The Bonneville Power Administration will offer power benefits to three Northwest aluminum companies and one paper mill for five additional years. The benefits will improve the likelihood that the aluminum smelters will operate.

BPA reached its final decision after extensive public discussions with regional interests. Beginning in the fall of 2006, BPA will provide the equivalent of up to 560 average megawatts of electricity to the aluminum companies that it has traditionally served directly and a physical power sale of 17 average megawatts to Port Townsend Paper Company located in northwest Washington. BPA will provide monetary benefits to the aluminum companies in lieu of power, and they will use the money to purchase power in the market. Those benefits are capped at $59 million a year.

“This decision gives the aluminum companies and their employees a fighting chance to continue operations while not unduly burdening other regional consumers,” said Steve Wright, BPA administrator.

Earlier this year, BPA announced it would provide some level of service benefits to the three aluminum companies, also known as direct-service industries. Today’s announcement clarifies the level of benefits BPA will provide and how they will be delivered.

“The maximum annual benefit level remains the same,” Wright said. “However, BPA has provided some additional flexibility on how DSIs access these benefits. If the companies take advantage of these flexibilities, they must also agree to a reduction in their maximum benefit to avoid increasing costs to BPA’s other ratepayers.”

Under the draft contract, benefits were capped at $59 million but could be reduced each year based on an annual forecast of market prices. During the public comment period, the aluminum companies asked that BPA provide them greater flexibility in accessing the benefits being offered. To accommodate this request, BPA will allow the benefits a smelter receives to be based on the cost of power for purchases they “lock in” for a multiyear period. If this lock-in provision is used by a company, it must agree to reduce its maximum benefits by approximately 8 percent for the first three years. If a DSI does not lock in purchases, the available benefits will continue to be calculated each year based on annual market prices, up to the $59 million cap. In addition, the aluminum companies will be able to access benefits at lower operating levels than was originally proposed.

In the final decision, BPA also reinforced two earlier stipulations.

First, BPA commits to provide up to $59 million annually for the five years to bring aluminum company power costs down closer to the rates BPA’s public agency customers pay. Depending on world aluminum markets and electric power market prices, and their use of the lock-in provision, the companies might not use the full $59 million a year. This decision balances the view that, while BPA does not have a statutory obligation to sell power to the DSIs past 2001, BPA does acknowledge that the DSIs have been long-term customers of BPA.

Second, under no conditions will the aluminum companies receive benefits enabling them to pay less than BPA’s preference rate for power over the term of the contract, which is the rate paid by public utilities and cooperatives.

If the aluminum companies take their full allocation of 560 average megawatts of benefits, BPA’s public utility customers will see about a $1 per megawatt-hour increase over what their costs would have been absent the benefit. The current BPA wholesale rate for utilities is approximately $30 per megawatt-hour. If the companies use less, BPA’s rate exposure will be less.

The decision calls for Alcoa Inc. to receive the value of up to 320 average megawatts; Columbia Falls Aluminum Company to receive the value of up to 140 average megawatts; and Golden Northwest Aluminum Company value of up to 100 average megawatts.

The next step is for BPA to complete negotiation of the contracts with the aluminum companies and Port Townsend Paper Company that fall within the provisions of the new policy. BPA expects to offer these contracts in the very near future. The companies can begin receiving benefits Oct. 1, 2006.