The fate of Alcoa's plant and its 600-plus jobs in Berkeley County could hinge on the falling price of aluminum, not lower power costs.
The metal maker and state-owned utility Santee Cooper have been trying for 18 months to reach a deal for a new electric rate for the power company's largest customer, but a contract provision set up years ago could trump those talks.
The Goose Creek aluminum maker's contract with Santee Cooper stipulates that if the metal's base price drops below a certain level for 15 consecutive days on the world market, Alcoa can notify Santee Cooper that it intends to cease operations in one year.
That threshold was met Nov. 22, said Lonnie Carter, Santee Cooper's president and chief executive.
During the first week of November, the base price of aluminum fell below the trigger point of $2,165 per ton. The price has steadily fallen since the summer because of the economic turmoil in Europe. The price is now about $2,105 per ton.
As of Tuesday, Alcoa had not notified Santee Cooper that it intends to act on the stipulation, according to officials from both companies.
"That's not our intent," Alcoa plant manager Mike Rousseau said Tuesday. "We have not made changes to our operating status or our communication."
Rousseau said he wants to keep talking with Santee Cooper to resolve the issue and negotiate a competitive rate that will keep the plant running and the jobs in the Lowcountry.
"If our operating position changes, we will inform everybody at that time," he said.
Carter, who helped write the existing contract with Alcoa more than a decade ago before he took over the top job at the utility, said he intends to do all he can to keep the plant from closing.
"To get them here, we had to be innovative," Carter said of the deal Santee Cooper cut to lure Alcoa predecessor Alumax to the Lowcountry in the late 1970s. "To keep them here, we had to be innovative. We hope to continue to negotiate and be as innovative as we possibly can. We are trying to find a way to keep those jobs."
Alcoa employs 560 full-time workers and another 80 contract and full-time temporary workers at its Mount Holly factory north of Goose Creek. The average salary at the plant is $91,000, including benefits, more than twice the average for metro Charleston.
Alcoa's power contract with Santee Cooper ends in 2015, but a provision allows the aluminum maker to let the utility know by the end of next June if it intends to stay in Berkeley County.
The depressed price of aluminum could supersede that provision if Alcoa so chooses, Santee Cooper spokesman Laura Varn said.
If the price continues to fall, it could hit another critical triggering point based on the contract.
If it drops below $2,015 for 15 days, Alcoa can notify the power company that it intends to close the plant in nine months.
Even if the price rises above either threshold, even for one day, Alcoa still has 60 days to notify Santee Cooper of its intentions.
Santee Cooper said its rates are set by the price of fuel and transportation as well as the increasing cost of complying with environmental regulations. All of that is passed along to its 164,000 customers and 30 larger industries, including Alcoa.
"There is a limit to what we can do. We can't go about charging them so little that we have to charge others more," Carter said. "Whatever we do we don't need to do it at the expense of our other customers."
Alcoa wants a rate to remain competitive.
"This facility has been here for 30 years, and our employees and our ownership group, we want to be here for 30 more years," Rousseau said. "That's assuming Santee Cooper is able to come up with a competitive rate that's not 54 percent above the national average for power for aluminum smelters."
Varn declined to discuss the rate Santee Cooper charges Alcoa, but she said the utility charges its industrial customers an average rate of 5.4 cents per kilowatt-hour. That's less than the average rate of 6.65 cents per kilowatt-hour Santee Cooper levies on all its industrial, residential, commercial and wholesale customers combined, a rate below the national average of 7.97 cents per kilowatt hour, she said.
Rousseau said several smelters across the country have negotiated long-term contracts with various power suppliers for lower rates, and he believes Santee Cooper should as well.
"It's not an apples to apples comparison," Varn said. "It's important to look at the fuel source. Some of those have hydro power exclusively. There are a lot of variables associated with that. That's where the devil is in the details. Our prices are very competitive."
Santee Cooper board Chairman O.L. Thompson emphasized that negotiations have been cordial.
"It's not an adversarial situation," he said.
"I'm focused on 600 jobs," Carter added. "At the end of the day, I want to do everything I can to keep those 600 jobs."