New England as a whole has the highest energy costs in the nation and is at the end of a long and long-standing (some might say antique) transmission grid for many fuels.
WORCESTER, Mass. — Energy is a significant cost of doing business for Central Massachusetts companies.
But from switching to more efficient light bulbs to purchasing “brown” power from animal waste, the region’s businesses are trying myriad ways to remain competitive as energy prices rise.
“I’m into brown power — cow poop,” said Christopher Crowley, executive vice president at Polar Beverages. “Cow poop and turkey poop off-gasses methane … they recover that and are changing it into electricity.
“You never hear about it,” Crowley said, saying that brown power is responsible for 25 percent of Polar’s electricity needs. “Solar is sexy.”
Energy prices, however, are decidedly not sexy, especially in Massachusetts.
The state’s energy prices were the sixth highest in the nation in 2015 at $22.53/million Btu, the latest figures available from the U.S. Energy Information Administration.
Meanwhile, commercial electricity prices in Massachusetts were an average of 16.45 cents per kilowatt hour in August, and industrial electricity prices were 14.07 cents/kWh, up from 15.71 cents/kWh and 13.36 cents/kWh, respectively, in August 2016.
These prices have stayed generally stable since a notable increase in 2006 — rising, then decreasing slightly between 2008 and 2012 and now rising again.
But the costs average roughly 4 cents to 6 cents higher than commercial and industrial electricity prices in Georgia and roughly 6 cents and 8 cents higher than commercial and industrial electricity prices in Texas during the last decade, according to the EIA.
A regional situation
Those interviewed identified several factors that lead to the region’s high costs. (New England functions as a single market overseen by an independent, nonprofit regional transmission organization responsible for keeping the lights on.)
The region as a whole has the highest energy costs in the nation and is at the end of a long and long-standing (some might say antique) transmission grid for many fuels. The state also has several public policy initiatives — for instance, the Regional Greenhouse Gas Initiative, renewable energy contracts, and efficiency programs — funded through surcharges on electric bills.
“When you’re in a state where it’s an older system, the cost of supplying and maintaining that system can be expensive,” said John Regan, executive vice president of government affairs at Associated Industries of Massachusetts and former executive vice president for operations at MassDevelopment, the state’s development agency. “We’ve also made a lot of decisions about what is appropriate environmental policy, and that sometimes leads to high costs.”
Indeed, transmission rates have increased by nearly 400 percent since 2006, and public policy initiatives have increased nearly five-fold in the last eight years, according to Dan Dolan, president of the New England Power Generators Association.
Thankfully, an influx of natural gas and efficiency programs have kept wholesale electricity prices at a historic low, offsetting some of those gains.
In fact, New England wholesale electricity prices have declined by 51 percent from 2006 to 2016, according to the NEPGA.
Effect on businesses
“Really right now, we’ve got one part of the bill that’s dropping dramatically — energy supply — and two parts of the bill that are rising dramatically — transmission and public policy initiatives,” said Dolan.
“What’s nice now is that we’ve been getting prices on natural gas that have been near historic lows,” said Harry Kokkinis, owner and general manager of Table Talk Pies, which uses natural gas to fuel its oven. “One trouble we’ve seen on natural gas is transmission costs … if you’re not locked in [to a price], you run a danger of getting high transmission costs.”
And while the marketplace for power may be regional, in the globalized world the marketplace for Central Massachusetts businesses is not.
“I think it affects our competitiveness because we’re here in New England,” said Mary Beth Czaja, vice president of North American Tool and Machine Corp. in Charlton. She estimated that it cost about $3,000 a month to power the machines the business uses in its manufacturing. “Other parts of the world might not have the seasonal fluctuations, but what can you do? We’re here. And we can’t charge more in the winter than we do in the other times of year.”
Energy intensive manufacturing businesses are hit especially hard.
“Certainly for small manufacturers it’s hard to compete with other parts of the nation, and internationally as well,” said Chris Carlozzi, the Massachusetts director of the National Federation of Independent Business.
Crowley estimated that the energy costs of Polar’s Georgia and New York bottling plants were less than half of their costs in Worcester, which average about $2.5 to $3 million a year.
And while high energy costs are a necessary evil for companies already in Central Massachusetts, the buzz in the business world is about how to get companies — such as Amazon — to come to Massachusetts.
Which begs the question: Do high energy prices prohibit large companies from relocating in Massachusetts?
“Companies that are energy intensive have to weigh that when they are looking at coming to Massachusetts because you have to make up that cost differential somehow,” Regan said. “Given the nature of global markets, it’s hard to pass on higher costs; you have to manage costs through efficiency, innovation, using fewer people. Businesses have to find another way to offset that higher cost or they will not be competitive.”
What can be done?
Utilities such as National Grid and Eversource, along with the administration of Gov. Charlie Baker, have promoted increasing capacity through pipelines that would bring supplies of natural gas into the region.
At the moment, however, it doesn’t look like major new pipelines are in the cards.
In May 2016, a Kinder Morgan subsidiary withdrew its federal application for the $3 billion, 420-mile Northeast Energy Direct pipeline that would have connected the region with natural gas deposits in Pennsylvania. The company cited inadequate capacity contracts for the proposed line.
In August 2016, the Massachusetts Supreme Judicial Court dealt a blow to a funding mechanism proposed for the new pipelines, ruling that electric ratepayers should not pay to expand natural gas pipelines in the state.
