Anchor Glass Tries to Shake JCP&L Stranglehold
By Joseph F. Schuler, Jr.
Why assume that a city or town
can't run a power plant?
It wasn't a demand for a $2-million rate cut. It was a request for a rate in line with neighboring New Jersey utilities.
That's how Walter J. "Wally" Schaffer, Anchor Glass Container's energy director, decribes his company's position at the start of the Aberdeen Township municipalization fight against New Jersey Central Power & Light (JCP&L). "We didn't say 'We want a 50-percent reduction,'" Schaffer explains. "We said 'We want a market rate. And by the way, when you calculate that out, it does come to around $2 million.'"
A semantic difference, but important, Schaffer notes. That and other unacceptable contractual provisions proposed by JCP&L prompted the bottle-making company to spend more than $70,000 to advance the cause of a municipal electric utility (em a cause it figured would cut its annual $4.5-million electric bill by more than half.
Anchor, selling more than $1.1 billion in bottles and glass containers each year, is headquartered in Tampa, FL, and has 14 manufacturing plants nationwide. It employs about 5,000 people, and its energy costs exceed $100 million annually. In 1994, its plants used 90 megawatt-hours of electricity. The plant in Aberdeen, NJ, called Cliffwood, uses 7,000 kilowatts each year. Anchor, in fact, accounts for more than half of the power load in the small township of 17,000 people. The 326 employees at the Cliffwood plant keep it running 24 hours a day, 350 days a year. Annually, the plant makes 750 million bottles for beer, soda, food, wine and liquor. It's a high-volume, low-margin business.
So low-margin that it recently conducted an "energy audit" of its plants in an attempt to cut costs further. The audit revealed that energy makes up about 12 cents of every dollar Anchor spends on manufacturing. Electricity averages 7 to 8 cents of that share.
"In an industry that's flat to shrinking, and where tremendous consolidation and competition are taking place, the only place we are going to generate revenue is by controlling our cost," says Schaffer. "We can't go to our customer and raise prices. There is an overcapacity of production capacity on the market of glass right now and the market is such that you can't get the price increases."
After the audit, at the end of 1994, Anchor looked at its high-cost plants, seeking the source of their energy costs. The Aberdeen plant was one of the top offenders, with electricity at 8 cents per kilowatt-hour (¢/Kwh), compared to a 5¢/Kwh average at the company's low-cost plants. Anchor heightened energy management programs, and at Cliffwood alone, has saved about $250,000.
Still, it wasn't enough.
Schaffer says that in early 1995 the company was involved in ongoing negotiations with JCP&L about costs and rates and its loss of competitive edge. "And the electric bill keeps going up and up and up," he adds. "And you look around and see what your competition is doing [and ask] . . . how can this plant be 40 miles away and their electric costs be 5 cents [per Kwh]? Well, that's because their electric provider is Madison Municipal Electric Utility."
Anchor initiated the drive for municipalization simultaneously with its JCP&L negotiations.
The letter to JCP&L calling for a "market-based rate" produced counter offers from the company that Anchor couldn't accept, Schaffer claims, citing clauses for a minimum of 208 hours of interruptible power. ""Our process can't stand that," he says. "You have three furnaces with over 250 tons of molten glass at 2,500, you can't operate with interruption." Not to mention "acres and acres" of digital processing equipment controlling machines that produce more than 300 bottles a minute. Recovery from a 10-second power blip takes three hours.
Furthermore, the rate JCP&L quoted was a tariff, open to any base rate case the company filed, so it wasn't guaranteed. The final straw was that JCP&L didn't want Anchor to look elsewhere for power,
no matter what happens with market deregulation. If Anchor's competition won access to 4-cent power in the next few years under a deregulated market, Schaffer says, the company would be "dead meat."
Also fueling the decision to push for municipalization was Anchor's frustration that out of the $700 million the company spends on goods and services each year, "the only single thing we cannot competitively bid is electricity."
Anchor and JCP&L finally squared off in the
summer of 1995. At Aberdeen township meetings, residents and Council members learned what municipalization entailed. They also discovered that Aberdeen could become the 10th New Jersey municipality to have its own utility. In one corner, Courtney & Associates of Findlay, OH, (paid by Anchor) told ratepayers they would save $19.7 million over nine years, about $200 each year per ratepayer. In the other corner, Stone & Webster of Boston (paid by JCP&L) said ratepayers would pay $35 to $115 a year more on their electric bills over four years.
Schaffer said savings for the township went even further. According to Courtney & Associates estimates, street lighting, which now costs Aberdeen 25¢/Kwh for offpeak power, would be reduced from $180,000 to $40,000 a year. The township's three schools could have saved $60,000 on their electric bills.
One divisive issue was stranded costs.
Schaffer said his side of the fight recognized there would be stranded costs in the estimated $30-million project, but felt it was a win-win proposal despite those costs. He cites the take-or-pay contracts Anchor is charged by gas pipelines: "Even with the take-or-pay in there, our burnertip price went from $5 in MMBtu at the burner tip to $2.50."
The stranded-cost issue won't be fully decided until the Federal Regulatory Energy Commission (FERC) weighs in this spring with a rulemaking on its Mega-NOPR. The FERC expects to inject competition into the wholesale electric market. "Stranded costs and the issue of stranded investment are only going to impede competition," Schaffer protests. "So how do you think FERC is going to rule?"
Utilities' burden of proof would be greater, too.
"Finally, they are going to have the burden of proof to step forward and explain why they've made bad investments," Schaffer predicts. "Explain why they didn't start writing down the defunct nuclear generation costs over the past 10 years. Explain why they have Italian marble in their executive headquarters. Explain why they have $2 crab cakes in the executive dining room."
Schaffer says JCP&L and opponents of municipalization assumed that Aberdeen would fail in running the power plant. That's wrong, he says: "Why are you going to assume bad management?" Schaffer notes that it's difficult to swallow predictions of failure from a utility that has anywhere from the sixth to the 11th highest industrial electricity costs in the nation, depending on the source cited.
But in the end, voters killed the municipalization referendum (em 3,646-563. Schaffer insists that if Anchor has Council support, it will try again this year: "We'll continue to look into it and review it and respond accordingly by how we're met."
Meanwhile, the company can look forward to another $4.1-million electric bill this year. t
Joseph F. Schuler, Jr. is associate
editor of PUBLIC UTILITIES
Articles found on this page are available to Internet subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.