Water fight in Kitimat

Don Cayo
Vancouver Sun
Monday, July 04, 2005

Mayor may win council's battle with Alcan but lose the war


CREDIT: Steve Bosch, Vancouver Sun
Kitimat Mayor Richard Wozney, standing outside the gates of the Alcan aluminum smelter, wants the company to stop selling power to the U.S. that it generated with water subsidized by B.C. taxpayers.


KITIMAT - It's up to a court to settle the legal dispute between the council here and Alcan, Kitimat's major employer, over whether the company can sell locally generated hydro-electricity to the U.S.

In the meantime, Mayor Richard Wozney is making the political case to anyone who will listen, as to why the company shouldn't be allowed to. He wants Alcan to stop using ultra-cheap water -- a B.C.-owned resource it gets the use of under a contract signed in 1950 -- to generate what he estimates to be 1,000-per-cent profits.

Wozney, not surprisingly, wants the power used to run Alcan's aluminum smelter here -- a real energy hog -- at full capacity. If there's any surplus power after that, he wants it to go to other industries that he'd like to see set up shop.

But the mayor's core case -- why should a foreign-owned company get all the benefits of a B.C.-owned resource? -- is sufficiently convincing that I wonder if he doesn't risk winning the battle, and losing the war.

By this I mean, if the Campbell Liberals buy his case and if the terms of the 1950 agreement allow them to rewrite Alcan's contract for the use of the water, would they necessarily want the benefit of all that cheap electricity to simply subsidize industries in Kitimat? The power is, depending on price fluctuations and water levels, worth as much as $378 million a year, according to the careful calculations of municipal manager Trafford Hall. But it costs only a tiny fraction of that to produce. Why not benefit all British Columbians by using the profit to lower all power rates? It's a case the government will at least have to think about.

The legal case is before the court -- the municipality is seeking a ruling that the company is violating a 55-year-old agreement which gives its Kemano generating plant water priced at about $5 for each megawatt hour it produces. (When exported, it can sell for as much as $65.)

The basis of the case is a clause that says, "In order that promotion and development of the district and of other industries in the vicinity may be encouraged, Alcan may sell to others electric energy."

The smelter currently runs with about 1,600 employees, down from a peak of about 2,300 a decade ago and about 1,825 in 2000 when the power exports began. The smelter's output, Hall estimates, is now about 87 per cent of its capacity -- just enough to use all the Kemano-generated electricity that's left over after the transmission line network has carried as much as it can to the U.S.

Alcan, which is mulling a plant modernization that would expand capacity but further reduce the workforce, says it's in full compliance with the 1950 agreement. The District of Kitimat says it is not. And there the legal issue stands.

Wozney's political case is that this is a living agreement that has been amended several times since 1950, and that the electricity generated by B.C.-owned water ought not be used for the exclusive benefit of one company. The purpose of the agreement, he said, was to establish and retain the smelter, and to foster other industry in the region. And those are the only purposes he wants to see the water used for.

My question is, what is truly the higher value for this water? Is it to further subsidize a smelter that has already been subsidized by billions of dollars worth of under-priced water for 55 years? Is it to lure to this one region of the province new industries and perhaps make them dependent on continuing subsidies, too?

Or is it to extract the maximum value from this water and the infrastructure built around it, and let the development that flows from it take place wherever the market deems it makes sense? Included in that strategy could be provision to sell some of it to California at a high price and use the money to lower power rates, or to provide some other province-wide benefit.

Kitimat is a town that was, quite literally, founded to serve the smelter, and its history is tied tightly to the company's. It's already feeling the pinch of down-sizing, and some believe it would vanish off the map without Alcan.

Maybe, or maybe not. Kitimat is also uniquely well placed for some pending developments, and it's brighter future may be found by looking forward, not back. More on that on Tueday.

dcayo@png.canwest.com

© The Vancouver Sun 2005