Alcoa cuts deal for low-cost hydropower
The effort to make more-efficient use of low-cost hydropower to promote economic development in Western New York probably got a lot tougher on Friday.
Gov. Eliot L. Spitzer announced a tentative deal with Alcoa Aluminum in Massena that amounts to what is likely the largest corporate subsidy in New York history. The state agreed to sell Alcoa electricity at about one-quarter its market rate for at least the next 30 years, saving the company an estimated $5.6 billion.
In exchange, the company agreed to invest $600 million in its Massena facilities and not to eliminate more than 165 jobs from its present work force of 1,065.
The deal works out to about $148,000 per year per job, or $4.4 million per job over 30 years. By contrast, the federal government caps the subsidy for several major economic-development programs at $35,000 per job for the life of the subsidy.When the details of the prospective deal were made public in July, Greg LeRoy, a national expert on economic-development subsidies with Good Jobs First, described the proposal as "exceptionally lavish" -- and the richest he's aware of in the entire country.
On Friday, Assemblyman Sam Hoyt, D-Buffalo, characterized the agreement as an "obviously generous package," while noting Alcoa's importance as Northern New York's largest employer.
Alcoa has been getting cheap power, generated at a hydropower plant on the St. Lawrence River near Massena, from the State Power Authority since the 1950s.
About 100 companies in Western New York receive similarly priced, low-cost power generated at the Niagara Power Project in Lewiston, the nation's second-largest hydropower plant.
A Buffalo News investigation published in May found that much of this region's low-cost hydropower is being squandered.
Two Niagara Falls chemical manufacturers -- Occidental and Olin -- get 29 percent of the low-cost industrial power earmarked for the region, although they employ only 1 percent of the workers of the companies participating in the program.
The discounted power last year saved Occidental and Olin an estimated $53 million, or an average of $126,155 per job.
Dozens of other companies, The News found, receive discounts that provide subsidies that exceed the federal benchmark.
What's more, The News found that the criteria used to determine which companies get power is outdated, favoring Cold War-era companies at the expense of new economy enterprises.
Many of the large power recipients in the Buffalo Niagara region have indicated in recent years that they also want long-term extensions of their contracts. The Power Authority has not granted any long-term extensions, instead sticking with five-year deals.
But U.S. Rep. Brian Higgins, a leading advocate for making efficient use of the region's allocation of low-cost hydropower, said, "the Alcoa deal foreshadows a similar deal for existing power customers here."
Higgins conceded that not all the large industrial customers getting low-cost power are making the most effective use of their allocation.
But, he said, they account for a lot of good-paying jobs, no small consideration given the weak regional economy.
As such, he doesn't oppose a "me too" deal for them.
"This is tough," he said. "We are in a situation, given the fragility of the economy, where you have to retain what you have."
Higgins said, however, it would be important that any deal accommodating existing customers makes other power available under new criteria aimed at "highest and best use" to promote new economic development.
Hoyt, meanwhile, said that while he doesn't necessarily want to see any local companies lose their allocation of hydropower, he doesn't want to see the Massena deal set a precedent for Western New York.
"Are we being as creative and innovative with the distribution of low-cost power in New York State as we should be? The answer is, 'absolutely not,' " said Hoyt, a Democrat who represents Buffalo and Grand Island in the Assembly.
While the Alcoa deal has been the subject of negotiations since last year, it's uncertain how much give and take was involved, since the agreement is similar to what Alcoa originally asked for, and more generous than potential terms discussed in July.
Alcoa would receive 478 megawatts of power, five times more hydropower than any other single company in the state.
The agreement is subject to more detailed negotiations, and subsequent approval by the Spitzer administration and governing board of the Power Authority, following a public hearing.
The governor was under a lot of political pressure to grant Alcoa what it wanted, as the company threatened to otherwise close its two plants there. Spitzer now is likely to face similar pressure from corporations in Western New York.
Alcoa's current 30-year agreement expires in 2013, which is when the new agreement would take effect.
The agreement includes an option to extend the contract for another 10 years under certain circumstances. Alcoa also agreed to fund a $10 million regional economic development fund to be jointly administered by the Power Authority and Empire State Development Corp.
"The loss of Alcoa would have crippled the local economy, and this agreement ensures that these important jobs will remain in New York State for years to come," Spitzer said in announcing the agreement in principle.
The governor and the Power Authority committed to the subsidies at a time when Alcoa is enjoying record profits, $23.4 billion through the first three quarters of this year.
Log into MyBuffalo to post a comment
MyBuffalo is the new social network from Buffalo.com. Your MyBuffalo account lets you comment on and rate stories at buffalonews.com. You can also head over to mybuffalo.com to share your blog posts, stories, photos, and videos with the community. Join now or learn more.
Reader comments