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Alcoa vying for power – literally
Will Alcoa have the power it needs to continue operations?
Employees assembled at the plant during a visit by Congressman Rick Larsen and Whatcom County Executive Pete Kremen (pictured) during the summer.
By Brita Adkinson
The downturn in global the economy is affecting Alcoa Intalco Works in Ferndale, as demand for aluminum is falling sharply.
On the international market the supply of aluminum is piling up, causing the price to fall. By October 2008, the price level at the London Metal Exchange had dropped to roughly one-third of what it was in the early summer. By the end of November it had dropped to half of the summer’s level.
The Ferndale plant is part of the worldwide Alcoa, a global leader in the production of aluminum, with 26 aluminum smelters and 97,000 employees in 34 countries. The effect of the current recession is a slowdown in production at Alcoa in Ferndale, necessitating a reduction in staff. By the first week of December 2008, the Ferndale plant had eliminated 75 positions. Although some of these layoffs were absorbed through retirement or employees quitting, many employees lost their jobs, and the 75 positions will not be refilled, according to Mike Rousseau, plant manager for Alcoa, Ferndale. In addition, by early December, 34 contractors lost their contracts with Alcoa.
“Our employees and contractors understand our situation. We make sure they know the sources for information for them to seek new employment, yet, we regret the layoffs and wonder, where will they go?” Rousseau said.
The aluminum produced at the Ferndale plant is used in the automobile industry, for making parts such as wheels; the bicycle industry; the building industry for construction materials, ladders, etc.; the medical field, for use in manufacturing MRA equipment and other medical instruments; and many other industrial uses. As these fields of industry are cutting back their production due to falling sales, the effects are cascading back onto the production of raw materials.
Scrambling to reduce costs“All our staff are now cutting costs as fast as they can,” Rousseau said. “All 600 employees are engaged in saving money. Staff are coming up with new ideas daily. We are cutting back on our use of cell phones. We are canceling some of our travel: Employees that were scheduled to attend trainings and conferences are now staying home.”
Rousseau explained that employees traditionally attend conferences where they train together with employees from other plants within Alcoa’s worldwide operations. However, currently, these kinds of events are being postponed or cancelled altogether. The efforts to cut costs are monitored from Alcoa’s New York headquarters.
“Even though we are currently forced to cut back in many areas, we do not want to lose track of the fact that the long-term outlook for our industry is solid,” Rousseau continued. He emphasized that there may even be an increase in the use of aluminum, as manufacturers search for alternatives to expensive materials.
Truly a fight for powerThe continued success of Alcoa, Ferndale depends on whether or not Alcoa can ensure an affordable and consistent supply of electricity. Over many decades, Alcoa has purchased its power from the Bonneville Power Administration (BPA), a Portland, Ore., company that buys and distributes power to industry and public utilities in the Northwest.
For several months Alcoa has been involved in crucial negotiations with the BPA. A Memorandum Of Understanding (MOU) was reached in October 2008, between Alcoa Intalco Works and the BPA. The MOU provides a framework for contract negotiations slated to be concluded by this month.
According to Rousseau, the BPA was created 65 years ago, with the specific purpose to provide electricity to large industrial users in the Northwest. BPA has delivered power using direct contracts with these large users, in order to make available affordable power to them. Through all these years, Alcoa has operated from the direct agreement with BPA. For planning and development, Alcoa depends on long-term contracts, ensuring a regular and affordable supply of power. The current short-term agreement ensures the power supply only up to the year 2011.
In the past, Alcoa was treated similarly to other preferential customers who today pay around $27 per megawatt hour (mwhr) and had its full power requirements met, according to Jodie Read, public relations officer at Alcoa, Ferndale. However, under the current short-term agreement Alcoa is required to purchase power from the open market where prices have averaged around $60 per mwhr. Under the proposed contract, BPA will provide only 50 percent of Alcoa’s power need at around $38 per mwhr. Naturally, Alcoa is requesting more power at the lower cost.
“The real issue for Alcoa is power”Ken Oplinger, president of the Bellingham/Whatcom Chamber of Commerce & Industry, is actively supporting Alcoa’s request for a viable agreement with BPA.
“The long-term indications for the aluminum industry are positive,” Oplinger commented. “However, the real issue for Alcoa is power: As long as Alcoa can purchase power that is affordable, they will continue production, and we would not consider it a risk that the plant would close down.
“We have expressed our clear support for Alcoa. We are outspoken supporters of the low rate option. Individual members of our chamber of commerce have sent letters to BPA stating our concern. BPA was built with the express purpose to provide power to large users in the Northwest. It would be completely unacceptable for BPA to make a change now and we are making it clear that that is our standpoint.”
Many stakeholdersThe debate about the fair and rightful use of available power involves many parties, including approximately 135 public utility companies and other businesses who have a stake in the quest for power provided by BPA. Since its establishment in 1937, BPA has been selling electricity to certain large users of power, including Alcoa, giving them preferential rights to the power. BPA must balance these requirements with federal and state laws, and the concern to protect wildlife, especially fish, in rivers affected by dams. Local native tribes living in the vicinity of these dams and rivers are in dialogue with BPA on an ongoing basis, in order to protect wildlife habitats.
In recent months, Steve Wright, chief executive of BPA, faced criticism from public utility representatives in Oregon for continuing to deliver power to large users at a special rate. Oregon Gov. Ted Kulongoski has expressed support for a plan to deny large users preferential rates, while Washington Gov. Chris Gregoire is supportive of Alcoa’s needs. The power distributed by BPA is generated at 31 hydroelectric dams and a nuclear plant.
According to an article in the Oregonian published Dec. 7, 2008, public utilities in Oregon argue that BPA does not have legal authority to deliver electricity to aluminum companies at a special rate. Aluminum companies, on the other hand, argue that BPA has an obligation to continue offering the special rates.
Moving forwardProvided a sufficient power supply can be secured at an affordable cost over the next 20-year period, Alcoa will continue its operations in Ferndale, which may guarantee jobs for a minimum of 480 employees. Furthermore, the company will remain committed to the continued development of green technologies, setting goals to further reduce the impact on the environment, Rousseau said.
“We will make capital investments to further reduce greenhouse gases. Our employees measure our performance every day. Our staff are aware of the corporate goals of sustainable development,” he said.
Alcoa’s commitment to environmentally sound technologies is significant. The worldwide Alcoa earned an award as one of the top most-sustainable corporations in the world at the World Economic Forum in Davos, Switzerland.
In recent years, the management team of Alcoa, Ferndale has experienced a shortage of skilled workers. They partnered with Bellingham Technical College (BTC) and set up a system where Alcoa’s production workers may attend a two-year training program at BTC, while continuing to work 40-hour weeks at Alcoa. The program, which began in 2007, attracted 65 applicants for 13 places. The 13 chosen employees are currently receiving training in electrician and millwright skills. In this way, Alcoa contributes to the education of the local workforce.
Rousseau said a huge amount of time and effort has been invested in the Ferndale plant over the years; the employees are wonderful people and Ferndale is a wonderful community; and that makes it worthwhile to work for a successful future for Alcoa.
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