First of all I would like to thank the District of Kitimat and Save the Northwest for inviting me as a private individual to come and speak about the power sales agreement which was just rejected by the British Columbia Utilities Commission.

My name is Richard McLaren.

Some of you may know me, and some of you may not. Some of you may even have worked for me at Alcan or at least worked alongside me there.

Not many will know my full background with Alcan, but it started in Alcan's underground fluorspar mines in Newfoundland. When Alcan closed those mines in 1977, Alcan moved families from there to Kitimat to work in the smelter.

At the smelter, I worked as Superintendent of Reduction Materials in charge of the supply and preparation of all the raw materials which go into the aluminum smelting process. I then worked as Casting Manager in charge of the solidification of the hot metal into various marketable products and the distribution of these products to customers.

Lastly, I worked on two expansion/modernization proposals to implement the terms of the 1997 agreement into a 550,000 MT/year smelter.

I devoted over twenty years of my life to see that Alcan's Kitimat Works was the safest, most efficient, most customer attentive operation it could be. I know what makes aluminum smelters work and am well acquainted with the economics involved in smelter operations and in new smelter proposals.

Since my early retirement, my family has continued to live in Kitimat.

My intervention in this BC Hydro-Alcan LTEPA application is solely predicated on my concern for the aluminum smelting industry in Kitimat and its effect on my town.

I must admit that I am not comfortable in giving this presentation. However, I feel that it is very important for people in Kitimat and the Northwest to understand just how dangerous this power sales agreement is and why it is essential that we still keep fighting it.

So, whether I am uncomfortable or not, here it is.

My involvement with the hearings of the BC Utilities Commission, or BCUC, began last August after the big announcement by the Premier and Alcan of a proposed modernization of the plant and the expansion of capacity to 400,000 t/year. The Premier even interrupted his vacation to be present at the celebration.

I was happy that finally Alcan was going to modernize. The size was a bit smaller than I would have liked, but hey, it was modernization at last.

However, Alcan laid down three preconditions for this modernization to proceed.

One, was environmental approval of the project.

Two, was an extended collective labour agreement with the union.

Three, was BCUC approval of a new Long Term power sales agreement with BC Hydro.

However, there were very few details about what would be in this new power sales agreement except mention that with the modernization, power sales to BC Hydro would increase slightly to 170 MW and then decrease eventually to 55 MW.

Because of Kitimat's experiences with RESA and the 1997 power sales agreement and how it had negatively affected previous expansion/modernization projects, I was anxious to see the details of this new contract.

That proved to be difficult. Eventually, a tentative agreement between Alcan and BC Hydro, or Term Sheet emerged from BC Hydro's long term plan which was before the BCUC for approval. It was 16 pages long.

I read it and became alarmed. The only thing that was guaranteed was that BC Hydro would purchase up to 380 MW, about half of Kemano's output. There were no guarantees that the modernization would ever be started, or ever finished, or ever run at full capacity.

If Alcan wanted to shut down some aluminum production to sell 380 MW, then BC Hydro was obliged to take it and pay for it.

I started writing letters to the local newspaper, expressing my concerns and hoping that the criticism would be heeded, and that the final agreement would contain some guarantees about the modernization.

The final agreement was secretly signed by Alcan and BC Hydro on October 27th, 2006. No announcements, no press conferences and nobody interrupted their vacation to celebrate.

On November 1st, BC Hydro filed this agreement (now called LTEPA Plus) with the BCUC and asked for two things.

One, that the BCUC approve it. Two, that the agreement be kept confidential.

The Commission Panel was advised that Alcan needed a decision on this agreement by December 31st, 2006.

Normally this BCUC process would take 5 to 6 months but they were pressuring the BCUC to hurry up and do it in only 2 months.

The BCUC scheduled public hearings for December 6, 7 and 8th. To do that, this same panel of Commissioners had to interrupt their ongoing hearing into BC Hydro's long term plan.

