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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.
(By Ricky Carioti -- The Washington Post)
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Now wholesale prices are being set in the marketplace managed by PJM. Retail providers look to that amount when setting their prices.
That is one reason Alcoa says deregulation has pushed up prices.
If the market were still regulated, the company said, the price it pays would be more closely related to the price of coal, the dominant fuel for Allegheny's plants. But the company said that the PJM market establishes prices that are more heavily pegged to the price of natural gas. The most expensive unit of electrical generation, the company said, is used to determine the market rate. And that price is typically for power generated with natural gas, whose costs have increased much more rapidly than coal's.
PJM says its market works on the same principles behind other successful commodities markets and encourages participants to offer the best possible price.
James Owen, a spokesman for the Edison Electric Institute, a power industry trade group in Washington, said deregulation has lowered prices overall. He said it is impossible to calculate whether the Eastalco plant would have been better off under regulation because there are too many variables, including decision-making of regulators.
Owen said that Alcoa's price expectations are unreasonable and that asking power providers to give them a steep discount is also unreasonable when the electricity can be sold in the market for far more.
"That's like asking for $1.50-a-gallon gasoline," Owen said. "That's a non-starter."
Alcoa said that it has talked to 17 providers and that all of them are quoting the same price, which the company says is far too high. The company believes deregulation took away a local power company's incentive to negotiate with a big buyer. In the past, Allegheny might have welcomed the stability of a customer who would use a huge amount of electricity around the clock. But now the power from those plants can be more easily sold to a broader market.
"It took away advantages we had," Eastalco plant manager Brian S. Dahlberg said. "It's the most lucrative model for the power company."
Allen Staggers, a spokesman for Allegheny, said that the power company wants Eastalco to succeed but that providing cut-rate power would not be fair to Allegheny shareholders or other customers.
Workers said they are not sure who is at fault. But they said the forces changing the aluminum industry have left them frustrated.
Some say they want to relocate to aluminum plants in other states if they can get work there. That would mean another move for workers such as Rod Erskin, 40, who started at Eastalco a year ago after working at a Washington state aluminum plant that was shut.
"This is a good job -- it always has been," Erskin said. "I just may have to keep moving to do it."
