Energy costs plague Maine manufacturers

OLD TOWN – Thursday’s closure of the local Georgia-Pacific mill highlights an issue that is threatening the viability of many Maine manufacturers – energy costs.

Since last fall, when two hurricanes caused extensive damage to energy industry infrastructure in the Gulf Coast region, fuel costs have soared, especially for commercial and industrial users in the Northeast.

Many such users in Maine, where natural gas is being used increasingly to generate electricity, have seen their rates jump as much as 50 percent or even 100 percent in the past six months, according to state officials and Bangor-area business leaders.

Ted Sapoznik, G-P vice president of consumer products manufacturing, said Thursday that a biomass boiler at the Old Town mill which the company installed last year has helped reduce the facility’s energy expenses. Still, what the mill has to pay for electricity puts it among G-P’s most expensive plants, he said.

“This mill has very high energy costs compared with other Georgia-Pacific facilities,” Sapoznik said.

G-P spent $29 million on the boiler last year before Koch (pronounced “coke”) Industries, a private company based in Wichita, Kan., bought G-P for $21 billion in cash. Installation and use of the biomass boiler were predicted to save the mill $5.9 million in annual energy costs and to create four new jobs at the plant.

Sapoznik said the mill’s relative location, and the money it spends on transportation, also figure into its cost efficiency.

“You have to be closer to your customers with fuel costs these days,” he said.

Last week, Gov. John Baldacci and Jack Cashman, the state’s economic development commissioner, indicated state officials have been working on a plan to help reduce the plant’s annual production costs by as much as $5 million.

They have declined to release details about the plan, but at Thursday’s press conference, Cashman said 75 percent of the plan deals with reducing the mill’s energy costs.

Baldacci said the state’s cost reduction plan will be proposed to other companies that express an interest in acquiring the Old Town mill.

Kurt Adams, chairman of the Maine Public Utilities Commission, said Wednesday at a Bangor Region Chamber of Commerce breakfast that much of the rise in Maine’s energy costs can be attributed to its growing dependence on natural gas for electricity.

He said Maine should diversify its energy production resources to include biomass boilers and wind power so it can reduce its dependence on imported fuels.

“The business community is who is really getting hammered right now,” Adams said.

Adams acknowledged that many believe deregulation of electricity utilities has contributed to Maine’s high energy costs, but he said he is not so sure this is the case.

Lloyd Irland, a forest resources and economics consultant based in Wayne, seemed more convinced than Adams, however. He suggested Thursday that deregulation advocates might have assumed fuel prices would remain stable forever.

“Isn’t deregulation great?” Irland said. “The [deregulation] system that was set up is being tested, and it’s flunking.”

One manager at a significant manufacturing facility in the Bangor area said recently that escalating energy costs have prompted him to redo his plant’s lighting scheme. The manager, who indicated he is wary of attracting publicity because he doesn’t want to alarm his company’s corporate parent, said the firm can’t afford to wait six or seven years for market diversification to reduce his plant’s monthly electric bill. Maine’s electric rates need to be closer to the national average sooner than that, he indicated.

“I’m struggling to find ways to offset the increase we’re seeing in electrical rates,” he said. “Where we’re at is very much a disadvantage to us.”

During an interview last week, before the mill’s closure was announced, Cashman said mills with their own power generation assets have been looking into selling those assets. Firms that specialize in power generation would own and operate the power facilities and feed electricity directly to the mills, he said.

When asked during the interview whether this idea was being considered for the Old Town mill, he said it might be, but declined to elaborate.

The idea behind outsourcing power generation is relatively simple, Cashman said.

Pulp and paper companies “don’t want to waste [their time and effort] on something that is not their business,” he said. “If the [electricity] user is a financially strong industry, then everything works.”

When paper mills close down for good, it can be tough to breathe new life into the vacant buildings, according to the state official. Because they tend not to be laid out in long, simple, open rooms, he said, paper mills are more difficult to renovate than other industrial facilities such as Lewiston’s Bates Mill, where 1,300 TD Banknorth employees now work.

Cashman echoed Adams’ call for greater diversification of the Northeast energy market, but also said during last week’s interview that paper companies in Maine need to adapt if they are not going to disappear. He said he has tried to convince them to make packaging equipped with radio frequency identification technology, for example, in order to compete better in the global economy.

“There’s a reluctance in the paper industry to change the way they do business,” he said. “So far, we haven’t been able to sell that idea, but I haven’t stopped trying.”