A second major pipeline project was subsequently shelved in June. The $3.2 billion Access Northeast project would have upgraded 125 miles of the Algonquin pipeline system to serve around 60 percent of the New England power sector.
Several of those interviewed supported increasing capacity, although they did not mention specific pipeline projects.
But without major new infusions of fuel, companies said they have to take advantage of what’s already here.
“The first fuel is conservation,” Crowley said. “From my perspective, the most efficient thing you can do is conservation — we can do so much.”
All businesses interviewed said they had switched out old light bulbs for LEDs. But some companies are taking other steps.
Watching demand times
St. Pierre Manufacturing Corp., in Worcester and West Boylston, and North American Tool and Machine both stagger the starts of their machines to lessen peak energy usage upon which their rates are based.
St. Pierre Manufacturing also participates in a real-time demand-response program with ISO New England where it receives money to lessen its power consumption when demand is high. The shutdowns are generally once a year during the summer when air conditioning demand is high.
“We basically curtail as much of load as we possibly can, and based on how much we shed, they pay us a stipend,” said Peter St. Pierre, vice president of St. Pierre Manufacturing Corp. and a member of the third generation to own and operate the company.
“It helps the whole grid in general; it helps us.”
Both North American Tool and Machine and Table Talk Pies have moved to long-term energy contracts.
Kokkinis urged continuance of the Dodd-Frank Act and the Volcker rule, which prohibits certain speculative trading by banks.
Perhaps the most aggressive energy plan is being undertaken by UMass Memorial Medical Center and its Health Alliance hospital in Leominster.
Adopting a master plan
The medical center, whose Memorial Campus alone spends $4 million on energy a year, embarked about 2 ½ years ago on an $18 million Energy Strategic Master Plan. The plan includes everything from installing LED lights to building “microgrids” — essentially its own mini power plants — on campuses. The project is anticipated to generate more than $24 million in energy savings by 2027.
“We are one of the few organizations who are looking at energy as a long-term plan,” said Gary Valcourt, associate vice president of facilities and capital planning. “We’re looking at it from everything from production of electricity to renewable energy to reduction of energy. Most organizations are just looking to reduce their energy … We’re going to produce our own electricity, at least 80 percent of it, and try to control our costs in the future.”
To do so, the hospital is updating all of its inpatient rooms as part of its 2020 Plan, installing LED lighting inside and outside, adding individual climate controls, sealing windows, and more. This has led to $2.465 million in annual savings, according to the hospital. It has also negotiated contracts to purchase solar power (for instance from some of the solar fields on the Mass Pike), and renegotiating contracts with energy suppliers to reduce costs.
But the most innovative parts of the plan are miniature power plants in soundproof buildings on the Memorial and Leominster campuses. Valcourt described the power plants essentially as large, sophisticated engines attached to a motor system that convert natural gas to electricity. The heat produced by the reaction is also captured and used for heating and cooling.
“We’re not letting any energy go to waste; we’re literally putting it back into the building,” Valcourt said.
Saint-Gobain Abrasives, which makes grinding wheels and other abrasive materials in Worcester, is also spending millions to cut its future energy use.
The business, which is part of French industrial conglomerate Compagnie de Saint Gobain, installed a new, safer kiln this year at a cost of about $5.5 million, according to Michael N. Barnes, vice president of North American operations for Saint-Gobain Abrasives. The new equipment allowed the plant to shut down older kilns and reduce electricity payments to utility National Grid by about $500,000 a year, he said.
The new equipment also allowed Saint-Gobain to consolidate space in Worcester.
“We are generating the same amount of production with the same amount of people in a smaller footprint,” Barnes said.
Other equipment is getting changed, too. Replacing old air compressors with new technology is costing $350,000 this year.
The manufacturer is also converting all its lighting to LED technology at a cost of about $300,000 this year.
Another large change involves the Worcester campus “power house,” a facility that uses steam from manufacturing operations to generate electricity. Saint-Gobain used to generate 20 percent of the electricity for its campus and buy the remaining 80 percent from the power grid. Barnes said that with $2 million in improvements this year, Saint-Gobain expects to reverse those proportions.
“By the end of the year, we will be generating 80 percent of our electricity and buying 20 percent from the grid,” he said.
The Worcester campus is the largest Saint-Gobain Abrasives operation in North America.
But new technology such as microgrids and power houses — or new energy sources such as solar or wind power — might not be available for all businesses. There are upfront capital costs, and manufacturers need a steady, abundant supply, which isn’t always possible if the wind doesn’t blow or the sun doesn’t shine.
So businesses have to make it up.
“Energy is clearly one of the top four or five issues that come up with our businesses,” said Timothy P. Murray, president and CEO of the Worcester Regional Chamber of Commerce and former lieutenant governor. “One of the offsets is that Massachusetts has a generally well-educated, well-trained workforce.”
And there is one thing that all businesses can rely on for their success: their product.
“We’re not being successful in saving on power and trying to mitigate it to save costs. We’re being successful with innovation in our seltzer and our mixers,” said Crowley, back at Polar.
“Our expertise is making soft drinks, not being a commodity buyer.”
Cyrus Moulton is a reporter for the Worcester Telegram & Gazette. Lisa Eckelbecker of the Telegram & Gazette staff contributed to this report.