Up to an average of 240MW is to be provided under their Memorandum of Understanding (MoU) for the first 10 years of the contract, which is scheduled to commence in October 2011. For the remaining seven years the utility would supply 160MW.

The utility added that present financial benefits provided to Alcoa equate to approximately 390MW under the short-term contract due to end in 2011. Alcoa said a long-term supply deal was important to the future of the smelter.

Previously, BPA supplied electricity to operate the 279,000 tonne/year (nameplate) smelter at 100% capacity. Under the MoU there is to be enough power supplied to operate the smelter at 50% capacity. Cost are to rise, however, from an average of US$39M to US$65M to reflect higher power prices.

BPA said the MoU aims to provide the smelter with ‘a reasonable chance of survival without causing significant impacts on other power customers’.

Alcoa noted that the agreement is contingent on BPA acquiring additional power to meet the needs of the Pacific northwest power system, which suffered supply shortages in 2001.

Further negotiations on the MoU are intended to lead to finalising a contract in January 2009. Criteria for the deal include BPA capping the electricity cost to supply Alcoa at US$73/MWh, and ensuring that it is not financially exposed within the first five years should Alcoa shut down the smelter.