New York Power Authority
Proposed Power Supply Contract with Alcoa
Kenneth J. Pokalsky
Senior Director, Government Affairs
November 6, 2008
My name is Ken Pokalsky and I am Senior Director, Government Affairs for The Business Council of New York State. I appreciate this opportunity to provide testimony today regarding the proposed NYPA/Alcoa contract extension on behalf of The Business Council. The Business Council is New York’s largest statewide employer association, representing more than 3,000 businesses, which collectively employ about 1 million New Yorkers, across the state, and across all industrial sectors.
We are especially pleased to be here today supporting a proposal designed to result in the long term retention of Alcoa in New York. Alcoa has been a member of The Business Council, and our predecessor organization, since 1945, and we have worked together closely on a wide range of issues of importance to both Alcoa and the state’s overall business climate. [We also had a 40 year relationship with Reynolds Metals, prior to its acquisition by Alcoa in 2000.]
The Business Council has long argued that New York State’s economic development policies need to:
- focus more on retention of in-state business and jobs,
- emphasize capital investment, in addition to job creation, and
- focus on the quality of jobs – factors such as salaries and benefits – rather than simply on the number of jobs.
The Business Council believes that by supporting major reinvestment in Alcoa’s Massena operation, this proposed contract extension will achieve each of these key development objectives – and more.
Alcoa, one of the world’s leading aluminum producer, is a major economic presence in the North Country. As the state’s largest private sector employer north of Syracuse, it adds nearly $350 million to the local economy through salaries, pensions and local purchases of materials and services. Considering the multiplier effect of manufacturing, Alcoa’s total impact on the regional economy is several times that amount.
Alcoa is evaluating a minimum of $600 million in new capital investments in Massena. This investment, one of the state’s largest private sector investments in recent years, will modernize Alcoa’s manufacturing operations, increase its output, improve its environmental performance, and secure nearly one thousand jobs over the next three decades.
Competitive energy costs help shape a state’s economic climate, and can be an import factor in business investment decisions – in some cases, the most crucial factor. Too often, the high cost of energy in New York has an adverse impact on the retention of employers and jobs.
Fortunately, we have an incredibly valuable economic development tool in NYPA’s hydropower – a tool that has been used to great effect in retaining high value, energy dependent business across the state.
Alcoa is heavily dependent on competitively priced power, as aluminum smelting is extremely energy intensive, with electricity representing about 30 percent of production costs. There is no doubt this proposed investment would only be possible with a long term extension of Alcoa’s hydropower contract with the New York Power Authority (NYPA).
The Business Council’s support for this contract is based on two key factors:
- First, it will result in a $600 million capital investment, at minimum, in state of the art manufacturing capacity in upstate New York. We believe that significant re-investment in capital plant is one of the best indicator of a business’ long term commitment to the state. New York needs to do more – through tax policy, through economic development programs, as using resources such as hydropower – to promote capital reinvestment by in-state business.
- Second, it will result in the long term retention of nearly one thousand manufacturing jobs in the North Country. We like to refer to the “manufacturing bonus” – the fact that, in the seven-county North Country region, at more than $47,000, average manufacturing salaries exceed average non-manufacturing, private sector salaries by 64%, or $18,500 per year, based on 2007 NYS Department of Labor data. High paying manufacturing jobs are incredibly valuable, difficult to retain, and – especially in upstate New York – even more difficult to replace once lost. From 2000 to 2007, again using DOL data, the seven-county region lost 4,200 manufacturing jobs, nearly a quarter of all such production jobs, and an estimated $200,000,000 in payroll. Imagine the impact of the loss of another major manufacturer on the regional economy.
In addition, we believe that the proposed contract contains reasonable commitments for both Alcoa and NYPA, in terms of long term pricing and power delivery, and in terms of conditioning contract benefits on the company’s achievement of investment and employment targets.
This extension has been a long time in coming, and we applaud NYPA’s commitment to developing and finalizing this contract, and we applaud Alcoa’s long term commitment to New York State.
For these reasons, The Business Council urges NYPA to give final approval to this proposed agreement.