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Fall 2007 OCMA News |
FALL 2007 OCMA NEWS
More than forty (40) OCMA members attended the OCMA meeting on October 18, 2007, to hear several presentations pertaining to the restructuring of electricity regulation in Ohio and one on reform efforts in the Ohio Bureau of Workers’ Comp.
Mark S. Shanahan, Energy Advisor to the Governor and Executive Director Ohio Air Quality Development Authority (OAQDA), was the luncheon speaker. Appointed Director of OAQDA in 1989, he oversees the management of more than $1.6 billion in outstanding bond issues as well as the Authority’s research and special project programs. As Energy Advisor he is responsible for coordinating state agencies’ efforts to develop a comprehensive Ohio energy policy and to implement the Governor’s order to significantly reduce state agency energy consumption. The key points of his presentation are summarized below. 1. In 1999, the Ohio General Assembly enacted and the Governor signed Am. Sub. Senate Bill 3 that provided for the deregulation of electricity generation in Ohio. The legislation was supposed to bring about competition among providers of electricity and lead to lower prices. At the end of the five-year transition period it was clear that a competitive market did not exist. Competitive markets were buffeted by the California “meltdown” with Enron and other utilities manipulating electricity prices and the terrorist attacks on September 11, 2001, resulted in spikes in the prices of oil, natural gas, coal, and electricity. 2. In 2004, acknowledging that no competitive market existed, the PUCO requested Ohio utilities extend their market development period and establish so-called Rate Stabilization Plans (RSPs). Under the RSPs, electricity rates were set at agreed upon levels and locked in for an additional three (3) years. At the end of those three years, in January 2009 the RSPs would end and market rates would prevail. Unfortunately, with only one year to go before that date, a wholesale electricity market has still not developed and the potential for the worst possible outcome, rates set not by the market, but by an unregulated monopoly, is a real possibility. 3. In April 2007, Governor Strickland met with the leaders of
the House and Senate to discuss the looming problem. Both leaders
asked the Governor to initiate the process by making a legislative
proposal. In May 2007, Governor Strickland outlined seven principles
for resolution of the electricity crisis. Subsequently, the Governor
met with the many stakeholders affected by the situation – CEOs
of the public utilities, leaders of organized labor, company executives,
and representatives of small business. At the end of August 2007
the Governor released his legislative proposal. > To protect Ohio jobs by keeping electricity rates stable
and predictable;
5. The Governor does not believe it is possible to return to full regulation of the electricity producing utilities. As prescribed in S. B. 3, First Energy has separated its generation unit from transportation and distribution. The State of Ohio cannot force First Energy to re-regulate. The Governor’s initiative attempts to address these legal hurdles. The legislative proposal, S. B. 221 would require that a utility be able to prove that a viable competitive market exists before it could charge market rates. Under the legislative proposal, the PUCO would define a competitive market and the burden of proof would be on the utilities to demonstrate that a market truly exists. 6. If there were no competitive market, the individual utility would be required to propose an “electric security plan” (ESP). In this plan the utility would outline its plan for meeting the demand for electricity and justify the rates it would charge under its plan. For the most part, rates under the ESP would be cost-based. The ESP would not take effect unless approved by the PUCO. 7. The Governor’s initiative also calls for the development of advanced energy sources. An electric utility would be required by the end of 2025 to supply 25% of its “standard service offer” from advanced energy sources. Advanced energy sources would include clean coal and advanced nuclear energy. Of the 25%, one-half or 12.5% would need to come from renewable energy and 12.5% would need to be produced in Ohio. 8. The fastest growing renewable energy source today is wind power. Recently, the Governor and he met with representatives from six (6) European companies leading the industry in capturing wind power. They were interested in creating a “supply chain” of companies in Ohio to support the wind generation industry. However, they were concerned that Ohio does not have a renewable portfolio requirement although twenty-three (23) other states do have such a standard. The Governor believes that the advanced energy requirement is needed to stimulate development of renewable energy in Ohio. 9. Interestingly, the first wind turbine ever was invented by Charles Brush in Cleveland. The largest producer of solar energy systems, First Solar, is located in Toledo. However, this company sells all of its systems overseas – none is sold in the U.S. There is a need to create a domestic demand for this type of energy production. The Governor’s initiative also calls for significant reduction of electricity use by requiring new energy efficiency standards. The cleanest possible energy solution is the energy that we don’t use. 10. The State of Ohio will soon face the environmental challenge of reducing its carbon dioxide footprint. Ohio is the fourth-largest emitter of carbon dioxide in the U.S. Ohio utilities are already in the process of planning for carbon dioxide controls. Some Ohio utility facilities may be forced to close because the environmental restrictions will make further production economically infeasible. The Governor’s electricity initiative mandates that the public utilities share with the State its plan on how to meet the carbon dioxide constraints. 11. One promising method to reduce carbon dioxide emissions is by sequestering it in deep wells or geological formations. Ohio has great capacity for storage of carbon dioxide however, regulating the activity could prove to be quite difficult. The PUCO has authority over the pipelines that would move the carbon dioxide; Natural Resources regulate wells; and Environmental Protection has jurisdiction over emission control. 12. The Ohio Senate is planning to pass the Governor’s proposal by the end of October. It is necessary to pass the legislation by the end of the year so that the PUCO will have enough time to create the regulations and rules for its implementation. PUCO and the public utilities must negotiate rates for 2009 and there is likely to be litigation. January 1, 2009 is the deadline for completion of this task.
