GlobalFoundries Executive: Cheaper Power a Must for Essex Junction Fab
Thursday, October 11, 2018
Posted by: Jeff Couture
The future of the GlobalFoundries semiconductor plant in Essex Junction is not guaranteed, the senior executive in charge of the facility says.
At issue: the high cost of electricity in Vermont compared to New York state.
"It's still true that we are at a disadvantage to our New York facilities, an 84 percent disadvantage," Dale Miller said last week.
GlobalFoundries pays as much as $20 million more every year for the same amount of electricity in Vermont as it would use at its locations near Saratoga Springs in New York state — a huge number that could affect the company's decisions on where to invest its money.
"You can never predict the future, but if you start with the fact that we're a capital intensive business, and if the location is not cost-competitive and the company has other options to provide service to the customers that is cost-competitive, it's logical to think the company may not invest as much here," Miller reasoned in an interview with the Burlington Free Press.
GlobalFoundries struck a deal with Green Mountain Power a few weeks ago to freeze its electrical rates at 2018 prices for 3 1/2 years, but that did not solve the price problem. It merely prevents the situation from worsening, Miller said.
Now, the clock is ticking on the chip fab finding a way to get access to cheaper power.
GlobalFoundries has spent an average of $90 million annually on capital expenditures in Essex Junction since taking over from IBM in 2015. That figure does not include the cost of electricity, which Miller said will total about $38 million in 2018, up from $35.5 million in 2017.
"And if it's a capital intensive business and the investment dries up, eventually you're not going to be able to offer what the customers are looking for," Miller continued. "That's why we're focused on keeping our facility cost-competitive, and one of our biggest disadvantages is power. We have to come up with a way to fix that."
There's a lot at stake for Vermont in the price of electricity. Although the head count at the Essex Junction fab has fallen to about 2,600 employees from the 8,500 IBM employed at its peak in 2001, GlobalFoundries remains one of the most important employers in the state.
The company has been hiring constantly since taking over from IBM, mostly for entry-level manufacturing jobs that start at $14.50 per hour and come with full benefits and a 401K plan. GlobalFoundries also eliminated IBM's practice of hiring temporary workers and then after three years, converting some of them to full-time employment.
"We got rid of that last year," Miller said.
The company is also hiring maintenance technicians and engineers, although in fewer numbers. Miller said he's hiring 15 to 30 people for entry-level manufacturing jobs every month and has about 10 openings for technicians. Engineers are hired in "single digits."
Vermont seeks answers to high electricity rates
Mike Schirling, secretary of the Vermont Agency of Commerce and Community Development, said the state has been "actively engaged" in conversations with GlobalFoundries and other manufacturers around Vermont about electrical rates and how to improve or modernize the way utilities deliver power.
Michael Schirling, secretary of the Agency of Commerce
"We're certainly aware of the challenges advanced manufacturers in particular face because of their level of power consumption, and we're actively working to find solutions to those problems," Schirling said.
Neither Schirling nor Riley Allen, deputy commissioner of the Department of Public Service, offered specifics on how to solve the power problem for GlobalFoundries and other advanced manufacturers in Vermont. Both acknowledged the vital importance of GlobalFoundries to Vermont's economy.
"The potential range of solutions is large and complex and includes both technology solutions, rate design and innovative partnership arrangements," Riley said.
GlobalFoundries uses more electricity than Burlington
To put GlobalFoundries' power usage in perspective, Dale Miller pointed out that the fab uses more electricity annually than the entire city of Burlington, a fact confirmed by the Burlington Electric Department. GlobalFoundries draws about 400 million kilowatt hours of electricity every year, while Burlington uses about 350 million kilowatt hours yearly.
"We're a 365-day-a-year, seven-days-a-week, 24-hours-a-day business," Miller said. "We never shut down. We idle over Christmas, but we don't power down. It's because of the complex equipment we use."
Given GlobalFoundries' appetite for electricity, the situation in Essex Junction would be worse if the company wasn't constantly striving to find ways to conserve power. Miller said GlobalFoundries spends more than $1 million annually on conservation, but adds that "we're not going to save our way out of this."
"We've been doing conservation for 20 years," Miller said. "That's not an end game. We'll continue down that path, but we really need to find a better solution than what we have access to today."
Retail choice vs. regulation
Unlike Vermont's regulated environment, New York has a "retail choice" market for electricity, which means manufacturers can shop for power at the lowest rate, even if it comes from out of state, say, from the Great Lakes region.
Miller acknowledges that one of the reasons for Vermont's regulated market is to "keep things fairly flat long-term," whereas in a retail choice market there's the risk of highs and lows in the price of power.
But if you look at the New York market over many years, Miller said, there have been more lows than highs for businesses that consume a lot of power.
"We would like to have the choice to make that decision," he said.
Build your own power plant?
The deal between GlobalFoundries and Green Mountain Power still has to be approved by the Department of Public Utilities. Miller expects a decision this fall.
Another option for GlobalFoundries to consider in the future might be to generate its own power on site. The company has the space to do it, but there would be quite a bit of permitting involved, according to Miller.
Also, it's very expensive to build a power plant — Miller estimates $60 million to $80 million. Unless Miller could show the company would recoup that expense in five years or less, GlobalFoundries would be unlikely to entertain the option of building a generating plant.
Miller's task is made even more daunting by the electrical power infrastructure in Vermont. He explained that even if he was given the go-ahead tomorrow to begin buying cheap power directly from Hydro-Quebec, the transmission lines between here and there wouldn't be able to handle the load.
"So that's another part of the challenge as we look at these options," Miller said. "What's the best option to leverage the transmission capacity that is available in a cheaper way? It's something we have to try to figure out."