People who wanted to see this agreement and possibly participate in the public hearings objected to the agreement being kept secret. How can you form an opinion if you can't see the details?

BC Hydro submitted a 266 page legal brief to the BCUC arguing for the deal to be kept secret. You can see their document as Exhibit B-3 on the bcuc.com website. Whatever you do, don't press the print button.

Because of all the pressure from intervenors, Alcan and BC Hydro finally agreed to have the agreement made public and it appeared on the BCUC website on November 15th, just three weeks before the hearings were due to start. The agreement had grown from 16 pages to 71 pages.

When I read this new agreement, I became more alarmed. Apart from the addition of 50 pages of lawyer fine print to hide everything, what few changes there were from the Term Sheet were only cosmetic in nature.

I wrote letters again to the local newspaper to voice my concerns about this and debated whether to attend the BCUC hearings myself.

In all of this, Alcan never explained the details of this agreement to its employees, or to the people of Kitimat or even to the BCUC when it had a chance later on.

All Alcan did was to constantly warn people that approval of this agreement was necessary for the modernization to proceed.

I feel that this was done to silence any critics in Kitimat of Alcan's power sales agenda. You speak up against this agreement then no modernization for you! ...and you'll be blamed!

I do not like to be threatened. I do not like to be intimidated. I do not like to be taken advantage of, and I do not like to be deceived.

I think that Alcan has been guilty of all of the above in trying to keep this agreement secret, in not explaining it to people, in rushing the BCUC approval process, and in threatening and bullying people so it would not be opposed at the expedited BCUC hearings.

I had to make a difficult decision. Speak up against my former employer and oppose this power sales agreement and maybe jeopardize the modernization, or let it slip through and hope against hope that Alcan might finally deliver on one of its promises.

My analysis of this agreement and my own experiences with Alcan over the last ten years led me to believe that opposing this agreement was the lesser of two evils. Letting a bully have his way is always the worst evil. You end up losing your lunch anyway.

In my opinion, this new power sales agreement was just too dangerous to let pass.

What is very saddening for me, is to see the wonderful company that I used to love to go to work for, degenerate into a greedy bully, who is preying on the economic fears of the local population in order to get its own way.

It is those economic fears that Alcan is using to set people up against people.

They have set up town against town.

They have set up un-elected groups against the democratically elected council of the District of Kitimat, and will only deal with these un-elected groups.

They have told half truth after half truth after half truth and never the whole truth.

When people tell the other half, they are personally vilified by Alcan's surrogates, or as in the case at the BCUC, Alcan just tells the commission to ignore Kitimat's concerns entirely.

On page 23 of its Reasons for Decision, the BCUC quotes from Alcan's argument to the Commission that the Commission should be careful to avoid being drawn into debates about socio-economic impacts related to the operation of the Alcan smelter.

In other words, just forget about what may happen in Kitimat, it is irrelevant.

So much for Alcan caring for the communities in which it operates.

Thankfully, the BCUC did not agree with Alcan and on page 29 of its Reasons it says two things.

First... The Commission Panel does not agree with the submission by Alcan regarding .... what defines the public interest.

And then... In particular, the Commission Panel is of the view that evidence dealing with probable economic effects flowing from the approval of LTEPA+ on the surrounding community is a relevant consideration in determining the public interest.

I decided to intervene in these BCUC hearings as a private citizen.

I did not apply for intervenor funding that is available from the BCUC, but instead paid all my own expenses so that I could be an independent voice from Kitimat.

When I registered as an intervenor at the BCUC I followed the steps on its website:

1. You register.
2. You submit any evidence in writing and you have to send a copy of it to a list of all the other intervenors.
3. At the hearings, you will be asked to take the stand, be sworn in and will be asked to adopt the written evidence you submitted. You can then be cross-examined in defense of your evidence. To save hearing time, you don't read your evidence into the record, and you don't get cross-examined by intervenors on your side of the issue friendly cross-examination.