Sam Randazzo, McNees Wallace & Nurick LLC, General Counsel to the Industrial Energy Users-Ohio (IUE-Ohio), provided additional background about electricity deregulation and possible “rate shock” if the Ohio General Assembly does not enact enabling legislation to prevent electric utilities from charging market rates beginning January 1, 2009. The key points of his presentation are presented below: 1. Am. Sub. Senate Bill 3 was enacted by the Ohio General Assembly and signed by Governor Bob Taft on July 6, 1999. The Electric Restructuring legislation provided the following: 1) required the utilities to unbundle the three main components (generation, transmission, and distribution); 2) transmission and distribution remain regulated; 3) generation was declared to be competitive thereby calling for market-based prices; and 4) a market development period was established to protect consumers by providing reasonable, stabilized rates through December 31, 2005, and to allow a competitive marketplace to develop. 2. Regulation of electricity is split between the Federal Electric Regulatory Commission (FERC) and the Ohio Public Utilities Commission (PUCO). FERC is responsible for regulating wholesale prices and activity from generation to transmission. This amounts to approximately 80% of the system. PUCO is responsible only for regulating retail prices and activity from the substation to the final customer. 3. Unfortunately, it became apparent in September 2003 that effective competitive electric markets were not developing throughout Ohio. PUCO encouraged all electric utilities to extend their Market Development Periods or submit plans for rate stabilization. The purpose of the Rate Stabilization Plans (RSPs) was to provide rate certainty, financial stability for the utilities, and to allow time for further development of the competitive electric markets. 4. Each RSP relies upon the existing unbundled generation price as the basis for standard services (or “provider of last resort” prices). The unbundled generation prices are subject to adjustments for changes in certain categories of costs including cost of fuel, security, and environmental regulation. 5. All RSPs except Dayton Power & Light’s expire at end of 2008. Once the RSPs expire, retail electric customers will be dependent on the utilities voluntarily agreeing to extend existing RSPs or establishing new RSPs. Absent these voluntary RSPs, the old RSPs will end and runaway electric prices will pose dire consequences for Ohio electric consumers. 6. The Ohio Consumers’ Council (OCC) has challenged each RSP in the Ohio Supreme Court attempting to force the PUCO to use an auction process to set prices. Competitive bidding (i.e. auctions) attempts in Ohio and elsewhere have produced extremely high rates. Electric rates could escalate as much as 80-100% beginning in 2009 if auctions are used to set prices without a viable competitive electric market in place. The impact of these types of rate increases on Ohio manufacturers is self-evident. 7. Wholesale electric prices are set through pricing mechanisms established by the Regional Transmission Organizations (RTOs), which are subject to federal regulation. Ohio is split between PJM Interconnection and MISO (Midwest Independent Transmission System Operator) RTOs. 8. PJM’s “Organized Market” Pricing Convention Example: Assume that 600 MWH (600,000 KWh) are needed to meet demand and wholesale bids are received from several electric generators: > 200 MWH @ $20 MWH The average cost for the 600 MWH is equal to $32.5 per MWH or 3.25 cents per kWh. However, under the PJM pricing convention the cost of the electricity that the end-user will see is $60 MWH or 6.0 cents per kWh. 9. Under the current PJM spot market pricing convention, the price of the spot energy would be set at the last bid price accepted by PJM to make the 600 MWH available. PJM uses a “uniform clearing price” approach to establish the price of electricity that is available from its “organized market”. The entire 600 MWH of generating supply would be priced at $60/MWH irrespective of the costs of production for the lower bidding suppliers 10. Auctions used by Ohio or other states to establish retail electric prices are significantly influenced by the uniform clearing price method of regulation and simply pass the consequences of this type of regulation on to retail customers like you. 11. Any discussions concerning RSPs, PUCO authority, or a revision to Ohio’s Electric Restructuring Law, must proceed and be completed as soon as possible to allow for educated choices to be made. 12. The question is not whether to have competition or regulation but about whether Ohio will resign itself to the rate shock that will result from regulation by federal regulators. Customers must advance their concerns to Ohio’s legislators, the Governor, and other government leaders. 13. Please call, write, or e-mail your government representatives. Tell them you are concerned about potential rate shock and the impact it could have on your company. Tell them Ohio must focus on energy policies and regulation that maintains stabilized electric rates. Ask them to support legislation that will: > Repeal the statutory declaration that generation is a competitive serve; > Enhance the PUCO’s ability to protect customers against “rate
shock” by making sure real competition is in place before
customers are required to pay “market-based electric prices
set by auctions; Sam’s PowerPoint presentation is available from the OCMA office. Please just call or e-mail your request.
