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David Robinson: Falls plant closing raises low-cost power questions

Not even millions of dollars in cut-rate electricity – enough to power more than 22,000 homes – was able to keep Chemours Co. from deciding to shut down its Niagara Falls factory. The Buffalo Avenue plant was the beneficiary of the fifth-biggest block of discounted electricity from the Niagara Power Project that is set aside for Western New York companies. But if a painful decision that will cost 200 local jobs by the end of next year has a silver lining, it’s that the shutdown will free up a valuable block of low-cost power that can be used to help other companies grow or move here. The electricity that was flowing to Chemours, a DuPont spin-off formed in July, was a painfully inefficient use of a powerful economic development tool, supporting just 200 jobs in stagnant industry. And it isn’t just Chemours. Occidental Chemical Corp. and Olin Corp. – the two companies that get 25 percent of all the low-cost hydropower available under the New York Power Authority’s lucrative replacement power and expansion power programs – have committed to keeping just 404 jobs in the region in return for that power.

“The replacement power and expansion power programs are one of the most generous subsidies that the state offers,” said Tammy P. Gamerman, a senior research associate at the Albany-based Citizens Budget Commission, which has called for changes in NYPA’s economic development programs.

“This should be going to industries that are growing, not industries that are shrinking,” she said.

What makes the hydropower programs so valuable is that they allow the companies to pay about 25 percent less for their electricity than local wholesale market prices, according to Steven Gosset, a NYPA spokesman.

That makes the low-cost power especially attractive to power-hungry companies, like chemical manufacturers. The Chemours plant was the only U.S. producer of sodium metals and lithium.

And it was the cheap hydropower from the Power Authority that made the Niagara Falls plant viable for so long, said Jim Briggs, a staff representative at the United Steelworkers union, which represents workers at the plant.

If the Chemours plant closes at the end of 2016, it will free up a block equal to 5 percent of the 695 megawatts of replacement and expansion power available to local companies. With just 44 megawatts of discounted power currently unclaimed and available to new businesses, freeing up the Chemours electricity will put almost 80 percent more power at NYPA’s disposal than it currently has. Used wisely, it could be a powerful economic development tool.

“There will be demand for it,” said Thomas Kucharski, the president of the Buffalo Niagara Enterprise business development and marketing group.

“We are pretty low on the amount of available low-cost power,” he said, with big job-producing projects, such as SolarCity’s solar panel factory and 1366 Technologies’ silicon wafer plant in Genesee County, on the horizon.

Yet old-line industrial legacy businesses claim much of the low-cost electricity. The power that goes to Occidental and Olin is enough to supply electricity to nearly one of every four households in the Buffalo Niagara region.

While those two companies get a quarter of the low-cost hydropower set aside for industrial firms within 30 miles of the Niagara Power Project in Lewiston, they account for only a little more than 1 percent of the jobs provided by the 116 companies receiving discounted electricity.

An analysis of the two low-cost hydropower programs found that there is a wide disparity between the amount of power that companies receive and the number of jobs that they provide.

The allocations that go to Occidental and Olin have only a marginal impact on employment in the Buffalo Niagara region. The 404 jobs that the two companies provide amounts to fewer than one of every 1,000 jobs in the two-county region, and less than one of every 100 factory jobs.

Together, those two companies receive more than 430 kilowatts of discounted electricity for every job that they provide.

Among the 20 biggest recipients of discounted hydropower, the relationship between employment and the amount of electricity received varies widely. Companies such as Goodyear Dunlop Tires North America in the Town of Tonawanda and Ford Motor Co. in Hamburg each receive a block of low-cost hydropower that amounts to less than 10 kilowatts per job – 40 times less than the allocation that Occidental and Olin receive on a per-job basis.

Overall, the expansion and replacement power recipients receive an average of a little more than 25 kilowatts of low-cost electricity for every job they provide.

In contrast, the 10 companies that receive the smallest allocations of low-cost electricity pack a much bigger economic punch.

While the combined allocations of those 10 companies totals just 1,250 kilowatts, or less than 1 percent of Olin and Occidental’s combined allocation, the small firms have committed to provide 685 jobs, or 70 percent more positions than Occidental and Olin together.

Many of the allocations are a holdover from the nation’s industrial heyday. While manufacturing jobs pay a lot more than the average job, more than two of every five local factory jobs have disappeared since 1990. Yet the focus on heavy industry continues to shape the allocations.

While the Cuomo administration made significant reforms to the state’s old Power For Jobs program, remaking it into the Recharge NY program, it left the expansion and replacement power programs largely unchanged, beyond the creation of a pool of money from the sale of unallocated hydropower that is set aside for local economic development projects, Gamerman said. Most companies receiving discounted power have contracts that extend into 2020.

The benefits of “the large legacy awards of hydropower remain unclear,” the commission said in a report issued earlier this year.

But the budget commission has long sought to tie the hydropower programs more closely to the state’s broader economic development goals, which in Western New York includes a focus on 21st century industries, such as solar energy and life sciences. The commission also said NYPA makes it hard to determine the cost of the power subsidies by not disclosing the dollar value of the savings that each company receives through its allocation.