Indiana's near lowest-in-the-nation energy prices were a key reason the Japanese maker of Subaru vehicles chose Lafayette over sites in six other states in 1986 to start U.S. production of the then little-known brand.
Today, production has surged to around 300,000 vehicles per year and more than 3,800 people work at the sprawling auto plant just off Interstate 65.
Tom Easterday, Executive Vice President of Subaru of Indiana Automotive, recently spoke to a a small group of Indiana legislators before a tour of the plant.
But Easterday, a lifelong Hoosier, said he's not so sure Subaru parent company Fuji Heavy Industries would make the same decision today. That is because industrial electricity prices have soared in Indiana in the last decade, including those charged by Duke Energy, which serves Subaru and other manufacturers in the Lafayette area.
In 2003, only four states in the nation had lower average industrial electricity prices than Indiana, according to U.S. Energy Information Administration data. By 2015, 25 states had lower prices than Indiana. Average industrial electricity prices have surged 75 percent in Indiana in that time, while only increasing 37 percent in the nation as a whole.
“We are losing that tremendous advantage we once had,” Easterday told legislators and a few other local business people that morning at the plant's training center.
Easterday's briefing for legislators and the following plant tour were one of a series across the state organized by Indiana Industrial Energy Consumers Inc., an alliance of 26 of the state's largest manufacturers.
Among those companies are some with a large presence in Northwest Indiana, including ArcelorMittal USA, Praxair, Alcoa, BP and Marathon Petroleum. ArcelorMittal's Burns Harbor steel mill was the setting for a June 16 briefing and tour for Northwest Indiana legislators and others conducted by Indiana Industrial Energy Consumers.
The issue gained more urgency for those manufacturers Thursday when their utility, NIPSCO, applied to the Indiana Utility Regulatory Commission for a rate hike that would increase industrial customers' bills about 7 percent on average.
NIPSCO Chief Executive Violet Sistovaris said the utility plans to continue programs that aid its industrial customers. Those include one for providing backup power when those customers generate their own electricity and another, a discount when they voluntarily allow a portion of their power to be switched off during periods of peak demand in NIPSCO territory.
"Maintaining competitive electric rates is important for customers; it's important for the region; it's important for the state," Sistovaris said. "We will continue to work with our industrials."
Manufacturers energize for change
The large manufacturers are lobbying legislators for changes in Indiana law and utility regulations to give them more tools to control their electricity costs, according to Jennifer Wheeler Terry, legislative liaison for Indiana Industrial Energy Consumers.
The manufacturing group has calculated that a 1 cent-per-kilowatt boost in the state's average electricity prices works out to $500 million in additional annual expenses for Indiana manufacturers. That average increased to 6.87 cents per kilowatt hour in 2014 from 3.92 cents per kilowatt hour in 2003.
First on the to-do list for Indiana Industrial Energy Consumers is a proposal to allow manufacturers to expand the use of "cogeneration" plants by allowing them to be built in conjunction with other businesses. Also called combined heat and power, cogeneration is considered clean and efficient because it recycles the heat produced in generating electricity for other industrial processes.
"One of the great things about our industrial businesses is they are innovators," Terry said Sept. 2 to an Indiana General Assembly study committee considering changes to Indiana utility regulation. "Let's give them the chance to do that."
The Indiana Energy Association, the lobbying group for the state's five large investor-owned utilities, has likened the industrial customers' proposals to deregulation. It points out that 11 of 24 states that jumped on the deregulation bandwagon in past decades have pulled back in whole or part.
"While we face many challenges in this state, if we begin to go down a path that even partially, or slightly, hints at deregulation, it becomes a challenge," Indiana Energy Association President Mark Maassel told the same legislative committee, which is chaired by Sen. James Merritt, R-Indianapolis.
The Indiana Energy Association blames the rapid rise in Indiana's industrial electric rates on tough new U.S. Environmental Protection Agency regulations aimed at electric generating plants using coal. About 90 percent of the electricity produced by Indiana utilities is generated by burning coal.
But Maassel's contention that Indiana's regulatory system is a good one that works for utility customers came after representatives from companies such as engine-maker Cummins Inc.., of Columbus, and power-system distributor MacAllister Power Systems, of Indianapolis, outlined new technologies coming on the market allowing companies to generate their own electricity.
Both companies contend current Indiana utility regulations hold back manufacturers' ability to make use of these new technologies.
"Is the industry, nationally or globally, thinking about what its new business model, or new paradigm, might be in the future when we have all this technology sorted out, as opposed to just trying to preserve the existing business model as long as possible?" Rep. Matt Pierce, D-Bloomington, asked Maassel.
Maassel said the industry recognizes trends taking place and is thinking long and hard about just those questions, along with trying to determine what is best for all customers.
Who pays and how much?
Also on the list of changes sought by Indiana Industrial Energy Consumers is a rewriting of state law and regulations to allow manufacturers to purchase supply from generators other than utilities, such as the large wind farms sprouting up across the north-central part of the state.
Currently, Indiana manufacturers cannot buy electricity directly from the state's numerous wind farms. They can only buy electricity from the wind farms through their local monopoly utility.
Indiana Industrial Energy Consumers Inc. would also like to see utility base rates reviewed on a regular schedule, a more open procurement process when utilities embark on major projects, and more stringent review of the special bill surcharges called "trackers" that often pay for those projects.
If manufacturers could go ahead with some of the cogeneration projects they are talking about, it would take some of the burden off residential utility ratepayers, who will have to pay for any generation built by utilities in the future, Terry said.
At the Sept. 2 legislative committee hearing, Maassel pointed out 2,300 megawatts of electricity are already produced each year by co-generation plants in Indiana.
Although manufacturers would pay the cost of the generating plant itself, other ratepayers could be saddled with the cost of interconnections and backup power that must be provided by utilities for any new cogeneration plants, he said.
"What happens if we have a large facility of some sort essentially beating the system by building their own generation?" he asked legislators.
Among those touring the Subaru plant on Aug. 11 was Indiana Senate Majority Leader Brandt Hershman, R-Buck Creek, a former chairman of the Energy, Utilities and Telecommunications committee.
Hershman blamed ever-more stringent federal environmental regulations for driving up the price of electricity produced by Indiana utilities. At the same time, he acknowledged changes in Indiana utility regulations might have to be considered.
"Ultimately, if we want to bring everyone together, we have to be more creative than we have in the past," Hershman said.