Kevin Schmidt, Public Policy Director, Ohio Manufacturers’ Association (OMA) and Ohio Coalition for Affordable Power outlined the key steps they are recommending to protect consumers and particularly manufacturers from “rate shock”. 1. If nothing is done, Ohio will be thrust into the “marketplace” for
electricity. That market is presently federally regulated and it
is dysfunctional. There is little true competition and as a result
customers are paying higher prices. Price increases have been dramatic
and painful: 2. Governor Ted Strickland, through SB 221 introduced at the Governor’s request by Senator Robert Schuler (R-Cinn), has provided a plan for providing long-term price stability. Ohio Senate has laid out an aggressive hearing schedule and expects to pass the bill by the end of October 2007. Ohio House plans are unclear. There is no commitment to pass the legislation this year in the House. 3. SB 221 provides a comprehensive plan to address electricity prices now and in the future. Under the bill, utilities would be invited to file “Electricity Security Plans (ESPs)” that would provide utilities guaranteed territory and prices to be based on costs. It would facilitate long term planning of generating assets by allowing for full cost recovery of necessary base load generation. The bill would also allow utilities to recover costs for environmental upgrades necessary to keep aging, cheap, coal-fired generating units in service. 4. In his testimony before the Senate Energy & Public Utilities Committee, the CEO from Duke Energy, one of the largest electric utilities in the U.S. stated that his company would not build new generating facilities in deregulated states. Additionally, in those states that have deregulated and have suffered high electricity increases, we have not seen an increase in construction of new power generating facilities. 5. The Governor’s proposal also creates an advanced energy portfolio to help drive the electricity generation portfolio to diversify from a 98% coal and nuclear mix. Fortunately, the bill does not have a rigid timetable for achievement of the advanced energy portfolio. The 25% advanced energy portfolio is a goal for 2025, but there are no strict targets along the way.
Tina Keilmeyer, Chief of Customer Services, Ohio Bureau of Workers’ Compensation, provided an overview of activities at the Ohio BWC that will be affecting the Ohio metal casting industry. With more than twenty-four (24) years experience at BWC, Ms. Keilmeyer is responsible for directing all claims, risk, and safety operations for the agency. Key points of her presentation are provided below: 1. Ohio is the largest state-funded workers’ compensation program in the U.S. The year 2007 introduced a new Governor, new Administrator, and new Board of Directors. Highly publicized problems of the past several years created a problem of credibility for the Agency. Energies have been directed at studying the infrastructure of the Agency to make sure “what works” for both employees and employers. Ohio has the obligation to operate the BWC as an insurance company, however the fund belongs to the employers and employees. Ohio BWC is merely the steward for the fund. 2. During the last ten months, the Agency has focused on financials. An eighteen-month program was developed. Since its implementation, medical costs have been reduced by 6%. There has also been a reduction in Temporary Total expenditures of about 4%. 3. Investment strategy has also been reviewed. Since the reserve is the investment for the future it is important to sustain a stable system that protects principle and promotes relatively safe growth. Under the previous leadership, the reserve was invested more aggressively, somewhat like a pension fund. Under the new Administrator the reserve was divested to a fixed stable bond program with only 20% invested in equities to restore confidence in the reserves. However, the overall return was only 6.8%. Going forward the reserve will be more heavily invested in equities. 4. Under Ohio H.B. 100, the Workers’ Compensation Oversight Commission was replaced with an eleven member Board of Directors. The new Board creates a more independent governance system for the Agency. The new Board of Directors provides greater professional expertise, strengthened accountability and transparency, and a broad representation of BWC’s customers. The Board also includes members with professional expertise in financial accounting, investments and securities, and actuarial management. Previously the Board had two key committees, investment and audit. Under the new legislation, two additional committees were created; an actuarial committee and a governance committee. 5. One of the key issues to be studied is the group rating program. The program “costs” BWC approximately $1.6 billion, affects more than 100,000 employers, and covers nearly 80% of all employers. Under the program, discounts up to 90% are provided to employers in groups. These large discounts create actuarial losses that must be covered by those companies not participating in the group program. This cost shift has been determined to be unfair. A new system is needed that fairly distributes costs so that all employers pay premiums that cover their losses. 