Cross-examination is intended to be from intervenors opposed to you to test the credibility of your evidence. So if you say something controversial in your evidence, you will be challenged to prove your statement.

You can also be cross-examined by the Commissions own lawyer or by the Commissioners themselves.

I submitted a 7 page analysis of this new power sales agreement (LTEPA Plus) on the effect it would have on the aluminum smelting industry in Kitimat.

I indicated that I was quite willing to be sworn in and defend my submission under cross-examination.

Amazingly, Alcan, BC Hydro and the BC Government all declined to cross-examine me and so my evidence was accepted by the Commission as unchallenged.

The Commissioners themselves did not ask me any questions on my evidence, and neither did the Commissions own lawyer, Mr. Fulton.

So, what was in my evidence that Alcan, BC Hydro and the BC Government would not challenge? Anyone who has read my letters in the Northern Sentinel last year will be familiar with what was in my submission.

First of all, I stated that this new LTEPA Plus contract only guarantees power sales. Alcan guarantees to supply BC Hydro with certain fixed amounts of Tier 1 power. BC Hydro agrees to take and pay for this power. This is the 170 MW declining to 55 MW that Alcan is so fond of talking about.

Because Alcan guarantees this power if it does not deliver it on time, it has to make up the shortfall sometime in the future. However, BC Hydro also guarantees to take and pay for any Tier 2 power which Alcan wishes to sell over and above the Tier 1 amounts and up to the limit of BC Hydro's take-away transmission facilities (380 MW). Alcan never talks about this.

The difference between Tier 1 and Tier 2 power is that the Tier 1 amounts are guaranteed by Alcan, and the Tier 2 amounts are not. For this lack of guarantee, Tier 2 power is paid at $8/MWh less than Tier 1 after 2014.

However, BC Hydro guarantees to take and pay regardless of whether it is Tier 1 power or Tier 2 power up to the delivery limit of 380 MW.

This guarantee to take and pay continues even if Alcan doesn't start construction of the modernized smelter, or even if it doesn't complete it, or even if it doesn't run the smelter at full capacity. It doesn't matter; power sales continue, no matter what.

I know that the contract says that the smelter electrical load comes before any power sales. Alcan and the BC Government are saying this protects the smelter.

Not if Alcan doesn't want it to, it doesn't!

The smelter load is defined in the contract only as a maximum. BC Hydro put that in to protect itself as it wants to buy all the Kemano power the smelter does not use. If the smelter load increased incrementally over the years, BC Hydro's share of the Kemano output would gradually get smaller. They want to avoid that.

What is missing is any commitment to a minimum smelter load coupled to a minimum operating rate for the smelter. As it stands now, the smelter load can be anything Alcan wants it to be from zero up to the maximum.

If Alcan wanted to shut down half the smelter and sell the power, then it would have a guaranteed buyer in BC Hydro for 380 MW.

Alcan never challenged any of the above statements in my evidence to the BCUC, and most were also confirmed as correct by BC Hydro's witnesses during cross-examination.

Part of all the papers you would have got in the foyer was a one page excerpt from the BCUC transcript. It is entitled, BC Hydro must take any Tier 2 power Alcan sends it.

If you take any paper home tonight, make sure it is this one page. On it, Mr. Fulton, the Commission's own lawyer, asks BC Hydro's witnesses about what would happen if Alcan reduced its smelter loads.

[BC Hydro must take any Tier 2 power Alcan sends it]

[BCUC Transcript, Volume 3, Pages 382-384, attached as page 12]

So, there you have it, if Alcan wants to, it can shut down aluminum production and BC Hydro has to take the power up to 380 MW.

So much for only lighting half of Kitimat on a bad day.

380 MW will light up everything from here to Prince Rupert to Vanderhoof.

I see in the recent issue of the Ingot that Alcan is finally explaining some details of this LTEPA Plus contract to people. This is exactly two months after the BCUC hearings... a bit late don't you think.

