agreement, Golden Northwest will invest in new generating facilities but may purchase power, if such purchases appear to better serve the long-term economic prospects of the plants. Golden Northwest would use the power from such investments and purchases to supplement the subscription power the plants will buy from BPA under new contracts after Sept. 30, 2001.

Under the contract, Golden Northwest agrees that it has no right under current law to receive direct service from BPA after Sept. 30, 2006, and the contract requires that the company refrain from making any political or legal case that it does have such a right.

No other industry has the privilege of buying power direct from BPA at wholesale prices except the aluminum industry, BPA says. This arrangement was begun after World War II so the aluminum companies would remain viable in the region.