2009 WINTER OCMA NEWS

OCMA JANUARY MEETING PRESENTS CHALLENGES & OPPORTUNITIES

OCMA General Council Mike Frantz, Frantz Ward LLP, makes a point during his presentation concerning the proposed "card check" legislation.

Approximately fifty (50) OCMA members attended the OCMA meeting on Wednesday, January 21, 2009, to hear several presentations exploring new challenges in the human resource arena and potential opportunities in the energy arena. OCMA General Counsel Mike Frantz, and Rebecca Bennett, Frantz Ward LLP, discussed the Employee Free Choice Act, new FMLA regulations, and amendments to the Americans with Disabilities Act (ADA). Kevin Schmidt, Ohio Manufacturers' Association provided an update on the electric utility's Energy Security Plans (ESPs) and John Choma, ENERGYCONNECT, Inc. and Sam Wolfe, Integrys Energy Services, Inc. discussed opportunities for energy savings under Interruptible Load for Reliability (ILR) programs. Key points of Mike Frantz's presentation are outlined below:

1. The number one legislative priority issue for Big Labor in 2009 is to enact the proposed Employee Free Choice Act. The proposed legislation would effectively eliminate National Labor Relations Board (NLRB) secret ballot elections for union organizing drives. The NLRB would certify a union based upon "interest cards" submitted by the union. If a majority of the employees sign the interest cards, the union would be certified as their representative.

2. Once certified as the representative, the union would request negotiations and under the Act the company must go to the bargaining table within ten (10) days of the request. The proposed act sets forth a requirement that the company "make every reasonable effort to conclude and sign a collective bargaining agreement". If no agreement is reached within ninety (90) days, the union may request mediation. If no agreement is reached within thirty (30) days of the request for mediation, the dispute is referred to arbitration. The arbitration panel would resolve the dispute, including terms & conditions of the contract.

3. The proposed act would also impose significantly more punitive remedies in unfair labor practice cases. Under the proposed act, an employer found to have committed an unfair labor practice (ULP) during a union organizing drive will be required to pay treble damages if a remedy involves back pay, and if the violation is found to be willful, the employer would be required to pay $20,000 per occurrence.

4. A major concern of those opposing the proposed legislation is the increased likelihood of unions using intimidation to convince employees to sign the authorization cards. Once the cards are signed, there is no process for retracting an employee's decision. Importantly, if a union is certified through the card check process, the only method of decertification is by secret ballot election. Although the proposed legislation imposes significantly higher penalties on employers during organizing drives, current penalties on unions for illegal conduct are not changed.

5. The proposed legislation poses monumental challenges for the Federal Mediation and Conciliation Service (FMCS) that does not have the staff to address the demands likely under the new bill. Moreover, the limited number of qualified arbitrators is likely to lead to lengthy delays in resolving disputes. Most importantly, arbitrators would be in control of wages and employment conditions, not the employer or the union. Finally, there is no appeal of an arbitrator's decision and the contract would have a duration of two (2) years.

6. U.S. Speaker of the House Nancy Pelosi (D-Cal) is expected to call for a vote on this legislation in February and passage in the House is nearly certain. However, the path for enactment in the U.S. Senate is a difficult one with Republicans having the ability to filibuster. Potential compromises include changes to require super majorities of authorization cards and/or speedier elections. Neither of these compromises would eliminate the dangers in the proposed bill for employers who are now non-union.

7. Non-union employers should waste no time in preparing for possible enactment of the EFCA. The employer should designate an EFCA response team to monitor developments. It is likely that unions may already be soliciting authorization cards in workplaces. Employers should review and if necessary update your union free policy statements. Communicate your policy to employees, stressing the importance of maintaining open and direct communication. Employers should also train your front line supervisors to understand what they can and cannot say or do. You should do these things now. If you wait, it may be too late.

Rebecca Bennett, Frantz Ward LLP, emphasizes the importance of updating your HR practices to comply with the new FMLA regualtions.

Rebecca Bennett, Frantz Ward LLP, addressed recent changes in the Family Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA). Her presentation was very technical and cannot be summarized easily. Please contact the OCMA office for a copy of her PowerPoint presentation and consult your legal counsel. A brief summary of her presentation is provided below:

1. The purpose of the new federal regulations issued in January 2009 is to explain and clarify employer obligations under the National Defense Authorization Act (NDAA) which extended FMLA leave to care for injured service member. This is the first major update of the FMLA since 1993.

2. For those employers with more than fifty (50) employees the new regulations require a number of "notice requirements" including general notice, eligibility notice, rights and responsibilities notice and designation notice.

3. The new regulations define "Serious Health Condition" (SHC) as more than three (3) days incapacity and require physician visits. In some cases, a chronic condition can qualify as a SHC.

