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March 29, 2009
New TVA-ALCOA power contract is urgently needed
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The Daily Times Editorial
by Dean Stone
While the temporary layoff of more than 400 Tennessee ALCOA employees is significant, an even more serious threat lies in the background.
Currently, both of the potlines at the ALCOA South Plant smelter have been shut down because of the downturn in the economy. The price of aluminum has dropped from about $1.31 per pound a year ago to 59 cents per pound. That reflects the effect of supply and demand.
For that reason, the potlines have been shut down. Approximately 40 employees have been retained to service equipment and make repairs that could not be made when the lines were in operation.
Potline 2 is being maintained in a ready state and could be restarted on short notice. It takes about three months to get a potline back into full production of top quality aluminum.
The thing that is more serious than the downturn in the economy, which will eventually recover, is the long-term future of the South Plant.
Next year, ALCOA's power contract with TVA expires. ALCOA and TVA are currently in talks concerning a new long-term power contract.
With ALCOA, a world producer of aluminum, to remain competitive, it must negotiate comparable power rates for the South Plant to stay in operation. Currently, its power rate is in the highest 15 percent of those paid by smelters in North America.
It is urgent that a competitive long-term contract be reached in the near future. ALCOA can't open and close the operation of such a facility with a mere flip of a switch. It takes long-term planning. Once it is closed, it likely will never re-open.
TVA has not only brought residential power to areas outside the cities, flood control and improved fertilizers, but it has been supportive of new industry and ready to supply both residential and industrial customers. Some 25 years before TVA was ever dreamed of, back in 1910, ALCOA came to Blount County because it designed the world's first plan to harness an entire watershed, that of the Little Tennessee River. The river begins in north Georgia, flows through western North Carolina and southern Blount County.
ALCOA first envisioned the source of power that would permit it to build a smelter and bring the first industry here. And it was in the process of building its own dams, with Cheoah, Santeetlah and Calderwood completed, before TVA ever came to East Tennessee. It had planned to build Fontana Dam, but the government agency pre-empted its plans, and ALCOA was forced to give up its property and plans for the dam which TVA built.
Currently, ALCOA operates its dams, producing power in cooperation with TVA's stream flow schedule. It in effect trades out the power produced at its dams with TVA and purchases additional power from TVA. The ALCOA dams produce enough power to operate one potline. Smelting power costs are a major portion of the cost of producing aluminum.
If a good power contract is not completed in the near future, there is a good possibility that ALCOA will close the South Plant smelting operation, a permanent loss of roughly 500 jobs.
ALCOA is doing its part to make this a facility that will be kept in operation, reducing operation costs 25 percent at the South Plant within the past year under the oversight of native Blount Countian Brett McBrayer. Apparently it is the only major aluminum smelter remaining in the TVA area.
The fact that ALCOA's current power costs are in the highest 15 percent paid by smelters in North America is an indication that TVA is not as competitive as it should be. It is important that TVA's residential power customers also have jobs.
One smelter operation in Ohio has negotiated an innovative contract in that its power rates fluctuate with the price of the aluminum.
However a contract is achieved, it is urgent that the two parties complete a favorable long-term power agreement promptly so area residents can be assured the South Plant will remain a viable part of ALCOA's worldwide operations.
Once totally closed, it is very unlikely they will be restarted. ALCOA has already had to close smelters at Badin, N. C., and Rockdale, Texas.
The ball is in TVA's court. It is more important to act now to keep an industry that has served Tennessee well for 100 years than to gain the recognition of attracting a new one.
We feel confident that any slack TVA cuts ALCOA on power costs can be easily made up by a greater efficiency in the management of TVA as indicated by a recent audit by the U.S. Inspector General and reports of the poor handling of its ash waste at Kingston.
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