Alcan settles Enron claim with Powerex for $110M US

CBC Business News
29 Dec 2004

COMMENT: This rather complex arrangement between Alcan, BC Hydro/Powerex and Enron results in $110 million payment to Powerex from Alcan. Gee, what sunk costs might that offset? Or will it have to go to repayments to California?

More importantly, perhaps, is the announcement by Alcan that it intends to cancel the long term supply agreement with BC Hydro, effective 2009. This means 140 MW (approx 1200 GWh of electricity) of capacity that Alcan will no longer deliver to Powerex.

In its 2004 Integrated Electricity Plan, published in March 2004, BC Hydro says this of the Alcan deal: "BC Hydro assumes that these projects will continue to supply electricity upon the expiry of their current contracts." This now means that there will be 140 MW less capacity in BC Hydro's supply basket in 2009 than Hydro had been planning on.

This may have no impact in the current BC Utilities Commission review of BC Hydro's "VICFT-EPA" for Duke Point Power. On the other hand, perhaps BC Hydro will try to have it considered in the context of a "no award" outcome, with cable replacement in the 2008-2010 time frame. The logic there is that if Duke Point Power does not go ahead, the power shortfall would have to come from the mainland. This Alcan announcement means there will be 140 MW less available from the mainland in 2009 than previously planned on.

Could be that Alcan is just playing a negotiating strategy here, too. It has no forecast need for the power. Its recent actions in Kitimat seem to be to not add to aluminum production and to sell power. BC Hydro, notorious for its stonewalling or dysfunction with negotiations, may not get down to the short strokes with Alcan until the eleventh hour. And as we've seen before, it may take the BCUC or even the government, to force a resolution.

We must be vigilant, in the VICFT-EPA and in future BC Hydro antics, that it isn't the people of BC who get jerked around by the corporate agendas.—Arthur Caldicott

MONTREAL - Alcan Inc. announced Wednesday that it has paid $110 million US to Powerex, a subsidiary of B.C. Hydro, to settle a claim arising from the collapse of American energy trading company Enron.

Alcan said following the cancellation of its Kemano Completion generating project in northwestern B.C., it assigned to Enron Power Marketing Inc. the right and obligation to deliver specified volumes of electricity to Powerex.

When Enron went bankrupt in late 2001, Powerex filed a claim against Alcan and an arbitrator upheld the claim.

The company said it recorded a pre-tax charge of $100 million US in the fourth quarter of 2002. The remaining $10 million US will be charged to income in the fourth quarter of 2004.

Alcan terminating agreement with B.C. Hydro

Alcan also announced Wednesday that it has given B.C. Hydro five years notice that it will stop selling 140 megawatts of power to the utility under a long-term electricity purchase agreement.

The agreement, signed in 1990, gives Alcan the right to recall electricity for its own industrial purposes.

"In light of our recent experiences with low water levels in British Columbia and in consideration of our future potential industrial needs in British Columbia, Alcan is acting responsibly with regard to this initiative," said Cynthia Carroll, president of Alcan's primary metals group.

All energy deliveries under the agreement will end on Dec. 31, 2009.

Shares of Alcan closed down 22 cents at $58.91 on the TSX.

www.cbc.ca