Alabama business roundup: Headlines from across the state

Stock Market Economy_Business roundup

Here’s a roundup of some of the top weekend business headlines from across the state: Japanese auto investment climbs in the U.S., including Alabama

Total investments by Japanese automakers in their U.S. operations reached nearly $43 billion last year, according to new data from the Japan Automobile Manufacturers Association.

That’s up from $40.6 billion in 2013.

Direct employment at the automakers also grew to 91,122, up from 82,816 the previous year.

“These figures demonstrate the ongoing commitment of Japanese automakers to the U.S. auto market and they signal a new day in Japanese brand auto manufacturing in America,” Ron Bookbinder, General Director of JAMA USA, said in a prepared statement.

In Alabama, Japan’s Honda and Toyota each have a major manufacturing presence, and they have been part of the growth.

Honda’s $2 billion, 4,000-worker auto assembly plant in Talladega County recently kicked off production of the redesigned 2016 Pilot SUV and officially opened a $71 million, highly-automated engine assembly line.

During the past three years, the plant has announced new investments of more than $508 million for projects to improve flexibility, enhance quality and increase production. It also has added more than 450 jobs.

As for Toyota, the automaker’s Huntsville engine plant last year marked an $80 million expansion project and the production of its 3 millionth engine.

It is the only Toyota plant worldwide to produce four-cylinder, V-6 and V-8 engines under one roof.

Birmingham Business Journal: Report: Walter Energy bankruptcy talks accelerate

Walter Energy Inc.’s negotiations with creditors are accelerating and could trigger a bankruptcy filing by July 15, according to a report.

Bloomberg is reporting that the Birmingham-based coal company and its senior creditors are in negotiations that could result in the company being handed over to lenders. The company has declined to comment on the report.

Lenders are offering to back a loan to fund the company’s operations during bankruptcy and are asking for union support of the plan in exchange for financing the loan, according to the report.

Walter (NYSE: WLT) has been in bankruptcy negotiations for the last three months, as the metallurgical coal market has taken a severe downturn.

Related: Coal War: Alabama mining sector rocked by shifting market

According to the report, Walter’s senior lenders also want the company to file for bankruptcy by July 15, which is the end date for the grace period on a $19 million interest payment due to junior bondholders.

Walter’s fortunes have declined dramatically in recent years. Its stock, which once traded at more than $100 per share, now hovers around 20 cents per share.

The company has also notified hundreds of employees of potential layoffs if the coal market doesn’t turn around.

Birmingham Business Journal: Coal War, Part V: Could natural gas spell trouble for coal in Alabama?

*Editor’s Note: This is the fifth and final installment of the BBJ’s five-part online series investigating the state of Alabama’s coal industry and its future.*

Energy swapping is occurring at utilities around the country, and Alabama Power Co. is no exception.

The Birmingham-based subsidiary of Southern Co. was recently ordered by the Environmental Protection Agency to expedite its efforts to cut coal-fired emissions. The company will achieve this by permanently closing three coal-fired units in Alabama, in addition to swapping four others to natural gas.

Despite the cuts, Alabama is one of the leading states for electricity output – generating more in April 2015 than Mississippi and Kentucky combined, according to data from the Energy Information Administration.

The new regulations, however, favor Alabama Power swapping its energy usage from coal to natural gas, which could mean changes in rates and employment down the road.

It’s a trend that could also affect Birmingham’s coal industry, which is already reeling from a number of other market factors.

Natural gas vs. coal in Alabama

Michael Sznajderman, a spokesman for Alabama Power, told the BBJ that the company expects to see the trend of replacing coal use with natural gas to increase in the future.

“We are switching some coal units to natural gas … Renewables may also play a big role in our fuel mix in coming years,” he said.

Sznajderman said the company historically purchases 25 percent of the coal used from Alabama producers.

At the end of the first quarter of 2015, coal accounted for 47 percent of the sources of generation for all of Alabama Power’s production – down from 54 percent in 2014, Sznajderman said.

