The Power of Rising Energy Prices

Alcoa says it may have to close its aluminum plant in Frederick County after its contract with its power supplier expires. It expects its power bill to more than double next year.
Alcoa says it may have to close its aluminum plant in Frederick County after its contract with its power supplier expires. It expects its power bill to more than double next year. (By Ricky Carioti -- The Washington Post)
By Justin Blum
Washington Post Staff Writer
Wednesday, November 9, 2005

For 35 years, the aluminum plant surrounded by fields of soybeans and corn in Frederick County has provided high-paying, reliable jobs that lured workers from faraway states.

But now the plant's owner, Alcoa Inc., is warning the 600 employees that they could be out of their jobs for a reason well beyond their control: soaring electricity prices brought on by deregulation. The company says it can run a plant overseas for a fraction of the electricity costs at its Maryland site.

The plant's closure, and the loss of jobs paying an average of $55,000 a year plus benefits, would ripple through the region's economy. Eastalco Works, as the plant is known, would become be the latest victim of a U.S. industry contracting at home while expanding overseas.

"I guess we can't compete anymore," said Howard Cline, a quality-control worker who started at the plant 31 years ago and does not know what type of work he would seek if his job vanishes. "I don't like it. I'm 50 years old. I'm not ready to retire. I guess they're going to make that choice for me."

Alcoa, one of the largest global aluminum companies, says operations at the Eastalco plant are likely to be drastically curtailed by year's end and could later be entirely shuttered.

The company's long-term power contract, which was signed years ago before electricity prices shot up, is about to expire, and Alcoa says it cannot pay the rate being offered by suppliers. The electricity costs would be far higher than what Alcoa pays at its plants in other parts of the world.

Alcoa weighs electricity and labor costs, among other factors, in deciding where to spend money on new plants. But access to cheap power is the company's biggest concern. In the last quarter, the company reported lower profit compared with the comparable period last year, in part because of higher energy costs.

The electricity industry says the reason for the higher domestic prices is straightforward: The cost of coal and natural gas, which fuel most of the country's power plants, has risen dramatically.

But Alcoa, with a 24-hour plant that uses more electricity than any other business in Maryland, sees another force at work. The company says electricity deregulation -- allowing competition among suppliers and letting the market, not regulators, determine prices -- has pushed costs higher than they otherwise would have been. That marks a dramatic shift in position for Alcoa, which years ago had championed deregulation as a way to lower prices.

At the 400-acre facility outside Frederick, a collection of drab buildings and belching smokestacks set among farms and rolling hills, workers turn a white powder into aluminum. The powder comes from Suriname and contains aluminum and oxygen atoms that are turned into aluminum in a process that consumes huge amounts of electricity. Companies that buy the aluminum later transform it into door frames, windows and car parts.

Over the years, the operation has become more automated and efficient. Workers are less visible than in earlier years in cavernous buildings dominated by the din of exhaust fans and featuring the faint smell of sulfur.

Eastalco's closing would add to an industry trend of declining U.S. production. Domestic production last year at aluminum smelting plants such as Eastalco's was about 2.5 million metric tons, down about 31 percent from 2000 production.

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