Some Maine paper companies limited production or shut down parts of their operations last weekend after extreme cold prompted a spike in wholesale prices for natural gas and electricity.
Huhtamaki Inc.’s molded-fiber mill in Waterville said it will likely idle machines and send workers home again this winter if power prices continue to make production unprofitable. Another workplace, the UPM paper mill in Madison, said it took unspecified steps to adjust its output. Such measures are harbingers of what Maine’s manufacturing sector may face in the next few months, highlighting just how vulnerable the state has become to New England’s shortage of natural gas, the source of about half the region’s electricity.
Although the United States is awash with cheap natural gas, a lack of pipeline capacity north of New York is pinching the supply in New England, where there is growing demand for use in power production, home heating and manufacturing. Officials in the six states are working on a plan to bring more capacity into the region, but that won’t help this winter.
“To have this problem starting already in December is an indication of how much gas is being used, and how constrained the bottlenecks really are,” said Tony Buxton, a lawyer who represents Huhtamaki and other members of the Augusta-based Industrial Energy Consumer Group.
Homeowners don’t feel the immediate effects of shifting natural gas prices because their supply comes from long-term contracts. Some big industries, though, buy gas on a spot market where prices can change every hour.
The late-autumn cold snap pushed wholesale natural gas prices in New England four times higher on Dec. 14 than they were a week earlier. For instance, the average price of gas delivered Saturday in the Boston area hit nearly $33 per million BTUs.
Meanwhile, in places as close as New York City, prices were around $7 per million BTUs. In Pennsylvania, near where gas is extracted from the Marcellus shale deposits, the price was less than $3 per million BTUs.
One BTU is the energy needed to raise the temperature of a pound of water by one degree Fahrenheit. One million BTUs is the energy produced by about seven gallons of heating oil.
“This is precisely the effect we feared,” said Tom Welch, chairman of the Maine Public Utilities Commission. “If the winter is mild, we’ll suffer less. If it’s colder, we’ll suffer more. And that’s what it will look like until we get some relief on constraints.”
PRICE LEVEL CAN TRIGGER SHUTDOWN
Surging demand in New England during the frigid weather, and the lack of pipeline capacity, raised the hour-to-hour electricity rates for some businesses last weekend to a peak of 10 times the normal cost. Rates are typically around 5 to 10 cents per kilowatt hour, but at one point, Huhtamaki was facing 50 cents per kilowatt hour.
The mill uses more than 100 million kilowatt hours a year. By comparison, an average Maine home uses about 6,000 kilowatt hours a year.
“We recognize there are times that, if we run, we’ll lose money,” said Ray McMullin, the plant manager. “It’s better to shut down.”
Huhtamaki is a historic anchor of central Maine’s pulp and paper industry, with 480 employees. It’s known for making Chinet brand plates, as well as rough-finish products such as egg cartons. Falling electricity costs over the past two years, thanks to cheap natural gas, helped the mill increase production and bring on new workers.
But conditions shifted last year, when power prices began to rise. A midwinter price spike cost the mill an additional $2 million for electricity over two weeks last winter, McMullin said, and made managers realize that production is unprofitable above a certain rate, which he would not specify.
On Friday, McMullin saw that rate approaching. He shut down the Chinet assembly line, which is highly dependent on electricity. The shutdown affected 125 workers. No one was let go, but several employees volunteered to go home without pay. Others were shifted to temporary tasks.
On Saturday, Huhtamaki took a second hit.
High demand for electricity caused by the frigid temperatures led the region’s grid operator, ISO-New England, to launch a voluntary program calling for factories to turn off unneeded equipment. McMullin decided to shut down the entire plant.
Not knowing when machines suddenly will be pulled off line is upsetting to workers, especially during the winter and near Christmas, said Lee Drouin, president of Local 449 of the United Steel Workers.
Drouin said he hopes workers can make up for any lost pay by working overtime.
“When the power is cheaper, we’re going full bore,” he said.
On Sunday, McMullin started up 12 of the Chinet line’s 32 machines and brought back 80 employees.
SHORTAGE HURTS COMPETITIVENESS
In planning for price spikes, McMullin initially figured that similar conditions might happen 20 days a year. Now he wonders if they will be more frequent.
“We’ve told our employees, if the rate gets much above 12 cents per kilowatt hour, we’re going to start scaling back equipment,” said McMullin, who is concerned that Huhtamaki’s parent company in Finland will shift production away from Maine to a sister factory in California.
To Buxton, that’s a clear example of how the natural gas shortage and high electricity rates in the region threaten jobs and investment.
“The competition between the states is being fully exposed because of these pipeline constraints,” he said.
Competition also is an issue for nearby UPM Madison, the Finnish subsidiary that makes high-grade paper for publications such as The New York Times.
“Energy prices did peak over the weekend, and we adjusted our production accordingly,” said Russ Drechsel, general manager. “We will continue to do that as electricity prices rise.”
Drechsel would not specify what steps the mill took, but said he has set a certain threshold based on electricity rates. UPM Madison shut down its entire mill for four hours on Saturday, after ISO-New England issued its conservation call. Taking such steps so early in the heating season is a worry, Drechsel said.
“We had not experienced prices as high last winter,” he said, “and it’s very early in this winter.”
NEW ENGLAND STATES WORK ON FIX
Both Huhtamaki and UPM Madison could be served this winter by a new natural gas line running up the Kennebec River Valley. About half of Maine’s 15 paper-product mills are on gas lines now, according to the Maine Pulp and Paper Association, and most will be hooked up by next year. The connections will help lower the cost of production that was dependent on oil, but they won’t do anything about electricity rates.
“We have not shut anything down because of high gas prices,” said Bill Cohen, a spokesman for Verso Paper, which operates mills in Bucksport and Jay.
But the mills are relying more on available biomass and hydroelectric resources to maintain full production, Cohen said. Last year, elevated natural gas prices cost Verso an additional $22 million companywide, so managers knew they would need new ways to minimize the impact this winter.
“We had projected some of it in our budget, but not this much, this early,” he said.
In an attempt to create incentives for pipeline developers, the Maine Legislature passed, and Gov. Paul LePage signed, a law last summer that would allow the state to assess a charge to utility ratepayers as a way to buy new capacity. That one-state action now has expanded into an evolving, regional strategy. It’s part of a broader effort by the six New England states to work together to lower energy prices.
There won’t be new pipeline capacity before 2016, Buxton said, but it’s important for Maine to signal to global companies such as Huhtamaki and UPM that the region is working on a fix.
“This isn’t going to be a permanent state of affairs in New England,” he said.
Tux Turkel can be contacted at 791-6462 or at: