Electricity prices shock heavy users
Large manufacturers brace for 2006 costs
Large manufacturers and other heavy users of electricity will face some hard decisions this fall.
As electricity deregulation continues to unfold in Allegheny and Beaver counties, the yearly run-up to budget decisions is going to have executives at U.S. Steel Corp. and other big users twisting in their chairs over energy costs.
A decision last year by the Pennsylvania Public Utility Commission to shut down multiyear contracts between Duquesne Light and its industrial users is having the desired effect of breaking Duquesne Light's stranglehold and forcing those users out into the market to shop for the best rate they can find.
But manufacturers who are trying to paint a long-term picture of their energy costs don't like what they see.
Chris Masciantonio, government affairs director for U.S. Steel, says his company expects its electricity costs in this region to be up to 35 percent higher in 2006 than this year. Masciantonio said the steelmaker's Mon Valley Works, which combines a blast furnace in Braddock, a sheet roll manufacturing plant in West Mifflin and the Clairton Coke Works, already was the most expensive plant in U.S. Steel's domestic network to run in terms of energy costs.
U.S. Steel was joined by the Pennsylvania Manufacturers' Association as a vocal opponent to last year's move by the PUC.
David Taylor, a spokesman for the Harrisburg-based manufacturers' advocacy group, described what the higher costs will feel like: "You're not allowed to buy food at the grocery store anymore, you have to eat out at restaurants."
Doug Jackson, the manager of electrical engineering for the Allegheny County Sanitary Authority, said with electricity prices tied to rising natural gas prices, big users of electricity are going to continue to feel pain.
Jackson said ALCOSAN hasn't used Duquesne Light since deregulation began back in 1997. This year, the authority is using First Energy Solutions Inc. of Akron, Ohio, as its electricity supplier. In 2004, the authority was spending $300,000 per month on electricity, Jackson said. This year, that cost is up 43 percent to more than $425,000 per month and is expected to rise another 10 percent in 2006.
Looking for alternatives
Masciantonio said U.S. Steel is going to have to get creative in the way it uses energy, including finding ways to generate electricity from byproducts of the steelmaking process, such as coke oven gas. It's the same story at the Monaca, Beaver County, plastics plant owned by the NOVA Chemicals Corp.
Floyd Switzer, a controller and support services leader at the plant, said NOVA is negotiating with a handful of electricity providers and is almost certainly looking at an increase in its electricity costs in 2006.
"Long-term contracts are very expensive," Switzer said.
Just like U.S. Steel, Switzer said NOVA is taking a hard look at getting into the generation part of the energy supply chain. As part of its expandable polystyrene foam
operation in Monaca, Switzer said, NOVA sucks 100,000 gallons of water per minute out of the Ohio River and then puts it back again. He said the company is looking at ways to generate electricity from that manmade waterfall, as well as looking into wind power options.
"Everything has totally changed," said Switzer in describing the company's attitude about alternative energy sources.
Staying in the game
Since Duquesne Light is furthest along in Pennsylvania among electric utilities in deregulation, the provider's parent company has been fast on it feet in finding ways to keep customers in the new deregulated market.
As of July 31, Duquesne Light was down to 84 industrial customers as opposed to the 297 it started the year with, according to Joe Balaban, a company spokesman. Foreseeing the danger that deregulation held, Duquesne Light's parent company, Duquesne Light Holdings Inc., in late 2004 formed another subsidiary, Duquesne Light Energy Inc., which is staying very busy in 2005. The subsidiary acts as a broker, buying electricity and selling it to industrial and commercial customers.
Balaban said with all of the different deals out there and companies coming off Duquesne Light contracts at different times, establishing an average increase for companies next year would be very hard to do.
"It's not apples-to-apples," Balaban said.
Dennis Urban and Cliff Blashford, executives with Duquesne Light Energy Inc., said the subsidiary has picked up about 300 commercial and industrial customers since its formation. Those customers include real estate manager Oxford Development Corp., railroad brake manufacturer Wabtec Corp. and health insurance provider Highmark Inc.
Another provider that has been active in Western Pennsylvania since deregulation started in 1997 said it too is very busy among industrial customers but declined to give numbers.
Gretchen Sekulich, a spokeswoman for Akron, Ohio-based First Energy Solutions Inc., said the company has thrived on industrial customers as Duquesne Light's long-term contracts have unraveled.
"We're the top alternative supplier. I would say that we've done well in that market."
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