The Aluminum Smelter in Search of a Power Source

The benefits sound irresistible. A buyout firm with a sustainability ethos wants to restart and upgrade the Intalco plant in Ferndale, WA, the last viable smelter in the Northwest, where 10 plants once produced 40 percent of the nation’s aluminum. 

Restarting the Intalco smelter would bring (at least initially) some 740 high-paying union jobs back to Ferndale, whose residents have pined for them since Intalco’s owner, Alcoa, cut back operations in 2015 and ended them in 2020. (See “Intalco’s closure brings pain for now — what may the future bring?” Salish Current, Oct. 30, 2020).

Restarting would re-shore the production of about 6 percent of U.S. supplies of a metal that’s essential for everything from beer cans to aerospace, armaments, and lightweight electric cars. It would, its proponents claim, save 750,000 tons of annual carbon emissions from coal- and gas-fired production by China, Russia, and other foreign producers. 

The plant, like others in the Northwest, always ran on fossil-fuel-free hydropower.

Mike Tanchuk, CEO of the new Intalco Green Aluminum and formerly Alcoa’s Northwest regional president, and his backers, the New York-based private equity firm Blue Wolf Capital Partners, promise to green it even more by switching, after a four-year “bridge” period, to solar and wind resources that they will develop in Eastern Washington. (They would still need some hydropower, or another constant base load, for times when the sun doesn’t shine and winds don’t blow.) 

They also propose adding a furnace for recycling scrap aluminum, which consumes less than a tenth the energy needed to smelt new metal; as things stand, only half of aluminum cans in the United States get recycled, versus 98.7 percent in Brazil in 2021.  

Jobs plus industrial revival plus national security plus carbon-free industry — small wonder Washington’s entire congressional delegation, Ds and Rs together, signed a letter endorsing the project. 

Gov. Jay Inslee came out in support early, and the Legislature approved a $10 million boost for it. Inslee’s senior climate adviser, Becky Kelley, calls reviving Intalco “the tip of the spear in climate transition — an important test case as to whether we can deliver on carbon reduction.” Larry Brown, president of the Washington State Labor Council and public face of the campaign to restart the plant, sees it as a rare low-hurdle chance to fulfill the goals of President Biden’s jobs, infrastructure, and climate agendas. “This isn’t a shovel-ready project,” he says. “This is a bend-down-and-plug-in-the-cord project.” 

The hitch: plugging in

Smelting aluminum demands a LOT of power — a steady load of 405 megawatts to fully operate the Intalco plant, nearly equivalent to the total capacity (450 mW) of Seattle City Light’s Ross Dam on the Skagit River. Cheap hydropower drew the smelters to the Northwest in the first place, and rising power prices helped drive them overseas. Blue Wolf seeks the sort of guaranteed power supply and pricing that smelters and a few other industries long enjoyed in the Northwest. 

But the public-power agencies that generate electricity on that scale insist they’re barred by law and/or obligations to their local customers from meeting Blue Wolf’s needs. And anyway, they have little incentive to do so when they can get better prices for their surpluses on the open market. So, for months, negotiations over plugging back in have deadlocked.

For Brown, as for other Intalco boosters, “the only roadblock to restarting Intalco is the Bonneville Power Administration,” or BPA, the self-supporting federal agency that operates much of the region’s hydroelectric and transmission infrastructure plus its only nuclear plant. “BPA has enough surplus power to restart Intalco without impacting its existing Washington preference customers,” Brown contended, in a vehement Seattle Times op-ed. “BPA is exporting its power and our jobs.”  

Juice for crypto mining

Adding insult to this injury, in Brown’s and other boosters’ views, is the notorious “gold rush” into inland Washington of fly-by-night cryptocurrency miners running Bitcoin-spinning blockchains on cheap Columbia River power. “BPA has a difficult job, I would acknowledge that,” Brown said. “But they have power for California. They have power for cryptocurrency mining. I don’t see a problem with providing power for data centers, but cryptocurrency? Who is that benefitting?”   

