Energy Policy Position

Background

Americans consume aluminum primarily in transportation (34 percent), containers and packaging (20 percent), and building and construction (14 percent). The advances in the automotive aluminum market are helping Americans drive better-performing cars that in turn reduce carbon-dioxide emissions and fuel consumption. Closed-loop recycling of aluminum beverage cans—all recycled cans are used in new can sheet—allows energy conservation and high recycled content. More than two-thirds of all aluminum ever produced is still in use through continuous aluminum recycling.

Recycled aluminum—from beverage cans to all other uses—requires only about 5 percent of the energy as compared to primary-ore production. Americans’ recycling efforts and the industry’s aluminum reclamation system reduces the overall energy consumption in total U.S. aluminum production by 46 percent. Primary production consumes 507.16 trillion BTUs for 8 billion pounds, and recycled secondary uses 41.3 trillion BTUs for 8.2 billion pounds, making the national industry energy consumption for production 548 trillion BTUs.

Energy represents about one-third of the total production cost of primary aluminum. Electricity is an essential ingredient in primary aluminum production. These factors together make energy efficiency and energy management prime objectives for the industry. While the industry is a large consumer of both natural gas and electricity, the annual expenditure for electricity by the aluminum industry is more than $2 billion.

Since the 1970s, manufacturing energy consumption has grown at twice the rate of domestic energy production. This gap between energy use and production will continue to adversely affect manufacturing if the country does not resolve national energy policy with a comprehensive U.S. energy strategy that enhances supply, improves infrastructure, and increases efficiency, without compromising environmental safeguards or imposing efficiency mandates.

Many business and labor leaders, economists, and policymakers agree that America must increase domestic energy supplies in an environmentally sensitive manner; improve energy efficiency, conservation and development of new technologies; expand and secure our energy delivery infrastructure; ensure affordable home energy supplies for low-income households; and thoughtfully streamline energy development regulatory processes.

Electricity

The Aluminum Association supports the principles of electricity consumer choice and open access transmission, applied uniformly in the U.S. through a national system. However the industry does not support proposals for total federal pre-emption in all areas related to deregulation and restructuring. The Aluminum Association supports the establishment of a system that recognizes some inherent regional advantages in the cost of electricity. Consumer-choice legislation should not be tied to excessive taxing of electricity consumers to fund public benefits or a national mandatory Standard Market Design.

With artificial-market disadvantages, it may be impossible to operate or restore primary smelting capacity in the Northwest U.S., and other regional aluminum plants will be subject to similar concerns. The recommended approach is to provide short-term policies to help the industry survive the transition to a rational market situation, and provide long-term policies to restore supply-demand balance in electricity markets.

 

Recommended policy solutions:

1. Provide for the creation of incentives that will create sufficient generating capacity to service peak demand and provide a reserve margin that will prevent brownouts and seasonal price spikes.
   
2. Create a pricing and/or auction mechanism for the purchase of long-term, reasonably priced supply, encouraging new generating-plant construction, especially base load supply.
   
3. Create demand-management pricing (including cost-of-service, time-of-use, and seasonal pricing) that gives consumers appropriate price signals allowing for conservation and reducing overbuilt capacity for peaking loads.
   
4. Encourage low cost-to-serve customers that have significant off-peak demand, to provide off-peak load for generating plants.
   
5. Create national ratings and standards that assess generation and transmission reliability.
   
6. Create national standards for grid design and maintenance to assure supply portability with low-load losses to help balance supply and demand on both a regional and national basis. Promote system efficiency and lower cost.
   
7. Ensure economic access to the grid for new and current generation capacity that meets national standards of quality and reliability.
   
8. Require BPA to control costs to make up financial deficits rather than enact rate increases that threaten the viability of manufacturing customers.
   
9. Amend the 1980 Northwest Power Act to exempt the Northwest aluminum industry and other traditional Direct Service Industrial Customers of BPA from the New Large Single Load prohibitions of that Act as BPA discontinues service to those customers, allowing indirect access to power.

Electricity Notes:  In the Northwest Power Act of 1980, the Congress and BPA sought to keep the Northwest aluminum industry and several other traditional Direct Service Industrial Customers (DSIs) of the Bonneville Power Administration as BPA customers. For that purpose, the Act includes the New Large Single Load (NLSL) provisions that preclude the DSIs from receiving the benefits of the Federal hydro system by purchasing such power from any utility except BPA. Since BPA controls about half of the power marketed in the region and has announced its intention to discontinue all electricity service to the DSIs, the effect of the 1980 NLSL prohibition is to deny the aluminum industry access to half—the lower-priced half—of the electricity market in the region. This unintended consequence of the Northwest Power Act threatens the existence of 40 percent of the U.S. primary aluminum industry and 5 percent of world supply.

