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EXHIBIT 10.1
PLAN AND AGREEMENT FOR CONSTRUCTION
OF RESOURCES TO PROVIDE POWER
FOR FUTURE OPERATIONS OF
GOLDENDALE ALUMINUM COMPANY AND
NORTHWEST ALUMINUM COMPANY
BACKGROUND
Golden Northwest Aluminum, Inc. ("GNA") is the parent company of
Goldendale Aluminum Company ("GAC") and Northwest Aluminum Company ("NAC"). GAC
and NAC own and operate aluminum smelters in Klickitat County, Washington (the
"Goldendale Smelter") and Wasco County, Oregon, (the "Northwest Smelter" and,
with Goldendale Smelter, the "Smelters"), respectively. The Smelters are
significant sources of employment in, and contributors to the economic vitality
of, their communities. Hourly employees at the Smelters are represented by the
United Steel Workers of America ("USWA").
Aluminum smelting is an energy-intensive operation. Full operation of the
Goldendale Smelter requires 317 MW of electricity. Full operation of the
Northwest Smelter requires 167 MW of electricity. These power requirements will
increase significantly if and when the Smelters complete planned technological
improvements.
GAC and NAC have existing contracts to purchase power from the Bonneville
Power Administration ("BPA") through September 30, 2001 (Contract Nos.
95MS-94854 and 95MS-94862) (the "Current BPA Contracts"). Effective October 1,
2001, BPA will supply electric power to GNA for use at the Goldendale and
Northwest Smelters under a new Block Power Sales Agreement, Contract No.
00PB-12197 (Subscription Agreement) between BPA and GNA (the "2001 BPA
Contract"). The 2001 BPA Contract expires September 30, 2006. After that date
GNA, GAC and NAC will have no right to purchase electric power directly from
BPA.
The Current BPA Contracts supply only about 60 percent of the power
requirements of the Smelters; the 2001 BPA Contract will supply less than half
of their power requirements. The price of even this limited power supplied by
BPA is uncertain, and may not permit aluminum production to be profitable.
Unless GNA can obtain a reliable supply of low cost power, the survival of the
company, the ability to service and retire its senior debt and subordinated
notes, and the welfare of its employees and communities, may be in jeopardy.
In recognition of this situation and the high current market price for
electric power, GNA, GAC, NAC and BPA entered into a Remarketing Addendum,
Contract No. 01PB-10758, to the Current BPA Contracts (the "Remarketing
Agreement"). Under that Remarketing Agreement, GAC and NAC curtailed production
at the Smelters and assisted BPA in remarketing the electric power which they
had a right to purchase. In addition to operating costs, debt service and
employment benefits of GNA, GAC and NAC, proceeds from the remarketing are also
available for expenditures, pursuant to plans approved by USWA, for the
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planning, licensing, siting, acquisition and/or construction of conventional or
renewable resources to provide power for future operation of the Smelters.
Brett E. Wilcox ("Wilcox") is the sole shareholder and President of GNA.
Wilcox has significant experience with the legal and business aspects of
electrical power. Wilcox has identified opportunities to develop a diverse power
generation system that would serve the Smelters. Some of these opportunities are
projects already under development; others are in the planning stage. These
projects (the "Power Projects") are:
1. Goldendale Energy is a 248 MW value gas-fired combined cycle
combustion turbine near Goldendale, WA, being developed by
Goldendale Energy, Inc. ("GEI").
2. Northwestern Wind Power is pursuing development of wind projects in
Klickitat County, Washington, probably in a joint venture with
Klickitat PUD, and in Sherman, Wasco and Umatilla Counties, Oregon,
probably in cooperation with Bruce Morley.
3. Summit/Westward Project is a 520 MW natural gas-fired combined
cycle combustion turbine project on the Port Westward property
adjacent to PGE's Beaver Plant near St. Helens, Oregon.
4. The Clifts Project utilizes five GE LM6000 turbines and associated
equipment to be sited at the Goldendale Smelter for commercial
operation by February 2002. Power from these turbines will
complement the wind generation, which is of intermittent character.
Wilcox intends to pursue capital commitments to the Power Projects in a
sequential manner and otherwise so as to optimize the use of remarketing
proceeds designated for this purpose. If all of the Power Projects ultimately
become developed as currently anticipated, the system would include 770 MW of
base-load highly efficient gas-fired combined cycle combustion turbine capacity,
225 MW efficient `peaking' capacity and 300-600 MW capacity of intermittent wind
generation. In the judgment of Wilcox, this package provides a way to serve the
Smelters' loads long-term, enable GNA to earn substantial income that will
offset the cyclical nature of the aluminum business and stabilize its operating
performance, and provide GNA with both a long-term and reasonably liquid asset
(dedicated power production and supply).
