CURWOOD: Turmoil in California's energy market is having unexpected consequences elsewhere. Along the Columbia River in the Pacific Northwest, for instance, government dams produce cheap electricity for big industrial users, including aluminum makers. But with electricity prices skyrocketing, some of these plants are halting operations and reselling their federally-subsidized power at a hefty profit. Nathan Johnson reports from Spokane, Washington.
STROM: This is the smelter coming up here on the left. You can see the power lines coming into here.
(An engine revs up)
JOHNSON: Larry Strom is 42. He's worked inside this Kaiser Aluminum plant his entire adult life.
STROM: I was an Operator A in the pot rooms. I regulated voltage and amperage to make aluminum.
JOHNSON: Kaiser buys this power for less than two-and-a-half cents per kilowatt hour. And since December, they've been selling it for ten or 20 times that amount. It's simply more profitable to sell the electricity than use it to make aluminum.
STROM: I work in a department where there was 300-plus people. We're not making aluminum right now, so those people are basically gone, laid off.
JOHNSON: Kaiser is actually paying these laid off workers a full salary. But as of now they've only guaranteed this till the end of the month. Still, Peter Forsyth, a vice president with Kaiser, says these power sales are a good deal for everybody.
FORSYTH: We can provide a benefit to the region by supplying energy that we would have otherwise used to make aluminum, and the price for the energy is high enough that we were able to continue to pay our people for not working.
JOHNSON: What's at stake here is hundreds of millions of dollars. Kaiser has already made more selling electricity in the last two months than they've earned producing aluminum in the last five years.
FORSYTH: We've publicly announced sales in December and January, in the high 40s and the mid 50 million dollars per month.
JOHNSON: And Kaiser is not alone. Throughout Oregon and Montana, other plants are doing essentially the same thing. This is what's happened. The companies signed contracts with the government five years ago to buy electricity at a fixed price through next October. But now, because the value of this power has increased, they're selling it back at a profit.
BELL: That power costs a fraction of a penny a kilowatt hour to produce. Basically it's a scam.
JOHNSON: Kevin Bell, an energy consultant in Seattle, has studied electricity markets for advocacy groups like Trout Unlimited and American Rivers. He says aluminum companies got a sweetheart deal when they negotiated these contracts with the Bonneville Power Administration, the federal agency that supplies hydroelectricity from the Columbia River.
BELL: The initial terms of that contract were secret, but it turns out that one of those terms is the right of the aluminum companies to resell the power if they decide not to use it. It was a special right that no other Bonneville customer has ever had, and that no other customer was offered.
JOHNSON: Ed Mosey, a spokesman for Bonneville, says they had to sign those deals. Out of state producers were undercutting Bonneville's prices. Meanwhile, federal law restricted them from lowering their own prices.
MOSEY: We literally, at that time, were caught between a rock and a hard place. On the one hand, we had to hold onto our customers, and on the other hand, our rates were higher than market rates. So, we're almost in a beggar position.
(Music and billiards)
JOHNSON: Back in Spokane, Kaiser's workers have mixed feelings about the energy sales. At a popular pool hall near the plant, workers say, on the one hand, they support the decision, but, on the other, they have no faith the company will use the windfall to preserve jobs. And they don't trust Charles Hurwitz, the CEO of Kaiser's parent company, Maxxam. Mr. Hurwitz has ignited controversy with his involvement in the S&L industry and logging in California's redwood forests.
GOODWIN: Before he stepped in, we were making a pound of metal, like we always did, for Mr. Kaiser.
JOHNSON: Steven Goodwin has worked 31 years for Kaiser. He's still bitter over Kaiser's ten-month lockout of its employees last year: an attempt, many believe, to break the union.
GOODWIN: This guy is addicted to making his $50 million cachings, if not $500 million. Now, I'm going to speculate this guy might not even try to reopen this plant like they've told us they're going to do.
JOHNSON: Kaiser says it will reopen the plant if it's economical. And this will depend mainly on how much their electricity bills are in the future, since nearly one third the cost of aluminum is electricity. To stay competitive with producers overseas, Kaiser has relied for decades on cheap power generated at the Grand Coulee Dam, the largest block of concrete in North America, located two hours west of Spokane.
(Woody Guthrie: "Now the greatest wonder in Uncle Sam's fair land, it's the King Columbia River and big Grand Coulee Dam. She heads up the Canadian mountains where the rippling waters blind, comin' rumblin' down the canyon just to meet the salty tide...")
JOHNSON: Inside the visitor's center, perched above the south shore of the Columbia River, the history of Grand Coulee Dam is celebrated in a series of short films.
(Music and voice-over: "A legion of men was mobilized, over 7,000 strong at the peak. Not since the ancient pyramids of Egypt had such a monumental task ever been undertaken...")
JOHNSON: World War II brought aluminum companies to the Midwest. The federal government gave them virtually free hydropower. In return, they supplied raw material to aircraft makers on the West Coast.
(Guthrie: "Now in Washington and Oregon you hear the factories hum, making chrome, making maganese and light aluminum. And the roaring flying fortress wings her way for Uncle Sam, it's the fall King Columbia by the great Grand Coulee Dam...")
JOHNSON: Over the last half-century the Pacific Northwest has changed. Some say this preferential treatment doesn't make sense in the new economy.
BELL: You can take a company like Microsoft. Microsoft employs probably five times as many people as the entire regional aluminum industry. And they use maybe a thousandth as much electricity, total.
JOHNSON: Energy consultant Kevin Bell.
BELL: We would be far better off just shutting down the aluminum companies, telling them to leave, writing every aluminum worker in the region a paycheck for the rest of their working careers, and keeping the electricity.
JOHNSON: In downtown Spokane, freight trains still rumble through the city, but their cargo is more likely to be VCRs and designer clothes, not aluminum. Americans aren't using any less of this metal, it's just coming from farther away. Aluminum smelters are now built in Canada, Brazil, and Madagascar, where, not surprisingly, governments have constructed large hydroelectric dams to supply the power.
(Guthrie: "On up the river at Grand Coulie Dam, mightiest thing ever built by a man...")
JOHNSON: For Living on Earth, I'm Nathan Johnson in Spokane.
(Guthrie: "Let's roll on, Columbia, roll on. Roll on, Columbia, roll on. Roll on, Columbia, roll on. Your power is turning darkness to dawn. Roll on, Columbia, roll on...")
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