High electricity costs hurting Md. manufacturers, jobs

May 09, 2007|By Jay Hancock | Jay Hancock,SUn Columnist

First there was Eastalco. The Frederick County aluminum refinery closed in late 2005 because local electricity had gotten too expensive to operate the facility profitably. Six hundred jobs disappeared.

Now high megawatt costs threaten other Maryland manufacturers, which have shed nearly 40,000 jobs since 2000, according to the Labor Department.

No other major employer seems close to shutting down. But in some cases local plants are losing business to regions with cheaper electricity or looking less competitive for winning future expansions.

Among Domino Sugar's six mills, "we're either No. 2 or tied for No. 1 in the cost of energy," says Gene Eng, environmental manager for the company's Baltimore harbor plant. As a result, "some of our capacity has been diverted to other facilities," although it hasn't affected local employment. "If we had lower costs, we'd be able to service a wider distribution area."

This is a case of "be careful what you wish for."

Nearly a decade after many manufacturers advocated the deregulation of Maryland electricity, assuming it would lead to lower prices, the result isn't any better for them than for residential customers.

Because they didn't enjoy temporary price caps and deferrals the way households did, factories got shocked with rising prices long before families, but now manufacturers worry their costs are headed higher.

"Electricity is a particular concern" because plants buy enormous amounts to run heavy machinery, says Louis Kistner, executive director of the Maryland Industrial Technology Alliance. "It's become kind of a vise, one factor being [limited] supply and the other being [rising] price. And manufacturers are kind of getting squeezed in the middle."

At FMC Corp.'s Curtis Bay plant, which makes agricultural chemicals, employment has fallen from more than 350 five years ago to 135 now as the company has shifted production elsewhere, largely to Asia, said Frank Siwajek, director of the company's North American operations.

Electricity is one cost among many - labor, transportation, fuel oil for boilers - that challenge FMC's facility. But rising power bills haven't helped.

"Are we moving things just because of energy by itself? No," says Siwajek. "But when you look at total costs, energy is certainly one of the key components."

At Praxair Inc., whose Baltimore plant separates air into its components of nitrogen, oxygen and argon, electricity makes up more than half the operating expense.

"I would say our facility in Maryland is certainly in the top 20 to 25 percent of where our costs are around the country," says Michael Shannon, the company's director of operations for Maryland and several other states.

Praxair employs only 10 people at the Baltimore plant, but it, too, has shifted work to places with cheaper electricity - Pennsylvania, for example. "Had we not seen the kind of increases in power that we had, we could produce more at this location," Shannon said.

Higher electricity costs might not affect current production only. They can also dissuade companies from upgrading and expanding plants, which was the beginning of the end for General Motors' Broening Highway plant (although that wasn't electricity-related).

Domino's Baltimore mill is competing with sister facilities to land about 25 jobs and a packaging line to fill the company's new four-pound canisters.

"The plant that gets that packaging line and the jobs that go with it is the one that has the lowest energy costs to operate that line," says Eng, who also is chairman of the Maryland Industrial Group, which intervenes on behalf of factories with regulators.

Domino produces most of its Baltimore electricity itself, relying on excess steam used to evaporate sugar solutions. But sometimes it has to buy from the grid, which can get extremely expensive. Two years ago, a steam turbine malfunctioned and Domino had to buy outside power for a few hours during peak-use times, costing $250,000, Eng said.

The bigger problem, he added, is that such surcharges could increase under a plan by grid manager PJM Interconnection to ensure reliability and induce power companies to build new generators.

Maryland manufacturers have been dealing with deregulated electricity for years, so you would think they would have gotten used to it. But they haven't, which doesn't bode well for predictions that the residential power market will sort itself out in time.

"We don't see an end in sight," says Praxair's Shannon.

Deregulation is a culprit here, not just higher energy prices. Maryland electricity costs would have risen without deregulation, but not this much.

Before deregulation, Baltimore Gas and Electric Co. passed savings from its low-cost nuclear and coal generators to manufacturing and household customers alike. Now BGE parent Constellation Energy can charge what the market bears. The market is largely determined by much more expensive natural-gas generation, and its very integrity has fallen into question since Joseph E. Bowring, a supposedly independent watchdog, accused PJM of compromising his independence.

So it's a double whammy. Expensive megawatts erode Marylanders' disposable income and threaten their jobs, too. Deregulation hasn't worked well for anybody, unless you work for the electric company.

jay.hancock@baltsun.com

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