However, it doesn't say anything about BC Hydro guaranteeing to purchase up to 380 MW of power if Alcan sends it to them, or the possibility of third party sales beyond that.

It does say that BC Hydro has the option on a five year extension to the agreement, but does not mention that Alcan also has that option, but only if it does NOT complete the Modernization.

Its hard to figure out why you would reward someone for NOT doing what they had promised to do.

BC Hydro seemed to think that all they were doing was buying surplus power from Alcan. Alcan likes everyone else to think that too. The reality of the situation is that if Alcan decided to send 380 MW to BC Hydro out of Kemano's 793 MW annual average production, then 40% of the smelter new or old will be shut down.

This will affect a lot of people whose livelihoods depend on this smelter and BC Hydro will be buying power that comes at the expense of someone's job. I don't think that BC Hydro realized this when they agreed to take 380 MW with no questions asked.

Where did they think that all that power was going to come from?

There is no magic surplus electricity tree growing in Kitimat.

Any power that BC Hydro buys from Alcan comes at the expense of something here in the Northwest; whether that something is someone's job, or economic development opportunities with that power in this area.

Once Alcan sells that power into the provincial grid, it is gone and the only one locally to benefit from it is Alcan, with a big fat cheque from BC Hydro, every month.

I know that BC Hydro would never buy blood diamonds from war-torn Africa or buy anything made overseas with child labour, so why is it prepared to buy power that comes from the elimination of someone's livelihood in British Columbia?

Under cross-examination one BC Hydro witness was obviously disturbed by this scenario of people losing jobs because BC Hydro was buying the power that fueled their livelihoods.

She was asked, "Maybe you'll take the power from wherever you get it. It doesn't matter if industry's going to shut down, because it's more economical to sell power to Hydro. Is that the case?"

She replied, "Well, I mean, I think we would have to consider that. If an industrial customer came to us and said that they were going to completely shut down their mill, and just become a power producer, I think probably for my own job security I might have to think about that, certainly, and take consideration from government." [Transcript Volume 3, page 349]

Did the government know what it was doing in allowing BC Hydro to sign up for 380 MW from Kemano?

What are the economics that would drive Alcan to sell power rather than use that power to smelt aluminum?

Under the LTEPA Plus contract, any Tier 2 power freed up after 2014 would be paid at $67/MWh after water rentals. This represents a 1200% profit margin.

These huge profit margins will drive any company without a social conscience to minimize aluminum production to sell the freed up power, especially if there are no legal obligations to do otherwise.

These huge margins will also drive the company to avoid any unnecessary capital expenditures on smelting facilities. Why invest 1.8 billion dollars in a smelter to make a 20% return when you can make just as much money with zero investment selling the power?

Some people may say that all this talk of Alcan reducing production to sell power, thereby eliminating jobs in the community, is just alarmist speculation.

It is not.

It is happening right now! And this is at a time of record high aluminum prices, averaging US $2700/tonne.

For the last four years, the existing smelter has only run at 87% capacity. The shut down buildings, 1A and 1B, represent 30,000 t/yr of aluminum production and free up 65 MW of power for sale. These shutdown buildings represent direct jobs for about 50 people.

That 65 MW of power costs Alcan only about $5/MWh to produce and can now be sold to Powerex for about $40/MWh after the $5/MWh water rental is paid. This is a 700% profit margin, with no capital expenditure required. Just straight, positive cash flow.

So, don't tell me that Alcan will never shut down production to sell power.

They are doing it already.

I repeat, with Buildings 1A and 1B down this represents:

A 30,000 t/yr reduction in production, 65 MW of power being sold and 50 less jobs in the community.

This is why the District and the CAW have been fighting Alcan on this issue for six years now.

For four years Alcan has been ignoring a solemn commitment they made to the CAW to restart those two buildings.

