West's rising power bills costing thousands of union jobs

By DON McINTOSH, Staff Reporter

In recent months, more than 4,000 industrial workers in the Northwest have lost good-paying union jobs because of a severe energy price crisis in the Western United States.

In the aluminum industry, over 2,500 workers have been laid off since July, some temporarily, some permanently. By December, energy prices were beginning to cause job losses in other industries as well, including steel, pulp and paper, and high tech. Some 650 Steelworkers are out of work at Wah Chang's Albany plant, as are workers at Cascade Steel Rolling Mills in McMinnville and pulp mill workers in Bellingham, Wash.

The job losses are especially bitter for 600 Kaiser Aluminum workers at the company's Mead aluminum smelter in Spokane, Wash. Those workers are off the job less than three months after returning to work from a hard-fought two-year strike/lock-out. Where before it was a disputed union contract, this time a government energy contract has them off the job: Kaiser is selling electric power it bought from Bonneville Power Administration (BPA) back to the federal agency at 12 to 24 times the price the company paid for it.

Kaiser is not the only big electricity customer to sell power back to the BPA at inflated rates. In Montana, Columbia Falls Aluminum is selling power back to the BPA, with 130 workers laid off. In Goldendale, Wash., and The Dalles, Golden Northwest Aluminum is selling back most of its power, with an estimated 400 to 500 union workers expected to be laid off.

Meanwhile, aluminum companies that didn't have access to cheap BPA power in the first place are dead in the water: Non-union Vanalco in Vancouver, which chose to forego access to the BPA's at-cost power in 1996, closed in the fall, with 650 jobs lost. Kaiser's Tacoma smelter, with a mix of BPA and market-rate power, shut down in the summer, with 250 jobs lost.

The only Northwest aluminum smelters operating at or near capacity are the three Washington plants that belong to Alcoa, the world's largest aluminum producer - in Ferndale, Wenatchee and Longview. Even Alcoa closed its Troutdale plant in July, with 500 union jobs lost. And on Dec. 27, Alcoa announced it will sell its Longview plant to Michigan Avenue Partners of Chicago.

The crisis is spreading beyond the aluminum industry. Like the BPA, Portland General Electric has long-term contracts to sell large amounts of power to manufacturers at low rates. And like the BPA, to avoid paying for power at the new sky-high wholesale market rates, PGE is buying back the rights to electricity from 38 large industrial customers, at a price that's half the spot-market price but still a windfall for the companies. PGE spokesman Mark Fryburg wouldn't identify the companies or say whether the sales had resulted in layoffs.

To understand what's causing the Northwest electricity crisis, some background is necessary. Since the Bonneville Power Administration began constructing dams in the 1930s, about a dozen large manufacturers have had access to its hydropower "at cost" (which, since nature provides the water that produces the electricity, is normally the cheapest power to be had). Most of these manufacturers, known as Direct Service Industries (DSIs), were invited to set up in the Northwest by the federal government, which needed energy-intensive aluminum and chemicals for the war effort in the '40s.

But rapid population growth in the Northwest soon placed increased demand on BPA power. By the 1970s it was apparent that the BPA would not be able to provide all the Northwest's power needs forever, and so, in 1980, Congress passed the Northwest Power Act, which prioritized who had preferred access to BPA power. Publicly-owned utilities were to be first in line, followed by investor-owned utilities, followed by the DSIs.

It was only in the year 2000 that demand fully outstripped the BPA's supply. The 28 BPA dams on the Columbia and Snake rivers have the capacity to generate far more power than the Northwest uses; the limiting factor is the amount of water in the hydrological system. Lower-than-expected rainfall takes a toll on the amount of electricity the BPA can produce; so do requirements to protect endangered salmon species by reserving some water and diverting some through fish ladders. This year has seen some of the lowest rainfall on record in the Northwest, and BPA's reservoirs are at very low levels.

Thus, the BPA was unable to meet all of the demand it was obligated to provide. To make up the shortfall, it could buy power on the wholesale market, or buy it back from the DSIs.

