News

Alcoa exec: power costs caused shutdown

Judge turns down Luminant request to dismiss charges
By MIKE BROWN Reporter Editor

John Thuestad made the decision to close three of Rockdale Operations’ six potlines in June, 2008 John Thuestad made the decision to close three of Rockdale Operations’ six potlines in June, 2008 In the most dramatic testimony yet at the now 10-day-long Alcoa- Luminant trial, the man who pulled the trigger on the initial three-potline shutdown of Alcoa’s Rockdale Operations smelter in June, 2008, testified unstable power prices left Alcoa officials with no other solution to an energy supply dilemma.

But John Thuestad, under a relentless cross-examination by Luminant attorney Barry Barnett, later admitted there were no actual power supply interruptions to the smelter in the crucial spring of 2008 and that Alcoa never paid the often-quoted figure of $2,000 to $4,000 per megawatt hour for power.

Alcoa rested its case Tuesday. Luminant attorneys immediately asked District Judge Ed Magre to issue a direct verdict throwing out the lawsuit, claiming Alcoa had not legally proved any violation of the contract between the two corporations.

Magre refused to do that.

Alcoa is seeking a half-billion dollars in damages and possible return of the Three Oaks Mine.

‘Rockdale improvement’

For a week, the two sides have been hammering away at their well-established themes.

Alcoa says exorbitant power prices, forced it to shut down Rockdale Operations in 2008, three potlines in June, the remaining three in the fall.

Luminant maintains it honored its contract with Alcoa and that the aluminum company essentially “harvested” the smelter, made a business decision to run it profitably, with minimal capital outlay by the corporation, then close it down.

Thuestad was called to the stand Monday by Alcoa attorney Shannon Ratliff. In 2008, Thuestad was Alcoa’s president of Global Primary Products for the United States.

“I was the one that made the decision to idle the first three potlines,” he said.

Thuestad said in the first quarter of 2008, prior to Unit 4 power outages, performance at the Rockdale smelter had “improved dramatically.”

“The (Rockdale Operations) smelter was profitable the first quarter of 2008,” he said.

‘Thermostat’

But by late May, with Unit 4 outages forcing Alcoa to purchase power on the open market—as called for in the Alcoa-Luminant contract—things had changed.

Thuestad said Alcoa was “exposed to extreme power conditions” and said excess costs in one 5-6 day period were more than $20 million.”

Ratliff produced e-mails purporting to show Alcoa was being exposed to power costs over $300 per megawatt hour.

Thuestad testified a $30 to $40 megawatt hour cost was more in the normal range for Rockdale Operations.

“Running six lines was costing us way too much money,” Thuestad said.

Ratliff compared the decision to cut back the smelter from six potlines to three as “comparable to turning your thermostat up so your air conditioner won’t cost so much.”

Thuestad said the three-potline shutdown was viewed as a “bridge” to keep Rockdale Operations going until economics improved and the smelter could return to its full sixpotline capacity.

But by September the aluminum market, and the national economy, had plummeted.

8 of 10

Barnett began his cross-examination by producing figures showing Alcoa was already in a cutback mode when the Rockdale Operations decisions were made.

He quoted from an e-mail sent by former Alcoa President-CEO Alain Belda noting that the company was shifting its production to areas where energy prices are lower.

Barnett took Thuestad plant by plant through Alcoa’s 10 domestic aluminum smelters and pointed out eight of the 10 are currently curtailed in some way with five, including Rockdale, fully shut down.

Barnett also walked Thuestad through power contracts with various companies, including government entities Bonneville Power Administration (Alcoa Intalco, Washington Works) and the Tennessee Valley Authority (Alcoa Tennessee Operations).

The Luminant attorney characterized some contracts as “government bailouts.”

Thuestad disagreed with that assessment. “That’s not my take on it,” he said.

Press release

Barnett hit hard on the Luminant theme that Alcoa’s policy included “harvesting smelters” and produced e-mails from company officials he said outlined at least one such plan in detail.

He alleged Alcoa at one point identified Intalco as the smelter most likely to get the ax, with Rockdale second.

Thuestad said some of the emails shown pre-dated his employment with Alcoa.

Barnett presented a communication from Fluor, an Alcoa sub-contractor, he said indicated $116 million needed to be spent at Rockdale Operations to support the smelter prior to the 2008 shutdown.

Thuestad termed the communication a “wish list.”

“The furnaces were falling apart,” Barnett said.

Barnett confronted Thuestad with the June 19, 2008, press release, announcing the threepotline cutback at Rockdale Operations.

That document quoted Thuestad as saying Alcoa shut down the three potlines due to “ongoing supply interruptions” and “local market energy costs increasing as much as $2,000 to $4,000 per megawatt hour.”

“There were no supply interruptions,” Barnett said, “Alcoa never paid $4,000 per megawatt hour.”

“We (Luminant) fully complied with the contract,” Barnett said. “We charged you just exactly what the contract called for.”

Thuestad admitted the attorney’s statements were true but maintained the “unreliabilty” of power purchase prices made production cost planning difficult for Alcoa executives.

“The unplanned outages were devastating,” he said, adding that he believed the outages affected the “intent” of Alcoa’s contract with Luminant.

Highlights

Here are some other highlights from the trial’s past week:

• Alcoa electrical engineer Tommy Hodges maintained the smelter would not have been idled if not for the 2008 Unit 4 outages.

• Several witnesses maintained the cost of installing selective catalytic reduction (SCR) technology at Unit 4, ordered by federal consent decreewas exorbitant.

Alcoa maintains a project which could have been accomplished for $102.9 million will end up with a $400 million price tag and, by contract, Alcoa must pay more than 80 percent of the bill.

• Luminant charged in the final period Alcoa operated the Sandow Mine, it provided Unit 4 with poor quality lignite that damaged equipment and forced unscheduled outages.

Alcoa witness Philip Kitchen, mechanical engineer with Tremont Environmental, said he believed Luminant “overfueled” Sandow 4. Luminant attorneys objected several times to Kitchen’s testimony.

• Luminant attorneys continue to criticize what they term Alcoa’s non-compliance with the federal consent decree.

Luminant’s Ric Federswitch, senior vice-president of generating, in a videotaped deposition, said he “knew Alcoa would freak” over those electrical costs but maintained the outages also caused Luminant to “take a pretty good hit.”

• Judge Magre dismissed one juror over a family problem and installed one of the two alternate jurors. The trial continues with the 12 jurors and one alternate.


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