If this is what is happening now, what about the future?

There are no guarantees in this LTEPA Plus contract that the modernized smelter will ever be built or that it will ever run at full capacity. None whatsoever!

On the last day of the final oral argument at the BCUC, The Commission Chairman asked the Alcan lawyer about this problem.

[Alcan's lack of cross-examination]

[BCUC Transcript, Volume 6, Pages 928-929, attached as page 13].

The LTEPA Plus contract has a number of clauses which actually contemplate that the modernization will not proceed.

Clause 7.1(b) says that Alcan will not receive the $66 Million second installment of the Reinstatement fee, if it fails to start the Modernization Project.

Appendix 2, Section 1(h)(ii) says it also has to repay the initial $45 million first installment of the Reinstatement Fee, but only after 2014. However, according to Section 2.2 of the contract, even if Alcan never starts, or never finishes construction of the Modernization Project, power sales continue but the contract is now extended from 2024 to the end of 2029.

My rough calculations in Appendix 2 of my submission, show that this contract extension could be worth $1 billion to Alcan in those years, or $264 million right now. Alcan did not challenge these figures.

One troubling part of the LTEPA Plus contract is the mention of third party power sales. This occurs in the priority list for power delivery.

The priority list is:

1. Smelter load, if any. This is purely at Alcan's discretion and can be anything from zero up to the specified maximums.
2. Tier 1 power to BC Hydro.
3. Any makeup of any shortfall in Tier 1 power.
4. Tier 2 power to BC Hydro up to the Delivery Limit, which is the take-away capacity of the existing transmission facilities (380 MW).
5. Third party sales.

With this priority list, BC Hydro made sure it gets its 380 MW first before anyone else can buy some.

So, you may ask, how can anyone else get any power if BC Hydro fills up the transmission line to Terrace?

The delivery limit to BC Hydro is on the existing transmission facilities and does not include any material upgrades to the system. So if someone upgrades the transmission facilities, with bigger wires or new lines, say from Kitimat to Terrace or Kemano to Houston, then third party sales or new additional sales to BC Hydro would be possible.

Why mention third party sales or upgrades to transmission facilities in the contract if you were not actually contemplating them?

Rest assured Alcan would use those words in the contract to argue in future that it was contemplated if they were ever hauled into court because they started third party power sales beyond BC Hydros 380 MW.

If you don't want something to happen, then don't mention it in a contract, or better still, expressly forbid it.

Remember, I did say that the smelter load can be anything Alcan wants it to be from zero up to the maximum. Alcan never challenged that statement in my evidence at the BCUC, or anytime I have said it in the newspapers.

As Alan Hewitson said in his column in the Northern Sentinel just before the BCUC decision came down, it all depends on who you trust.

Do you trust a company who has been shown in the BCUC reasons as telling the BCUC not to care about what might happen in Kitimat. A company which was ready to stick it to the BC Old Age Pensioners and other BC Hydro ratepayers with the cost of overpriced power and a grossly inflated reinstatement fee.

People say why not give Alcan what it wants, with this power sales agreement? What Alcan is asking you to do is akin to you giving them your loaded gun so they can shoot you with it anytime they want to. That is how dangerous a loaded weapon this LTEPA Plus contract is.

You give it to them, and you will be completely at their mercy. They can pull the trigger any time they want to.

Don't give it to them, keep fighting for what is yours. I know that I won't give up.

I've already filed the court papers to appear at all three appeals of the BCUC decision. One by BC Hydro, one by Alcan and one by the BC Government.

Yes folks, your own provincial government thinks it's OK for BC Hydro to buy overpriced power and pay grossly inflated reinstatement fees and pass the costs on to YOU! And they are willing to go to court to make it happen.

Thank goodness our local government and MLA are on our side. As a resident of Kitimat I am very grateful for their hard work and dedication on our behalf.

THANK YOU.