GNA, GAC and NAC are parties to an Indenture, dated as of December 21,
1998, with U.S. Trust Company, National Association, Trustee, relating to
$150,000,000 of First Mortgage Notes, a Credit Agreement dated as of December
21, 1998 with Fleet Bank, N.A. and the other lenders from time to time party
thereto, and a Subordinated Note Purchase Agreement dated December 21, 1998 with
Norsk Hydro U.S.A., Inc. (collectively, the "Debt
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Agreements"). The Debt Agreements restrict the activities and investments by
GNA, GAC and NAC. GNA believes that the application of remarketing proceeds to
the development of alternative sources of power as described herein is
consistent with its Debt Agreements and is the best alternative available for
enabling GNA and its subsidiaries ultimately to retire its senior and
subordinated debt.
In order to develop power to benefit GNA, GAC and NAC, Wilcox has formed
Northwest Energy Development, LLC ("Northwest Energy"). The development of the
Power Projects requires substantial third-party financing. To facilitate that
financing, Wilcox intends to create separate limited liability companies to own
each Power Project (the "Project Companies"). The following Project Companies
have been formed to date: GNA Energy, LLC (to own the LM6000s to be sited at
Goldendale); Westward Energy, LLC (to own the Summit/Westward Project); and
Northwestern Wind Power, LLC (to own the Oregon wind projects). During the
development stage, the sole owner of each Project Company will be Northwest
Energy, and Wilcox will be the manager of each Project Company. Westward Energy
has contracted with Summit Power NW, LLC for the development of the
Summit/Westward Project.
This Plan and Agreement sets forth the basic agreement between the parties
with respect to developing the Power Projects for the sole benefit of GNA and
its subsidiaries and the use of designated remarketing proceeds to support the
development. Some aspects will require additional detailed contracts, to be
negotiated consistent with this basic Plan and Agreement. The parties to this
Plan and Agreement agree to enter into such further agreements (including power
purchase and sale agreements) and modifications of this Plan and Agreement as
reasonably may be required to facilitate development of the Power Projects while
protecting the interests of GNA and its subsidiaries.
AGREEMENT
1. Northwest Energy and Wilcox as its Manager shall devote their commercially
reasonable best efforts to the planning, licensing, siting, financing,
acquisition and/or construction of some or all of the Power Projects
identified in this Agreement, with Northwest Energy's economic interests
in such Power Projects to be owned by the Project Companies.
2. Wilcox, as manager and owner of Northwest Energy and as manager of each
Project Company, and Northwest Energy, on behalf of itself and each
Project Company, agrees to contract with GAC and NAC as follows:
(a) GAC and/or NAC will have the right, but not the obligation, to
purchase 100% of the power produced by the power generation
facilities owned by Northwest Energy and the Project Companies for a
period commencing on commercial
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operation of the projects and ending 20 years thereafter. Any
decision by GAC or NAC not to purchase power from Northwest Energy
shall be consistent with their commitment to (i) ensure the
continued viability of the smelters, (ii) maintain long-term
employment of USWA-represented and other employees and (iii) service
and repay, when due, all indebtedness. The parties periodically will
consult with the USWA on their power supply strategies.
(b) Purchases by GAC or NAC of power produced by plants owned by the
Project Companies shall be at the Project Company's cost of
production (such cost to be limited to fuel, direct O&M, cost of
financing, distributions necessary to pay taxes and reasonable
general and administrative expenses determined on an arm's-length
basis).
(c) GAC and NAC shall have the right to remarket the power purchased by
them under the power purchase contracts, whether to third parties at
market rates or to one another at cost. Upon such remarketing, any
excess of proceeds over amounts due for the power at cost as
provided in paragraph (b) above (which shall be paid to the Project
Company) shall be either paid to GAC or NAC (if permitted by the
relevant project financing and elected by them) or paid to the
Project Company to be used to pay project financing and other costs
(thereby reducing the future cost of power from the Project Company
to NAC and GAC) and thereby credited against future purchases by GAC
or NAC.
(d) Any power not purchased by GAC or NAC shall be sold by the Project
Company at market rates and the proceeds applied against the cost of
production of the power, including project debt.
