NEW YORK, March 28 (Reuters) - Century Aluminum Co returned to the negotiating table this week in its efforts to find affordable electricity to run its Hawesville, Kentucky, aluminum smelter after a failed attempt to lower its costs with legislation.
“The legislation delayed progress in negotiations. But since that died, we’ve restarted discussions,” said Marty Littrel, director of communications and community relations at power supplier Big Rivers Electric Corp. in Kentucky, adding that talks became active again this week.
Kentucky’s legislature adjourned on Tuesday for the rest of 2013, leaving proposed smelter bills in both legislative houses to die on the floor.
Both bills were attempts to lower power costs for the two aluminum smelters operating in Kentucky - Century’s 244,000-tonne-per-year Hawesville smelter and Rio Tinto Alcan’s nearby Sebree smelter with aluminum output of 194,000 tonnes per year.
Littrel added that Big Rivers also resumed talks with Rio Tinto Alcan on Thursday, saying the company was “trying to see if we can come up with a solution that’s equitable for all and to get them both market power. I think that’s what they both want.”
With metal prices low and production costs high, U.S. aluminum producers struggle with thin margins. In its attempt to cope, California-based Century, controlled by commodities giant Glencore International, took the dramatic step of pushing for legislation that would exempt smelters from a state law requiring consumers to take power from only one supplier. This legislative change would have let it seek power in the open wholesale market.
Both Century and Rio Tinto broke their power deals with Big Rivers in an attempt to find electricity in the spot market, where prices are 25 percent lower than the fixed rate set in their 15-year power contracts. Hawesville’s contract is due to end in August and Sebree’s in January 2014.
The two aluminum producers account for about 70 percent of the not-for-profit electric co-operative’s business.
Century’s spokesman Mike Dildine told Reuters on Thursday that the company was committed to finding a way to keep Hawesville open, but without cheaper power, it would shut the plant.
“Our objective is to find competitive energy and to maintain operations at Hawesville, and to keep those 700 direct manufacturing jobs in western Kentucky,” he said.
Bryan Tucker, a spokesman for Rio Tinto Alcan, refused any comment beyond what the company has said in the past, “which is that we continue to evaluate all the options for Sebree’s future.”
Big Rivers has given both companies the option to either stay in its system and pay for electricity at cost or go to the open market for power and pay for incremental costs that would otherwise get passed on to the rest of its customers.
If they opt for spot power, Littrel said the aluminum producers would give up their ability to return to Big Rivers on a contractual basis if power prices rise again in the future.
In addition, he said, the smelters would have to agree to abide by a Kentucky Public Service Commission’s decision if a disagreement arises about rates, incremental costs or who should pay for them.
Meanwhile, if the smelters do leave Big Rivers’ system, the power generator may sell one of its plants or find other takers for its power among other big industrial users, municipalities or other utilities.
“We’ve got a good product, at a good price, and there are a lot of other people who have expressed interest,” Littrel said.
Big Rivers’ rates are among the cheapest in the United States, but are still higher than wholesale prices.
“They (the smelters) pay about $48 a megawatt-hour. You won’t find a lot of places with rates that low,” he said.