An MD&DI June 1997 Column
Public utilities offer a variety of business development services to entice medical device companies to relocate to--or expand in--their areas.
It might at first seem unlikely that power companies would have a major interest in the expansion or relocation of medical device manufacturers. After all, such manufacturers are hardly major energy consumers compared to such industries as chemical, metal, or paper processing.
Yet power companies have for years directed advertising and marketing efforts toward bringing new medical manufacturers into their areas or helping those already in their areas expand.
Figure 1. Graph showing that Central Hudson Gas and Electric's commercial rates are lowest in the state, based on usage of 250 kW, 90,000 kWh per month.
So, what do power companies gain from these efforts? Many of them say that medical device manufacturing helps build up entire communities of power users. Mike Heaton is the economic programs coordinator for Cinergy/PSI (Plainfield, IN), a company that serves 69 counties in Indiana, offering a wide range of business development services for medical manufacturing. He says that "each new plant that is added has a dramatic economic impact on a community. It means more people who use hair dryers, more McDonald's, more drugstores."
Medical device companies typically offer high-technology employment, which is very helpful in building a community infrastructure. According to Devin Meisinger, area development coordinator for the Omaha Public Power District, which serves 13 counties in southeastern Nebraska, medical device companies usually bring highly paid professionals into an area. "This good, core nucleus of people also brings in other jobs as well," Meisinger says. Simply by living in the community these new workers create the demand for service jobs of all types.
Community building has historically been one of the major goals of power companies. For example, the Tennessee Valley Authority (Knoxville), today the largest electricity producer in the United States, was begun in 1933 with the stated purpose of revitalizing the Tennessee Valley, a rural area that was struggling during the Great Depression. The TVA continues to offer a wide range of community and business development services.
Mike Eades is manager of economic development and marketing at MEAG Power (Atlanta), which offers business development in its service area throughout Georgia. He agrees that community building is the main reason power companies try to attract businesses like medical device manufacturing that don't consume a lot of power. "Power sales are important," says Eades, "but they aren't everything."
For medical manufacturers that are considering expansion or relocation, then, energy companies are a good source of business development services. A typical power company offers a wide range of these services, from research and information to actual funding for business growth projects.
And with the increasing competition between energy providers that is being spurred by the current move toward deregulation, the business development assistance provided by power companies should only increase in the future. Energy companies will make an even greater effort to tailor services to meet individual requirements. For example, in its corporate literature, IES Utilities, which provides power to more than 550 communities in Iowa, says, "In a competitive environment, a successful strategy will require segmentation of the market, with many more service and price options to meet customers' needs." The deregulation process, which began with the opening up of markets to independent power producers by the Public Utilities Regulatory Policy Act of 1978, will soon begin to take effect. In 1998, California will be the first state to open its market to competition. Not only are energy providers good sources of site selection assistance, therefore, but now is also a particularly good time for manufacturers to approach them for business development services.
Once a manufacturer does begin dealing with energy providers to choose a site for expansion or relocation, it is helpful to know what kinds of business development services are typically offered. These services obviously begin with reliable and cost-effective energy service. They can also include a range of other business assistance, such as research and low-interest business loans.
Reliability is one of the most important energy considerations for medical manufacturers, just as it is for other industries. According to Gary Evans, the area development manager at the Omaha Public Power District, "Medical device manufacturing is so computer-driven and the tolerances are so close, that reliable power is critical. Options like redundant services are important." Power companies routinely supply historical information on power outages to manufacturers considering a new site, and also help find ways to best ensure the level of service that is necessary for a particular industry.
Bill Stafford is the manager of economic development in the economic development department of Virginia Power, which serves about two-thirds of eastern Virginia. He says that when deciding on a new site, manufacturers should ask for a detailed analysis of the energy history at the site, including estimates of the probabilities of power failure.
The Warren Rural Electric Cooperative Corp. serves eight counties in Ohio, and like most power companies offers assistance with power reliability concerns. "Today's machinery and computers require a constant supply of electricity which meets exacting requirements," the company says in its corporate literature, echoing Omaha's Evans. The firm promises manufacturers that it will "respond to power quality concerns, monitor your power supply for 'blinks' and 'harmonics,' make recommendations about the most economical answer to power-quality problems, analyze grounding problems, and assist with the installation of power-quality devices."