(e) Power sales from Project Companies shall be effected through third
parties if necessary to comply with federal or state law. It is
anticipated that a power marketing company will be formed to legally
effect these sales and the sales of excess power to third parties.
Contracts involving any such power marketing company shall be
consistent with the terms outlined above in subparagraphs (a) - (d).
(f) During the term of the power purchase agreements Northwest Energy
shall not make distributions in respect of its ownership interests
other than to pay pass-through federal, state and other taxes
attributable to the activities of Northwest Energy and the Project
Companies owned by it.
3. To support the development of the Power Projects, (i) NAC designates
Northwest Energy its designee for development and will direct BPA to pay
NAC Net Proceeds (as that term is defined in the Remarketing Agreement) to
Northwest Energy, as NAC's designee, in an amount up to $10 million and
(ii) GAC designates Northwest Energy its
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designee for development and will direct BPA to pay GAC Net Proceeds (as
that term is defined in the Remarketing Agreement) to Northwest Energy, as
GAC's designee, in an amount up to $15 million, in each case to pre-fund
or reimburse Qualified Expenditures (as defined in the Remarketing
Agreement) with respect to the Power Projects.
4. To permit financing of the Power Projects on the most advantageous terms
possible, Northwest Energy, in each case subject to the approval of GNA
with respect to the direct or indirect commitment of remarketing proceeds
exceeding $10 million, may from time to time request BPA to guarantee or
otherwise provide credit support, in varying amounts, subject to an
overall cap not to exceed $200 million, of third party revolving debt, or
to enter into other arrangements with similar economic effect ("BPA Credit
Support") to support loans to Northwest Energy to fund development of the
Power Projects. Northwest Energy agrees to use the proceeds of such
borrowings solely for, or to pay Qualified Expenditures in connection
with, the initial development of the Power Projects, and to use
commercially reasonable best efforts to seek permanent financing
unsupported by such guarantees at the earliest possible opportunity. BPA
may treat proceeds of remarketing under the Remarketing Agreement in an
amount equal to 110% of the face amount of its guaranty, to be allocated
between GAC Net Proceeds and NAC Net Proceeds as agreed by the parties, as
unavailable to fund Qualified Expenditures for so long as BPA is obligated
under the BPA Credit Support. GNA's approval of Northwest Energy's request
for credit support, as described above, may be conditioned upon its
determination that remarketing proceeds remaining available to GNA and its
subsidiaries will be sufficient to continue operations, provide employment
benefits and meet all debt service requirements.
5. If Northwest Energy has not developed at least 484 MW of operational
resources providing power to the Smelters by October 1, 2006, Northwest
Energy shall pay GAC and NAC, respectively, liquidated damages in an
amount equal to the product of (i) the percentage by which actual firm
energy available to the Smelters as of October 1, 2006 is less than 484 MW
times (ii) the amount of the GAC Net Proceeds or NAC Net Proceeds paid by
BPA to Northwest Energy to support development of the Power Projects. If
requested by GAC or NAC, Northwest Energy will secure its conditional
obligation to pay liquidated damages with a security interest in its
assets, including its member interests in its Project Companies; provided,
however, that GAC and NAC, as applicable, shall release or subordinate
such security interests in connection with project financing of each of
the Project Companies required by the project lender as a condition to
providing takeout, interim or permanent financing unsupported by
remarketing proceeds or guarantees with respect thereto and upon repayment
by the Project Company to Northwest Energy of all loans and other advances
by Northwest Energy to the Project Company.
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6. Northwest Energy shall periodically report to GNA and the USWA on the
status of the Power Projects, shall provide all information concerning the
Power Projects reasonably requested by GNA and the USWA and shall consult
with the USWA concerning any material changes to this plan.
This Agreement has been duly authorized by the undersigned. The effective
date of this Agreement is February 20, 2001.
Golden Northwest Aluminum, Inc.
By: /s/ WILLIAM R. REID
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Date: May 8, 2001
Goldendale Aluminum Company
By: /s/ WILLIAM R. REID
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Date: May 8, 2001
Northwest Aluminum Company
By: /s/ WILLIAM R. REID
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Date: May 8, 2001
Northwest Energy Development, LLC
By: /s/ Brett Wilcox
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Manager
Date: May 8, 2001
Approved:
United Steel Workers of America
By: /s/
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Date: May 8, 2001
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