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May 30th, 2001 Nick Budnick | News Stories
 

The Juice Junkie

Last year this Portland man made $330 million off your energy crisis. Now he wants more.

     
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Inside the musty auditorium of The Dalles High School on a recent Friday evening, 300 people sit, anxious for a glimpse of their future. Outside lies the brilliant blue swath of the Columbia River, as well as the endangered aluminum smelter that has been the economic engine of this town for almost half a century.

On stage sits the smelter's owner, Brett Wilcox, a man with sandy blond hair and a boyish, honest face. Stepping up to the lectern, the Portlander describes his efforts to save his business and--this audience hopes --their entire community. "To me, this isn't just a business, it's a cause," he says, and the audience gives him a standing ovation.

Charming and shrewd, Wilcox is one of Portland's best-connected entrepreneurs and a hero to the small town where he made his fortune.

Fifteen years ago, at the age of 32, Wilcox bought a mothballed smelter and brought it back from the dead, pumping out aluminum for everything from NASCAR racing pistons to hubcaps for Cadillacs.

His success won him a seat on the board of Reed College, as well as an appointment from Gov. John Kitzhaber to head the Oregon Economic Development Commission.

But his rise has not come without controversy. Wilcox has thrived thanks to low-priced electricity from the federal Bonneville Power Administration--and by extracting concessions that shifted electricity costs to the rest of us.

With the government's help, Wilcox removed much of the risk from a business whose very definition is risk. His success in doing so has prolonged the existence of an industry that some say should have left the Northwest long ago. Wilcox's success has also indirectly helped bring this region to the brink of potentially devastating rate hikes that Bonneville is now struggling to reduce before a deadline of June 22.

Now, Wilcox has launched the biggest gamble of his career: moving from using energy to producing it, by getting the government to finance his entry into the hot new world of power plants. He says it's the best chance he has to revive his smelters and save 1,200 jobs--but, for his critics, it will be more of the same.

"Every single ratepayer in this region, including elderly people and middle-class families, has paid their tribute to Brett Wilcox," says Dan Seligman, a Vancouver energy consultant and lawyer who has represented publicly owned utilities. "It's not just Brett, it's all the [aluminum companies], but I think he's been a driver behind all of it."

At a time when a rootless temp agency, Manpower Inc., is this country's largest employer, the Northwest's aluminum industry is an anachronism. Since World War II, 10 smelters have been a fixture in the Northwest, pumping out 40 percent of the nation's aluminum.

Wilcox's operation is economically dwarfed by others in the region, multinational giants like Kaiser Aluminum and Alcoa. But he is widely viewed as the de facto leader of the Northwest aluminum industry. At meetings between utilities, the Bonneville Power Administration and aluminum companies, says Jerry Leone of the Public Power Council, the common refrain is "Have you checked with Brett? What does Brett think?"

Raised in Bellevue, Wash., Wilcox never got a business degree; he studied government at Princeton University, then attended Stanford Law School.

Upon graduation he packed up and moved to Seattle, where he worked for Preston, Thorgrimson and Ellis, representing the Northwest's smelters.

In 1981 he moved to the Rose City; one year later, at the age of 29, he became director of the aluminum companies' lobbying arm, Direct Service Industries Inc.

At the time, the Northwest's aluminum smelters had entered what some called a "death spiral," and by 1985, Martin Marietta was talking about bulldozing its mothballed smelter in The Dalles.

Mortgaging his house, Wilcox jumped in to buy the plant. Martin Marietta, eager to unload the Korean War-era hulk, financed the sale to Wilcox. Meanwhile, he persuaded the United Steelworkers of America to accept wage and benefit cuts in exchange for profit-sharing.

Wilcox also secured several million dollars in operating funds from a company affiliated with Marc Rich, the shadowy aluminum magnate and convicted tax fugitive who received a controversial Clinton pardon in January. In return, Wilcox used his smelter to process ore for Rich's company, Clarendon Ltd.

Shortly after Wilcox's purchase, world aluminum prices started climbing sky high. Wilcox's earnings from The Dalles are not public information, but research by WW indicates that between 1986 and 1996, he made, conservatively, tens of millions of dollars.

As he made his money, Wilcox gave thousands of dollars to dozens of local, state and federal politicians, records show. In 1994, for example, Wilcox was the third-biggest contributor to Gov. John Kitzhaber, following only Nike CEO Phil Knight and scrap-metal king Warren Rosenfeld. In 1990, as a favor to then-Gov. Barbara Roberts, he gave $100,000 for the state's 150th birthday.