This comes out to roughly 11.75 percent of Alabama Power’s total energy use coming from coal mined in Alabama, where thermal coal is secondary to the more expensive and abundant metallurgical coal – which has taken a major hit due to the downturn in the steel market. Thermal coal accounts for just 9 percent of coal exports from the state.

“We support having a diversity of fuel sources,” Sznajderman said. “Having that ability to move from one fuel source to another gives us important flexibility to keep our rates affordable amid fluctuating fuel prices and changing regulations.”

In the market

While natural gas may seem like a burgeoning threat to coal production in Alabama, production and withdrawal of natural gas in Alabama has decreased sharply since peak withdrawals from Alabama gas wells in 1996.

Coal production in Alabama hit its peak in the same decade, topping out in 1990 at 29 million tons of capacity, before embarking on its recent decline.

American exports of natural gas – some of which comes from Alabama – has seen a steady rise in price since peak production, while natural gas imports have followed the opposite trend, according to data from the U.S. Energy Information Administration.

Jason Hayes, associate director of the American Coal Council in Washington D.C., told the Birmingham Business Journal the motive behind energy swapping is simple to understand – bottom line efficiency.

“What we are seeing is fuel switching, so natural gas prices are staying low, and the swapping is basically the utility industry saying ‘If we can produce the most electricity for the least amount of money, then we are going to do that’,” he said.

Despite the decline in production, data from the Alabama Department of Commerce shows natural gas exports are booming in Alabama following back-to-back years of downturn.

Alabama coal exports fell 23.5 percent year-over-year for April 2015, while exports of petroleum gases and other gaseous hydrocarbons increased 713 percent over the same time period.

However, while petroleum gases increased total exports from Alabama to $75,000 in total export value from about $9,000 from the previous year, the state still exported $318,389,319 worth of coal and related products, despite the year-over-year drop.

Coal clearly holds an exporting foothold in Alabama, but trends suggest natural gas could be as much of a danger to Alabama coal in the foreign market as it is in domestic energy production.

Bill Grieco, vice president of energy and environment at Southern Research, said prices have remained low in the last few years – a notion that could explain Alabama’s spike in exports.

“If you look at natural gas pricing from the mid 1990s to mid 2000, there were high peaks and low valleys, but the last four or five years … has suppressed the fluctuation and kept prices relatively low,” he said.

Grieco said chemical companies are putting new capacity in the ground around the U.S., which is due to natural gas prices dropping as a raw material. This could also spur increase in exports from Alabama.

“Over time, it’s impacted electric power where you have some companies converting a portion of generation to (natural gas) to take advantage of those economics,” he said. “Natural gas is the apparent cost leader now.”

In-state effects

Over the last couple years, natural gas, and to a lesser extent nuclear energy, has overtaken coal in the Alabama energy sector.

Additionally, coal may not occupy the place in the Alabama energy sector that one may think. In March 2015, coal was the third largest electricity generating sector, trailing nuclear output and the state’s leader – natural gas.

Ron Gore, head of the air quality division of the Alabama Department of Environmental Management, said in an interview with the BBJ that utilities are swapping to natural gas because mercury emissions from coal-fired utilities are becoming too costly to control.

“The figures show that the last two or three years, the percentage of electricity in Alabama generated by natural gas has gone up by about 10 percent, while the percent generated by coal has almost dropped 10 percent,” he said.

Government data also shows that in March 2015, natural gas was the fuel for nearly 37 percent of Alabama’s electricity generated. Nuclear power makes up 27 percent of the state’s fuel for electricity, while coal continues its decline – making up only 23 percent of the electricity generated in Alabama this year.

Grieco said some statistics show there are more jobs in solar energy installation than coal.

But unlike coal, the solar jobs are not in Alabama.

The economic impact is also vastly different for each energy production sector – with coal representing a high-risk, high-reward scenario in terms of employment.

