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Battling Rising Electrical Rates : Aluminum Makers Claim Survival Is Threatened

January 23, 1985|DAVID STAATS | Associated Press

PORTLAND, Ore. — Strapped by weak worldwide demand, aluminum manufacturers are battling electric utilities in the Pacific Northwest over rates that the companies contend threaten their survival.

The aluminum makers, most intensive users of electricity of any heavy industry, have been socked with rate boosts totaling 800% over the last five years.

Much of the increase went to pay for the Washington Public Power Supply System's nuclear power program, which has since seen work stopped permanently or temporarily on four out of five planned generating plants.

Once the beneficiaries of cheap electricity, aluminum plants in Oregon, Washington and Montana lost their status as constant suppliers and have been forced into the role of "swing" plants that are quick to reduce operations when demand drops. Workers, who once had secure jobs, now face periodic layoffs lasting up to a year or more.

The 10 plants in the region normally employ about 12,000 people with a $400-million payroll, according to an industry group. They represent a third of the nation's aluminum production capacity and about 15% of the world's.

But the region's status as "the aluminum capital of the world" is weakening.

Martin Marietta Corp., which is getting out of the aluminum business entirely, plans to close its smelter in The Dalles, Ore., this month, putting 200 people out of work. The plant underwent a $42-million renovation seven years ago and was considered efficient.

Plans Scrapped

Kaiser Aluminum & Chemical Corp. has called off a $600-million modernization program for its plant in Spokane, Wash.

Alumax Inc. dropped plans to build a $600-million smelter near Umatilla, Ore., when the company missed a deadline from the Bonneville Power Administration to sign a long-term contract for the electricity the plant would have needed.

"If power costs escalate and the market does not rebound, I'm reasonably certain the industry will die in the Pacific Northwest," says Frank H. Fisher, Martin Marietta's general manager of Northwest operations.

Since 1979, the companies' electricity costs have risen from 0.31 cent per kilowatt hour to 2.49 cents. Meanwhile, 1982 and 1983 were the worst years in the industry's regional history, with production early in 1983 dropping to less than 50% of capacity.

Aluminum now sells for about 46 cents a pound on the London Metal Exchange. A consultant's report for the aluminum companies said production costs of plants in the Northwest average 55 cents a pound. Meanwhile, competition is growing from Canada, Brazil, Australia and other countries, many of which subsidize natural-resource development.

Stewart Spector, editor of the Spector Report, a New York forecasting service, says prices should rise in 1985, giving relief to U.S. aluminum manufacturers.

If power rates continue to climb, however, the United States will depend increasingly upon imported aluminum as smelters close and no new ones are built, he says.

The aluminum companies and the region's electric utilities are fighting over what electricity rates the Bonneville Power Administration will charge them after July 1. Each group wants the other to pick up a greater share.

Aluminum executives say their survival depends on the decision. "It's completely in Bonneville's hands," says Brett Wilcox, executive director of Direct Service Industries Inc.

Direct Service is an association representing aluminum and other companies that buy power wholesale directly from Bonneville. Most residential and business customers obtain the federal agency's relatively cheap Columbia River hydropower through utilities acting as retailers.

The Public Power Council, which represents 118 public utilities, opposes efforts to help the manufacturers, characterizing the aluminum industry's woes as short-term.

"We don't really anticipate that all the DSIs would leave in any case," says Lincoln Wolverton, director of technical projects.

"There are some pretty efficient (plants) . . . and there are some real electricity dinosaurs," he says, citing the Aluminum Co. of America plant in Vancouver, Wash., the Reynolds Metals Co. mill in Troutdale, Ore., and Kaiser's Spokane plant as ones that might close.

The first plants were built in the 1940s, when the federal government wanted both wartime production capacity and an outlet for power from Bonneville dams built beginning in the 1930s.

For nearly four decades, power costs remained well below the nation's average. Aluminum companies signed 20-year contracts with Bonneville guaranteeing them low prices.

But when Bonneville boosted rates to begin charging for the Washington Public Power plants, power consumption dropped. The agency's revenues dropped--and it responded with further rate increases.

Politics also penalized the companies. In 1980, Congress passed the Northwest Power Planning Act. One of its provisions called for Bonneville to trade some of its cheap power for more expensive electricity produced at plants owned by private utilities in the region.

That provision was intended to let private-utility customers share some of the rate breaks public utilities got with Bonneville power. The aluminum companies were made to foot most of the bill.

The companies say that since 1981, they have pumped $500 million into subsidies for lower residential rates.

Bonneville is considering offering long-term rates tied to aluminum prices, rate reductions in exchange for interruptible power supplies and access to cheap British Columbia hydropower to help the companies.

Portland General Electric Co., a utility that gets much of its power from Bonneville, favors variable rates that would drop when the market price for aluminum drops below a certain point.

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