Manufacturers should ask their utility provider about discount programs in the site-selection process.

There are many factors for a manufacturing company to consider when it comes to choosing a location for its next production plant, a new warehouse or even relocating the corporate headquarters.

Of course, there is the issue of determining the best location for accessing suppliers and reaching customers. There’s also the need to determine whether an ample supply of skilled workers exists in potential areas. And don’t forget about the issues of transportation, environmental regulations, infrastructure improvements, state and local taxes … and so many more.

But for the majority of manufacturing companies, another important consideration — primarily because it’s often the single largest line item it the annual budget — is the cost of electricity.

While it’s impossible to eliminate this cost altogether, there are many situations where new and expanding companies can reduce their expenditures for power through incentive programs offered by their local utility providers.

For example, Aquila Inc., based in Kansas City, Mo., offers an economic development rider than can offer a large manufacturer discounts up to and including one year of free electricity.

“With regards to manufacturers, electrical utilities are happy to get new customers because of their load requirements,” said John Engelmann, manager of economic development for Missouri operations for Aquila. “Therefore, there are a couple of things we can do to help them. One is an economic development rider that is designed specifically for a new or growing business. We can provide cost reductions for up to one year of free electricity over a five-year period.”

Engelmann said many utilities across the country offer these types of incentive programs. In fact, a quick Internet search found economic development riders available through power providers serving Connecticut, Florida, Illinois, Louisiana, New York, North Carolina and South Carolina.

“Many utilities offer these, but they all seem a little different with regards to specifics,” Engelmann said. “Aquila’s economic development rider is based on peak demand, as well as load factor. The minimums are 200 kilowatt (for peak) and a 50 percent load factor. But that’s a threshold most manufacturing facilities can achieve.”

After that, Engelmann said, the incentives increase as power usage increases.

“For example, if a company meets the peak demand and is at 60 percent load factor, its discount would step down from 30 percent the first year to 25, 20, 15 and 10 over the next five years. In the sixth year, the company would pay its full bill.”

But companies don’t have to use these discounts immediately.

“We realize that when a company is starting up, their electrical bills are not going to be as high as they’ll be when the facility is running at full capacity,” Engelmann said. “That’s why companies can sign up for the plan, but they have up to two years to enact it.”

That way, companies can get the full impact of the discounts once facilities are completed and infrastructure improvements have been made.

“We take a look at the revenue that the new user will produce for Aquila and can justify our part in bringing in new lines or doing upgrades based on the profit that will be generated,” Engelmann said. “We want to partner as much as we can. Often, there can be a significant relationship combining the economic development rider with the infrastructure improvements.”

Filling Up Vacancies

For those manufacturers looking for cost reductions up front, Progress Energy offers an economic redevelopment rider to businesses choosing to locate in vacant properties in North Carolina and South Carolina served by its subsidiary, Carolina Power & Light.

“Because of the current economic conditions and the amount of available buildings, we added this program to give us one more tool in our arsenal,” said Sandy Jordan, vice president of economic development for Progress Energy, based in Raleigh, N.C., which serves 2.4 million customers in North Carolina, South Carolina and Florida. “If a company is looking at a location in our service area and one somewhere else, we hope that this program will be attractive to them.”

Under the program, which is still in its first year, companies that move into buildings that have been vacant for at least 60 days are eligible for a 50 percent discount on electricity used during their first year of occupancy.

The only requirements are adding 500 kilowatts of electricity and either adding 35 full-time employees, or making a capital investment of $200,000 and adding a smaller number of full-time employees.

“We’ve had a few companies take advantage of this program and several others are pending,” Jordan said. “Part of the situation now is just the slowness of the economy.”

Progress Energy, the nation’s 10th largest generator of electricity with more than 23,000 megawatts of capacity, also offers a traditional economic development rider similar to Aquila for large power consumers looking for discounts.

“What a company should be looking for from a utility provider [in the site selection process] is availability, power quality issues and rates,” he said. “Those are the three things that utilities are most involved with.”

While rates can vary from utility to utility, Jordan said finding a provider than has the ability to deliver quality power with minimal disruptions is the most important factor for most large manufacturing companies.

Engelmann agrees, noting that the partnership between a manufacturer and its utility provider will likely last well beyond the life of the incentive packages offered initially.

“Even beyond the upfront incentives, manufacturers are going to be customers for a long time,” Engelmann said. “They need to make sure how reliable the service is from the utility provider. Each utility has a set of standards, and the figures are available. When there’s a shutdown or blackout, it could cost the company thousands of dollars — especially for a large production company.

“It’s important for the community and the utility provider to have a good relationship because we can be very valuable,” he added. “In rural areas, especially, the local economic development agencies tend to rely more on our expertise. We can bring these areas on more of an even playing field with the larger areas. And we can help to answer the questions up front so there are no surprises.”

Dan Perkins is a freelance writer based in St. Louis.