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.
Similar forces are at work in Europe, where plants are closing. Production is shifting to places where power is cheaper, such as the Middle East, Russia and China.
"Over the next 10 years, over the next 15 years, I think you're going to see primary domestic smelting capacity in the U.S. wither away," said John Mothersole, a Washington-based senior economist with the consulting firm Global Insight Inc. "That's just because of the cost of electricity. . . . We don't anticipate for industrial rates you'll be able to purchase electricity at a rate that will make it competitive in a global market."
Some plants have survived in other parts of the United States because they receive power from aluminum-company-owned electric plants or from government-owned facilities that provide cheaper power, analysts said.
The power bill at Eastalco is eye-popping. The company expects this year's electricity bill to total $89 million, a below-market rate stemming from a contract signed in the mid-1990s. Under that plan, Alcoa has been paying from the mid-$20s to the low $30s per megawatt-hour, the company said.
But once the contract with Allegheny Power expires at the end of the year, Alcoa says, it would have to pay about $70 per megawatt-hour, ringing up a bill of $195 million in 2006. The company says prices would need to be from $35 to $40 a megawatt-hour for the plant's doors to remain open.
Alcoa and many other heavy electricity users had long wanted government regulators to stop setting prices for electricity based on utility operating costs and allow market forces to determine price.
Since the mid-1990s, about 22 states and the District have decided to deregulate electricity, which is supposed to create competition and lower prices by allowing customers to buy power from providers that could be hundreds of miles away, rather than just their local power company.
"Deregulation was sold to the country as a way to eliminate any kind of fat that existed in the local utility and as a way to reduce costs," said Marc Pereira, vice president of energy for Pittsburgh-based Alcoa. "With all this competition, you're going to see lower prices. That sounded pretty good. . . . But the reality has been different."
The electric industry and some researchers say deregulation has kept prices lower than they otherwise would have been. The main reasons for sharp price increases recently, the industry says, are higher demand and fuel costs.
"Whether you have a regulated system or a market system, prices would be higher," said Ray Dotter, a spokesman for PJM Interconnection LLC of Valley Forge, Pa., which operates the wholesale electricity market in the region. "A competitive system for electricity has saved billions of dollars in cost below what it would have been in a regulated system."
Years ago, when companies chose locations to build aluminum plants, they did it to be close to the country's lowest-cost power providers. Eastalco long relied on cheap power provided by the Allegheny generating facilities that are close to cheap coal.
With deregulation, the situation changed. Regulators were out of the picture.
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."
Howard Cline, a quality-control worker who started at Alcoa's Eastalco plant in 1974, said of the possibility of the plant closing because of power costs: "I'm not ready to retire. I guess they're going to make that choice for me."