Hurwitz’s Power Grab

by Jim Valette

Charles Hurwitz, the man who critics say has made a fortune by pillaging old growth redwoods, busting unions, and engaging in shadowy stock market and savings and loan deals [See “Ravaging the Redwoods: Charles Hurwitz, Michael Milken and the Costs of Greed,” Multinational Monitor, September 1994], can add another title to his infamous resume: power robber baron.

Hurwitz's Maxxam company controls Kaiser Aluminum, which has limited production at two smelters in Washington state since January 1999. Initially, Kaiser shut down its Washington aluminum smelters as part of the company's nationwide lockout of workers who belong to the United Steelworkers of America. The lockout ended last September, shortly after the federal government threatened to charge Kaiser with violating labor laws.

Then, Kaiser used a novel approach to turn a profit: it started selling the smelters' contracted allotments of electricity back to the Bonneville Power Administration (BPA), the agency that produced the power in the first place.

Under Kaiser's existing contract with the BPA, it purchased power at a rate of $22.50 per megawatt-hour. Kaiser resold the power to BPA for more than 20 times that amount. In late 2000, the spot market price for electricity in the western United States soared to as much as $750 per megawatt-hour.

Kaiser registered $135 million in power sales from October to December 2000.

At year's end, even with its entire U.S. production operations idle, the company's executives funneled some of this easy money into their own wallets. CEO Raymond Milchovich was paid a bonus of $978,000, on top of an annual salary of $630,000. Other executives received bonuses of $250,000 or more.

Aluminum companies have long benefited from generous relationships with the federal BPA, which operates 29 dams in the Columbia and Snake River basins. Smelters aggregate around sources of cheap energy because 45 percent of the cost of aluminum smelting is electricity.

Many Pacific Northwest smelters have been closed since last summer, when their owners found it more profitable to sell power earmarked for their operations to the spot energy market. In June 2000, Alcoa announced that it was halting production at its Troutdale, Oregon smelter. In western Montana, Columbia Falls Aluminum closed its smelter and is reselling the power. Golden Northwest is selling power from its allocation for smelter operations in The Dalles, Oregon, and Kilimat County, Washington.

Some smelter owners recognized the windfall nature of these sales, and pledged to give something back to the workers, local communities and the BPA.
Columbia Falls decided to maintain its 600 workers' salaries and benefits through the year 2001.

Golden Northwest said that it would pass along 25 percent of its estimated $400 million in power sales to the BPA. The company designated another 25 to 50 percent of its electricity revenue for the development of alternative energy, including a wind power plant. It is also converting from the heavily polluting production of primary aluminum to a secondary plant that makes aluminum from scrap, not alumina.

Kaiser has made no such pledges to channel energy resale profits to the BPA, its laid-off workers or alternative power plants. The sales could earn Kaiser a half-billion dollars until the current contract expires in October.

"It's difficult to conceive of a circumstance that would prevent them from coming to terms with the region's other ratepayers and their employees, given the amount of windfall profit," BPA spokesperson Ed Mosey said in January.

"There's no way they should be profiteering from reselling federal power and then ask us to draw unemployment," says Steelworkers Local 329 steward Wayne Bentz. Over 900 workers are unemployed due to Kaiser's shutdown.

This winter, Kaiser Vice President Pete Forsyth said the company was keeping its profits to cushion the blow of the new electricity contract, which goes into effect later this year. Initially, BPA and Kaiser reached a deal in which the smelter's power purchase rate would rise by 20 percent. In April, however, BPA officials warned that, due to low water levels and high demand, the agency would not be able to supply enough energy to the region's smelters. BPA advised that the facilities should remain closed for another two years. Kaiser now acknowledges that it is looking to sell its Pacific Northwest smelters.

Like aluminum giants Alcoa and Alcan, Kaiser is slowly but surely moving out of the United States. As energy resources and environmental and labor regulations are tightening, primary aluminum production is shifting to the Third World. Powerful rivers in South America and Africa, coal mines in eastern India, and oil and gas fields of the Middle East are beginning to fuel the global aluminum market.

Ironically, U.S. governmental funding is helping to finance the shift. Kaiser's largest smelter, the 200,000 ton-per-year Valco operation in Ghana, owes its existence to a dam backed by the World Bank and the U.S. government's Overseas Private Investment Corporation (OPIC). The Akosombo dam, according to the International Rivers Network, "flooded more land than any other dam in the world — 8,500 square kilometers." Valco consumes most of Akosombo's power. Drought and rising demand have led international financial institutions to back new sources of power for Kaiser's Ghanaian smelter, including a new oil-fired power plant in Takorade.

Hurwitz has focused Kaiser's investments in overseas locations since 1988, when he bought out the corporation with the assistance of fugitive commodities trader Marc Rich. Rich earned the nickname "Aluminum Finger" for his investments in Russia, Iran, and Jamaica, and his stubborn battle against the Steelworkers union at a smelter in Ravenswood, West Virginia.

Under Hurwitz's control, Kaiser has invested in one of the world's largest smelters (Aluminium Bahrain), sold equipment to Russia's notoriously corrupt primary aluminum industry, and has contemplated or made bids to invest in smelters in Guinea, Azerbaijan and Ukraine.

Labor activists say that Kaiser's Pacific Northwest power grab represents a final swindling of the United States before Hurwitz waves goodbye. In April, the president of Steelworkers Local No. 329, Dan Russell, lamented, "I see guys every day that are resigned to the fact that Kaiser is done here. A good number of them are just getting on with their lives ... washing their hands of the whole thing."

Jim Valette is an investigative reporter based in Seawall, Maine. He is working on a report for the Institute of Policy Studies’ Sustainable Energy and Economy Network that examines the global structure and social and environmental impacts of the aluminum industry.