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Santee Cooper: Keeping SC aluminum smelter open comes with a heavy cost

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Power costs a constant worry at aluminum plant (copy)

Century Aluminum employees chanted “power to the people, power to Mount Holly” as they picketed Santee Cooper in 2015 during one of the plant's earlier threats to shut down due to electricity costs. Staff/File

Somewhere between $350 million and $430 million over a period of between six to eight years.

That's how much Moncks Corner-based electric utility Santee Cooper says it would cost if it let Century Aluminum's Mount Holly smelter near Goose Creek buy all of its electricity on the open market.

"All costs that would have to be shifted to and borne by our other customers — for the sole purpose of benefitting Century," Mark Bonsall, Santee Cooper's CEO, wrote in a letter to the aluminum maker this month.

Santee Cooper has long argued that other customers would have to pick up the tab if Century were to buy all of its electricity on the open market. But, until now, the utility hasn't publicly put a dollar figure to that assertion.

As it has in the past, Chicago-based Century said last week it will shut down the Mount Holly smelter if it can't get all of its electricity from third-party sources, though this time it filed a formal closing notice with state labor officials.

Century currently buys three-fourths of the smelter's electricity on the open market while paying Santee Cooper — which has territorial rights to provide service to the plant — for the remaining 25 percent. Santee Cooper says that arrangement covers the cost of transmitting 100 percent of the electricity to the Mount Holly site.

Mike Bless, Century's CEO, says the cost is too high. Santee Cooper, which generates much of its electricity with coal, charges as much as 80 percent more for power than Century's undisclosed third-party suppliers, which use cheaper natural gas to generate electricity.

If Santee Cooper doesn't come up with a better deal, Bless said, Century will close Mount Holly by Dec. 31 and terminate nearly 300 jobs.

It's a threat that's played out numerous times over the years, and Century in 2015 shut down half of Mount Holly's production to cut its electric bill. Each time Century's contract has come up for renewal, Santee Cooper has refused to budge on its demand the smelter buy one-fourth of its power from the utility.

Bonsall's letter explains from Santee Cooper's viewpoint why Century's demand is a deal breaker.

The influx of new residents and businesses in Santee Cooper's service territory means an expected increase in its system load — or the amount of power its customers use. At the same time, it's cutting back on excess generating capacity — the power that's set aside for emergencies and peak usage — to rein in costs.

The cost savings are needed, Bonsall said, to comply with a four-year rate freeze that was negotiated as part of a legal settlement over the failed V.C. Summer nuclear plant expansion. The rate freeze extends through December 2024.

"Santee Cooper will manage any increased costs during this period with existing cash reserves and operational savings," the utility said in a statement in July.

All of that means Santee Cooper will have to rely even more on excess transmission capacity — the kind Century seeks — to import power from third-party sources for all of its customers, not just the smelter.

That's where the hundreds of millions of dollars in extra costs comes in.

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Allowing Century to buy all of its electricity from third-party sources would force Santee Cooper to spend about $270 million over a six- to eight-year period to add the capacity to import and transmit that power over the utility's lines. Additionally, Santee Cooper estimates it would have to spend an extra $80 million to $160 million in operating costs over that time.

It's money the utility simply doesn't have, Bonsall said.

Santee Cooper has offered to extend its current 75-25 deal with Century for one more year as both sides work toward a long-term solution. The aluminum maker has declined the offer twice.

Instead, Century attempted to work with the city of Goose Creek to establish a municipal power company that would bypass Santee Cooper. A state judge ruled against that plan, saying under state law Santee Cooper has an exclusive right to serve the Mount Holly smelter.

Bonsall says Santee Cooper will spend about $3 million this year in legal fees to fight the Goose Creek plan.

Century, meanwhile, says it can no longer afford to keep Mount Holly running. Shutting down the second pot line in Berkeley County would result in the loss of another 300 jobs.

Frank Knapp, president of the S.C. Small Business Chamber of Commerce and a Santee Cooper critic, says the shutdown "is going to devastate the economy of Goose Creek and the entire Charleston region."

He points to research by the Darla Moore School of Business at the University of South Carolina that shows Century's exit would result in 750 supporting job losses in the Charleston region, $500 million in lost economic activity and a 12 percent reduction of in-state purchases by other aluminum-using manufacturers.

"We are calling on Santee Cooper to stop being an arrogant state agency and make a good business decision," Knapp said.

This is hardly the first time Mount Holly's owners have given Santee Cooper an ultimatum that could lead to the smelter's closing. Century, which took full ownership of the smelter in 2014 after buying out majority partner Alcoa Corp., has threatened to close the plant every time its power contract came up for renewal.

Also, the company has also gone to court twice in failed attempts to buy its electricity elsewhere.

A bid to lobby state legislators for a law that would let Century buy all of its power on the open market also failed.

"We are willing to pursue any route that leads to a market-based power price for Mount Holly," Bless said in a written statement, adding that Mount Holly would activate its second pot line and bring back another 300 workers if its third-party power purchases are approved. "We hope and pray that a rational assessment of such an arrangement and its results will lead to a result benefiting all."

A final decision on Mount Holly's fate could come as early as Oct. 29, when Century is scheduled to issue its third-quarter earnings report. The company also could wait until the very last day and pull the plug on Dec. 31. Century isn't required to give Santee Cooper any advance notice if it chooses not to renew the current contract.

That could make for a very uneasy holiday season and unhappy New Year for the smelter's employees.

Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_

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