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The Pricing of Electricity to Aluminum Smelters in the Northwest
Abstract
The Bonneville Power Administration is a federal agency
marketing electric power in the Pacific Northwest. Bonneville sells
power from federal hydroelectric projects and two nuclear projects to
public and private utilities and directly to several major industrial firms,
primarily aluminum companies operating aluminum smelters in the
region. These direct service industries (DSIs) have a contractual right
to purchase up to 3.500 average megawatts annually from Bonneville.
Because the aluminum smelters in the Northwest are generally older
and less efficient than plants in other parts of the world and because
aluminum companies are facing lower electricity prices in other parts of the world, the Northwest plants have become "swing" plants. That
is when the world price of aluminum is high, these plants will run at
capacity but they are the first plants to shut down when the world
price of aluminum is low. Because of these factors, DSIs have been
purchasing only about 2.700 megawatts annually, and annual
purchases have been as low as 1.670 megawatts. Sales to the DSIs
represent about 45 percent of all industrial uses of electricity or about
18 percent of total electricity loads in the four-state region and about 23
percent of all Bonneville sales. The dramatic fluctuations in
Bonnevilles revenue brought on by operating the aluminum plants in
the region as swing plants have prompted Bonneville to search for
innovative pricing schemes designed to maintain its revenue base. Bonneville's proposed strategy includes tying the price of electricity it
sells to the aluminum smelters to the world price of aluminum. This
paper will examine Bonneville's proposed pricing strategy; it will also
examine other strategies to reduce uncertainty in the region's future
electric load.
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Citation
Foley, T. J. (1986). The Pricing of Electricity to Aluminum Smelters in the Northwest. Energy Systems Laboratory (http://esl.tamu.edu). Available electronically from https : / /hdl .handle .net /1969 .1 /92975.