Alcoa: Electricity rates too high | News | Berkeley Independent

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Alcoa: Electricity rates too high

Published Wednesday, August 24, 2011 11:09 AM

By Leslie Cantu and Frank Johnson The Gazette
Berkeley Independent

Aluminum producer Alcoa has started negotiating with Santee Cooper over its electricity rates, saying it can’t continue to pay at the current rate.

“When you look at what our rate’s been recently, it’s much too high for us for a long-term solution. We’ve got to do something different,” said Alcoa plant manager Mike Rousseau.

Rousseau declined to directly state that the plant could close. Alcoa has idled plants in the past because of increasing energy costs; it idled a Washington state plant in 2001 because of energy costs and decided in 2004 not to reopen it when it couldn’t get concessions from the workers.

Santee Cooper Vice President of Corporate Communications Laura Varn said that the utility and Alcoa are "working together very closely and doing all that we can do to find common ground and a successful solution to the power cost issue. We are both optimistic that we'll get there ... it's just a process of finding something that will work for everyone."

Alcoa’s contract with Santee Cooper ends in 2015, but Alcoa must give three years’ notice if it intends not to renew. Thus, negotiations are beginning now.

The Mt. Holly plant has one of the highest rates of U.S. smelters, Rousseau said.

The rate is a mixture of a fixed rate and variable rate that is so complex the contract is “essentially a book,” he said.

However, Alcoa is a unique customer for Santee Cooper, he said.

“We are a large, stable load which is very unique. We’re not like households or other industries that turn on or off,” he said.

And because aluminum is a commodity whose price is set on the world stage, the company can’t pass on increases in production costs to customers, he said.

Santee Cooper, however, is facing its own price increases.

Varn pointed to several factors that have increased cost pressures for Santee Cooper, including rising fuel costs, increased transportation charges, and uncertainty surrounding some current and future environmental regulations.

"We've been concerned for a while that these higher regulations, if not balanced with costs, could force industries to go overseas," she said. "We have to pass those costs along to our customers.”

"Our challenge is always finding a way to balance our increased cost pressures, which are rising, (while) continuing to provide affordable, reliable power. Alcoa is our largest industrial customer, and they operate in a dynamic, global market. Their prices have to be competitive. We are also facing pressures that impact our business,” Varn said.

Rousseau said he’s optimistic that the two will be able to come to an agreement. Alcoa has been a Santee Cooper customer for 30 years, he said.

Alcoa Mt. Holly began production in 1980. It can produce 245,000 tons of aluminum a year.

It has 560 full-time employees and 80 contractors, said Rousseau, who are “very concerned” about the issue.

Santee Cooper authorizes rate study

The Santee Cooper Board of Directors authorized management to study the utility’s current electric rates and whether they will support future expenses, especially environmental compliance costs and construction of the planned new nuclear units at V.C. Summer Nuclear Station.

The action was taken on Monday.

The study is expected to take several months, with management scheduled to report its study recommendations at the board’s May 2012 meeting. If management recommends adjusting Santee Cooper’s electric rates, the board could then authorize a public comment period of several months and ultimately vote on new proposed rates in the third quarter of 2012.

Santee Cooper last adjusted its electric rates in 2009, with an overall 3.4-percent rate increase. It was the utility’s first increase in 13 years.

“Controlling costs is a top priority as Santee Cooper continues to deliver reliable, affordable and environmentally responsible electricity to our customers,” said Lonnie Carter, Santee Cooper President and CEO. “We have made deep cuts in our operating budget the past two years to put off rate adjustments, and we have contracted to sell power to other utilities to help offset future costs.

“We have also aggressively grown our Reduce The Use program to help customers learn to save money by using less electricity.”

Specific cost controls include $1.8 billion in capital expenses reduced or deferred from 2010 through 2012, and $24 million in non-fuel operating and maintenance costs from 2011 through 2012.

Key factors driving the rate review are construction expenses associated with Santee Cooper’s share of two planned nuclear units at V.C. Summer Generating Station, along with increasing environmental compliance costs and lowered projections for sales and demand.

“We are already feeling some of the pain related to environmental costs, as new and proposed regulations on fossil-fueled generation threaten the affordability of electricity across this country and could drive industry overseas,” Carter said.

Nuclear generation is emissions-free. Santee Cooper owns 45 percent of the planned V.C. Summer units 2 and 3 and is negotiating with other utilities to ultimately reduce its share to 20 percent. The units are scheduled to come online in 2016 and 2019.

“Nuclear power is the most practical choice for new base load construction,” Carter said. “Our rate study anticipates that we successfully reduce our ownership share, which will minimize cost impacts for our customers.”

To learn more about Santee Cooper’s current rates, visit HYPERLINK "http://www.santeecooper.com" www.santeecooper.com. To learn how to save money by being more energy efficient, visit HYPERLINK "http://www.ReduceTheUse.com" www.ReduceTheUse.com.

Corporate Communications & Media Relations • 1 Riverwood Dr. • Moncks Corner SC • 29461 • Fax 843-761-7060

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