CFAC future may hinge on BPA plan

The future of Columbia Falls Aluminum Co. could be determined in the next few months, when the Bonneville Power Administration lays out its plan for future wholesale power rates.

Five CFAC employees were among the dozen or so people who attended a formal rate hearing in Kalispell on Wednesday.

The hearing, which was hosted by Bonneville, gave people an opportunity to comment on the agency's proposed rate structure for the three-year period that begins Oct. 1, 2006.

CFAC officials urged Bonneville to keep its rates as low as possible, saying that could be the difference between the 50-year-old smelter continuing to operate and being forced to close its doors.

"Over the last five years, we've worked to make CFAC the most efficient plant of its kind in the world," said Terry Smith, president of the Aluminum Workers Trades Council, which represents the company's union workers.

"But power costs are out of our control," Smith said. "We're asking you to set your rates at a level that would enable us to keep the fate of the aluminum industry in Montana in our own hands."

Bonneville sells electricity produced from a series of federal dams in the Columbia River drainage. It's major customers include public power utilities, such as Flathead Electric Cooperative. Whenever possible, it sells surplus power on the free market

Historically, the agency has also provided a substantial amount of low-cost power to major industries, helping the Pacific Northwest become a mecca for primary aluminum smelters.

That began to change in 1995, when Bonneville - in response to increased demand from its public utility customers - reduced sales to the aluminum industry by about a third. By 2001, when the last set of supply contracts were written, the amount of low-cost power available for industrial customers was cut in half, to about 1,500 megawatts.

Since then, all but three of the region's 10 aluminum smelters have gone out of business. Some plants have been dismantled. CFAC is currently running at 20 percent of capacity.

"We're struggling," said Jim Stromberg, CFAC's chief power supply officer, during Wednesday's hearing. "We offer 150 of the best-paying jobs in the Flathead. We'd like to continue providing those jobs - and increase production - but our ability to do that is threatened by high power costs. If your [Bonneville's] rates are too high, it's very unlikely we'll be able to make it work. We'd be faced with closing our doors."

For its public utility customers, Bonneville is proposing an initial rate of about $30 per megawatt hour.

However, that could vary substantially from year to year depending on a host of issues, such as how much revenue the agency earns from surplus power sales and how much it has to spend on salmon recovery efforts.

For CFAC and the other industrial customers, Bonneville is taking a different approach.

Rather than provide any low-cost power to the firms, the agency is proposing a limited subsidy - a move that leaves the companies subject to market price fluctuations.

"Bonneville is offering a financial payment that would help us buy down the cost of market power," Stromberg said, referring to electricity that's purchased from for-profit firms on the free market.

CFAC's payment would be capped at $14.7 million per year. It would be paid on a sliding scale, ranging from $24 per megawatt for 70 megawatts of power to $12 per megawatt for 140 megawatts.

For example, if electricity cost $54 on the free market, CFAC could choose to buy that down to $30 for 70 megawatts ($54 minus $24), or buy it down to $42 for 140 megawatts ($54 minus $12).

Seventy megawatts would be status quo - enough to run one of the plant's five potlines; 140 megawatts would allow it to run two potlines.

"It would be our decision how to scale the payment, but we could only buy down to Bonneville's [public utility] rate," Stromberg said. "We can't have a net rate that's less than what Flathead Electric would pay."

Stromberg and other CFAC officials have repeatedly said the company needs power prices of $30 or less to continue to operate. They'd also like to increase production.

"We really need 140 to 170 megawatts," Stromberg said. "At that level - two to two-and-a-half potlines - we'd have a better shot at maintaining viability. Running one potline … that's not a good place to be."

Bonneville is accepting public comment on its proposed rate structure through Feb. 13.

Written comment can be mailed to the Bonneville Power Administration, Communications - DK-7, P.O. Box 14428, Portland OR 97293-4428. Comments can also be e-mailed to comment@bpa.gov or submitted via the agency's Web site, www.bpa.gov/comment

BPA Administrator Steve Wright is expected to make a decision on the rate proposal by next July. His decision would then go to the Federal Energy Regulatory Commission for final approval.

Reporter Bill Spence may be reached at 758-4459 or by e-mail at bspence@dailyinterlake.com