6. BWC has commissioned nine actuarial studies on group rating and they all indicate that they are not financially sound. There is significant cost shifting to the tune of about $200 million. The group-rating program will be revised and the discounts reduced. As a result there should be a reduction in the base rates for all employers. At a maximum 80% discount group rating system, base rates should decline approximately 4%. 7. The Ohio BWC reserving system is about ten years old and the data used to support the system is even older. H.B. 100 mandated that Ohio BWC update its obsolete reserving system. There will be a new system in place by July 2008. The new system will be more responsive to rate experience and easier to understand. The new system will adjust reserves more frequently, more data will be used in reaching determinations, and it should be more equitable. 8. The Workers’ Comp program is a creature of the legislative process and is therefore more complex than necessary. Management at the Agency is attempting to reduce the complexity of the system. They are presently studying the managed care system and plan to make necessary changes. 9. Another goal of top management at Ohio BWC is to ensure that the system is more equitable. The system should not be either pro-worker or pro-employer. It should be a high quality system that is very customer oriented. They are working to revamp the system to apply to all customers. 10. The Ohio BWC goal is to make the workers’ comp system an asset to the state. An equitable, customer service oriented program could serve to give Ohio a competitive advantage and attract additional employers from outside the state.
ENVIRONMENTAL UPDATE Craig Schmeisser, RMT, Inc. presented the environmental report. The PowerPoint environmental report is available from the OCMA office, just call or e-mail. Key issues are outlined below: Area Source Rule for Iron & Steel Foundries • USEPA published an Area Source Rule for Iron & Steel
Foundries in the Federal Register on Monday, September 17, 2007.
This rule will apply to area sources; those with a potential to
emit less than 10 tons/yr for a single HAP or less than 25 tons/yr
for any combination of HAPs. According to USEPA data, over 400
foundries will be affected. Foundries are either area sources or
covered by MACT. There is no in between. • A foundry will use 2008 production to determine whether
it is “large” or “small”. Written notification
to USEPA is required within one year of final rule publication
and both large and small foundries must comply within pollution
prevention practices by the end of that one-year period. Within
two years of final publication, large foundries must comply with
the standards and management practices. • USEPA is proposing all furnaces (including Electric Induction Furnaces (EIFs) in large foundries must meet a limit of 0.80 lbs PM/ton of metal or 0.06 lbs/ton metallic HAP limit. A new source would be required to meet a 0.1 lbs PM/ton or 0.008 lbs/ton total metal HAPs. Foundries with uncontrolled EIFs could be forced to install pollution control equipment (baghouse) to meet this limit. The AFS Area Source Working Group estimates that approximately 39 iron facilities and 13 steel facilities could be affected by this proposal. • There is some good news in the scrap management proposal. There is no visual inspection required. Foundries can comply with the requirement by using restricted metallic scrap defined as scrap containing no auto shred and use of only ingots, pig iron slitter or other materials that do not include post-consumer automotive scrap, engine blocks, oil filters, oily turnings, lead components, mercury switches, chlorinated plastics, or free organic liquids. No other requirements would apply. • Those foundries using general iron and steel scrap (i.e. contains auto scrap) are required to have a written specification. Scrap charged to a scrap preheater (w/o aft) or melting furnace must be only scrap depleted of organics and HAP metals. For charging with a cupola with an afterburner, scrap must be depleted of chlorinated plastics and accessible lead-containing components (batteries and wheel weights) and free liquids. A foundry can have a hybrid plan, part restricted and part general. • The proposal outlines a Mercury Switch Removal requirement for which there are three choice of compliance available: • Site Specific Plan that includes a specification for removal
of “convenience” mercury switches; a communication
to scrap suppliers to ensure removal and proper disposal per RCRA;
provisions for obtaining assurance of removal, periodic inspections,
site visits, proper disposal, frequency of inspection and corrective
action. Plan must also include a requirement of scrap suppliers
to provide estimate of switches removed with a goal of 80% removal.
