Kaiser seeks to reject BPA Power Contract

Citation

(2003), "Kaiser seeks to reject BPA Power Contract", Anti-Corrosion Methods and Materials, Vol. 50 No. 2. https://doi.org/10.1108/acmm.2003.12850bab.032

Kaiser seeks to reject BPA Power Contract

Kaiser seeks to reject BPA Power Contract

Keywords: Kaiser Aluminum, BPA, Contract

In conjunction with a shift to market-based power purchases for its operations in the Pacific Northwest, Kaiser Aluminum has filed a motion with the US Bankruptcy Court to reject the 2001-2006 subscription contract with the Bonneville Power Administration.

The rejection of the BPA contract could take effect as early as 1 October, depending on court approval of the motion and on the timing of Kaiser's execution of new power contracts with other providers for the ongoing normal operation of the Trentwood, Wash., rolling mill. These new contracts would also provide power for the present minimal requirements of Kaiser's smelters in Tacoma and Mead, Wash., which both remain curtailed because of depressed prices for aluminum and unattractive BPA and forward-market prices for power.

President and CEO, Jack A. Hockema says the company believes that market-based power prices and availability in the Pacific Northwest, on average over time, are likely to be comparable to or more favorable than the prices and availability offered under the existing BPA contract.

This is especially true, he says, "when we see BPA rate projections of well above $30 per megawatt hour for the balance of the contract. Having said that, we also acknowledge that even market-based power prices in the region may still pose a long-term challenge for aluminum smelters."

In Chapter 11, a company has the right to assume or reject certain contracts that existed prior to the filing date, subject to Court approval and certain other limitations. The court was expected to rule on the motion by 23rd September.

By seeking to reject the BPA contract, Kaiser expects to avoid "take or pay" penalties that would incur beginning 1st October. BPA can impose such penalties if the company is not using the full amount of power called for in the contract and the market price of electricity is below the BPA contract power price.

Kaiser is using less than 40 MW of the 291MW contemplated in the BPA contract. Based on recent market prices for electricity, the company estimates that "take or pay" penalties could amount to as much as $1 million to $2 million per month.