IN NIAGARA FALLS, NEW YORK, the New York Power Authority (NYPA) sells the cheapest electricity in the United States to the area's major industrial employers. In the last 13 years, NYPA has awarded more than $2.1 billion in economic development power grants to Niagara companies. The 10 companies which have been granted two thirds of this low-cost power are receiving an average subsidy of $22,580 per worker per year.
Niagara Falls has been losing jobs as plants close down, relocate to other countries to exploit cheap labor or are bought out and consolidated. Members of the Oil, Chemical and Atomic Workers union (OCAW) and other Niagara Falls workers says the area's natural resources are being squandered. They challenge the way the cheap energy is being allocated, saying much of it is currently used by plants in "sunset industries" which will soon close their doors or by corporations which concentrate their electricity-intensive operations in the Niagara area but locate other work elsewhere.
The powerful and the powerless
NYPA operates the Robert Moses and Lewiston hydro-power stations which are downriver from Niagara Falls. In the 1950s, after Niagara Falls' old power plant was washed away by the Niagara river, the state authorized NYPA to sell power at reduced rates to area industry. NYPA currently sells 695 megawatts of "economic development power" to about 90 companies.
Companies that receive NYPA power grants pay approximately .5 cents per kilowatt-hour (kwh). An average homeowner in the area pays 10 cents per kwh, and a nearby utility, Niagara Mohawk Power Company, charges heavy industrial users about 5 cents per kwh.
According to a January 1992 Labor Institute report, "Low Cost Power Subsidies to Industry in the Niagara Falls, NY Region: Why Cheap Power Isn't Saving Jobs," the average subsidy covers two thirds of the payroll costs at these companies. At the chlorine company, Niachlor, the subsidy for every employee is about $60.00 per hour. At SKW Alloys, the subsidy amounts to over $18.00 per hour for every employee. "Theoretically," says the report, "a subsidy this large would provide a powerful economic stimulus" which would result in industrial expansion and a growing job base, or at least in steady levels of employment.
But, in fact, Niagara Falls has lost 40 percent of its industrial jobs since 1978. Sixty percent of OCAW members in the area have lost their jobs due to plant closings and layoffs.
"Most of the low-cost power recipients are simply profit maximizers who are enjoying a free lunch because nobody said they couldn't," says the Labor Institute report. The Labor Institute's Richard Miller, who also works as a policy analyst for OCAW, criticizes NYPA for not using its low-cost power to promote long-range economic development in the area.
Companies in electricity-intensive industries like chlorine production are staying in Niagara Falls to take advantage of the subsidy. According to Miller, two chlorine companies - the new Niachlor facility (owned jointly by Olin and Du Pont) and Occidental - receive close to 25 percent of NYPA's low-cost power. For these companies, says Miller, "the largest cost is electricity. It swamps labor costs." Yet the U.S. market for chlorine is saturated and fading, says Miller, and not an industry on which the region should pin its hopes.
Other companies, those that do not rely as heavily on electricity, have closed down or moved out of the region, or, Miller adds, have continued to perform energy-intensive operations in Niagara while shipping out labor-intensive work. "They've cut employment," says Miller, "but are still using the cheaper power."
According to OCAW, the principal flaw in the the NYPA contracts is that they are not tied to continuing capital reinvestment in the western New York area.
Carborundum Corporation, for example, has cut its local workforce from 2,500 to 500 in the past 15 years. The Labor Institute report says, "Carborundum has been one of the biggest beneficiaries of low cost power, but chose to diversify outside of New York and outside the United States, while continuing to benefit from subsidies for the remaining electricity intensive operations." The report blames NYPA as much as Carborundum for the cutbacks, noting, "Carborundum simply played by the rules."
NYPA could not be reached for comment on OCAW's charges.
Companies are manipulating the power subsidies in other ways which hurt workers, as well. In the late 1980s, Olin urged workers at its chlor-alkali plant to lobby NYPA to transfer part of Olin's power grant to Niachlor, a newer chlor-alkali plant. According to OCAW, workers agreed to support the change because they were told that Olin would then renegotiate its own power grant on more favorable terms. After NYPA agreed to the Niachlor transfer, however, Olin closed down its own plant, laying off about 90 workers.
Quota economics
Amendments to the Power Authority Act require NYPA to link expansion power allotments to job commitments. Companies which have applied for expansion power grants after 1987 have been required to maintain 80 or 90 percent of a job quota as a condition of receiving power. However, OCAW's Gary Horab says that the "very vague" wording of these contracts allows companies to find ways around maintaining the quotas.
One way around the quotas is to subcontract out work, usually to non-union and lower paid labor. While subcontracting may provide jobs in the community, it "does nothing for [job] security within the plant," meaning "a lot of expertise is lost," Horab contends. Horab says that some of the Niagara Falls companies are including subcontractors in their headcounts to maintain quotas for power allotments.
NYPA's failure to enforce the quotas is also a problem, according to Miller and Horab. Horab says that NYPA, under pressure from OCAW, announced that it will audit three firms a year. At that rate, it will take about 30 years to audit all firms receiving Niagara Falls' low-cost power.
A proposal for tied aid
OCAW believes low-cost power can be the basis for successful regional development - if it is allocated more carefully and strategically.
OCAW's major recommendation is that power subsidies be tied to continuing capital investment. Miller suggests that companies pay a portion of the subsidy into a "reinvestment fund" from which the money will be returned only if the company makes new capital investments. Unused funds (those that are not reinvested by industry) would be contributed to a worker superfund which would provide up to four years of income and tuition for education or retraining of displaced workers.
OCAW also supports the creation of a Western New York Power Allocation Board to allocate, regulate, monitor and enforce the expansion and replacement power contracts. Horab suggests that the board should be made up of representatives from industry, labor, local governments and public interest organizations.
OCAW would also like industry to be required to implement maximum feasible energy conservation measures so that currently wasted low-cost power can be freed up for job creation. To discourage hoarding, NYPA now requires companies to use up 80 to 90 percent of their allotment. The Labor Institute report notes that, with power so cheap, the return on conservation is limited, leading power to be wasted on poorly designed processes. Horab says he knows of plants in Niagara Falls operating with broken windows and no insulation. Companies have "never been rewarded not to use power," he says.
Workfare for business?
NYPA recently proposed increasing the replacement power rate to 2 cents per kwh. Industry has filed a suit against NYPA in federal court, arguing that the Niagara Redevelopment Act prevents NYPA from raising rates above actual operating costs. Horab says most companies could weather the increase, since, even with the increased rate, NYPA would be providing industry with the cheapest hydro-power in the continental United States.
According to OCAW, if the rate increase goes into effect, industrial customers will pay an additional $47 million per year for electricity. The union is proposing that this additional sum be used to set up the reinvestment pool. Horab also suggests that NYPA explore "more effective ways of monitoring the pulse of the world market" in working to attract new industry to the area.
Hydrogen fuel - made by splitting off hydrogen from water molecules - is one example of the type of industry NYPA might try to attract to western New York with low-cost hydro-power as an incentive. Canada is now developing a hydrogen project, which will eventually sell hydrogen to Germany to fuel a bus fleet in Hamburg. The creation of hydrogen fuel requires hydro-power, and the Labor Institute report proposes a pilot hydrogen project for Niagara Falls.
"As a public benefit corporation, NYPA has the duty to justify the process by which it gives away nearly $250 million per year, so that this social capital can be directed towards projects that benefit Western New York communities, workers and the environment," concludes the Labor Institute report. "In theory," says Miller, NYPA's low-cost hydro-power "is a public benefit," but it is currently being used, he charges, as a form "of corporate welfare" that brings little back to the community.