An aluminum company embroiled in a dispute over its electricity costs said Monday it has given notice to terminate its power contract, a move signaling that the future of its large western Kentucky smelter is in deep jeopardy.
Century Aluminum Co. said it gave a 12-month notice to end the contract with Big Rivers Electric Corp. for its Hawesville smelter, which employs about 700 people. Century said it is not obligated to continue operating the plant but was looking at options to keep it open.
Century President and CEO Michael Bless said the smelter is competitive in every category except its electricity rate.
“The unavoidable truth is that the smelter is not economically viable with this power rate and under current market conditions,” Bless said in a statement. “We need a power price that is reflective of the market, helps the plant weather these turbulent economic conditions and allows the plant to be competitive over the long term.”
The smelter is a crucial economic player in rural Hancock County, upriver from Owensboro along the Ohio River. The plant’s large workforce accounts for tens of millions in wages and benefits. The plant spins off hundreds of other jobs and millions in tax revenues.
Negotiations between Century and Big Rivers over power rates stalled in recent months.
The Hawesville smelter consumes vast amounts of power. That plant and another regional smelter owned by different company account for about 70 percent of power generated by Big Rivers.
The other smelter has not submitted a notice to terminate its contract, said Big Rivers President and CEO Mark Bailey.
The loss of such a huge customer as Century could have ripple effects for other Big Rivers ratepayers.
Henderson-based Big Rivers might have to seek a rate increase to help make up for lost revenue if the Hawesville smelter closes, Bailey said. Other options would include adding more customers and electric cooperatives. The not-for-profit Big Rivers supplies power to three electric cooperatives that serve more than 112,000 customers in more than 20 western Kentucky counties.
“We’re disappointed that this has become necessary,” Bailey said.
“But we have anticipated that this could be a possibility all along and have prepared for that. We presented them the best options we could offer up to try to help, but unfortunately it doesn’t appear that’s enough.”
Bailey said there was a chance the notice could be a negotiating tactic, but “from our perspective it’s too late for that.”
Big Rivers’ agreements with the smelters include one-year termination provisions to allow it to prepare in case the plants closed.
“To me, it means that Century is closing in a year, if not sooner,” Bailey said of the notice.
Bless said he understands the “devastating impact” the plant’s closure would have on employees, customers, suppliers and the state and local economy. He said the company is “exploring all available options” to keep the smelter open.
“We sincerely hope that an agreement can be reached to save the smelter,” he said.
Hancock County Judge-Executive Jack McCaslin said he fears closure is a “very real possibility,” which would be devastating for the local economy. There’s a scarcity of jobs offering similar wages and benefits, he said. The smelter generates about $600,000 in local occupational taxes, and that loss of that revenue could result in deep cuts in services, he said.
McCaslin said that top state officials will likely have to intervene to get an agreement that can rescue the smelter.
“I don’t think Big Rivers and Century are going to solve this problem on their own,” he said. “It’s going to take a higher authority.”
California-based Century Aluminum has said its contract rate for electricity is much higher than open-market prices. The company also has been coping with aluminum prices that have dropped from a year ago.
Bailey has noted that aluminum prices have been higher than in 2009, when Century signed the current contract. Also, Bailey has said Big Rivers’ rates are among the lowest in the country.
The sides were far apart over concessions for the aluminum plants.
Bailey has said the two smelters were seeking about $110 million in yearly concessions. Big Rivers’ counteroffer amounted to relief of about $34 million per year on average for the smelters over a decade, he said.
Big Rivers has said the smelters’ request would result in big rate increases for residential and industrial customers.