With donations came acclaim: A 1991 Oregonian column by Gerry Frank described him as a visionary who could step into the void left by Neil Goldschmidt's departure from government.

He used his riches to diversify, buying pieces of a jet-engine company, a firm that's patented a computerized vision exam, a computer-equipment company and a Seattle development firm.

He and his wife, Mary, developed and own the 35-acre Wilsonville Town Center mall. In 1993 they purchased a 356-acre equestrian theme park in Scottsdale, Ariz. Later, with the backing of Scottsdale city officials, the Portland couple developed an 18-hole golf course on federal land.

In 1996 Wilcox spent $67 million on another smelter across the river in Goldendale, Wash. Later that year he bought an 80-employee auto parts manufacturer in Arkadelphia, Ark.

Today, he and his wife own a stately brick home in the Northwest Portland hills assessed at $718,000, as well as a house on Cannon Beach assessed at $560,000.

It's hard to make Wilcox-sized money without making enemies, but his reputation has benefited from good relations with union leaders.

"If we had more CEOs like [Wilcox], I think we'd be a hell of a lot better off across the country," said James Woodward, a United Steelworkers official, at the meeting in The Dalles.

As the only Oregon-based smelter operation, Wilcox's matchup against multinationals like Kaiser and Alcoa has actually worked to his benefit.

"I think Brett's been a lot more public-minded than the other companies," says former state Public Utilities Commissioner Ron Eachus. Wilcox may be a businessman, Eachus says, but "he's not going to bilk the whole region."

Congressional, Bonneville and utility sources say there is another side to Brett Wilcox, the side that has masterfully manipulated the political process to make millions.

Key to that success has been the Bonneville Power Administration, the federal agency that markets electricity from 30 hydroelectric dams and several power plants, supplying 40 percent of the needs of four Northwestern states.

For the aluminum industry, cheap electricity is crucial to profits. The region's smelters, when running at peak, consume 3,000 megawatts of power, three times as much as the entire city of Seattle. Approximately a third of a smelter's costs are for energy.

Whereas smelting most metals uses energy to generate heat, refining aluminum requires a great deal more electricity. A tour of Wilcox's smelter at The Dalles shows why.

Rows of giant furnace-like steel "pots" sit inside a warehouse-like interior. In a pot's red-hot, carbon-lined interior, semi-refined alumina, the consistency of flour, is heated at 1,800 degrees Fahrenheit to form silvery molten metal; huge bursts of electrons--electricity--flow through the chamber to purify the substance, a current so strong that a magnetic field makes coins and keys stick together in workers' pockets.

To keep the power flowing, Wilcox has exploited the pull enjoyed by big employers in small towns, the assistance of an influential union, and a keen understanding of BPA's political pressure points.

"It's true that I have been active in public life," says Wilcox, but he adds that aluminum companies have as much a right to Bonneville power as anybody. "Fundamentally you have a power system that is dedicated to serving regional needs at cost," he says. "The aluminum companies have been buying power just like any other customer."

In 1978, when Wilcox graduated law school and returned to the Northwest, Bonneville had declared an imminent energy shortage.

BPA's contracts with smelters were due to expire in the early '80s, and the aluminum industry's access to BPA power was in jeopardy.

Wilcox's law firm transferred him to Washington, D.C., where he represented the region's aluminum industry and helped write the landmark 1980 Northwest Power Act, which required the BPA to issue long-term contracts to the smelters.

Now that the BPA was required to sell the smelters electricity for up to 20 years, Wilcox went to work getting that power more cheaply.

In 1982, Wilcox became head of the aluminum companies' trade association. One year later, he spearheaded an ad blitz costing more than $500,000 to pressure the BPA to lower smelters' rate for electricity. The push was successful, benefiting aluminum companies by $200 million a year, according to both Wilcox and his critics.

Then in 1985, shortly before Wilcox bought his smelter, he played a key role in persuading Bonneville to peg the industry's power rates to world aluminum prices, thereby reducing smelters' risk. A subsequent BPA study contends the agency broke even or better, but Tacoma power economist Jim Lazar contends the change cost other ratepayers $170 million a year.