“My sense, when your mining and building infrastructure to mine coal, that in itself is an investment, whereas fracking may be smaller operations in a small location,” he said. “When that goes away, it has a great impact on the local economy, but hydraulic fracking does not. You have a high number of jobs come quickly, then they go quickly.”

Despite the in-state dominance of natural gas and nuclear energy, the EPA said in a recent statement to the BBJ that while coal may be on the decline in Alabama, it will not cease to be used.

“Coal-fired electricity generation will have an important role in a diverse U.S. energy mix for years to come,” the EPA said. “The EPA projects that coal and natural gas will continue to be the two leading sources of electricity generation (in the U.S.)”

Corey Tyree, director of Energy and Environment at Southern Research in Birmingham, said the potential of new plants represent a future departure from coal. “It goes back to diversity, it is impossible to permit a new coal plant. Any new plant is a permanent departure of coal, so you lose diversity in Alabama,” he said.

Tyree also said it is important to note that all of Alabama Power’s coal-fired units are still in operation, post-MATS.

“The customer has a lot or some cost in those plants,” he said. “They have already invested in the environmental controls over the last history, and its recent investment … A lot of money is tied up in those plants.”

Decatur Daily: State staffing cuts lead to increased overtime costs

The amount of overtime paid to state employees increased 32 percent from 2009-14. State agency officials said staffing cuts played a significant role in the increase.

Agencies paid about 8,800 workers $41.4 million in overtime in calendar year 2014, according to the state personnel department. In 2009, 10,078 workers received $31.3 million in overtime.

As of late June, agencies spent $18.6 million in overtime this calendar year, according to the personnel department.

“It has to be because staffing has been cut and because senior people leave and are replaced by lower-level people who receive overtime,” said Jackie Graham, director of personnel.

Budget cuts in recent years meant state agencies had to shed several thousand employees. The Alabama Department of Transportation lost several hundred employees in recent years, director John Cooper said last week. Increased work because of two snowfalls and road prep for two other expected snowstorms in 2014 also increased overtime to the department, he said.

And there may be some overtime related to some construction projects.

“But overtime is cheaper than headcounts,” Cooper said. “There are costs with reducing your headcount, and overtime is part of that. But it is much cheaper to pay one person some overtime than it is to maintain the total cost of additional people.”

Overtime in DOC

The lion’s share of the overtime last year went to the chronically understaffed Department of Corrections.
In 2009, the Alabama Department of Corrections employed 3,121 correctional officers, officer trainees and correctional supervisors. In 2014, that number had decreased by about 200, putting ADOC’s correctional security staff level at 69 percent, department spokesman Bob Horton said.

According to the personnel department, DOC’s overtime was up more than $11 million from 2009 to 2014. Last year, 3,028 employees received about $24.8 million in overtime.

“Wardens use overtime to compensate for the shortage of correctional officers and security staff,” Horton said.

Overtime helps keep the inmate-to-officer ratio manageable. There are about 24,500 inmates in DOC custody, and facilities operate eight- to 16-hour shifts 24 hours a day year round, Horton said.

The department launched a statewide recruiting and retention campaign to increase the number of correctional officers. In May, the Alabama Corrections Academy graduated 107 new officers, and there are three classes remaining in 2015. The starting salary for a corrections officer is $28,516.

Funding from grants

Public Safety, which this year became the Alabama Law Enforcement Agency, had about $5.6 million in overtime last year, but that doesn’t mean the agency incurred the cost, spokeswoman Anna Morris said.

It offers limited overtime based on the availability of grants and reimbursements from other agencies, including transportation and colleges and universities.

The grants are generally geared toward specific enforcement, such as peak travel periods like the Fourth of July and Labor Day.

Employees who work overtime that is not grant-funded or reimbursable receive compensatory time rather than wages, Morris said. For example, the troopers who worked the Selma anniversary events in March received compensatory time.

One agency to see a significant drop in overtime is the Alabama Department of Mental Health. It closed several hospitals in recent years, including the North Alabama Regional Hospital last month.


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