September 30, 2008 / 6:02 PM / 11 years ago

UPDATE 2-Alcoa stops aluminum production at Texas smelter

(Adds Luminant comments, Alcoa suit background, paragraphs 5-8; Alcoa stock closes higher)

NEW YORK, Sept 30 (Reuters) - Alcoa Inc (AA.N) said on Tuesday it will stop making aluminum at its Rockdale, Texas, smelter because of power supply issues, and lay off about 660 workers there.

The company will record a third-quarter, pretax charge of about $48 million to cover the costs, which spokesman Kevin Lowery said would be mostly related to the lay-offs.

Production might resume at the smelter if Alcoa secures reliable power supplies, but in the meantime “we will not make aluminum at Rockdale,” he said.

The company will continue to operate its aluminum atomizer at Rockdale, producing satellite fuel from aluminum, and will also keep producing anode there, Lowery said.

Later, Luminant, the generating company at the plant, accused Alcoa of exploiting the issue.

“There have been no new significant power generation concerns or new pricing issues — even after Hurricane Ike.

“Alcoa has a history of using layoffs like this as a vehicle for managing costs and driving the company’s profitability. Alcoa should acknowledge its independent decisions instead of blaming power supply issues and unspecified ‘market conditions,’” Luminant said in a statement.

Alcoa filed a lawsuit last month in Texas state court charging Luminant Generation Company LLC — a subsidiary of Energy Future Holdings Corp — with violating decades-old agreements that ensured cheap power in a possible effort to force the plant to close its doors.

Alcoa’s suit said it had been receiving power at the Rockdale smelter based on “cost-based” prices rather than the prevailing power prices under agreements dating back to 1951 with the power generator’s predecessors.

In its announcement on Tuesday, Alcoa said it would immediately curtail the remaining production at the Rockdale smelter, of about 150,000 metric tons a year, as “a result of uncompetitive power supply to that smelter and overall market conditions.”

Aluminum is made by smelting alumina, which is refined from bauxite. Alcoa will adjust production of alumina as a result of the Rockdale shutdown, it said.

In June, the company idled three of the Rockdale plant’s six operating potlines that had produced about 120,000 metric tons per year, “as a result of ongoing local power supply issues.”

Alcoa at the time cited problems with the reliability of the on-site power generating unit, Sandow Unit 4, run by Luminant, and the high cost of buying replacement power in the market.

The layoffs follow another 160 jobs that were cut earlier. The jobs will be phased out mostly toward the end of November and in early December, Alcoa said.

Alcoa’s stock closed up $1.20, or 5.6 percent, at $22.58 on the New York Stock Exchange. (Reporting by Steve James, editing by Richard Chang, Gary Hill)

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