In fact, BPA doesn’t sell power directly to crypto miners, data centers or other users, aside from a Port Townsend paper mill that is the last of the “direct service industries” Congress designated in the 1980 Northwest Power Act that still operates. Bonneville is instead chartered to supply public utilities in the region, from countywide Public Utility Districts (PUDs) and rural electric co-ops to Seattle City Light. It also contracts with a handful of Northwest private utilities and sells any surplus left outside the region, especially to California. When prices are high these sales reduce rates for Northwest “preference” customers. 

The crypto miners mostly weren’t buying BPA-generated power anyway. They’ve instead sought cheaper power from three Columbia Basin counties — Grant, Douglas, and Chelan — whose public utility districts (PUDs) operate their own dams. But those PUDs dampened demand following a surge in 2017-2018, when cryptocurrency values soared and miners sought hundreds of megawatts.

The first to act was the Grant County PUD, where miners had fattened on the bargain 2.9 cents per kilowatt hour charged residents and light industries. It instituted a higher “emerging industries” rate that kicks in when crypto demand reaches 5 percent of the county’s total load. “At 2.9 cents we had 40 megawatts of crypto load,” says Grant PUD large-user team leader Grant Szablya. “At 4.3 cents we had none.” Many miners left for cheaper juice in Texas and other states, even before the recent crypto crash and shakeout.

‘Not interested’

Meanwhile, Blue Wolf stepped in. Bonneville wasn’t its first choice for power, nor the entity best-equipped to provide it. Blue Wolf also approached several other power generators —including firms in Canada — and undertook negotiations with the Chelan County PUD, based in Wenatchee. Chelan has more hydropower dams — three — than the neighboring counties’ PUDs and a lot of power: an average 1,000 megawatts, of which county residents and businesses use about 220, and only 8 for crypto mining. (The New York Times has reported that seven of the largest U.S. cryptocurrency mining companies would use as much as 1,045 megawatts of power, enough electricity to power all the homes in a city the size of Houston. That’s also about the amount of electricity produced by Chelan PUD.)

Wenatchee also has its own Alcoa smelter, shuttered since 2015, which is older, smaller, and more isolated than the Intalco plant. Tanchuk knows both plants well. He used to manage them for Alcoa.

Last December, Alcoa announced this outdated plant’s full closure and imminent dismantling. But that smelter still holds a 260-megawatt power contract that runs until 2028. Tanchuk and Blue Wolf sought to take over that contract and secure another 150 megawatts from BPA, with a small topper from the Whatcom County PUD. This would be a much easier lift for Bonneville than the whole 405 megawatts required to restart Intalco. 

But the Chelan PUD declined to go along. “Our understanding is basically we don’t have the ability to reassign the contract,” says Shawn Smith, its managing director for energy resources. “It’s Alcoa’s. Any aspects of it you’ll have to discuss with Alcoa.” An Alcoa spokesperson did not respond to questions about the Wenatchee contract. 

And anyway, Smith adds, “we are not interested in assigning this contract. We have a large number of requests in Wenatchee for power” — and, with market prices now high, ample opportunity to sell any surplus for more than Blue Wolf could pay. In 2019 the Chelan PUD struck a novel deal to supply 50 megawatts of market-rate power to Microsoft’s Redmond and Bellevue campuses. It’s also installing 420 megawatts of transmission capacity to supply a large data center Microsoft is building near Wenatchee.

Demand for green

Nowadays, Smith explains, hydropower commands a “green-power premium”: companies like Microsoft want it to meet their de-carbonization commitments, and other utilities want it to meet the state’s renewable energy portfolio standard. And that bonus should go to reduce local rates: “The power is there for the residents of Chelan County” — not for national industrial revival or laid-off aluminum workers in Whatcom County.  

