High Electricity Prices are Bad for Everyone

The headline might seem like an obvious one – you’ve most likely seen your energy bills go up over the last several years. But it’s not just families struggling to pay high electric bills. Hoosier companies, particularly those that are energy intensive (such as manufacturing facilities), face exponentially-higher sticker shock when it comes to paying the electricity bill.

And the consequences of companies paying more for electricity is far-reaching: less money for employees, higher prices for consumers, fewer opportunities to expand and lost economic development chances.

Here’s a little history: In the early 2000s, Indiana was fifth lowest in the country, in terms of electricity prices. Today, the state has fallen to the middle of the pack, around 27th lowest.

The State Utility Forecasting Group (SUFG) out of Purdue University puts together electricity forecasts every two years. The current forecast (released at the end of 2013) points to prices increasing by over 30% over the next 20 years, with electricity demand in Indiana staying almost stagnant.

We look at the reasons for the higher prices and the lower demand in the new edition of BizVoice®. I spoke with the director of the SUFG, as well as the president of a small foundry in Rochester and a representative from the Indiana Industrial Energy Consumers, Inc. (which represents some of the state’s largest industrial energy users) for their reactions to the SUFG report.

While I didn’t have the opportunity to include an email interview with Wayne Harman, manager of energy procurement from ArcelorMittal USA, I’m able to share some of it here. Here’s a shortened Q&A:

BizVoice®: What is the consequence of high electricity prices for a large energy-intensive company like ArcelorMittal USA?

Harman: “Higher electricity costs translates to net higher costs for manufacturing finished steel products. Added costs cause inflationary pressure when they can be passed on to customers or squeeze profit margins when a commodity’s market selling price is too low to fully cover the added manufacturing costs. Business investment tends to be reduced until a later period when profit margins are stronger.”

BV: When determining where to build new plants (nationally or abroad), how much of a factor are electricity prices?

Harman: “The cost of power is a key factor in making such a decision, but also the availability and reliability of that power source need to be taken into consideration. Market demand and a company’s supply position to serve that market area need are more important in making such decisions … Above a certain cost point, electricity costs become a deal breaker for such investments.”

BV: Nationally, Indiana used to rank fifth lowest in electricity prices, now we’re somewhere around 27th lowest. What kind of an impact is that making when companies compare states to locate their new or expanding businesses?

Harman: “Clearly the higher cost of electricity in Indiana now as compared to just a few years ago is a disadvantage. Companies must also factor in projections for how the electricity costs will likely increase going forward as compared to other geographical regions, as there is a wide range for current power costs and power generation mix (nuclear, coal, natural gas, etc.) region to region. Indiana is heavily coal-fired generation and as such the costs to deal with tightened EPA emissions from these power plants has translated into higher power prices.”

BV: The SUFG released a recent forecast that predicted that prices will grow by over 30% over the next 20 years, while demand stays relatively flat. If companies have a hard time keeping up with costs now, what is the impact that an extra 30% will have over time?

Harman: “All companies are being forced to reduce the energy intensity of their businesses in order to offset what they can of the future electricity cost increases. Any cost increases that cannot be passed on through higher selling prices cause profit margin compression and reduce the financial health of a company. Companies are sensitive to customer demands that they must first do everything in their power to avoid any increases in costs before they try to seek cost recovery through price increases. …

Since 2006, ArcelorMittal USA has reduced energy costs by more than $163 million through focused improvements and energy management, making us the only steelmaker to be named an Energy Star® partner by the US EPA and participant in the US Department of Energy’s Better Plants Program.”

Read the full story.

Help Get I-69 Into National Freight Network

The U.S. Department of Transportation (DOT) is currently seeking comments on the Primary Freight Network and National Freight Network designations. The Indiana Chamber believes that I-69 should be included as part of the National Freight Network and is asking DOT to support this effort.

As part of the National Freight Network designation, DOT has the opportunity to identify an additional 3,000 miles of highways that are critical to the future efficient movement of goods; this represents a strategic opportunity for the nation to enhance its freight transportation network.

A national priority over the past 20 years, I-69’s significance as a major freight route will increase as states along the corridor continue making progress toward its completion.

I-69 provides the most direct interstate access to principle international border crossings between the U.S., Canada and Mexico, as well as multiple Gulf Coast ports; the volume of traffic on I-69 is anticipated to dramatically rise as the interstate progresses. For all these reasons, I-69 should be included in the Primary Freight Network.

We urge you to show your support for including I-69 as part of the Primary Freight Network by signing this petition.

