Alcoa seeks cheaper electric rates

Alcoa seeks cheaper electric rates

October 28th, 2011 by Dave Flessner in Business Around the Region

Alcoa Inc. continues to negotiate with the Tennessee Valley Authority for a new power contract that could help the aluminum maker reactivate its shuttered smelting operations in Blount County.

But Alcoa Vice President Michael Padgett said Thursday that aluminum prices will have to improve along with better TVA rates for the company to resume production and rehire some of the 450 employees laid off in March 2009.

"Unfortunately in the past couple of months, we've had another downturn in the pricing side," Padgett told U.S. Sen. Bob Corker, R-Tenn., during a roundtable discussion on power prices and jobs.

"We've been working to get a competitive rate (for aluminum) to restart the facility. But so far, the economics of the aluminum industry haven't really rallied enough to justify the increase."

Economic shifts and global competition cut the number of smelters operating in the United States from 33 in 1980 to only nine today, Padgett said.

Alcoa is one of TVA's largest direct-served customers in the utility's 7-state region. The metal giant signed a new three-year power contract with TVA in June for power for its Rigid Packaging Division and Recycling Operations and for generation from the Alcoa-owned Tapoco Dam operations.

But Alcoa and TVA continue to negotiate for a new long-term power contract for Alcoa's smelting operations. Padgett said an agreement needs to be reached before the plant resumes operations.

"Due the nature of the process, the price of electricity is very important to the aluminum smelting process, accounting for up to 40 percent of the final cost of a product," Padgett said.

TVA President Tom Kilgore acknowledged TVA needs to improve its relative price of power compared with other utilities.

"Absolutely, we're not in the place I want us to be," he said. "We recognize the challenges that Alcoa faces."

TVA, which once boasted some of the nation's lowest power prices, now ranks only 42nd among the top 100 utilities in the price of its power, and industrial rates are often above those of neighboring utilities, Corker said.

"Unfortunately, we're really doing things in the United States to make us less competitive," Corker said.