When one medical device manufacturer, Streck Laboratories (now located in Omaha), was looking for a new site in 1995, power companies were among the sources it turned to for information on potential sites. Streck manufactures instrument calibrators containing biological components that must be kept under strict temperature control. According to Terry Agee, the company's operations manager, power reliability was a consideration in its relocation decision because power outages could mean not only interruption of business processes but also loss of product.
ENERGY COST SAVINGS
Most power companies will offer low rates for large industrial users. They can also offer low rates that are based not just on the amount but also on the type of use. One common rate reduction strategy is based on the time of use. Many energy companies offer savings if power is not used during peak hours. Others offer special discounts that reflect the priorities of their area. For example, Atlanta's MEAG Power offers rate savings based on the number of new jobs created by an industry.
The Jackson Utility Div., which provides energy to about 33,000 customers in Jackson, MS, and surrounding areas, offers a variable pricing schedule based on the quality of power service that a manufacturer requires. For example, the company offers economy surplus power for customers that use more than 5000 kW per month. In this rate schedule, a company can designate up to 100% of its power as being subject to outages with 5 or 60 minutes' notice. Another rate is available for limited interruptible power (LIP) for customers who use more than 20,000 kW per month. These customers can buy up to half their power at the LIP rate. Power at this rate is subject to outages with a minimum of 24 hours' notice and maximum of 15 days per outage. A test-and-restart power rate is offered for new or experimental processes for existing industries or for restarting plants or processes that have been idle for more than one year. An enhanced growth credit of $6/kW for three years is also available for new or expanding manufacturers that are classified under the standard industrial classification (SIC) codes 20 through 39; use all electrpower for heating, ventilation, and air conditioning; have 50% of their floor space heated and cooled and have 50% or more of the rated electric load represented by heating, ventilation, and air-conditioning systems, interior lighting, and cooking; or are adding at least 250 kW of electrical load. The company also provides a 5% large manufacturing credit for companies that have a minimum demand of 5000 kW per month and whose activities are classified under SIC codes 20 through 39.
As the rate options offered by Jackson Utility Div. demonstrate, determining the comparative savings offered by power companies can sometimes be complex. Most power companies make the process easier, however, by providing rate comparisons for typical businesses in their area and several nearby sites (see Figure 1).
Like other site selection resources, power companies provide valuable information about their areas. This can include labor force statistics, site information, and even tax information. Cinergy/PSI, Energy, for example, commissions industry-specific market reports based on SIC codes that give estimates of the cost of doing business in Indiana. In a report on the surgical appliance and supplies industry, for example, PSI compares the costs of locating a typical surgical supplies plant in its territory to the cost of locating the same plant in southern Michigan, western Ohio, or eastern Illinois.
Another company, Northern States Power, offers the Rite Site Guide, which includes a manual of the steps necessary in selecting a site, as well as helpful worksheets. The company also offers a business resource directory.
In addition, many power companies offer to help a company research the best way to use energy. This research can include recommendations for reengineering the manufacturing processes to cut energy costs. The department of economic development at the New York State Electric and Gas Corp., which serves about one-third of New York state, offers this type of engineering and design support. Washington Water Power, which manages areas from the northern Rockies across the northwestern United States, offers to fund the first $1500 of company studies on energy use.
FINANCIAL ASSISTANCE AND
Some power companies even offer loans and other forms of financial assistance to manufacturers as incentives for expansion or relocation. For example, the TVA offers low-interest loans to several types of businesses, such as small and minority-owned firms. The New York State Electric and Gas Corp. offers leasing and financing arrangements. Cinergy/PSI offers to put clients in touch with sources of financing. IES Utilities offers to provide funding for a portion of the direct costs associated with the marketing of a speculative building project. Washington Water Power will provide partial funding for installation of high-efficiency improvements, such as heating, ventilation, and air-conditioning systems; variable frequency drives; or fan, compressor, and pump systems.
Power companies also offer a variety of special services. For example, the TVA offers business incubators, which are multitenant facilities where small businesses can share equipment, space, and expertise. Pennsylvania Power and Light offers to assist manufacturers with site inspections. Many companies offer electronic networking resources, such as databases or Web sites. Power companies often work together with more-traditional site selection resources, such as local chambers of commerce. While doing site research, therefore, it is likely that a medical device manufacturer will eventually be directed to these types of companies. Because of the wealth of services they can offer, however, it is a good idea to contact energy providers at the beginning of the process to be sure their offers will be factored into site selection.