Will Alcan weigh their options?

The announcement just before New Years that the BC Utilities Commission had turned thumbs down on an arrangement between Alcan and BC Hyrdo is beginning to spark some interest in the long term impact on the Kitimat area.

Back in August, Alcan announced a 1.8 billion dollar investment in the Kitimat works smelter in a bid to boost capacity at the aging aluminum plant. At the time it was suggested that project was on conditional on an agreement being signed with BC Hydro among other issues tied to the project.

With Friday's announcement, many will be waiting to see if the shoe drops here, or if the project will go ahead as announced, a spokesperson for Premier Gordon Campbell's office described their reaction as disappointed at the Utility Commission's decision, but that they will consider their options from here on.

The debate will once again return a certain amount of uncertainty to the Kitimat dialogue for the next little while, a place that they have spent a good portion of the last few years. It proved to be a debate that split the community quite nicely and left some scars, the latest twist will open up some old ones and no doubt create a few new ones for 2007.

The Globe and Mail has an interesting article on the issue on their website, that explains the background of the debate over what the Utilities Commission had to consider.


Ruling puts smelter in limbo
WENDY STUECK
Globe and Mail Update
December 31, 2006

Vancouver — A regulator's decision to reject a power sales agreement between aluminum giant Alcan Inc. and Crown-owned British Columbia Hydro and Power Authority has elated those who fought against the deal, but raises questions about whether Alcan will go ahead with a planned $2-billion smelter upgrade in Kitimat.

“That's obviously one concern,” Mike Morton, press secretary for B.C. Premier Gordon Campbell, said Sunday, adding that the province is “disappointed” with the regulator's decision.
“But we're going to look at the decision and give full consideration to what our options are.”

The British Columbia Utilities Commission said on Friday that it would not approve a long-term power agreement between Alcan and B.C. Hydro, saying the deal was not in the public interest and that B.C. Hydro should not have accepted the pricing provisions of the proposed agreement, which would have seen Alcan sell surplus electricity to the province.

B.C. Hydro and Alcan said Friday they were disappointed with the utility commission's decision but would not be making any decisions until the commission released its reasons, likely early this year.

When they filed the proposed deal with the regulator, B.C. Hydro and Alcan initially tried to keep some terms confidential for competitive reasons, but gave up that request after critics argued the deal should get a full hearing.

The proposed agreement included $111-million in lump sum payments to Alcan, to be paid in two instalments.

The power deal is an integral part of an upgrade that Alcan announced last August, when it said it would spend about $1.8-billion (U.S.) to boost capacity at its Kitimat plant in northwestern B.C.

At the time, Alcan said the project was conditional on several factors, including an agreement with B.C. Hydro.

Over the past few years, Kitimat Mayor Richard Wozney has spearheaded a fight against Alcan over the issue of power sales, maintaining that Alcan is selling surplus electricity at the expense of aluminum production and, in the process, breaking its agreement with the province over water rights.

In an interview Sunday, Mr. Wozney said there is a risk that Alcan could take its investment dollars elsewhere, but argued that the risks of the proposed power sales agreement were far greater.

“The bigger risk would have been if the [B.C. Utilities Commission] had approved the agreement. It would have meant a bigger disaster for our community because it was basically a power sales agreement,” Mr. Wozney said.

The increased volume of electricity sales permitted under the deal, compared with a previous agreement, would have meant “the death knell for the aluminum industry in British Columbia and in particular in Kitimat,” Mr. Wozney said.

Critics of the deal said it was negotiated without a competitive bidding process and gave Alcan an unfair advantage because it used prices based on new power projects, even though Alcan's generating plant in nearby Kemano — operating since the 1950s — churns out electricity at a much lower cost.

The cost of producing power at Kemano is about $5 (Canadian) a megawatt hour. The proposed agreement would have seen B.C. Hydro pay an average rate of $71 a megawatt hour.

B.C. Hydro argued the deal was a good one for ratepayers because it provided reliable power at fixed, competitive prices.

The utility currently has to import some power to meet the province's needs.
But one intervenor in the case maintained the deal was a heavy-handed attempt by the province to use ratepayers' money to encourage industrial development.

“This was an initiative that was driven by the Premier's office and was an industrial development strategy for the Kitimat area,” said James Quail, executive director for the B.C. Public Interest Advocacy Centre, which represented ratepayers at the hearing before the commission.

“And it's simply not appropriate to load electricity rates with the cost of programs of that nature.”

Utilities Commission orders can be appealed, but an appeal has a chance of success only if it can be shown that the commission made some serious error of law or in some way exceeded its jurisdiction, Mr. Quail said.

He added that he thought the prospects of an appeal were “very poor.”

Update: Alcan responds to the BCUC decision
January 2, 2007

The Canadian Press has the following reply from Alcan regarding the events of last week and its potential impact on the future of the Kitimat Works plant.


Alcan evaluating B.C. power decision
Canadian Press
January 2, 2007

MONTREAL — Alcan Inc. is warning of a negative impact on its $2-billion Kitimat aluminum smelter plan after the B.C. Utilities Commission rejected an energy supply agreement between the company and BC Hydro.

“We are disappointed with the BCUC decision and will be studying it closely to better understand the commission's rationale and to determine the potential impact on the feasibility and timing of the Kitimat Modernization Project,” CEO Michel Jacques said Tuesday in a release.

“We understand that this period of uncertainty will be difficult for the region affected by the BCUC decision.”

Alcan produces excess electricity at its massive Kemano power project that it can sell to the province or other buyers. An approval by the commission was one of three conditions set by Alcan for the final go-ahead of the Kitimat modernization project on Aug. 14.

The other two key conditions are the resolution of environmental permitting issues and a long-term labour agreement to ensure stability during the planning, the construction and the startup of the modernization project.

A spokesman for B.C. Premier Gordon Campbell said on the weekend the government was disappointed by the regulatory decision blocking a power sales agreement with Alcan.

Mike Morton said officials will review the decision and look at options.

On Friday, the commission rejected a proposed long-term power contract with Alcan was not in the public interest.

A commission panel said BC Hydro shouldn't have agreed to pricing provisions and the commission “does not accept BC Hydro's evidence regarding the value of the benefits to ratepayers” of the agreement, commission secretary Robert Pellatt said in a letter.

Critics say the deal was struck without competitive bidding and would see Alcan reap the same rates for its electricity as new projects, even though costs at its Kemano power plant are much lower.