HOUSTON, Texas, Aug. 22, 2002 — Kaiser Aluminum said recently that, in conjunction with a shift to market-based power purchases for its operations in the Pacific Northwest, it has filed a motion with the U.S. Bankruptcy Court for the District of Delaware to reject the 2001-2006 Subscription Contract with the Bonneville Power Administration (BPA).
The rejection of the BPA contract could take effect as early as October 1, 2002, 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.
Kaiser President and Chief Executive Officer Jack A. Hockema, said, “We believe 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 current BPA contract, especially 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 is expected to rule on the motion at a regularly scheduled hearing on September 23, 2002.
By seeking to reject the BPA contract, Kaiser expects to avoid “take or pay” penalties that it would incur beginning October 1, 2002. 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 currently is using less than 40 megawatts of the 291 megawatts 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.
The company has a separate power transmission agreement with the BPA that permits, and will continue to permit, Kaiser to transmit third-party power to its facilities.
Kaiser Aluminum Corp. is a producer of alumina, primary aluminum, and fabricated aluminum products.
Source: Kaiser Aluminum Corp.