05.28.02

Cantwell Calls for Independent Investigation of Kaiser Deal

Spokane, WA - U.S. Senator Maria Cantwell (D-WA) today formally requested an independent investigation of whether Kaiser Aluminum fulfilled the letter and intent of its power remarketing contract with the Bonneville Power Administration. Under the terms of the contract, Kaiser was to sell power back to BPA and invest its profits in strengthening its Northwest operations and paying its workforce. Neither has happened, and Kaiser has refused to detail how it has spent its proceeds.

"This is a story of promises made and promises broken," Cantwell said. "Whether Kaiser broke its contract is an important question that deserves a public answer from an independent investigation. Hundreds of jobs and hundreds of millions of dollars are at stake."

Cantwell made the request for an independent investigation in a letter today to Gregory Friedman, Inspector General of the Department of Energy. Earlier this year, Cantwell requested the Department of Energy to conduct a public investigation into whether Kaiser met its obligations under its contract. That investigation is ongoing and Kaiser has stymied efforts to make information uncovered public.

Cantwell's request would launch an independent investigation with new teeth. Several factors make the DOE Inspector General uniquely positioned to conduct independent investigations under federal law:

First, the DOE IG can only be removed by the President, who must communicate his reasons for doing so to Congress. Friedman, the current IG, was appointed in 1998 during the Clinton Administration.

Second, the IG serves under the "general supervision" of Energy Secretary Spencer Abraham. Neither the Secretary nor any of his subordinates "shall prevent or prohibit the Inspector General from initiating, carrying out, or completing any audit or investigation, or from issuing any subpoena during the course of any audit or investigation."

Third, the IG's budget is separate from DOE's budget and is protected from any attempts by the Department to influence investigations through budget chicanery.

The text of the letter follows:

May 28, 2002

Mr. Gregory Friedman Inspector General Department of Energy 1000 Independence Ave., SW Washington DC 20585

Dear Mr. Friedman,

I write to request that the Department of Energy's Office of Inspector General undertake an investigation of the Kaiser Aluminum and Chemical Company, and whether it has fulfilled the letter and intent of the 16(k) provision of its Bonneville Power Administration (BPA) power contract by allocating funds to its Gramercy, Louisiana, refinery. I have consistently maintained that Kaiser should be held to the intended requirements of the 16(k) provision, and act to mitigate the impacts on Pacific Northwest workers who were laid off last year due to rising energy costs in the West.

The 16(k) contract provision was intended to protect Northwest workers and communities during periods when it was more profitable for companies to remarket their power than produce aluminum. The provision was clearly intended to ensure that, to the extent possible, the Pacific Northwest retain a qualified aluminum workforce and modern aluminum production capacity at times when production has been curtailed.

That this was the intent behind the provision is clear based on the actions of other companies with the 16(k) language in their contracts. As you may know, many other Northwest aluminum companies shared 25 percent to 30 percent of their remarketing profits with BPA to help lower electricity rates in the region during the Western energy crisis. These companies also continued to compensate or employ virtually all their affected employees at full wages during the curtailment period. And, most importantly, many of these companies had the foresight to use a substantial amount of their profits to make investments that would help ensure continued production.

Kaiser, on the other hand, left more than a third of the workforce at its Mead and Tacoma plants without any compensation whatsoever and only provided the 70 percent benefits to senior workers required under the existing collective bargaining agreement between Kaiser and the workforce. Kaiser has, to my knowledge, also refused to commit any portion of its profits toward the future viability of its Northwest facilities-either to increase efficiency, or to invest in future power purchases.

Kaiser has to date refused to disclose to Northwest ratepayers how it has spent the $485 million in remarketing proceeds. In fact, Kaiser's lack of cooperation was part of an ongoing dispute in BPA's negotiations with the company over additional curtailments during the current rate period. The company is now claiming it has spent portions of the money rebuilding its Gramercy plant after an explosion. While it is not yet clear that this actually occurred-given that Kaiser's own quarterly financial statements state that the company has already received over $300 million in insurance funds and a settlement agreement for the Gramercy rebuild-I am also concerned that this expenditure does not meet the letter and spirit of the BPA contract's 16(k) provision.

In particular, I am aware that former DOE Deputy Secretary Frank Blake sent a Sept. 28, 2001 letter to Kaiser stating that "the funds used by Kaiser to recover production at its Gramercy, Louisiana, facility will also be considered an acceptable use of remarketing proceeds under Section 16(k)." In subsequent correspondence, I asked Deputy Secretary Blake for the legal analysis underlying this conclusion, as well as a formal DOE audit of Kaiser's books. In a March 8, 2002 letter, he replied that the legal rationale was that "a fundamental purpose of Section 16(k) was to encourage Kaiser to use its remarketing revenues to preserve aluminum workers' jobs by positioning the company for renewed operations. In Kaiser's case, we concluded that the survivability of its Northwest plants and Northwest steelworker jobs was affected by the health of Kaiser's broader domestic smelter related operations."

I remain unconvinced that this represents compliance with the letter and intent of the 16(k) contract provision-particularly given the fact Kaiser has, to my knowledge, failed to disclose any long term strategy to invest in its Northwest operations, or articulate how investment in Gramercy would have a positive impact on "the survivability of its Northwest plants."

In response to my request for an audit, Deputy Secretary Blake informed me that "Bonneville has asked Kaiser for an accounting of its use of the remarketing revenues to assure that use is consistent with the contract. If Kaiser supplies the information within the requested time frame, Bonneville expects to have completed its review by mid-April. Bonneville has informed Kaiser that it expects to make the results of the review public." This audit has not yet been completed, and I understand Kaiser has thus far refused to make public any information stemming from DOE's review.

For all of these reasons, I ask that you undertake an independent investigation of whether Kaiser has met its obligations under Section 16(k) of its BPA power contract, whether DOE has erred in its interpretation of this contract provision, and the factors contributing to this specific interpretation.

Thank you for your consideration. I look forward to your response.

Sincerely,

[Original signed]

Maria Cantwell U.S. Senator