4. The new regulations define "military caregiver leave" as care for a "member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness". Military caregiver leave is limited to up to twenty-six (26) weeks of leave during a single 12-month period.

5. The new regulations also contain twelve (12) weeks of "qualifying exigency leave" that applies to those situations where a spouse, or a son, or a daughter or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation in Iraq or Afghanistan. Qualifying exigencies include short-notice deployment, childcare and school activities, counseling, and post-deployment activities.

6. Effective January 1, 2009, several amendments to the American with Disabilities Act (ADA) take effect whose primary purpose is to overturn various U.S. Supreme Court decisions and to broaden the definition of disability. The likely impact for employers will be to increase the number of disability discrimination claims and charges, to increase the number of claims going to trial, and to increase the number of conditions that qualify as a disability

7. How do the amendments change things? The amendments overturn Sutton v. United Airlines so now; courts must determine whether an individual is disabled "without regard to the ameliorative effects of mitigating measures." Toyota Motor Mfg Co. of Kentucky v Williams is also overturned so now courts will utilize a far less demanding standard to determine if an individual is "disabled".

8. The amendments direct the EEOC to revise its regulations to reflect an easier standard for individuals. A broader definition of "major life activities" is to be adopted. The definition of a disability will be expanded to include impairments that are episodic or in remission if, when active, would substantially limit a major life activity.

9. Congress is reviewing additional HR legislation including proposals that would prohibit workplace discrimination based upon sexual orientation; change deadlines for filing pay discrimination charges under Title VII; and allowing plaintiffs under the Equal Pay Act to sue for punitive and compensatory damages (not just back pay).

Kevin Schmidt, Director of Public Policy Services, OMA, listens intently to a question from the OCMA membership.

Kevin Schmidt, Director of Public Policy Services, OMA, returned to review what has transpired regarding electricity pricing since he last spoke to OCMA members in October 2007 prior to the passage of SB 221. SB 221 was enacted in 2008 to prevent Ohio from going to federally regulated pricing. Other states such as Illinois and Maryland where federal regulation was in effect saw skyrocketing electricity rate increases of 50-75%. Key points of the presentation are presented below:

1. Under SB 221, all investor-owned utilities were required to file Electric Security Plans (ESPs) and/or a Market Rate Offer (MRO) with the Ohio Public Utility Commission (PUCO).

2. He had good news for those companies located in Duke Energy's territory. Duke Energy Ohio reached a stipulated agreement approved by PUCO that provided for a 2% increase in 2009, 2010, and 2011. The Duke Energy Ohio agreement resulted in an actual 5% decrease for industrial customers in 2009. Despite this result, the Ohio Consumers' Council and Ohio Environmental Council both filed for rehearing on the energy efficiency exemptions.

3. American Electric Power (AEP) filed an ESP requesting a 52% increase over three years. Increases stemmed from off-system sales, fuel costs, POLR charges, among others. OMA intervened in this rate case arguing for frozen rates after January 1, 2009. OMA staff participated in cross examination of witnesses and filed briefs arguing against AEP's ESP on various grounds:

o The fuel adjustment clause (FAC) was not justified and should be denied;
o Environmental carrying costs were not allowed by law;
o Non-FAC generation rate increases of 3% for Columbus Southern Power and 7% for Ohio Power Company were arbitrary and not justified;
o If granted the ESP would have resulted in $2 billion total increase and would have given AEP excessive earnings under SB221;
o AEP tried to argue that a 27% ROE for a regulated, utility was a reasonable ROE when opposing expert witnesses stated that a typical ROE would range between 10-12%.

4. PUCO is expected to issue a ruling on the AEP ESP before the end of February. It is possible that AEP still may try to work with intervenors including OMA to settle, however, no discussions are taking place at this time. In the end the law, circumstances, and reality will work for us. In 2008, after-tax returns on common equity for Columbus Southern Power were 23.48% and 13.5% for Ohio Power Company.

5. Subsequent to the enactment of SB 221, FirstEnergy filed both an MRO and an ESP. Both of the proposals were rejected by the PUCO. To demonstrate their extreme disappointment with the PUCO decision, FirstEnergy has taken some dramatic action. They have cancelled or modified contracts with industrial customers resulting in increases ranging from 40% to 102%. They have cancelled or threatened to cancel their charitable giving and economic development contributions. They have threatened to shut down generating plants and move their headquarters out of Ohio. They have also obtained letters of support from prominent policymakers.