Finally, a semi-annual report with number of switches removed or
weight of switches, number of vehicles shredded, percentage of
switches removed, and a certification of recycling.
• General facility information; Similar plans which address listed requirements may be used. Existing source can elect Bag Leak Detection System (BLDS); New Source must use BLDS. • Fugitive Emissions – The proposed requirement is for the entire building and structure housing the foundry. The proposal calls for a semi-annual Method 9 to confirm opacity is less than 20% as a 6-minute average. • Title V Permit Exemption – Area source foundries would not have to obtain a Title V permit just because they are subject to the area source rule. Environmental groups are aware of this exemption and opposed to it. • Comments on the proposed rule are due by November 1, 2007. Foundries are encouraged to comment on the proposal especially foundries with uncontrolled EIFs that melt more than 10,000 tons/year. Final rule is due by December 15, 2007. • The AFS GACT Working Group is preparing additional research concerning the validity of the 0.8 lb/ton emission factor. It is planning to prepare case studies to demonstrate that USEPA cost estimates are incorrect. It will ask USEPA to consider higher cutoffs for those facilities with EIFs. Finally, the group will show that the USEPA is incorrect to deny a small business impact. The AFS Washington Office is already in contact with the Small Business Administration advocate. • OCMA will be filing comments arguing that the requirements of the proposed rule are not cost-effective and threaten the economic viability of our industry. Beneficial Reuse Update John Kurtz, Kurtz Bros., Inc. provided the report. • Ohio EPA is in the process of responding to comments on the beneficial reuse rules that were proposed in late 2006 and upon which OCMA commented. Director Korleski has instructed the surface water staff to have a new proposal by the end of 2007. • Rufus Chaney, Agricultural Research Service (ARS), a renowned soil scientist reported at the AFS EHS conference in October that the ARS is working with USEPA to create a joint report highlighting their research that has found spent, non-toxic foundry sand is indeed, cleaner than dirt!
Nick Cannel, EMTEC, provided the report. Highlights are outlined below:
Energy Report Larry Boyd, Energy Industries of Ohio (EIO), provided the report. Highlights are outlined below: • Companies spending more than $1 trillion per year are eligible for energy audits by US Department of Energy auditors free of charge. • EIO has been designated as having a qualified Process Heating Assessment program. Golf, Golf, and more Golf
The 2006 OCMA Golf Outing was such a monumental success that very few individuals believed that the 4th Annual outing could top it. But top it we did with 100 golfers attending the outing held on Monday, August 27, 2007, at the Cumberland Trails Golf Club, a very popluar venue. Fortunately for all involved but mostly for the OCMA Executive Director who had promised as much, the weather was outstanding. With sunny skies and moderate temperature, participants enjoyed the golf, camaraderie, food & refreshments. OCMA earned an addition to its bottom line of nearly $20,000. Obviously impervious to the threat of a sophomore slump, OCMA Golf Committee Chairman Dan Salak, Foseco Metallurgical Inc. and the OCMA Golf Committee, garnered fifteen (15) major sponsors, forty (40) hole sponsors, and 100 golfers! With Fairmount Minerals Ltd. once again providing a grand prize of a day of golf at the award winning Sand Ridge Golf Club the task of recruiting golf enthusiasts was pretty easy. The winning team from Hill & Griffith Company was comprised of David Greek, Bud Tibbits, Tom Wedemeyer, and Ryan Canfield. The team’s winning score was eighteen (18) under par! Despite this outstanding score, the H & G team only won by one stroke, edging out a “rookie” team from GM Powertrain-Defiance. Enjoy your trip to Sand Ridge Golf Club guys, you have definitely earned it. The success of the outing this year was beyond our expectations and we can hardly wait until next year.
OCMA Golf Outing Hole Sponsors
Volunteers Bob Walrod, Foseco Metallurgical Inc. (retired)
It was a very lean year for the PAC golf outings. We only had
one foursome participate in the Northeast OCMA PAC golf outing
held on Thursday, July 26 th, at Fox Meadow Country Club. However,
due to the generosity of host Dan Salak, Foseco Metallurgical Inc.,
he made an in-kind contribution of the green fees and luncheon,
the outing earned nearly $500. The Southern Ohio OCMA PAC outing
was scheduled for Thursday, August 2, 2007 at the prestigious Coldstream
CC. Unfortunately, the interest in the outing was minimal so the
outing was cancelled. It’s hard to understand how that happened
given the exclusivity and test of golf provided, but apparently
schedules could not accomodate the event.
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