Industries hoping for deregulation

Business sector sees major cost reductions in choosing utilities

Energy

February 14, 1999|By Timothy B. Wheeler | Timothy B. Wheeler,SUN STAFF

While some politicians fear that homeowners will pay more for power if Maryland's electric industry is deregulated, Chip Cook worries he'll lose his job if it isn't.

Cook works at Aluminum Co. of America's Eastalco plant in Frederick, where he heads the Steelworkers union local.

The 28-year-old smelting facility is the state's largest single user of electricity, and company spokesmen say the plant's survival might depend on passage of legislation that would provide choice of power suppliers.

"We all want to keep our jobs, the company as well as union members," Cook said.

Legislative leaders have introduced bills that would allow for deregulation of electricity, but their prospects remain uncertain. Gov. Parris N. Glendening and some lawmakers have said they want to ensure that residential customers and the environment aren't hurt before they go along with open competition among utilities.

For Maryland's power-gobbling businesses, whether manufacturing plants or grocery chains, being able to shop for lower rates is vital to profits. The money they hope to save could determine whether they hold their own in an increasingly competitive marketplace.

The Eastalco Works has perhaps the most at stake. It uses 350 megawatts around the clock, an amount roughly equivalent to the electricity a city of 116,000 households would consume in an hour.

The plant produces more than 190,000 tons of aluminum a year, but declining prices prompted Alcoa to reduce production by one-sixth two months ago, paring the work force by 160 and leaving 675 employees.

Even with the payroll reductions, Eastalco's production costs are higher than those of any of Alcoa's nine other smelters in the country. With 400,000 tons of production capacity idle at those lower-cost plants, Eastalco remains in jeopardy of further cutbacks.

"We're looking at everything we do to see what we can do to reduce our overall costs," said Earl H. Robbins Jr., a plant spokesman. In 1995, a pound of aluminum sold for 85 cents, he said; today it brings 58 cents. Electricity accounts for a third of the plant's operating expense, about $65 million a year. "It's the only one of our raw materials that we cannot go out and buy competitively," Robbins said.

With deregulation sweeping across the Northeast -- Pennsylvania and Delaware most recently -- Maryland manufacturers are particularly eager to keep up with out-of-state competitors.

"What it does is, it finally allows us to get what almost all the states north of us have, and many other states as well -- the ability to buy [power] on the open market," said Michael C. Powell, a lawyer for 24 of Baltimore Gas and Electric Co.'s largest industrial customers. "We think for our guys prices will fall 10 to 15 percent."

Even under the current regulated system, some major manufacturers have been able to negotiate discounts with their utility. But reducing energy costs is no less important to smaller companies lacking the economic or political leverage to get such price breaks.

"We're hoping for that 10 to 15 percent savings," said Dennis J. Szymaszek, purchasing and logistics manager for Pemco Corp. of Baltimore. From its 20-acre Bayview complex, the company's 155 employees make the glaze on Lenox China and industrial coatings for household appliances and computer chips.

Pemco uses a relatively small 2.7 megawatts of electricity a month, and though the rate it pays BGE is lower than that paid by homeowners, "it's nothing to write home about," Szymaszek said.

"Raw materials and energy are nearly 60 percent of the cost of our production," he said. The company's main domestic competitors are in the Midwest, where cheap hydroelectric power gives them an advantage.

"Jobs in Maryland, my company in particular, depend heavily on energy," Szymaszek said.

Even companies not usually thought of as manufacturers, such as Giant Food Inc., are looking for electricity bargains.

"It's a big-ticket item," said Giant spokesman Barry Scher. The grocery chain spends more than $40 million a year on power.

In addition to lighting and refrigeration at its 179 supermarkets in Maryland and surrounding states, Giant uses electricity to operate a huge produce warehouse in Landover and a frozen-food warehouse in Jessup.

Though there is no threat that Giant would leave Maryland if its electric bills did not come down, even slight discounts would affect profitability in an industry with slender margins.

"Deregulation will obviously help our bottom line," Scher said, "but at the same time it's going to give us additional resources to expand our company, which means more stores and more jobs."

Giant recently offered buyouts to 4,200 of its 27,000-employee work force, noting a need to improve its competitiveness.

Trigen-Baltimore Energy Corp. sees utility competition as a chance to expand its business, not merely as a cost savings.

Trigen-Baltimore, part of a New York company that owns and operates 13 facilities in North America, sees itself as a competitor to BGE. The company supplies steam heating and cooling to 350 downtown buildings, including City Hall and The Baltimore Sun.

For Trigen President James J. Abromitis, electricity competition can't come soon enough.

"It would be an opportunity to grow, but it's really an opportunity to introduce clean power into the state of Maryland from a company that's based in part in Maryland," he said. The company has 80 employees. It is building a 10.5-megawatt power plant to serve the former SCM chemical plant in Hawkins Point that is now part of Millennium Chemicals Inc. With deregulation, company officials hope for even more such projects.

"For a company like us, this gives us great hope," said Lawrence LaMotte, Trigen's vice president of marketing.

Pub Date: 2/14/99

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