Rio Tinto Alcan gives 12-month notice to its power supplier

Following the lead of Century Aluminum at Hawesville, Ky., the Rio Tinto Alcan aluminum smelter at Sebree, Ky. has notified its electric suppliers it intends to shut down in 12 months.

Rio Tinto Alcan’s website says it uses 325 megawatts of electricity each day — enough to power a city the size of New Orleans — to produce 425 million pounds of aluminum annually.

“It would just have a devastating impact on Western Kentucky,” said Henderson County Judge-Executive Hugh McCormick. “The trickle-down effect on how many jobs are created by Rio Tinto is unreal.”

The aluminum smelters in Sebree and Hawesville are the two biggest customers of Kenergy Corp., one of three rural electric cooperatives whose power is produced by Big Rivers Electric Corp. Kenergy President and CEO Greg Starheim said the smelters account for “probably 80 to 90 percent” of the electricity it delivers.

“Providing a legal termination notice is very black-and-white,” Starheim said. “They have their senior executives saying they’re going to shut the plant.”

Big Rivers is also heavily dependent on the smelters; they consume 70 percent of the electricity it produces. “This is something that is really unique to Big Rivers,” said Andrew Melnykovych, spokesman for the Kentucky Public Service Commission.

Big Rivers and Kenergy have a lot to lose, but so do the approximately 112,000 other customers in the Big Rivers system, because they’ll be on the line for millions of dollars of fixed costs if the smelters shut down or begin buying their electricity on the open market.

To some extent, the notice filed Thursday is an outgrowth of the complicated $1.1 billion transaction, commonly called the “unwind,” that was finalized in 2009 after more than six years of negotiating. Under that agreement Big Rivers took back control of four power plants and got a large infusion of cash so that E. ON U.S. could get out from under a money-losing lease agreement 16 years early.

The deal gave the smelters what were then below-market electric prices, but it required them to provide a year’s notice if they decided to stop buying power from Big Rivers and Kenergy.

Rio Tinto Alcan spokesman Kenny Barkley noted that Big Rivers is currently seeking a rate increase based on the possible loss of the Hawesville smelter as a customer. The Sebree smelter is currently paying about $50 per megawatt hour now, he said, and the proposed increase would jump that to $60.

“We’ve done our best to work with Big Rivers and Kenergy on finding ways to lower our power costs. We’ve made good headway. Starting today we’ve got to find a solution before that 12 months is out. We feel confident we can do that. There’s no blame on anybody. It’s just companies trying to do what’s best for their customers and themselves.”