After Wilcox bought his smelter in 1986, he rode Bonneville's cheap power through a three-year boom market for aluminum. But in the early '90s, prices fell as smelters in the former Soviet Union flooded the world market with aluminum.

In 1995, energy prices were in a slump and BPA prices became more expensive than energy sold on the open market. Wilcox led his industry in trying to escape the long-term contracts with Bonneville that he'd fought to secure years ago.

Fearing a loss of the smelters, Bonneville slashed the aluminum industry's price of power from $28 per megawatt hour to $23, helping cut its costs by hundreds of millions.

The new arrangement was of enormous immediate value to Wilcox. But the arrangement contained a provision that would eventually be even more lucrative for him: For the first time, smelters were allowed to take government electricity and resell it on the open market.

Over the past 11 months, through the resale clause, Wilcox and other aluminum companies have made huge sums of money. The cost of power has shot up so high, in fact, that they've shut down or cut back their aluminum operations, instead selling their power on the open market.

Last month, Congressman Peter DeFazio, an Oregon Democrat who has long been critical of the aluminum industry's dealings with BPA, released a report showing the industry made $1.4 billion reselling Bonneville's low-cost power. The boon to Wilcox was $330 million.

DeFazio calls the industry's profits in this deal "obscene."

Wilcox retorts that the risk went both ways. "Nobody would have complained if we were stuck buying BPA power and the market prices were lower," he says.

Whereas Kaiser, which operates smelters near Tacoma and Spokane, simply pocketed its share, Wilcox entered a pact with Bonneville to ensure good long-term relations. Under the deal, Wilcox gave the agency a cut of his take and agreed to restrictions on his $330 million windfall. He could use the money to modernize his plant, cover costs of the two idled smelters, and pay his laid-off workers to supplement their unemployment.

Wilcox also could use the money to build his own power plants--something that Bonneville encouraged.

The roots of today's Northwest energy crisis reach back to 1999, when Bonneville knew its supplies were going to be tight. The aluminum smelters' contracts were due to expire, so BPA officials advised the industry to look elsewhere for their electricity. That way, the agency could focus on providing the electricity it did have to the needs of customers it was, by law, obligated to serve: public utilities and residential customers of investor-owned utilities.

Wilcox and his industry allies responded with the collective weight of their political power, threatening to join the agency's enemies in Congress, mainly from the Northeast and Midwestern states, unless they could continue to feed from the BPA trough. Says DeFazio, the smelters "were threatening to destroy BPA for the rest of us if they didn't get their share."

In the end, the aluminum companies got a commitment for 1,500 megawatt hours, after Wilcox, other smelter officials and George Becker, then-president of the United Steelworkers, met with Energy Secretary Bill Richardson in 1998 and persuaded him to lean on Bonneville.

"We've insulated these people from the market," says Robert McCullough, a Portland-based power economist who works for public utilities. "When the real world intrudes on their happy preserve, they hire more lawyers and lobbyists. You have this cycle of subsidy and resurrection; it's like that movie, Night of the Living Dead."

BPA vice-president Norman, for his part, says his agency's concession was motivated not by political pressure but by a desire to save jobs and a sense of obligation toward longtime customers.

That agreement was before the California power shortages, which drove up prices on the spot market where BPA was trying to purchase power to make up for the Northwest's worst drought in decades. Bonneville suddenly was projecting 250 percent rate hikes, which would wreak havoc in the region--and make aluminum unprofitable.

That did not suit Wilcox. He has countered with a plan that would make smelters' electricity affordable while driving up residential rates. To push the idea, the aluminum industry poured money into radio ads all over the Northwest (which are still airing) that trashed BPA for targeting the smelters. At events like Wilcox's presentation in the Dalles, union officials urged workers and townspeople to sign letters to Energy Secretary Spencer Abraham protesting "BPA's planned assassination of the aluminum industry."

Bonneville, however, is holding firm and wants to boot the aluminum industry off the grid. Taking the smelters off-line would reduce its need to buy power on the spot market and let BPA cut its projected rate hikes in half.

Wilcox says he's being pushed off BPA by the growing demands of the investor-owned utilities. He feels like a longtime renter whose payments helped pay off the mortgage on a house. "The other renter in the house is saying, 'Sorry, too bad, you've helped pay off the house, but now we'd like your room, thank you very much,'" he says.

Earlier this month Bonneville struck a compromise by buying out Alcoa's rights to buy power for up to two years, in exchange for BPA covering employees' wages.

