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BPA signs 10-year power sales agreement with Alcoa

From the December 11, 2012 issue of Public Power Daily

Originally published December 11, 2012

The Bonneville Power Administration has signed a 10-year power sales agreement with Alcoa to provide electricity to its Intalco plant in Ferndale, Wash. Beginning Jan. 1, 2013, the new agreement will provide 300 average megawatts yearly through September 2022. The new contract provides long-term certainty to the Intalco plant and its 625 employees while providing BPA and the Northwest with financial and operational benefits, Bonneville said. 

The agreement drew praise from Sens. Patty Murray, D-Wash., and Maria Cantwell, D-Wash., as well as Gov. Chris Gregoire. "This contract means the preservation of hundreds of family wage jobs and substantial investment in improvements at Alcoa’s Ferndale plant," Cantwell said. "And it ensures Alcoa will remain a critical contributor to the local economy for many years to come."

"With this agreement, Alcoa is electing to be part of the Northwest community seeking to solve some of our most difficult challenges," said Steve Wright, BPA administrator and chief executive officer. "It provides benefits for BPA power customers in the form of lower rates in the near term and increased long-term rate stability. It also provides operating flexibility to help deal with intermittent resources like wind while also moving a step closer to resolving longstanding litigation over benefits BPA provides to residential and small-farm customers of investor-owned utilities." 

While preparing the power sales agreement, BPA conducted an analysis, called the equivalent benefits test, to determine whether net benefits would flow to BPA ratepayers through a contract with Alcoa. The results of that analysis show that service can be provided through September 2022 while continuing to benefit all BPA ratepayers, Bonneville said. 

For fiscal years 2014 and 2015, BPA is forecast to receive a yearly net benefit of $15 million, lowering the proposed preference power rate for those two years by nearly a full percentage point (from 10.5 percent to the proposed 9.6 percent rate increase). The ability to offer a new 10-year contract is primarily due to the long-term market price forecast for Northwest electricity, which has been driven down by low natural gas prices, Bonneville said. 

This agreement also requires Alcoa to: 
• employ a specified number of workers at the Intalco facility for the duration of the contract; 
• make available to BPA 10 percent of the power delivered to Alcoa should BPA need it to meet its obligations during a system disturbance; 
• invest $35 million in capital improvements in the facility during the first seven years, if it wants the contract to run its full 10 years.

Alcoa also agreed to waive any challenges to the Residential Exchange Program Settlement Agreement issued on July 26, 2011. The settlement sought to end years of dispute over the way residential and small-farm customers of Northwest investor-owned utilities share the benefits of low-cost hydroelectric power from the Columbia River system. Today, Intalco Works is the only operating smelter directly served by BPA.


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