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New Long-Term Power Supply Contract With Alcoa Approved By N.Y. Power Authority Trustees

Michael Saltzman

December 16, 2008


UTICA—New York Power Authority (NYPA) President and Chief Executive Officer Richard M. Kessel today announced that the process for securing the long-term future of Alcoa’s operations in Massena took a major step forward with the approval by the NYPA Trustees of a new power supply contract. This new contract commits the aluminum company to maintain a minimum of 900 jobs over the 30-year contract and invest at least $600 million to rebuild its Massena East smelter.

The new contract, which is subject to the approval of Governor Paterson, is to commence on July 1, 2013 and will provide that Alcoa will continue to receive its current allocation of 478 megawatts (mw) of hydropower (374 mw of firm power and 104 mw of interruptible power), accounting for approximately 60 percent of the St. Lawrence-FDR project’s generating output. 

“With today’s action, the Power Authority has made a major contribution ensuring the continued viability of Alcoa’s Massena East and West smelting operations for decades to come,” said NYPA Acting Chairman Michael J. Townsend. “We’ve been working diligently toward this day for sometime now as part of a deliberative process for maximizing the value of the low-cost hydropower from our St. Lawrence-Franklin D. Roosevelt Power Project for the North Country’s economy.  We’re recommending that Governor Paterson approve the new long-term power supply contract, in support of the retention of hundreds of jobs at Alcoa and of the company’s significant investment in the upgrade of the East facility.”

“The NYPA Trustees’ approval of the new contract is another milestone in the process for making certain that Alcoa continues to be an anchor for the North Country’s economy for many years,” said Kessel. “Alcoa’s importance to the region and New York State is indisputable, including good, family-supporting jobs, commerce with other businesses in the state, and essential tax revenues.”

“The Power Authority and Alcoa’s partnership has been beneficial for both parties for more than a half a century, and for Northern New York and New York State,” said Judge Eugene L. Nicandri of Massena, who became a trustee of the Power Authority in September. “I’m delighted that the mutually beneficial relationship with Alcoa will continue for years to come and serve as the cornerstone for a bright economic future for Northern New York.”

“Today’s action by the NYPA Trustees keeps us on track toward obtaining approval from the Alcoa Board of Directors of the major renovation of the East Plant,” said Bernt Reitan, Alcoa executive vice president and group president, Global Primary Products. “The upgrade will solidify Alcoa’s long-term future in Northern New York, so the certainty of the low-cost hydropower for our energy-intensive business could not be more important.  This is particularly crucial in light of weakening worldwide demand for aluminum from the downturn in the economy, and lower commodity prices.”

Alcoa, which is New York State’s largest private-sector employer north of Syracuse, acquired the East Plant in 2000 from its merger with Reynolds Metals. In addition to modernizing the plant and maintaining at least 900 jobs at the two Massena smelters, Alcoa will establish a $10 million North Country Economic Development Fund (NCEDF) within 90 days of its board of directors approving the rebuilding of the facility. 

The NCEDF, which would be jointly administered by NYPA and another entity specified by New York State, will be used exclusively for creating jobs and capital investments in St. Lawrence, Franklin, Essex, Jefferson, Lewis, Hamilton and Herkimer counties and on the Akwesasne Mohawk Reservation. 

The NYPA trustee approval follows a November public hearing in Massena on the new contract, whose terms are essentially identical to those in an Agreement in Principle signed one year ago by NYPA and Alcoa officials after lengthy negotiations.   

Those speaking at the Nov. 6 hearing, or submitting written comments, stressed the importance of the low-cost hydropower allocation, with electricity typically amounting to about 30 percent of the production costs of smelting aluminum.

Said Kenneth J. Pokalsky, senior director, Government Affairs of The Business Council of New York State, “We believe that the proposed contract contains reasonable commitments for both Alcoa and NYPA, in terms of long-term pricing and power delivery, and in terms of conditioning contract benefits on the company’s achievement of investment and employment targets.”

Kessel noted that this is the first time that formal job commitments, similar to arrangements NYPA has with other businesses in the state for various power programs, are part of the contract with Alcoa, which became the Power Authority’s first power customer in 1955 with the signing of its original contract.

Another important feature of the new contract is that it links the rates Alcoa pays for the low-cost power with global aluminum prices. In this manner, NYPA and Alcoa will each benefit from stronger markets and the company will have some protection against downturns such as in the current economic crisis. 

The new contract has an option under certain circumstances for an additional 10-year extension beyond 2043 when the base contract period expires. The contract will replace existing power supply contracts that NYPA completed with Alcoa and Reynolds Metals in August 1981 that expire in June 2013.    

The approved contract will now be transmitted to Governor Paterson, who will have sixty days to review and act on it.

The power that Alcoa receives from St. Lawrence-FDR comprises most of a block of industrial power from the project under the Preservation Power Program, which is reserved for North Country businesses under a 2005 state law.

  About NYPA:

■    NYPA uses no tax money or state credit.  It finances its operations through the sale of bonds and revenues earned in large part through sales of electricity.  ■    NYPA is a leader in promoting energy-efficiency, new energy technologies and electric transportation initiatives.  ■    It is the nation’s largest state-owned electric utility, with 18 generating facilities in various parts of the state and more than 1,400 circuit-miles of transmission lines.

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