As the Economy Goes

A utility's economic well-being is directly tied to the economy of the region it serves. A downturn of the local economy pretty much guarantees falling

A utility's economic well-being is directly tied to the economy of the region it serves. A downturn of the local economy pretty much guarantees falling revenues and hard times for the incumbent utility.

You might recall the technology bust that hit the United States in the early 2000s. In Texas, the city of Austin lost on the order of 6% of its private-sector jobs, with a significant portion of those jobs being in the high-tech sector. Here are excerpts from Austin Energy's 2003 strategic plan:

“While the local economy appears to be slowly recovering, new jobs being created are not high-tech and do not pay as much… News sources and journals report on software jobs moving to India, call center jobs to the Philippines and semiconductor fabrication plants to Asia. The departure of these jobs to offshore locations is leaving highly skilled people unemployed or underemployed. Locally, jobs were lost at Motorola, IBM, AMD, BAE, Intel and others. This happened nationally as well. It appears that the local economy has stabilized somewhat, but until new jobs that pay well are created, economic growth will remain slow. If Austin's economy is slow to recover, electric revenue growth may also be slow to rebound. Static electric revenue may force Austin Energy to limit or postpone infrastructure improvements and/or other investments.”

I put in a call to John Baker, chief strategy officer with Austin Energy, to get an update on business trends in Austin. Baker tells me that the economic climate has brightened considerably. “We are seeing an across-the-board resurgence in economic growth with 2% to 3% job growth over the next couple of years,” said Baker. “The biggest news is that Samsung is adding a multibillion dollar expansion in chip fabrication facilities to their existing facilities. Dell is also expanding their presence in Austin, announcing they will be adding 500 people to the payroll.”

Baker believes the key to keeping these sophisticated customers is to keep reliability high and the cost of electricity low. “These major players have choices,” said Baker. “They can locate anywhere on the planet.”

UTILITIES ARE INTEGRAL TO THE COMMUNITY

I am quite excited about the direction National Grid is taking in upstate New York. Marilyn Higgins, vice president of economic and community development, and her team have been actively wooing the semiconductor industry to move into the region, having invested $1 million in marketing to the semiconductor industry and an additional $750,000 to prepare the Luther Forest Technology Campus to accommodate up to four semiconductor fabrication plants.

Chip manufacturer AMD showed an early interest in relocating to New York but was also considering offshore options. Four major partners — the Saratoga Economic Council, the Center for Economic Growth (a consortium of 14 counties), the state of New York and National Grid — worked together to entice companies to this campus located approximately 30 miles (48 km) north of Albany.

In June of this year, AMD made the decision to invest a total of $5.2 billion in chip-making facilities in Luther Forest. This is good news for the region and good news for National Grid. Investment by National Grid came from the Economic Development Fund that had been negotiated into rate agreements when National Grid bought Niagara Mohawk.

When asked what enticed AMD to commit to the site, Higgins said, “Power quality was key. We needed to be able to supply six nines of reliability. Our experience is that chip manufacturers don't want to be in the power business. They want us to provide the services and they want us to perform spectacularly.”

Here are a few of the details: The Luther Forest Technology Campus will be served by two new 115-kV circuits, both supported by fast throw-over switches. National Grid will provide two separate feeds from each line and will also upgrade existing relaying. “We avoided potential problems by working closely with all appropriate organizations,” stated Higgins. “We were able to get the transmission corridors approved during the state environmental quality review process. Actually, we went through a pre-approval process with local agencies to keep anyone from being surprised.”

Construction of the AMD plant will begin in the fall of 2007. When up and operating, the plant will employ 1000 people and create an additional 6000 jobs in the service sector.

The quality of life is better in both Austin and Albany because the two utilities dared to take the long view and were committed to work with the community to keep their economic engines strong.

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