April 30, 2007

Fort Worth Star-Telegram
Soaring electricity rates making Texas a 'tougher sell

AUSTIN — Like average Texas consumers, many business owners and manufacturers get sticker shock every time they get the power bill. But companies have an option many people don’t: They can go somewhere else.

Last year, for example, Nucor Steel took a multimillion-dollar expansion — and 500 jobs — to Tennessee rather than expand a facility in deep East Texas because electricity rates were too high there, according to U.S. Rep. Joe Barton, R-Arlington. Nucor did not respond to requests for comment.

But Barton said other major corporations, including Texas Instruments in Dallas and representatives of Toyota Motor Co., which has a plant in San Antonio, have recently approached him about ways to reduce electric rates in the Lone Star State. He says it is “shameful” that people in an energy-rich state like Texas are paying almost 60 percent more for electricity than their counterparts in Oklahoma.

“I have had a number of chamber and business development types tell me that it’s a much tougher sell now to get companies that were thinking about coming to Texas,” Barton said. “We’re going to have major economic development problems in this state if we can’t ... get the prices back down.”

It used to be that tax incentives, a break on real estate and a steady supply of labor were the favored ingredients for a successful corporate relocation or expansion. But that was back when Texas had some of the lowest energy prices in the nation. Now that rates have shot up above the national average, the cost of energy has emerged as a major topic when sites are discussed, officials say.

And states with lower rates are actively promoting themselves as cheaper alternatives.

A marketing tool

According to data from the U.S. Energy Department, Texas ratepayers — industrial and residential users combined — paid 10.03 cents per kilowatt-hour for electricity in January 2007, compared to a nationwide average that month of 8.72 cents. The disparity is even greater regionally. Rates were 6.35 cents per kwh in Oklahoma and 6.74 cents in Arkansas, including taxes.

“We’re very aware of it, as are these companies,’’ said Robin Roberts, executive vice president for economic development at the Greater Oklahoma City Chamber. “We do market that we have competitive utility rates.”

Phil Wilson, who leads economic development efforts for Gov. Rick Perry, acknowledged that energy prices have become much more prominent in site-selection negotiations in the last 18 months. But he stressed that Texas remains attractive for business expansion and relocation.

Among the dozens of recent business announcements: Samsung’s $4 billion semiconductor facility in Austin, bringing up to 900 jobs; Bell Helicopter’s new Army Programs Center in Fort Worth, with up to 600 new jobs; and a huge Sanderson Farms chicken processing plant in Central Texas, expected to bring more than 1,000 jobs to Waco.

“We have had to overcome this particular issue,” Wilson said. “But if that’s going to be their top factor, they’re probably not going to come here anyway.” Wilson estimated that there are about 10 “live fish” — companies considering moving or expanding in Texas — and that three are asking for long-term help with electricity rates.

For big energy users, the price of electricity has always been a major cost driver. But in less than a decade Texas has seen its electric rates go from very reasonable to very expensive. In January 2000, for example, business and residential customers could expect to pay a combined 5.78 cents per kwh, compared with 4.61 cents in Oklahoma, 5.62 cents in Louisiana and 5.15 cents in Arkansas, federal data show.

Rates soared

When compared with January 2007 data, rates went up modestly in those neighboring states but have almost doubled in Texas. Many critics say it is because the state botched its deregulation efforts a few years ago and let power companies fatten their wallets at the expense of average consumers.

Others say that a few price spikes, some of them attributable to Hurricanes Katrina and Rita, and the state’s over-reliance on natural gas are the most important factors and insist that competition will eventually come into play. Whatever the cause, there is little dispute that Texas companies are forking over a lot more than they used to. And they say they need relief soon.

Tony Bennett, head of the Texas Association of Manufacturers, said surveys of his members show that energy costs are the No. 1 concern. His own company, Temple-Inland, pays about $5 million more a year for electricity at its East Texas paper mill than at similar mills in Virginia and South Carolina. Manufacturing jobs pay the highest private-sector wages and account for a large share of corporate taxes. But Bennett said he fears that manufacturers are going to take their business elsewhere if Texas doesn’t do something soon.

“You don’t even have to go have the chicken-fried lunch with them if the electricity costs are too high,” Bennett said. “We’ve got to get a handle on this baby quick.”

Looking for relief

Texas lawmakers are considering legislation aimed at rate relief, but it’s too early to say what the final product will look like. Meanwhile, Barton, the congressman from Arlington, said he wants the state to take a hard look at the proposed sale of TXU to a private investment company and is considering federal legislation that would allow Texas to import energy from neighboring states.

“To see my own state of Texas fall victim to some of the highest electricity prices is quite a shock,” Barton said. “I do not want to see Texas harmed by transactions that make the electricity prices in Texas even worse.’’