Bonneville, Blue Wolf’s last hope for restarting Intalco, has a broader mission than the Chelan PUD but the same objections (and more) to guaranteeing power at a favorable rate. Simply by the numbers it too would seem to have power to spare. BPA doesn’t publicly report how much surplus power it sells on the open market, and spokesperson Doug Thompson told me he was unable to obtain that data. But in its 2022-23 biennial rate-setting documents, the agency forecast surplus sales of an average 2,340 megawatts. Similar estimates for actual average surplus sales in 2020 and 2021 were derived by crunching financial data contained in BPA’s 2021 annual report, a 2020 fact sheet, and its electric quarterly reports to the Federal Energy Regulatory Commission.

Fluctuations, not averages

The tricky word here is “average.” Hydropower does not flow at an average rate; it varies seasonally with snowpack and runoff. Demand also fluctuates, sometimes wildly. In its most recent reported quarter, winter 2022, Bonneville sold power for as much as $125, as little as $15.25, and an average $43.04 a megawatt hour (mWH). Past quarters have been more volatile; in the pandemic-shocked summer of 2020, BPA’s reported sales ranged from $800 per mWH to less than zero when it paid to offload excess power. 

That $43 average price is about what Blue Wolf figures it can afford to pay — if BPA would lock it in. But the market has already overtaken it. In April and May, as inflation roared and war in Ukraine squeezed world energy supplies, prices shot up to $72 per mWH. Bonneville is loath to commit not just to a price but to a power load, which might force it to buy costly power on the open market to meet its firm regional commitments. 

In 2020, which BPA’s Johnson calls “a fairly optimal water year,” it sold $434 million worth of surplus but spent $124 million to buy power when generation fell short. “I don’t know that we’d have enough power to supply even 150 megawatts” of firm power, Johnson adds, let alone the 405 mW Blue Wolf needs.

BPA is pressed on two sides. The Public Power Council, which represents public utilities throughout the Northwest that depend on BPA, sued in past decades to block BPA “subsidies” to Alcoa and other aluminum companies. Scott Simms, its executive director, says it’s ready to do so again: “If Bonneville were coerced to enter into some kind of sweetheart deal through political pressure, then absolutely, we would be ready to go to court. And so would all of our members.” (At least one, the Whatcom County PUD, feels otherwise.) “Once that happened, it would open the floodgates. There would be no end of parties seeking special deals. It’s a matter of system integrity and equity.”

Time is short; door is open

By trying to revive smelting in the Northwest, Blue Wolf is stepping into a fraught 80-year history. “There is a historical suspicion of the aluminum industry,” says Stanford (formerly University of Washington) historian and Columbia River chronicler Richard White. “And it’s well-placed.” Considering its huge energy appetite, “the industry actually didn’t do a lot for employment,” White adds: a plant like Intalco is “a good employer for one small town, but not significant to the region.” 

In the 1940s, aluminum was a lifeline for Bonneville, which struggled to find buyers for its new dams’ vast output. But that changed as the region grew, BPA’s prices rose, and aluminum companies struggled against lower-cost and subsidized foreign competitors. Smelters obtained concessions from Bonneville, such as power rates tied to the (often volatile) price of aluminum. Critics in the public-power sector saw this as gaming the system.

Now Tanchuk sees such linkage as one “a number of different ways” a contract could be structured, and argues it can work to the utility’s benefit: “Three-quarters of all primary aluminum smelters in North America use this type of power contract, which allows communities to share in the upside when the price of aluminum is high” — as it has been lately. Unfortunately, electricity prices have also surged, which may make this a difficult time to lock in an affordable base price.

BPA’s Johnson suggests that a different tweak to the terms could break the impasse: “If they’d operate the plant only when we have surplus, we could work something out.” But continuous operation is critical to large-scale smelting, and restarts are costly.

Rumbles from the negotiations suggest time is running short to reach an agreement. Still, Johnson insists, “we have not closed the door. We just need to land some place with Blue Wolf that won’t put additional cost on our customers.”