It had good reason to avoid the wholesale market. Most electricity is sold through long-term contracts at relatively low rates. But when cold weather or hot weather produces spikes in demand that exceed what local utilities are able to generate, they turn to the wholesale market. Right now, the wholesale electricity market in the Western United States is in a state of extreme crisis, with huge price hikes and threats of blackouts.

There was already a problem of demand growing faster than supply, but most analysts think California's radical 1996 deregulation law made the situation far worse. Under that law, electricity generation had to be separated from transmission. Thus, utilities were forced to sell off their generators at public auction; four or five companies bought most of them.

Then a "Power Exchange" market was created, through which all electricity produced had to be sold, hour by hour. As a result, power-generating companies that had electricity that was not already committed in long-term lower-cost contracts reaped windfall profits selling electricity on the wholesale market at as much as 100 times what it cost to produce. The crisis reached such proportions, with blackouts and utility bankruptcies looming, that the federal government stepped in on Dec. 15 and shut down California's day-to-day market, and imposed a temporary price cap of $150 per megawatt hour on private wholesale energy sellers in California. A long-term solution has yet to be worked out.

Clearly, the BPA didn't want to pay sky-high wholesale prices to meet its obligations, so it turned to the DSIs.

Altogether, the DSIs use about 2,000 megawatts of power - 20 to 30 percent of BPA's load. The DSIs are last in line to get power, and they're very energy-intensive industries. Aluminum production, for example, takes enormous amounts of energy. It relies on a process in which high-level electric current is delivered directly into the ore in 12-inch-deep basins known as potlines - 18 feet wide and 30 feet long. Before its power was resold to the BPA, Kaiser's Mead operation used 192 megawatts - enough to power 150,000 homes.

To get that power back, under the terms of its five-year contract with Kaiser and the other DSIs, the BPA would have to pay a premium. Under the contract, Kaiser, for example, has the right to buy about 200 megawatts of electricity for its Mead plant at $22.50 per megawatt hour. In early December, Kaiser sold that power back to the BPA at $550 per megawatt hour, netting $52 million. For January, the company sold the same block of power - for the entire month - at $280 per megawatt hour, netting just under $37 million.

BPA spokesman Mike Hansen defends the sale, arguing that it saves BPA from having to pay even higher prices on the market, prices that would be passed on to residential ratepayers.

But attorney Dan Meek, a utility expert, says this situation, in which the BPA has to pay inflated rates to get its own power back, was avoidable. In past contracts, the DSIs weren't allowed to resell electricity, and the BPA had the right to reduce power supplies in emergencies. In fact, the BPA is bringing back those provisions in the new contract that will take effect October 2001. That's why the layoffs are supposed to end, for most Northwest aluminum workers, in October.

Until then, Kaiser and the other companies are expected to continue selling power back to the BPA. The United Steelworkers of America (USWA), which represents the Mead workers, estimates Kaiser will make a total of $400 million on the sales.

Meanwhile, Kaiser's union employees suffer economically. The union has said it doesn't care whether the DSIs make money by processing aluminum or selling power - it just doesn't think workers should take a hit when a company makes windfall profits.

"They shouldn't be able to sell that power back and put the money in their pocket," argued Jim Woodward, USWA regional director.

Golden Northwest Aluminum earned praise from the union with its announcement that all laid-off workers at its plants in Goldendale and The Dalles will get full pay and benefits for the duration of the layoff. In addition, profits from the unexpected power resale to BPA will be invested in natural gas and wind turbine generators, so that the company will be less dependent on BPA supplies in the future. Kaiser Aluminum, on the other hand, has been accused by the union of profiteering from the resale.

Under the terms of the labor agreement that ended the Kaiser lockout, the company must pay health insurance for its laid-off workers as long as the layoff lasts. In addition, employees with 10 years or more at the company are entitled to 70 percent of their wages during that time, but those with less than 10 years get nothing. They're entitled to $260 a week in "supplemental unemployment benefits" paid by the company, but these come from a fund that the company is not obligated to add to, and which union officials expect will be depleted before the end of January.

