BPA to extend Service to Alcoa

With the election  press focus, I missed this important announcement from BPA.  BPA will continue providing 320 MW of firm power to Alcoa for another year, at $34.60 MWh.

 BPA extends service to Alcoa
Decision could keep 500 jobs in region

Portland, Ore 10/29/2010. - The Bonneville Power Administration will meet Alcoa’s request to continue providing wholesale power to the company’s Intalco plant in Ferndale, Wash., for another 12 months under an existing contract that otherwise could have ended May 2011.  Service will now continue through May 2012. Under the contract, BPA is providing 320 average megawatts of firm power to the plant at the agency’s Industrial Firm Power rate, which currently is $34.60 per megawatt-hour.

Alcoa had asked BPA to extend service in September, saying the power sale will allow the company a chance to continue operating and save about 500 jobs.

“We considered the request very carefully to make sure that, in addition to helping the plant continue operations, the power sale made good business sense for our other ratepayers,” said BPA Administrator Steve Wright.  “It was important to assure that the net benefits from serving Alcoa exceeded the cost of service.”

Under the Northwest Power Act of 1980, certain electricity-intensive industries were allowed to buy wholesale power directly from BPA.  These were primarily aluminum smelters, often referred to as direct-service industries.  Today, Alcoa is the only smelter directly served by the agency.  At one time, there were as many as 10.

BPA signed the current contract with Alcoa in December 2009, and the company began receiving power from BPA last May.  The service period was limited by a decision handed down by the U.S. Court of Appeals for the Ninth Circuit.  The Court ruled that non-obligatory contracts with direct-service industries must be consistent with sound business principles. In other words, the benefits to BPA of serving the direct-service industry must equal or exceed BPA's cost of serving the load during the period of service.

Following that ruling, BPA did an analysis called an equivalent-benefits test to determine if net benefits would flow to BPA and its ratepayers through a contract with Alcoa.  The test showed net benefits but, given the volatility of the economy, could only guarantee them through the coming May.  BPA left the door open for a longer service period if a subsequent equivalent-benefits test showed the same results for extended periods.

Following Alcoa’s request for extending service, BPA conducted another stringent test of benefits, followed by a public comment period.  Not only had the current service period produced positive net economic benefits, but the new analysis indicated that extending the Alcoa power sale for 12 months should continue to benefit BPA and its ratepayers.

“We believe this is a good outcome for Alcoa workers and BPA’s other ratepayers,” Wright said. “Whether it’s setting rates, managing our costs or providing service, we are well aware of the positive impact we can have on our regional economy.”

Based on the equivalent benefits analysis and a public comment period, BPA agreed to extend the initial period of service. In late October, the agency issued a final record of decision indicating that it will extend the service period of its Dec. 21, 2009, power block contract with Alcoa for 12 months, through May 26, 2012.  Further extensions may be granted as long as BPA determines it would achieve equivalent benefits for the requested period.