Alcan Clears Second of Three Conditions for Kitimat Smelter Upgrade

VANCOUVER -- Alcan Inc. and B.C. Hydro have signed a new long-term power purchase agreement following a regulator's refusal last year to ratify an earlier deal. Michel Jacques, CEO of Alcan's Primary Metal Group, said Thursday the deal is a significant step toward modernization of the company's smelter in Kitimat, British Columbia, allowing production to increase to about 400,000 tonnes from 245,000 tonnes of aluminium. ''We are confident that this new agreement addresses the findings from the (B.C. Utilities Commission) decision rendered in December 2006 and builds on the key elements of the new energy policy made public by the B.C. government in February,'' Jacques said in a statement. The new deal calls for the delivery of surplus electricity from Alcan's Kemano power plant to B.C. Hydro until the end of 2034. B.C. Hydro said the new agreement includes a longer-term contract, lower contracted prices, extra capacity and enhanced scheduling rights which allows more flexibility to schedule energy into higher-value peak-use periods. The deal with Alcan ''establishes a long-term contract, a fair price for the energy and increases our storage capacity, which gives us a greater ability to use non-firm, clean resources such as wind and run-of-river hydro,'' B.C. Hydro CEO Bob Elton said. An application for approval by the utilities commission is expected to be submitted in the next month. Regulatory approval of the power-sale agreement is one of three key conditions for proceeding with a C$2-billion upgrade that will see the smelter's workforce cut to 1,000 from about 1,550. In May, unionized workers at the smelter approved a contract that would ensure labour stability while construction to modernize the plant goes on until 2011. The third condition is resolution of environmental permitting issues. Late last year, the utilities commission refused to ratify a long-term power agreement, saying the utility made a mistake in its calculations and failed to prove the benefits would offset the costs. That decision followed a dispute in B.C. Supreme Court last fall in which the District of Kitimat asked the court to turn off the sale of Alcan power while the aluminium smelter cut back its capacity. The community argued the aluminium giant was breaking a law that allowed the smelter to generate its own power more than 50 years ago. The municipality said Alcan was given rights to use the river at exceptional water rates in an effort to support its aluminium operations, not to export bulk power. Under that law, Alcan is only supposed to be able to sell surplus power, but Kitimat argued the company has cut production to sell lucrative power to B.C. Hydro. Thursday afternoon, shares in Alcan were down $3.59 at $98.64 on a broadly negative day on the Toronto Stock Exchange.