Of the 600 laid-off employees, 173 have been at Kaiser less than 10 years, and thus will get nothing when the fund runs out. To make matters worse, they won't even get unemployment benefits because they've been out on a labor dispute for two years and haven't been back to work long enough to be entitled to unemployment insurance benefits under Washington state law.

In reaction to the spectacle of its members suffering while Kaiser profited handsomely from a electricity resale, the union appealed for help from its political allies. In Washington, Governor Gary Locke, Senator Patty Murray, and Senator-elect Maria Cantwell weighed in on the question.

Secretary of Energy Bill Richardson, the boss of the BPA administrator, threatened to halt Kaiser's right to resell electricity unless the company shared the profit with its idled workers. As a result, the BPA, still negotiating with Kaiser for the new five-year contract, attached retroactive conditions to the contract that required the company to use profits from any resale to "mitigate the impact on employees affected by reduced smelter operating levels."

There were no specific numbers asked for in the contract. Kaiser coughed up $6 to $7 million to pay full salaries in January for the newly laid-off senior employees, and a $1,000 holiday bonus for the rest, including those with less than 10 years.

After January, however, the union is not holding its breath that the company will continue to share its profit. With a new U.S. president, Energy Secretary Richardson will be out, and there's little likelihood his replacement will continue a strategy of pressing Kaiser that has already been criticized by Washington's Republican Congressman George Nethercutt as the actions of a lame duck administration pandering to labor.

Union leaders worry too that Kaiser may declare bankruptcy in the next year to avoid its obligations to workers.

The fortunes of laid-off workers at the other plants are likewise uncertain. The aluminum industry is very sensitive to energy prices. Prices above $30 per megawatt hour make aluminum production unprofitable, says Woodward.

Aluminum plants might have switched to generating their own power with natural gas generators, except that wholesale natural gas prices also doubled and tripled in 2000.

The Northwest's 10 aluminum smelters represent 40 percent of the U.S. capacity. With so many plants down, a cut in supply could lead to an increase in aluminum prices. Or foreign competitors could pick up the slack.

Whether the Northwest smelters reopen in October 2001 may depend on what the BPA's price will be in the next contract, which won't be known until sometime in the next three months.

NOLC, unions set up meeting to discuss power crisis with Wyden

With demand for cheap BPA hydropower outstripping supply, the federal agency is cutting the amount of power that it will sell directly to large manufacturers for the five-year contract that begins October 2001. Known as Direct Service Industries (DSIs), these energy-intensive manufacturing operations have historically had access to BPA electricity "at cost," but are considered a lower priority than public utilities and investor-owned utilities.

Union members and staff at one DSI in Portland, Atofina Chemicals, Inc., are protesting the reduction. Assisted by Judy O'Connor of the Northwest Oregon Labor Council, the five unions at the plant have set up a Jan. 16 meeting with Senator Ron Wyden and other elected officials to complain.

Run since 1941 as a union operation, Atofina has always relied on BPA power to manufacture sodium chloride and other chemicals. It had the right to 84 megawatts in its last contract; now the BPA would cut that amount to 44 megawatts. The amount to be cut comes from a formula the agency is applying across-the-board to all DSIs, but Atofina management is crying foul that a competitor in Washington will get a better deal.

Because Atofina is located in PGE's service area, explained regional manufacturing manager Gene Spina, it must make up the shortfall by buying power from the investor-owned utility. Its competitor, located in the service area of a publicly-owned utility with access to BPA power, will get an at-cost rate.

About 100 union-wage jobs, averaging $57,000 a year, are at stake. The labor council is calling on supporters to attend the Tuesday, Jan. 16, meeting scheduled for 7 p.m. at the Machinists Union Hall, 3645 SE 32nd Ave., just south of Powell Boulevard in Portland.

Like the other DSIs, Atofina is currently selling back part of its power to the BPA. Atofina is selling 23 megawatts at $100 per megawatt hour. Spina said it was important to the company that it not sell so much power that it would have to lay off workers.

"Once an industry closes down," Spina said, "the chance of them reopening and providing union jobs again is very slim."