Wilcox, however, is holding out for more. In exchange for shutting down his smelters and not buying BPA power for up to two years, he wants BPA to pay his employees' wages (his yearly payroll is $71 million) and reimburse his company for substantial losses during that time. This, in turn, would allow him to invest some $200 million in building three power plants, including one that employs wind power. Wilcox says that if BPA agrees, it will help him keep the company afloat; in addition, he claims that the wind plant could combine with lower BPA prices to allow him to reopen the smelter in as little as six months.

Others are skeptical of his timeframe.

"I don't know how realistic that is," says Leo Larkin, an aluminum industry analyst for the Wall Street firm Standard & Poor's, "I wonder if that isn't a bit of a bargaining ploy."

BPA's Norman says Wilcox's optimism is sincere, but as for the six-month time frame, he says, "He's more optimistic than the banks are, let me put it that way. But it is possible."

Whatever the case, it's clear from reports on file with the Securities and Exchange Commission that his company, Golden Northwest Aluminum, has been bleeding red ink. Despite Wilcox's past success in his dealings with BPA, the company has lost two thirds of its value in the last four years, and on May 4, Standard & Poor's issued a "Creditwatch" warning to current and prospective lenders.

Some think the Northwest aluminum industry can't survive--the Wall Street Journal said as much last week--and suspect he is simply using his smelters as his ticket into the energy business.

"I don't think Brett is the kind of person who would do that," says Ken Berry, president of the Steelworkers local in Goldendale. "Brett is the kind of person who would pull out all stops to make aluminum, because of the communities that his plants support."

Told of the pessimism some express about the future of the Northwest aluminum industry, Wilcox replies, "Well, I'm working hard to prove them wrong."

Back at the high school auditorium, some of the workers seem aware they might be pawns on a board they cannot see.

A burly man in jeans and a baseball cap stands up, identifies himself as a longtime employee, and asks whether Wilcox will restart the smelters even if power costs are high. Wilcox answers indirectly, describing arcane business mathematics, the plan for his wind power to serve as a hedge against gas prices, and so on.

The man stands again: "I don't think you answered the question," he says. "The question is: Are you going to restart the plants?"

Wilcox steps back to the microphone. "The answer is, we will restart the plants, using the Bonneville power supply."D.C. Power Play

Although Wilcox and other aluminum companies signed a contract with the Bonneville Power Administration agreeing to stop remarketing government power in October, they are now paying lobbyists in Washington, D.C., to override that pact by pushing legislation by Rep. Joe Barton (R-Texas).

Among other things, the bill would let the aluminum industry resume its hugely profitable practice of idling smelters in order to resell Bonneville power.

"This is a new low-water mark in corporate irresponsibility," said one Bonneville official. If both the bill and the Wilcox proposal to reduce smelter power rates were successful, the official says, "we would have to buy $2.5 billion worth of power on the market and sell to the [aluminum companies] for a tenth of that sum. The effect on our ratepayers and the regional economy would be devastating."

Wilcox defends the provision as a good way to equalize supply and demand. It also serves, he says, to exert pressure on BPA as it negotiates with him.


The Dalles, a town of 12,000, lies 83 miles due east of Portland, just off I-84. For information on the smelter there, check www.nwaluminum.com.




Wilcox's firm, Golden Northwest Aluminum, employs more than 1,200 workers when operating. The smelters in The Dalles and Goldendale, Wash., are by far their towns' largest employers.




Golden Northwest gets most of its semi-refined ore from Australia. The consistency and appearance of flour, it comes into the Port of Portland in freighters.




A recent Bonneville study on the economic impact of the aluminum industry found that its loss would hurt some local communities but would have only a minor impact on states' economies.




Wilcox has been hailed for helping underwrite the revival of Portland Center Stage.




Most of Wilcox's contributions go to Democrats. In the latest presidential election, he gave $1,000 each to Bill Bradley, George Bush and Al Gore.




Sen. Mark Hatfield, who was a Wilcox ally in Congress, now makes $20,000 a year serving as chair of the Golden Northwest Board.




Between 1997 and 2000, as his company's value dropped by two-thirds, Wilcox collected $1.4 million in bonuses to go with $8.8 million in salary and dividends, according to the SEC.




In a May 20 Oregonian article, Wilcox blasted the BPA, claiming the agency had abandoned economic development in favor of "an explicit de-industrialization of the West."
 
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