Oct 08 2007

Behind the Shining: Aluminum’s Dark Side

VIII. Energy

Aluminum smelters congregate around sources of inexpensive energy. This is

the inevitable outcome of an industry that consumes enormous amounts of

power; on average, 45% of the cost of aluminum smelting is electricity. .

According to the Worldwatch Institute, the world’s aluminum industry

consumed almost as much power in 1990 as the entire continent of Africa.

As energy resources become squeezed in the industry’s cradles — along the

great rivers of the northwestern United States and the depleted coal seams

of Western Europe — production is shifting to the Third World. Powerful

rivers in South America and Africa, coal mines in eastern India, and oil

fields of the Middle East are beginning to fuel the increasing global

demand for aluminum.

The industry’s hunger for power produces engineering marvels, tragic

disparities, and ecological devastation. In places like Suriname,

powerlines en route to smelters tower over new communities inhabited by

indigenous people forced to move from homelands flooded by new

hydroelectric dams. As seen in Chapter XXX, an industry that has built some

of the world’s largest dams can not be bothered with compensating people

who were forced to move out of its way.

Power mix

The production of a ton of aluminum consumes between 14 and 18.5

megawatt-hours of power. (Alcan 10-K, FY1999) Harnisch et al estimate that

in 1985, the industry’s power sources were 57% hydro-electric, 33% coal, 5%

nuclear, 4% gas, and 1% oil. Existing smelters are likely to continue with

the same power sources. The MIT scientists projected that coal could power

between 25 and 75% of new capacity built through 2030. (Harnisch et al,


The International Aluminium Institute asserts that “more than 55 percent of

the world’s primary aluminum is produced using hydro-electric power” and

that this percentage “will be maintained for the foreseeable future.” The

industry institute’s survey of new smelters that are due to come on line in

the next eight years found that “at least 55% will be hydro powered, a

maximum of 30% coal fired and 15% gas.” (IAI, “Energy Use” and “Future

Electricity Supply” at world-aluminium.org)

Focus: The Pacific Northwest Power War

Deregulation of the electricity industry in North America began wreaking

havoc in the western USA in 1999 and 2000. This chaos has ties to the

aluminum industry. The construction of massive dams corresponded with the

proliferation of aluminum smelters in the Pacific Northwest. Aluminum

companies own or hold purchasing contracts for many of these dams. Some

smelters have closed when corporations found it more profitable to sell

power earmarked for their operation on the open market.

Aluminum companies have long benefited from generous relationships with

Pacific Northwest power producers. Alcoa held a monopoly in the Pacific

Northwest in the early 20th century after it secured provisions in its

contracts with hydroelectric suppliers that “made power available to

(potential) rivals at entry-forestalling prices. This practice ceased under

the terms of a 1912 consent decree,” according to Arkansas State University

economist Dr. Christopher Brown. (Dr., Christopher Brown, Department of

Economics & Decision Sciences, Arkansas State University, “Alcoa and

beyond: Toward a ‘structural’ approach to section 2,” at


More smelter operators rushed into the northwest U.S. in the 1930s and

1940s. “The aluminum plants are here because there was cheap power” said

James Wright of the Seattle Post-Intelligencer. “During the Depression, the

Works Progress Administration, the government, built a series of

hydroelectric dams — Grand Coulee, the Columbia, the Bonneville Dam on the

lower Columbia — and that brought the aluminum plants here during the war,

because none of the other materials used in the manufacture of aluminum are

found in the Northwest. It’s all brought here. What we offer is cheap

electricity. If we can’t offer that, there’s no sense making aluminum

here.” (“James Wright discusses how some northwest aluminum companies are

reselling contracted electricity and making profits,” All Things

Considered, National Public Radio, Jan. 12, 2001)

Smelter operators are trying to maintain their advantageous arrangements

with the government-owned Bonneville Power Administration (BPA). The BPA

operates 29 dams in the Columbia and Snake river basins, and sells its

power to utilities and large industries in Idaho, Oregon, and Washington,

and parts of California, Montana, Nevada, Utah and Wyoming. (Lynda Mapes,

“BPA caught in a crunch, Energy crisis sours Northwest’s sweet deal with

Bonneville,” Seattle Times, Jan. 29, 2001)

In 1999, Alcoa, Kaiser, Reynolds, Vanalco, and Columbia Falls Aluminum sued

the BPA as a 20-year pact neared expiration. They disagreed with the BPA’s

power allocations in new five-year contracts scheduled to begin in October

2001. Alcoa and Vanalco “took a novel approach, claiming first amendment

rights to redress grievances with the US Government,” reported Mining

Annual Review (March 2000).

