Aluminum makers' business plan: Shut factory doors

Smelters find they can make more money selling their subsidized energy to California than by working.

The California energy crisis is breeding some odd subplots.

Last week, when the Columbia Falls Aluminum Company closed its doors in Montana and became a merchant of electricity, many of the plant's 585 workers actually found some cause for celebration when they were laid off.

That's because their employer's decision to sell power - instead of making aluminum - had suddenly become so lucrative that furloughed employees were given a full year's wages, benefits, and the possibility of being rehired when the bull market for megawatts subsides.

For some public-policy experts, the turn of events in Columbia Falls, Mont., raises a pointed question: Should aluminum manufacturers, who for decades enjoyed publicly subsidized power on the justification that their product was contributing to America's national security, now be allowed to hawk their electricity?

"Americans built dams and a power grid so that these companies could produce aluminum at a profit, and now they are turning around and taking advantage of the public again by hitting consumers when they're most vulnerable," says Jim Jensen, executive director of the Montana Environmental Information Center.

Aluminum industry representatives say they are doing nothing wrong - it's just good business. Under an agreement brokered with the Bonneville Power Administration (BPA), a public agency which markets wholesale power generated by 29 dams on the Columbia and Snake river systems, aluminum companies in the region can sell the megawatts they control to the highest bidder.

Five years ago, the Columbia Falls smelter bought 165 megawatts of electricity in a fixed-price contract with Bonneville for roughly $26 per megawatt. Now, it is reselling that power to willing buyers for 20 times as much.

After Bonneville is paid $60 million - which will help ratepayers - company officials say they expect to earn $120 million without turning out an ingot of aluminum. Some profits will go to employees; others will be used to buy future power. Companies such as Kaiser Aluminum Corp. in Spokane, Wash., have also suspended operations in order to sell their power to desperate buyers in California.

Former Congressman Pat Williams (D) of Montana, a senior fellow at the Center for the Rocky Mountain West in Missoula, Mont., says that such profiteering is a violation of public trust.

The fact that Americans are spending tens of millions of dollars annually to save salmon runs from extinction - linked to hydroelectric dams - adds to the burden shouldered by taxpayers, he says. "When you count up all the expenditures, one cannot but question the current business practices of these companies."

Roughly half of the Pacific Northwest's power comes from dams and one-third of BPA's generating capacity has been allocated to aluminum companies.

However, the dams have been highly controversial, blamed in part for salmon-population crashes and viewed as a pork-barrel subsidy for certain industries. Their defenders have claimed they are essential to keep aluminum smelters, which employ thousands of people, in business.

Now, environmentalists are caught in a conundrum. Having aluminum plants idle means Bonneville may allow more water through dam floodgates, but the skyrocketing cost of power is also being used as an argument for keeping the dams in place.

"This power is not subsidized," insists BPA spokesman Ed Mosey in Portland, Ore., arguing that BPA is actually paying back its debt, unlike most federal agencies. He says that by October, aluminum producers will no longer enjoy lower rates.

But others rail against the low rates aluminum companies have enjoyed and say they should be held more accountable.

Critics include some free-market economists who have applauded the Bush administration's pro-business natural-resource agenda. "Insulating households and businesses from the real costs of power production has negative consequences," says John Baden, chairman of the Foundation for Research on Economics and the Environment, a libertarian think tank in Bozeman.

In addition to lost revenue for BPA, costs include the impacts on wild rivers, wasteful irrigation, and additional coal-fired power elsewhere. "Once subsidies are created, they persist [because] people view them as entitlements," Mr. Baden says.

(c) Copyright 2001. The Christian Science Publishing Society