BPA takes risk in deal with Kaiser

Associated Press

SPOKANE — The Bonneville Power Administration is taking on more financial risk to settle a yearlong dispute with Kaiser Aluminum Corp. over electricity for smelters in Mead and Tacoma.

Under the agreement, Kaiser may keep $460 million in profits from the resale of power generated at federal dams while the smelters were closed in the past year.

In addition, if Kaiser does not take its allotment of BPA electricity over the next year, the company won’t have to pay the difference if the agency must sell the power at a loss.

In exchange, Kaiser is giving BPA interruption rights, allowing the agency to cut electricity to the smelters when supplies are unusually tight or when the agency needs the power to save money.

Ed Mosey, a spokesman for the federal power-marketing agency, said the one-year agreement is intended to help Kaiser weather the economic downturn.

Kaiser, a subsidiary of Maxxam Inc. of Houston, is trying to retire or refinance more than $625 million in debt coming due within 17 months, according to a filing with the Securities and Exchange Commission. The company is scheduled to release third-quarter financial results next week.

"The guts of the deal are this: Kaiser can avoid paying damages if it does not take the power," Mosey said. "Given the volatility of the situation, it became a question of, ‘Do we hold them accountable for damages?’ "

The settlement stunned workers who were laid off while Kaiser profited from reselling electricity, said Dan Russell, president of Steelworkers Local 329.

"We’re just wondering how (Kaiser) pulled it off," Russell said, "especially given the fact all the other (aluminum) companies in the Northwest went the extra mile to do things for their employees and communities.

"Here we have Kaiser somehow just walking away from all this."

Unlike Kaiser, Golden Northwest Aluminum and Alcoa Inc. shared with BPA the millions of dollars they received under remarketing contracts similar to Kaiser’s.

Alcoa and Golden Northwest smelters remain idle because of the region’s energy shortage under agreements that provide for BPA to pay the idled employees. Kaiser, which made no such deal, is paying most of its workers about 70 percent of base wages.

Kaiser spokesman Scott Lamb said the agreement will improve the chance of restarting the smelters if aluminum prices rise enough to make production profitable.

"We are hopeful that the longer-term outlook will improve," Lamb said.

Russell said union leaders believe BPA accepted the terms under pressure from senior federal officials.

Energy Department officials knew of the negotiations, but "it wasn’t as if we were coerced or browbeaten and ordered," Mosey said. "It was the right decision."

He said priorities changed in the economic downturn that worsened after the terrorist attacks Sept. 11.

"With the economic situation in the country, it made sense," Mosey said. "Right now, this country does not need to discourage any industrial capacity from surviving and operating."

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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