The suits failed. By January 2001, all of the producers reluctantly signed

new five-year contracts with the BPA. The agreement allocates 1,486

megawatts of BPA’s hydroelectric power to the seven companies, roughly half

of their combined requirement. The contract charges the producers $23.50

per megawatt hour. (“Unhappy aluminum smelters ink BPA power deals,”

Purchasing, Jan. 11, 2001)

Reynolds said the contract would increase its BPA purchase rates by 13%

over the previous contract that covered the years 1981 to 2001. Kaiser said

its BPA energy prices would rise by 20%. (Reynolds 10-K, FY1999; Kaiser

8-Q, fourth quarter 2000)

The new contract still guarantees aluminum producers some of lowest-priced

power in the United States. The deal sets prices at about one-half the

average U.S. per-megawatt hour charge on the national market. (Seattle

Times, Jan. 29, 2001)

Some companies have the right to resell BPA power until the current

contract expires in September 2001. Beginning in the summer of 2000, as

energy prices soared in the Western U.S., these companies started to close

smelters and re-sell BPA power.

In June 2000, Alcoa announced that it was halting production at its

121,000 metric ton smelter in Troutdale, Oregon. It agreed to sell some

power back to the BPA at a reduced rate. (Alcoa, Form 10-Q, submitted to

U.S. SEC, Oct. 20, 2000; Susan Kelleher, “BPA wants Kaiser to share

millions,” Seattle Times, Feb. 1, 2001)

In western Montana, Columbia Falls Aluminum closed its smelter, and is

reselling its power. It has agreed to forward 25% of the power sales

proceeds to the BPA. Six hundred workers are idle, but Columbia Falls has

agreed to maintain their salaries and benefits through 2001. (Kit

Miniclier, “Electric sellback in Mont. a model Factory will shut; workers

still paid,” Denver Post, Jan. 25, 2001)

Golden Northwest is selling power from electricity designated for its

smelters in The Dalles, Oregon, and Kilimat County, Wash. It estimated the

sales would earn about $400 million through September 2001 Golden has said

that 25% of its revenues from the sales will be passed along to the BPA.

Another 25 to 50% of the revenue will develop a gas turbine and possibly a

wind power plant for a replacement secondary smelter. The moves earned the

support of the plant’s union and the BPA. (Hal Bernton, “Jobs meltdown:

Goldendale smelter slashes aluminum production in order to resell its BPA

power,” Seattle Times, Feb. 4, 2001)

Kaiser has made no such pledges to channel energy sales profits to the BPA,

its laid-off workers, or the development of alternative power plants.

Beginning in June 2000, the company curtailed production at its Tacoma and

Mead, Wash., smelters and sold power on the open market. The sales, which

could earn Kaiser $500 million until the contract expires in October, have

provoked outrage from the plant’s workers and the BPA.

“It’s difficult to conceive of a circumstance that would prevent them from

coming to terms with the region’s other ratepayers and their employees,

given the amount of windfall profit,” said BPA spokesman Ed Mosey in

January 2001. The agency is contemplating turning off its power supply to

Kaiser in October. (Seattle Times, Feb. 4, 2001)

“There’s no way they should be profiteering from reselling federal power

and then ask us to draw unemployment,” said Wayne Bentz, who represents

Kaiser Mead smelter workers as Steelworkers Local 329 steward. Over 900

workers are unemployed due to Kaisers’ shutdown. (John Stucke, “Kaiser

denies idled workers’ wage request,” Spokesman-Review, Jan. 31, 2001;

Seattle Times, Feb. 1, 2001)

Kaiser Vice President Pete Forsyth called the BPA demands unreasonable and

“said the money is really a savings account that the company will have to

drain to buy a much more expensive supply of power starting this fall,”

according to the Spokesman-Review. (John Stucke, “Kaiser ponders asset

sale,” Spokesman-Review (Spokane, Wash.), Feb. 2, 2001)

BPA was forced to buy back power for more than 20 times than it cost the

agency to produce it, according to the Seattle Times. Under the 1996-2001

contract, Kaiser pays BPA $22.50 per megawatt-hour. In late 2000, the open

market price in the western U.S. soared as high as $750 per megawatt-hour.

(Seattle Times, Jan. 29 and Feb. 1, 2001; Denver Post, Jan. 25, 2001)

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