CFAC contract continues BPA power subsidies

A stop-gap contract between the Bonneville Power Administration and the Columbia Falls Aluminum Co. will continue to subsidize power costs to the company.

The new deal, finalized Tuesday, requires that CFAC take about 37.5 megawatts of power and keep its workforce at 85 employees through June.

Rather than physically delivering power to the plant, the BPA has agreed to “monetize” the power by making direct payments to the company. The company, in turn, can use the cash to offset the cost of its power rates. It turns out to be an interesting shell game.

“The transaction will be structured as a simultaneous purchase and sale, whereby BPA will be deemed to purchase power from CFAC during the amended period in an amount equal to CFAC’s then operating load, at prices equivalent to BPA’s currently forecasted wholesale market price for the amended period, and to simultaneously sell back such power to CFAC at the industrial firm power rate,” the contract states.

The contract is retroactive back to December and amounts to a subsidy of $14.26 a megawatt hour for that month and $15.35 a megawatt hour for January and February.

BPA caps out its total exposure in the deal at $5.9 million.

The industrial firm power rate is a rate for large users like aluminum companies. “Firm” means the power is delivered in a constant supply — there are no ebbs and flows.

The deal appears to be in compliance to a December Ninth Circuit Court ruling that said the BPA was improperly subsidizing power rates to aluminum companies and other large users because the formula it used actually lowered the cost of electricity to aluminum producers to below wholesale market rates.

While this interim deal is in effect, the BPA and CFAC are expected to enter talks for a longer-term arrangement through the 2010 fiscal year.

Meanwhile, some public utilities in Oregon continue to criticize deals like CFAC’s. They claim the cost of the subsidy far outweighs the actual jobs created.

When BPA announced a similar agreement with aluminum producer Alcoa last fall, the Pacific Northwest Generating Cooperative was quick to lambaste the deal and they have similar sentiments about the CFAC deal, Kathi VanderZanden, spokeswoman for the cooperative said earlier this week.