We’re Working Longer Now, but Maybe Not Tomorrow

Americans have been working longer (in years) — and the researcher/author of this MarketWatch blog post says that is a good thing. But recent findings suggest that the primary factor has been increased educational attainment among men. With that pattern showing signs of slowing down, will the opportunities and desires to continue to remain in the workforce also be scaled back?

As a strong proponent of working longer, I have been delighted to see the increase in the labor-force participation of men age 60 to 74 in recent years.   I, and other researchers, attribute this pattern to a host of factors, including changes in Social Security (lower replacement rates as the full retirement age increases and the maturation of the delayed retirement credit); the shift from defined-benefit plans with strong early-retirement incentives to 401(k)s; an improvement in the health and education of older workers; less physically demanding jobs; the desire to postpone retirement until the availability of Medicare; and the joint decision-making of dual-earner couples.   With all these forces at play, my assumption was that we would continue to see gains in the labor force activity of older workers as they responded to declines in the retirement income system by remaining in the labor force longer.
 
A recent study by Gary Burtless of the Brookings Institution has caused me to worry.   Burtless explored the extent to which the increased educational attainment of older workers – both absolutely and relative to the attainment of prime-age workers – could explain their greater labor force participation. 
 
The gains in educational attainment among older men have been dramatic.  In 1985, only 15% of men age 60 to 74 had been to college; today that fraction has more than doubled, reaching 32%.  Similarly, in 1985, more than 40% of older men had not finished high school; today only 13% lack a high school diploma.
 
Just as important, the gap in education levels between older and younger men has largely disappeared.  For example, men in their early 60s are now as likely to have completed college as those in their early 40s.  These two groups are also similar in terms of the percentage who lack a high school diploma.  As the educational gap between older and younger workers has narrowed, so too has the wage gap.  Today, men age 60 to 74 earn about the same as their counterparts age 35 to 54.

States Turning Tuition World Upside Down

Recently, Oregon was the first state to propose a "Pay it Forward" college tuition plan. While many questions remain on whether the dramatic proposal is valid, that isn't stopping a legislative leader from another part of the country from recommending further study of the concept. NJ.com reports:

Under the plan, New Jersey public colleges could waive tuition and fees for students who pledge to give the state a portion of their salaries after graduation.

In theory, the idea would reduce the amount of loans students take out to go to college.

"When kids are getting out of college, they’re buried in debt," Sweeney said. "It gives another pathway to higher education. As someone who didn’t go to college and recognizes how fortunate I am that things worked out for me, you don’t want to leave things up to luck."

New Jersey’s public colleges have some of the highest tuitions in the nation. For example, the average in-state Rutgers University undergraduate will pay $13,499 in tuition and fees for the 2013-14 school year. Once room and board are added in, the total cost of attending Rutgers will be $25,077 for students living on campus.

New Jersey would not be the first state to explore the idea of delaying tuition payments.

On July 29, the governor of Oregon signed a bill to appoint a commission to study a "Pay it Forward" plan and recommend whether the state should institute a trial program.

Although details have not been finalized, proponents of Oregon’s plan have called for the state to waive tuition for students who agree to pay 3 percent of their incomes over 24 years.

Supporters say the program will help alleviate the nation’s growing student loan problem since many graduates leave college encumbered with tens of thousands of dollars of debt before they ever find their first job.

But critics say the "Pay it Forward" idea has too many holes.

While students would get free tuition and fees while they are in school, they will still have to take out loans to cover the cost of living on or off campus, buying books, paying for transportation and other costs that often account for more than half of the expense of attending college.

It is also unclear if asking students in Oregon to repay 3 percent of their income for a quarter century would cover the cost of running a college or if the schools would have enough cash to operate in the first few years of the program. Critics also questioned whether the state would be able to keep track of the incomes of students who move out of state or out of the country.

Indiana Learning from German Education Model to Close Skills Gap

Last week, Ready Indiana concierge Kris Deckard had the opportunity to participate in a roundtable discussion with Germany’s ambassador to the U.S., Peter Ammon. The main topic was the “skills gap” in Indiana and how the state could learn from the German system.

Echoing what he said he hears from German companies doing business in the U.S., Ammon told an audience (that included Gov. Mike Pence): “America is a wonderful place to do business. But the lack of a properly trained workforce is where the bottleneck is.”

Ammon said the dual system of vocational education in Germany has helped reduce youth unemployment by giving high-school students the real-world skills and education they need to find good-paying jobs while reducing the number of students with dead-end college degrees. Germany offers vocational training for high school students in about 350 different occupations. About 75% of the cost is picked up by private employers, while the rest of the expense is paid for by the federal and state governments in Germany.

