Century Aluminum awaiting decision on power deal

Thursday, Mar 12, 2009
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Mar 11, 2009 (Messenger-Inquirer - McClatchy-Tribune Information Services via COMTEX)--Hawesville and Sebree aluminum smelters are facing increased electric costs if area power companies don't agree to an "unwind" agreement. The Kentucky Public Service Commission announced last week that it was approving, with conditions, such an agreement between Big Rivers Electric Corp. and E.ON-U.S. The unwind would terminate a previous lease between the two companies. Without the agreement, Century Aluminum of Kentucky in Hawesville and Alcan Inc. in Sebree will face higher electric costs once their current utility contracts expire over the next year or two. E.ON, based in Louisville, and Big Rivers have until Friday to review the PSC's order and decide whether to accept its conditions, according to a Big Rivers press release. Matt Powell, Hawesville vice president and plant manager of Century Aluminum, said the company is encouraged by the PSC's ruling. "There are a number of remaining hurdles to be cleared before the unwind becomes a reality," he said. "The unwind, it is important for Hawesville because it will provide the plant with long-term, cost-based energy." Without the unwind, the smelters would be subject to market-based costs, "which would be energy costs that might not lend itself to the long-term viability of the plants," Powell said. When operating at full capacity, the smelters employ 1,400 people and spend $115 million in payroll and benefits, according to the PSC press release. Another 3,500 jobs are estimated to depend on the smelters. Century Aluminum announced last week it was shutting down one of its potlines and laying off about 120 workers. It previously laid off 13 percent of its salaried work force in Hawesville and at its corporate headquarters in Monterey, Calif. The unwind agreement would end the lease under which E.ON has operated electric generating plants owned or controlled by Big Rivers, according to a March 6 PSC press release. If the unwind is completed, Big Rivers will take full responsibility for operating and selling power from three plants it owns and one plant owned by Henderson Municipal Power & Light, the press release said. The unwind will eventually lead to higher rates for customers of the three rural cooperatives in the Big Rivers system, and the PSC said the unwind would not be in the public interest unless it included rate relief for other customers, according to the press release. E.ON will have to agree to pay $61 million to Big Rivers to establish a reserve account that will partially be used to offset the higher rates for other customers, the press release said. That fee is in addition to funds E.ON previously agreed to pay Big Rivers as part of the unwind. Big Rivers would begin using the $61 million after it has used a separate $157 million account it has proposed to help offset higher rates for nonsmelter customers, the press release said. Those funds will also come from money Big Rivers receives from E.ON. "We recognize that the Commission's ruling today includes a significant new condition for E.ON to consider, and it's appropriate for all parties to take time to consider this very carefully," Mark Bailey, Big Rivers President and CEO, said in a press release March 6. Chris Whelan, director of communications for E.ON, said the $61 million fee was a "curveball" for the organization. "We're going to take the full time to review this and consider our options," she said. "We're going to take all the time necessary." In order for the unwind to take place, Henderson Municipal Power & Light will also have to agree to it. Station Two, one of its plants, is contracted out to Big Rivers. "We're continuing to talk and visit with E.ON about resolving our outstanding issues," said Gary Quick, general manager of HMPL. "We don't know where those discussions will go."

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