Kitimat and Terrace B.C.: A Tale of Two Towns

Don Whiteley

| April 1, 2007

In one corner: the town of Kitimat, with suspicions that Alcan wants to halt aluminum production in favour of selling power to BC Hydro. It’s doing everything it can to foil the aluminum giant’s electricity sales.

In the other corner: Terrace, with big plans to create an aluminum-based secondary-manufacturing industry. It wants to keep its largest employer happy and is less than thrilled with its neighbour’s mudslinging.

Let’s get ready to rumble

In the heart of B.C.’s Kitimat-Stikine district, the two towns of Terrace and Kitimat are having a spat.

Both are resource-based towns struggling to prop up their vulnerable economies, and both are hugely dependent on Alcan Inc.’s aluminum smelter in Kitimat for their economic well-being. Each desperately wants to see Alcan follow through on a commitment to invest in a new $1.8-billion smelter upgrade.

The question is: how best to persuade Alcan to make good on its plan for the upgrade? That’s where the two cities part company and turn what should be a fairly routine industrial-development story into a soap opera where every character has something to win or lose.

Terrace officials firmly believe that Alcan’s upgrade will lead to a new aluminum-based secondary-manufacturing industry in the region. Kitimat is not convinced. For the last few decades, it has been at war with Alcan over the aluminum giant’s commitment – or, in Kitimat’s opinion, its lack of commitment – to make that aluminum smelter grow, keep it economically viable and remain a strong local employer.

Resource towns tend to have a love-hate relationship with the one industry that dominates the local economy and employs most of its citizens. They love the jobs and tax revenues; they hate the potential for blackmail when the company wants something.

Kitimat is no exception. For more than 50 years, the town’s fortunes have been tied to Alcan’s huge aluminum smelter and the Kemano hydroelectric dam and generating plant that provide the electricity to run it. There are other industries in town, but none has the same impact, or political clout, as Alcan.

The issue, as far as Kitimat is concerned, is simple. The city believes that Alcan is far more interested in making lucrative surplus power sales to BC Hydro than it is in using that power to make more aluminum – despite the corporation’s public statements to the contrary and its August announcement that it will indeed spend US$1.8 billion to upgrade the smelter and make more aluminum.

Kitimat just doesn’t trust Alcan, and has opposed the Montreal-based giant’s every move. It has gone so far as to file a lawsuit against Alcan that, if successful, would legally bind the company to use its Kemano electricity solely for industrial purposes. Kitimat’s strategy? The city believes such a ruling would leave Alcan no choice but to build an even bigger aluminum smelter.

But here’s the conundrum: about 60 kilometres up the road from Kitimat lies Terrace, which is just as dependent on the Alcan operation (Alcan is also Terrace’s largest employer). Terrace strongly disagrees with Kitimat’s in-your-face approach to Alcan and is worried its hardball approach might just scare Alcan away for good. It believes Alcan’s smelter upgrade is the key to the region’s economic revival, when you factor in the new container port at Prince Rupert. Scheduled to open next fall, the port expansion would give secondary aluminum manufacturers easy access to markets in Asia. The thinking is that an expanded aluminum smelter, coupled with Asian access, would attract a bevy of new manufacturers to the region.

But that can’t happen if Alcan walks away from its smelter upgrade. Terrace officials are so miffed at the dispute between Kitimat and Alcan that, along with seven other municipalities in the Northwest, it took out a full-page $15,000 ad in the January 25, 2007, Vancouver Sun expressing its support for Alcan and urging everyone to get back to a negotiating table to sort the problem out.

The latest twist in the ongoing dispute came at the end of last year. In December, the British Columbia Utilities Commission (BCUC) rejected a contract signed by Alcan to sell surplus power from its Kemano hydroelectric facility to BC Hydro. The contract was brokered by the provincial government.

In short, the BCUC thought BC Hydro was paying too much for power it had already conceded it does not need and that, contrary to Victoria’s spin, the contract was not in the public interest. This new surplus-power-sales contract was one of three key requirements Alcan cited as crucial to the completion of the smelter upgrade.
While Terrace fumed over the BCUC’s decision, Kitimat rejoiced, having long argued that letting Alcan make piles of money from power sales to BC Hydro would, in fact, discourage the company from making more aluminum in Kitimat. Kitimat officials don’t believe Alcan will complete its smelter upgrade unless it is denied the opportunity to earn extra cash by selling power at market prices to BC Hydro.
Kitimat has further pushed its point of view with a court case (a decision was imminent at press time) that argues Alcan is breaking a 50-year-old agreement requiring it to use power from the Kemano hydroelectric facility for aluminum production, not bulk power sales.

Terrace officials say Kitimat is playing with fire, threatening a major employer the region needs to keep on side. “We’re surprised, a little bit, at the venom that’s displayed towards Alcan,” says Jack Talstra, Terrace’s mayor since 1985. “With that ad [in the Vancouver Sun], we wanted to get across that there’s more voices than the District of Kitimat. We got support from seven other communities – surprising, since they had to stick their necks out a little.”

Talstra insists Kitimat’s determination to block Alcan from profiting big with surplus power sales is wrong-headed – especially given that Alcan has made it clear surplus power sales are a key condition to proceeding with the smelter expansion.
“We should stabilize this company into our region for many years to come,” says Talstra, arguing that a new, efficient, high-tech smelter employing 1,000 residents is an improvement over the current outdated smelter with 1,500 employees.
“We know [the new smelter] will be around for the next 35 to 50 years,” Talstra says. “We also know it will be a lot less of a polluter than it is right now.”