6. OMA has intervened in the FirstEnergy ESP review and has filed briefs opposing their proposal. FirstEnergy withdrew the original ESP, but have since requested a rehearing. It has also requested a rehearing on their MRO. OMA has been working with the Strickland Administration and PUCO to counter FirstEnergy's punitive and malicious actions. Especially hard-hit by FirstEnergy's actions are those companies that have utilized interruptible contracts to secure lower electricity rates. Upon canceling these contracts FirstEnergy has forced increases as high as 102% on long-time industrial customers.

7. PUCO retains jurisdiction over retail rates and it may rule that FirstEnergy's purchase of power from FirstEnergy Solutions, Inc. was "imprudent". In that case, consumers could receive refunds based upon the difference between the "prudent rate" and the "imprudent rate". FirstEnergy's recourse would be an appeal to federal court.

8. Presently, FirstEnergy is an unregulated monopoly. Barriers in place do not allow for some customers to shop. The Strickland Administration along with the PUCO is in discussions with FirstEnergy to craft a long-term plan. Until then, FirstEnergy is a rogue company damaging Ohio's chances of economic recovery.

John Choma, ENERGYConnect, Inc., clarifies a point during his presentation about ILR programs.

John Choma, EnergyConnect Inc., examined "demand response" programs available to high-user consumers to reduce electricity costs. Major points of his presentation are outlined below:

1. What is demand response? There are two types. One, called FlexConnect by EnergyConnect, Inc., refers to the ability of consumers to change consumption in response to prices. In this case, if a participant curtails energy usage when electricity prices are high or the electric grid is overloaded, they are compensated for this reduction just as a generator would be for producing electricity.

2. The other type, called EventConnect, refers to the ability of consumers to reduce consumption in response to a notice from a system operator to meet system needs such as a contingency or emergency situation to maintain reliability.

3. Who is PJM and what is its role in demand response? PJM refers to the interconnection of electricity systems in Pennsylvania, New Jersey, and Maryland. PJM operates the electric grid that supplies the electricity to homes and businesses and must keep a dynamic balance between consumer demand for electricity and supply thus maintaining reliability and avoiding brownouts. Ohio companies Ohio Power Company and Columbus Southern Power are members of the PJM.

4. Through September 30, 2008, PJM made payments of $21.4 million to participants of the demand response programs. The program began in 2002 with payments of approximately $800,000 for demand response reductions of 6,727 MWh and evolved in 2007 to payments of more than $45 million for 608,745 MWh reductions.

5. EventConnect or Interruptible Load for Reliability (ILR) is a program available to large electricity users where the participant must reduce demand for electricity in the event of a PJM initiated emergency. PJM provides a minimum of two (2) hours notice for the program duration, which runs from June 1, 2009 to September 30, 2009, and could last for up to six (6) hours between 12 PM and 8 PM.

6. EnergyConnect, a different type of ILR, allows the participant to determine when they can reduce or shift electricity use when wholesale prices are expected to be high, and is paid on the actual load reductions times the difference in wholesale less retail price. There are several different methods that can be used under this program to determine when or how the participant will reduce their electricity load.

7. Under the EnergyConnect program, participants can utilize different operational strategies to curtail or reduce electricity use to gain monetary payment just as if the foundry was actually generating the electricity. These strategies include: process changes based on energy economics, reduced runtime of high-usage equipment during high price periods such as chillers, compressors, furnaces, and pumps, scheduled changeovers during high price periods, temporarily cutting back operations when the electric grid is stressed, and use of on-site electricity generation or fuel-switching.

8. EnergyConnect has more than 200 program participants in the PJM territory. OCMA member OSCO Industries, Inc. was a satisfied participant in 2008, so speak with John or Ryan Burke about their experience.

Sam Wolfe, Integrys Services, Inc., describes the differences between the PJM & MISO ILR programs.

Sam Wolfe, Integrys Energy Services, Inc., provided additional information about Interruptible Load for Reliability (ILR) programs comparing those available from AEP and PJM. Key points of his presentation are presented below:

1. The AEP Interruptible Power-Discretionary program is only available for economic development and covers both emergency and discretionary interruptions. For emergency situations, the interruption is immediate. For discretionary interruptions, a 100-minute notice is provided. There is a maximum of 200 hours of interruptions per year and not less than 3 hours per event. Contracting for interruptible power will gain a discount to GS-4 & GS-3 rates. Historically, AEP has had about 100 hours per year of interruptions.

2. Under the PJM Interruptible Load for Reliability (ILR) program that is available to all industrial consumers it only pertains to emergency interruptions. Emergency interruptions allow for 2 hours notice with a maximum of 10 events per year and a maximum 6 hours per event. Those choosing an interruptible contract, receive monthly payments. Historically, PJM has had 0-2 events per year, but none in Ohio.

