Chelan PUD commissioners Monday were briefed on potential assignment terms and other conditions necessary for the District to consent to reassigning the current power contracts with Alcoa Inc. for its Wenatchee smelter to a new entity before the corporation splits in two on Nov. 1.
Kelly Boyd, PUD Chief Financial/Risk officer, said discussions with Alcoa started with agreement to the principle that reassigning the power sales contract and related contracts would have a neutral to positive impact on PUD customer-owners. That agreement was essential for a swift and satisfactory resolution of the assignment and related credit assurance issues, Boyd said.
Alcoa announced the division into two stand-alone companies a year ago, but just recently set the Nov. 1 effective date. The new Alcoa Corp. will include the alumina and smelter “upstream” operations and Arconic Inc. will hold engineering and other “downstream” products, explained Michael Padgett, Alcoa Energy vice president.
Boyd said key contract terms for reassignment consent include:
- All PUD-contracted power must remain for use only at Wenatchee Works and may not be used at other Alcoa facilities
- All existing incentives remain in place to support re-start at Wenatchee Works on behalf of the Alcoa workforce and the economic viability of the community
- An extended duration for credit assurance beyond what currently exists
- A minimum $40 million collateral requirement to strengthen what is currently required
All conditions for reassigning the contract must be met before consent becomes effective, Boyd said.
To make sure there is no gap in contract coverage, commissioners set a special meeting for 1 p.m. on Thursday, Oct. 20, to consider approving the assignment agreements. The resolution will ask for delegation of authority for General Manager Steve Wright to sign the necessary agreements as described in Monday’s briefing. The meeting will be held in the boardroom at the Wenatchee headquarters, 327 N. Wenatchee Ave.
Wright said that while the Alcoa split results in a smaller, less credit-worthy customer, the additional credit assurances provided in the new agreements leaves the District’s customer-owners neutral to positive compared against current conditions.
Alcoa received a deferral of upfront contract charges with a 2012 balance of $87 million that would earned by operating the plant during the course of the 17-year agreement. Today, that amount is at approximately $67 million – which would be due in July 2017 if the plant does not restart.
Alcoa continues to receive 26 percent of Rock Island and Rocky Reach power production, and Chelan PUD will continue to sell unused Alcoa power to apply against outstanding contract obligations
The draft documents to be completed before the consent agreement is effective will be posted on the PUD’s website and public comment is encouraged. Feedback can be sent to firstname.lastname@example.org or made at Thursday’s special meeting.
Commissioner Dennis Bolz thanked staff for keeping commissioners informed about the contract issues. “It may be a rushed timeline, but it is not a rushed decision,” he said.
Padgett thanked board members and PUD staff for working together to solve the consent issues.
In other business Monday, commissioners:
- Heard from residents in the Chelan area on efforts to identify additional sites for possible substation location.
- Were briefed on the planned replacement of the District’s telephone system, scheduled for completion at the end of 2017. It will change the current PBX system to a voice-over-internet protocol, which offers useful features for customers and employees. Calls to PUD offices will still be answered in person.
- Reviewed the six-year improvement plan for the Wenatchee Water System and proposed water use efficiency goals for the PUD’s Wenatchee, Olalla, Dryden and Chelan Ridge systems. The board will be asked to approve a budget adjustment and water use efficiency goals following a hearing at 1 p.m. during the Nov. 7 commission meeting.
- Received an update on Public Power Benefit projects.
- Set a special meeting for 6 p.m. on Nov. 2 at Chelan Fire District 3, 228 Chumstick Hwy. to attend a community update on locations for a new Leavenworth substation.
- Oct. 20 – Special meeting on Alcoa contract, 1 p.m., Wenatchee Headquarters
- Oct. 22 and 29 – Lake Chelan Powerhouse tours, 9 a.m.-3 p.m.
- Oct. 30 – Fall Roundup, 1-4 p.m., Rocky Reach Visitor Center
- Nov. 2 - Bavarian Substation Community Meeting, 6 p.m., Chelan Fire District 3, 228 Chumstick Hwy, Leavenworth
- Nov. 7 – Board meeting, 10 a.m.
- Nov. 9 – GWATA “Energized! Living and working in NCW” – 11:30 a.m., Confluence Technology Center
- Nov. 11 – Veterans Day holiday, offices closed
- Nov. 21 – Board meeting, 10 a.m.
The next regular Chelan PUD commission meeting starts at 10 a.m. on Monday, Nov. 7, 2016, in the boardroom at 327 N. Wenatchee Ave.