Mills fear rising gas price
Avista boosts industrial rate 35% after state board approves
Natural gas price increases that took effect Wednesday have some local manufacturers wondering how to stay in business while others, anticipating the hikes, have opted for alternate fuel sources.
The Oregon Public Utility Commission on Tuesday approved Avista Corp.?s natural gas rate increase of 29.4 percent for residential customers and 35.5 percent for industrial users. The monthly bill of a typical residential customer will increase by $13.41, Avista officials said.
Avista also raised residential rates Oct. — by 21 percent following a required annual review of energy costs. But the Oregon PUC allowed the company to file an additional request because of the rising cost of wholesale natural gas.
Already floundering under dismal conditions in the timber industry, mills throughout the Rogue Valley are left to become more efficient and more competitive in an already depressed market for timber products, said Dave Hill, executive vice president of the Southern Oregon Timber Industries Association.
The increase is going to make the cost of their product that much tougher to recapture in the marketplace, Hill said.
Medford-based Sierra Pine Medite Division managers plan to discuss strategies on Friday to keep their plant operational.
This gas thing has really nailed us, said general manager Bill Weber. But, for us, the price of gas has been going up for quite awhile.
Sierra Pine's natural gas bill, which runs about $500,000 a month, is almost three times what the mill paid a year ago, Weber said. Still, the company's 156 employees, who produce about 110 million board feet of medium-density fiberboard a year, have not been affected yet, though a hiring freeze is in place.
It's scaring us, Weber said. We need to figure out what we're going to do. We have to do something.
Weber said mill managers have no plans yet to decrease production levels, even though energy costs have drastically narrowed the company's profit margin.
Responding to the skyrocketing natural gas prices, Avista's industrial customers have responded by finding alternate fuel sources, said Avista spokesman Richard Rotbart. The utility has seen a sizable decrease in industrial consumption of natural gas over last year.
Rotbart attributes the decrease directly to price increases.
U.S. Forest Industries general manager Gary Wirth said Avista's latest increases will not affect USFI's Medford operation because of a long-term natural gas contract signed in October. The contract caps the price the company pays for natural gas through July.
Sometimes you just get lucky, Wirth said of the mill's contract, established during an anomalous dip in natural gas prices.
White City-based Medply in December shifted the mill's natural-gas fired boilers to steam heat from nearby Biomass One, which uses wood waste to produce its steam.
If we hadn't have been able to convert, we would have had to shut down, said Medply controller Ryan Roher. It would have been too much. We couldn't have made a profit no matter what the price of plywood would have been.
Natural gas rate increases led Medply to cut 30 jobs at its White City plywood mill in early December.
I hope the Legislature gets a clue and doesn't repeat the (deregulation) process plaguing California, Roher said.
Boise Cascade has shifted its drying operation from White City to Medford, where the mill has its own cogeneration plant fueled by wood waste. That translates to less natural gas demand at its White City operations, said company spokesman Bob Smith.
We didn't take this (rate increase) lightly, said Oregon PUC chairman Ron Eachus.
Our staff conducted an extensive analysis to determine the merit of the request and found it was justifiable because of rising wholesale costs, he said.
Avista will earn no additional profit from the rate increases, Eachus said.
Avista serves 68,957 Oregon residential customers — — almost 40,000 in Medford. Avista has 87 industrial users, Rotbart said.
We really believe the worst of the wholesale price increases are behind us, Rotbart said. The rigs are out there drilling. ... (There will be) potential decreases in 12 to 18 months.
Those decreases will be passed on to customers, he said.
While Rotbart anticipates the worst increases are over, the National Association of Manufacturers maintains rate increases across the country are already having a profound effect on the overall economy.
A survey of the association's manufacturing members nationwide showed more than a quarter of the companies reported production cutbacks and 12 percent had production interrupted due to a natural gas shortage.
Unless the (Bush) administration and Congress act soon, we?ll begin to see additional layoffs in the manufacturing sector, higher prices for consumer goods and slower economic growth, said Jerry Jasinowski, association president.
The survey also showed that 68 percent of the firms reduced employee profit sharing, 36 percent reduced hours worked, and 29 percent reduced benefits.
The economic impact on Southern Oregon is much more severe than national figures suggest, said Paula Pyron, executive director of the Northwest Industrial Gas Users.
It's a situation that's serious and difficult to predict, Pyron said. Because we've experienced even higher price increases than reported nationwide.
Ultimately, our region needs dependable, economical natural gas and electricity, Rotbart agreed. The health of our economy in Southern Oregon depends on it.
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