For more, read this report from the German Embassy.

Immigration Reform Heats Up; Messer Weighs In

The Border Security, Economic Opportunity and Immigration Modernization Act of 2013, S. 744, is currently being debated by the U.S. Senate, with Majority Leader Harry Reid (D-Nevada) seeking final passage prior to the July 4 recess. The comprehensive reform bill has something to like and something to dislike for just about everyone involved, but the primary political battle lines are being drawn between border security first (a Republican priority) and a path toward legalization and citizenship (a Democratic priority).

The so-called “Gang of 8” has labored mightily to keep a fragile coalition of support together in the Senate, but fissures are materializing. What once looked like a very sizable 70 votes in support has dwindled as the debate has progressed. As of Friday morning, June 21, senators were discussing a new compromise border security proposal in an effort to secure more support for the bill.  
 
The best guess at this point is that an amended S. 744 passes the Senate with overwhelming support from Democrats and just enough Republicans to get over 60 votes and send the legislation to the House of Representatives, where Speaker John Boehner’s caucus is even more uneasy and polarized than the Senate GOP. Boehner has publicly stated that any bill that does not have majority support from his caucus will not be heard, so the House may take a “piecemeal” approach addressing specific aspects or issues included in S. 744 (and likely tackling and emphasizing border security first). However, the Speaker has also met with the Hispanic Caucus and the House’s own “Gang of 8” seeking a comprehensive, bipartisan measure.
 
Indiana Congressman Luke Messer (R-6th District) told the Indiana Chamber recently that “if we are able to reach agreement on border security and documented status for workers, then we have an opportunity for further dialogue about what we do about citizenship once those workers are documented.
 
“My sense today is that we don’t yet have a consensus about what to do about citizenship, which makes it difficult if you tie all three together. That’s the challenge. There’s an opportunity to come up with a plan this year to deal with those first two topics. Probably it’s going to take demonstrated success on those to be able to move on to citizenship.” (Look for the full Q&A with Congressman Messer in the next BizVoice® magazine, available online June 28.)
 
We see Speaker Boehner’s leadership at a very serious crossroads on this issue, with many conservative Republicans rebelling against any bipartisan deal that includes a path to legalization or naturalization for illegal immigrants currently in the country. How Boehner squares this circle will be fascinating to watch.
 
The Indiana Chamber believes that now is the time to craft a principled, pragmatic reform that secures the border, strengthens the rule of law AND creates a program for undocumented workers to earn legal status, as it is utterly impractical to seek the mass deportation of an estimated 11 million individuals.

Texas/Oklahoma Saga Latest in U.S. Water Battles

We've discussed battles over water rights previously — and certainly will again. Last week, the U.S. Supreme Court basically told Texas it has no right to claim billions of gallons of water on the Oklahoma side of the Red River. The Court reinforced an existing compact between those two states, Arkansas and Louisiana. Stateline reports:

The U.S. Supreme Court Thursday unanimously rejected a Texas water district’s attempt to tap river water in Oklahoma, settling a dispute that raised questions about state sovereignty and natural resources at a time when water is increasingly scarce and fought over.

The ruling found that the Texas authority had no right to the water in question, despite a four-state pact designed to ensure equal access to the water that flows in the Red River. The Tarrant Regional Water District had filed a lawsuit in 2007 saying Texas was entitled to some 130 billion gallons of water on Oklahoma’s side of the river basin.

As Stateline previously reported, the questions at the heart of the case have taken on increasing importance as drought and water shortages have strained water supplies and relations among many western states.

The dispute was seen as a potential test case for states’ rights over natural resources, but it’s likely the effect will be narrow, Marguerite Chapman, a law professor at the University of Tulsa, said.

“I think it affirms the integrity of an interstate compact as essentially a contract,” she said. “I don’t think it will disturb other compacts…the far-reaching effect would essentially be affirming the language that’s in the contract.”

The case centered on the Red River Compact that was signed by Texas, Oklahoma, Arkansas and Louisiana and approved by Congress in 1980.

The compact grants the states “equal rights to the use and runoff” of undesignated, or unallocated, water that flows in the sub-basin where the Tarrant district is staking its claim — but only if flows to Louisiana and Arkansas reach a certain threshold.

“No state is entitled to more than 25 percent of the water,” the pact says.

The compact has been in place for decades, but Oklahoma lawmakers enacted a moratorium on cross-state transfers in 2002. When the original moratorium expired in 2009, the Oklahoma legislature overhauled the state’s permitting process to effectively exclude out-of-state applicants for water.

Findings in this G8 Study May Surprise You

One in five American companies allow pets in the workplace? Russia is the country most likely to have women in executive positions? See some of the interesting findings about workplace satisfaction in G8 countries in this article from The Guardian:

Canadian workers are the happiest in the G8, Japan has the oldest workforce and Russian companies are the most likely to employ women in senior management, according to data collected to mark the summit of rich nations beginning today.

The human resources body, CIPD, says its roundup of workplace statistics from around the G8 and the emerging BRICS economies highlight the stark contrasts in work and working lives around the world.

The UK is close behind Canada in the contentment rankings, followed by Germany, Italy and the US. In Canada 91% of those in work report being satisfied with life. At 81%, France was the lowest ranked in the G8 and India was bottom, at 39%, once the BRICS – Brazil, Russia, India, China and South Africa are included. Unsurprisingly, the CIPD found a strong correlation between average pay and satisfaction with life, in its analysis of data from a variety of sources including the World Bank, International Monetary Fund and International Labour Organisation.

Among the more wacky facts about workplaces around the world, it found that nearly one in five American companies allow pets in the workplace. In France, the average lunch break is now 22 minutes, compared with 90 minutes 20 years ago. In the UK, the average worker spends 29 minutes on lunch, with people in Birmingham and Coventry taking the shortest break, at 25 minutes.

The group also highlighted signs of growing pressures – both financial and physical – on UK workers.

One third of UK employers say they have seen more people coming into work sick in the past year. The proportion of the UK workforce who are "underemployed" – not getting as many hours of work as they wish – has risen to 9.9% in 2012 from 6.2% in 2008.

Against a backdrop of high unemployment and falling wages in many member states, CIPD is urging G8 leaders meeting in Northern Ireland to look at workers and ways to nurture talent alongside their talks on tax, trade and transparency.

CIPD chief executive Peter Cheese commented: "As we compete in an increasingly globalised economy, it's more important now than ever that we open our eyes to the enormous differences in the ways the world works. We need to see what we can learn from other countries, and think carefully about what we can productively contribute to a global economy."

He added: "Employers are increasingly seeing a mismatch between the skills available to them locally and the skills they need from a workforce: what skills do we need to be developing in our workforce to ensure that we're able to do productive work in the modern world?"

The analysis found that Russia topped the rankings for the percentage of senior management positions held by women at 46%. Italy was second with 36%, followed by South Africa, Brazil and Canada. The UK was 8th out of the 12 countries and the US was 9th.

Outdated? No, No, Americans Still Use These Technologies!

NBC News recently published an interesting article about how Americans are still using "obsolete" technologies. A couple of the best gems are below. Now, if you'll excuse me, my pager is blowing up and I have to go help Cliff Huxtable deliver a baby.

Pagers
In the early 1990s, there was no greater status symbol than a pager. If you carried a beeper, that meant that, like a trauma surgeon or a Fortune 500 CEO, you were important enough to be reachable at all times. Within a few short years, cellphones replaced pagers because they let you send and receive calls and text messagesdirectly, a huge improvement over running to the nearest phone to return a page.

Despite the huge popularity of mobile phones, there’s still an active market for pagers. According to the CEA, in 2012 Americans bought approximately $7 million worth of new pagers, somewhere under 10,000 units. If you want to be reachable, but not too reachable, pagers provide a built-in excuse for avoiding phone conversations.

You might imagine drug dealers, who are paranoid about wire taps, using pagers for illegal activities. However, many doctors and hospitals find pager networks more reliable, particularly in emergencies where cellular systems tend to go down

VHS and cassette tapes
These days you can download music or stream it from an online service. Or you could act like it’s 1985 and wait for your favorite songs to come on the radio so you can tape them. You can record TV for later viewing on a DVR, play it via on-demand cable or stream it from a service like Hulu. But, if you think DVRs are for wimps, you can still rough it with a VCR.

The CEA says that, in 2012, around 13 million blank cassettes and VHS tapes were sold in America. Though the association no longer tracks sales of new VCRs, you can still buy a DVD / VHS combo recorder such as the $149 Toshiba DVR620 and the $198 Magnavox DV225MG9. CEA doesn’t track cassette recorders anymore, but it reports that 15,000 cassette-based car stereos were sold in 2012, so the old-fashioned mix tape is alive and well.

Hat tip to Chamber staffer Jennifer George for the link.