Louisville (Platts)--8Feb2013/434 pm EST/2134 GMT

In a bid to save Kentucky's two large aluminum smelters from closing, newly filed bipartisan legislation in the Kentucky General Assembly would allow Century Aluminum and Rio Tinto Alcan to buy power off the wholesale market if they cannot resolve a dispute over electricity rates with current supplier Big Rivers Electric.

Companion bills H.B. 211 and S.B. 71 authorize industries with at least a 95% electric load factor to go to market. In Kentucky, only two industries fit that bill: Century's 244,000 mt/year smelter in Hawesville and Alcan's 180,000 mt/year smelter in Sebree, State Representative Tommy Thompson, co-sponsor of H.B. 211, a Democrat and his party's Majority Whip, said in an interview.

"Kentucky's laws don't have bypass language for electricity so [industries] can go to market," Thompson said. "We're not trying to deregulate the electric industry in Kentucky. This only applies to industries with 95 percent load factor."

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Republican State Senator Joe Bowen said he authored S.B. 71 at the request of Century, a Monterey, California-based company that plans to relocate to Chicago later this year.

"We're trying to salvage these jobs," Bowen said, referring to the approximately 600 jobs at Hawesville. "We're talking about saving an industry, not just in Hancock County, Kentucky, and the state of Kentucky, but in the United States of America."

Century told Big Rivers last year it plans to terminate their longstanding agreement for the purchase of 500 MW on August 20. Alcan recently gave Big Rivers a similar notice, saying it intends to sever their power deal on January 31, 2014.

Century and Big Rivers have been talking for several months about finding a way for Century to go to market. Those discussions have been unsuccessful so far, although the reasons why are unclear.

The negotiations "bogged down" because "Big Rivers made demands on Century," Bowen said. "The negotiations were too one-sided in favor of Big Rivers. Century, quite frankly, has gotten frustrated with the process and the demands, in Century's opinion."

Century officials could not be reached for comment Friday.

Big Rivers CEO Mark Bailey, however, tells a different story.

"Cut to the chase, this is a situation where Century created the deadline by giving us the termination notice, in my view, then dragged out the negotiations until it became a crisis, then presented a solution," he said.

Although would not elaborate, Bailey said Century "has decided they do not want to pay certain things" to help compensate Big Rivers for the early end to a power contract that was to continue until 2021.

If Century leaves the system early, that means Big Rivers' other 112,000 customers in wesern Kentucky could be forced to pay significantly higher electric rates. Century and Alcan, which buys about 350 MW from Big Rivers, account for nearly 70% of the co-op's total load.

"We want Century to pay incremental costs," Bailey addde, if Big Rivers, a member of the Midwest Independent Transmission System Operator, is required to continue operating a power plant once Hawesville no longer is a customer.

Both Bowen and Thompson said they weree hopeful their bills will pass the Legislature before it adjourns in March. A February 14 hearing is scheduled for H.B. 211 in the Natural Resources Committee of the House of Representatives.

That committee is chaired by State Representative Jim Gooch, a Democrat and co-sponsor of the bill, in whose district the Alcan smelter is located.

--Bob Matyi, newsdesk@platts.com
--Edited by Richard Rubin, richard_rubin@platts.com

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