 

 

Natural Gas

The high cost of natural gas in the U.S. is having a devastating impact on U.S. manufacturing competitiveness and jobs. U.S. natural gas production has been stagnant since 1995 even though there is an abundant resource base, while prices are more than triple their historical base.

The manufacturing sector has lost 2 million jobs since 1998, and energy costs are viewed as a major contributing factor. It is vital that Congress act quickly to stem the national energy crisis by enacting legislation that provides a robust, diverse, and affordable supply of energy. It is particularly critical that Congress and the states act to increase the supply of natural gas, and address regulations such as New Source Review to make it easier for power generators to meet air-quality standards without switching from coal to natural gas. Congress must also expedite commercialization of clean coal technology, the ultimate solution for power generation, using coal in an environmentally acceptable manner.

As of December 2007, the Henry Hub wholesale price of natural gas was $7.22 per million BTU—well over three times the average price of $1.97 per million BTU from 1991 to 1998. U.S. natural gas production has been stagnant at 19 trillion cubic feet per year since 1995, even though demand has continued to increase and relatively abundant amounts of natural gas reserves exist. In fact, U.S. production in 1970 was higher—at 21 trillion cubic feet per year.

Certainty of an affordable energy supply is essential to capital investment in the manufacturing sectors that provide high-paying jobs. Putting the U.S. on the path to a reliable and affordable supply of domestic energy is essential to this country's short-term economic rebound and future long-term growth prospects. All supply options should be considered to contribute to a diverse and robust supply of energy.

Every major energy crisis since 1973 has been followed by an economic recession. The energy crisis of 2000-2001 was no different. The link between affordable supplies of energy and our economic well-being is no coincidence. Industrial energy-consuming companies were devastated by high-energy costs that resulted in plant closures, plant idling, worker layoffs, and the transfer of production to offshore facilities. This same scenario is being repeated again, only from a smaller base of manufacturing plants. The jobs may never return. 

Recommended policy solutions:

1. Reconsider expired Section 29 Tax Credits, which had an important impact on increasing natural gas production from 1990 to 1999 (January 2002 EIA report). For companies that used section 29 tax credits, natural gas production increased by 26 percent, but decreased by 14 percent for those who did not.
   
2. More reservoirs should be targeted with relatively fewer wells. The half-life of natural gas wells in the contiguous 48 U.S. states has fallen by 49 percent in only nine years and the rate is accelerating. Even though the 2000-2001 natural gas price spike almost tripled the number of drilling rigs in operation, the resulting natural gas supply increase was insignificant. This means a lot of wells are being drilled into common reservoirs that are getting smaller and are depleting more quickly.
   
3. Expedite access to federal lands that offer the greatest potential to find large reserves of natural gas and with minimal environmental impact.
   
4. Expedite permitting and construction of the Alaska natural gas pipeline.
   
5. Initiate a Federal Energy Regulatory Commission (FERC) rulemaking process to establish a “natural gas price index protocol” to bring accuracy, integrity, and accountability to how natural gas prices are being reported and communicated to the market.
   
6. Expedite permitting and construction of liquefied natural gas terminals.
   
7. Address New Source Review regulations in a manner that makes it easier for power generators to meet air quality standards without fuel switching from coal to natural gas.
   
8. Expedite commercialization of clean coal technology, the ultimate solution for power generation, using coal in an environmentally acceptable manner.
   
9. Avoid any federal or state legislation that will directly or indirectly force fuel switching to natural gas without commensurate increases in supply.
   
10. Maintain the ability of end users to connect directly to interstate natural gas pipelines on a non-discriminatory basis.
    
11. Strengthen firewalls between the regulated and unregulated portion of companies that trade natural gas to prevent self-dealing.
    
12. Embrace serious bilateral negotiations with the government of Mexico to allow exploration and production access to their natural gas reserves.
    
13. Streamline the regulatory process at FERC, the Bureau of Land Management, the Department of Interior, the Environmental Protection Agency, and the Department of Commerce to encourage expeditious natural gas pipeline certification and construction commensurate with health and environmental protection.