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Commissioners consider an alternative for Alcoa, preserving opportunity for Wenatchee Works restart

by Suzanne Hartman | Apr 17, 2017

WENATCHEE, WA – Chelan County PUD commissioners today reviewed a staff recommendation to proceed with a contract amendment negotiated with Alcoa Corp that would give Alcoa more time to decide whether to restart the Wenatchee Works aluminum smelter in return for a payment that keeps PUD customer-owners financially neutral.

The proposed amendment would allow a one-year deferral and restructuring of Alcoa’s existing Power Sales Agreement (PSA). Under the current agreement, should the Wenatchee Works plant remain curtailed through June, a $67 million deferred power contract charge would become due. That charge was specifically designed to encourage Alcoa to operate the plant.  Under the proposed amendment, a large portion of the contract charge would be delayed until June of 2018 and in return, Alcoa would pay the PUD $7.3 million on June 19, 2017. The $7.3 million represents:

  • One year of the deferred power contract charge of $4.5 million.  Alcoa earns a payment discount each year the plant operates but pays the remaining unearned discount if the plant is shut down for more than 18 months.  Under the proposed amendment Alcoa would pay 1 year's worth of the discount rather than the full amount,
  • A $2.8 million payment in exchange for the value to the PUD of a one-year deferral of the remaining balance of $62 million.

Staff outlined two options for the Commissioners to consider. Option 1 would require payment of the full $67 million charge on June 19, 2017, but may remove any possibility of restart; and, Option 2 would be a partial payment from Alcoa for the deferral of the remaining contract payment for one year, preserving the opportunity for a restart. Should Alcoa restart before June 2018, the existing contract terms would apply. If the plant remains curtailed, the remaining $62 million payment would be due in June 2018 and the contract and existing terms would continue.

In recent months, global aluminum prices have increased from when the plant's operation was curtailed in December 2015, creating hope that the plant might restart production.  More than 400 people were employed at the plant when it was curtailed.

“Decisions have not been made regarding a potential restart of Wenatchee Works at this time," Michael Padgett, Alcoa Vice President, Energy said.  "“However, we appreciate the Chelan Public Utility District’s consideration in working with us on a plan that would preserve the restart option.”

"We want employment and low electric rates throughout our community,” said General Manager Steve Wright.  “The proposed amendment preserves the original contract goals of encouraging family wage jobs and providing value to PUD customer-owners by allowing Alcoa to ‘buy time’ to further consider restart."

The deferral would keep in place current contract requirements under Alcoa’s existing Power Sales Agreement. Those provisions include that PUD power can only be used at Wenatchee Works; that while operations are curtailed, the PUD sells the power on Alcoa’s behalf and the proceeds are applied to Alcoa’s monthly contract costs and any shortfalls are made up by Alcoa; and that Alcoa keeps a Letter of Credit in place for performance assurance.

The PUD will be seeking public input on the proposal. A meeting of the Alcoa Working Group that is open to the public will be announced later. More information about a public meeting can be found on our Alcoa Energy Supply page. Comments can be left there as well.

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