3. Additional load response programs are available from AEP and PJM and the specifics are outlined in Sam's PowerPoint presentation. If you are interested, please contact the OCMA office.

4. For those Ohio metal casters that are served by First Energy, they are members of the Midwest ISO. So far, Midwest ISO ILR programs are minimal and payments for interruptible service are very low. At this point in time, it is unlikely that heavy industrial users would be interested in participating in their ancillary services market.

ENVIRONMENTAL UPDATE

OCMA Vice President for Environmental Affairs, Ryan Burke, OSCO Industries, Inc., reports the importance of the new USEPA designation of counties in the non-attainment for PM 2.5.

OCMA Vice President for Environmental Affairs, Ryan Burke, OSCO Industries, Inc. presented the environmental report. Key issues are outlined below:

Area Source Rule for Iron & Steel Foundries

• Initial written notification of Large or Small Foundry status based upon 2008 production was due to USEPA no later than January 2, 2009. Large foundries must comply with all requirements by January 2, 2011. A large foundry can request a one-year extension to install environmental controls, but that extension does not apply to other requirements in the rule.

• All area source foundries are required to submit Area Source Notification of Compliance Status letters to USEPA by February 1, 2009. Mike Blankestyn, RMT, Inc., has volunteered to write a model letter for all OCMA members to submit once completed. It will be sent by email prior to the February 1, 2009 deadline.

• USEPA has designated areas in Nonattainment for 24 Hour PM 2.5 regulations. Ohio was second to only California in the number of counties, 28, found to be in nonattainment. Except for Toledo, all major urban areas in Ohio were included such as Cleveland, Akron, Canton, Cincinnati, Dayton, Columbus, and Youngstown. Surprisingly, a number of counties along the Ohio River border were also designated in nonattainment including Adams, Gallia, Lawrence, Scioto, and Washington.

Beneficial Reuse Update

John Kurtz, Kurtz Bros., Inc., provided the report.

• Ohio EPA is 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 early in 2008.

Energy Report

Larry Boyd, Energy Industries of Ohio (EIO), provided the energy report. Highlights are outlined below:

• EIO has been selected as Project Leader for a study to determine the viability of creating coal gasification plants to supply groups of industrial consumers of natural gas in the Midwest.

• EIO is surveying major industrial companies in Ohio and Illinois to determine their energy and chemical feedstock needs. Companies are also asked to indicate under what conditions they would be willing to purchase their natural gas from a nearby coal gasification plant.

• The primary sponsors of the project include the US Department of Energy, Ohio Coal Development Office, and the Gas Technology Institute.

• Ohio and Illinois are two of the largest industrial energy consuming states in the US. Ninety (90) per cent of industrial energy use in Ohio and Illinois is natural gas or electricity. Unfortunately, Ohio and Illinois pay more for natural gas than other states in the U. S. Ohio natural gas prices have been 40% higher than the national average.

• Companies in Ohio and Illinois may benefit from the use of natural gas from coal gasification plants. Both Ohio and Illinois have tremendous proven reserves of coal that could be used as feedstock for the gasification plants. Coal conversion to natural gas becomes competitive when crude oil prices exceed about $45bbl and when natural gas is greater than about $7.00 per million Btu. Both these numbers were exceeded in 2008.

• Coal gasification would provide a natural hedge against rising natural gas price volatility by securing a replacement with a very stable and predictable cost. This process has been in use for more than 100 years. It also has environmental advantages; sulfur and mercury are captured during the gasification process (CO2 can also be captured.) and CO2, sulfur, and slag can be sold into the market.

• Phase one of the project is the collection of data from volunteer companies willing to provide usage data, formulation of viable industrial customer clusters, and estimation of size of gasification plant needed. Follow-up steps would include detailed cost engineering for plant design and the establishment of plant ownership structure and the negotiation of long-term coal supply contracts.

• EIO has won a grant from US DOE to provide companies with assistance in improving the efficiency of their process heating operations. Under the grant, EIO may assist up to six (6) companies and the focus will be on metal casting, glass, and forging industries.

• EIO is to conduct six Process Heating Assessment and Survey Tool (PHAST) assessments at participating companies. EIO will also provide up to forty (40) hours of engineering assistance for implementation of assessment recommendations. EIO is to provide follow-up at each facility at six (6) months, twelve (12) months, and eighteen (18) months to document implementation.

• A team composed of a DOE Qualified Specialist and Plant Personnel will perform the PHAST assessments. Plant personnel will be trained on the use of the DOE PHAST tool that will provide the efficiency recommendations. The assessment will utilize three (3) days of in-plant work.

• Any company interested in applying for a PHAST assessment should contact Larry Boyd, EIO, at 216-323-1898 or boyd@energyinohio.com.