Economy and Environment and Manufacturing & Technology and Technology

Demand stokes Coke: After slump, Citizens Gas unit adds workers, expects profit

May 9, 2005

The bituminous-belching behemoth is as close as this city gets to 19th century industry. It is an anathema to economic strategists who would leave smokestacks behind and recast Indianapolis as a haven for the clean rooms of high- and biotechnology.

And neighbors fear it's the source of elevated levels of benzene and other chemicals blamed for cancer.

Yet the politically and environmentally incorrect Indianapolis Coke appears to be on a comeback-at least financially.

The subsidiary of Citizens Gas & Coke Utility this year may turn its first profit since 2000's $1.7 million. It's also adding more high-paying manufacturing jobs to keep pace with voracious demand for coke by the metals industry.

"We're looking to come back in the black this year, to be profitable," said Jeffrey Harrison, general manager of the 2950 Prospect St. plant that lost $4.5 million in the fiscal year ending Sept. 30.

Even that was considerably better than an operating loss of $51 million in 2003, the end of a three-year bankruptcy and consolidation wave in the foundry business. Rapid recovery

Lately, with demand rising in a stronger economy, the southeast-side plant can't bake enough bituminous coal for its 65 customers-mostly steel makers and foundries in the Midwest.

They include International Steel Group's Burns Harbor operations and Wisconsin-based Neenah Foundry, which makes Indianapolis' manhole covers.

"For a while there, they were really struggling. Now they're selling just about everything they can make," said Richard Ham, business manager at IBEW Local 1400, which represents most of the plant's 365 employees. "Six or eight months ago, they were looking at a possible layoff."

One customer, Honda of America, has even inquired about the possibility of shipping coke overseas. Lately, hits to Indianapolis Coke's Web site from overseas have come from such faraway places as Bahrain, China and India.

"I've even gotten calls from Africa," Harrison said.

One reason: China's red-hot economy needs more steel and steel makers need more coke. Rather than exporting coke and driving down prices, China is now importing it.

That demand has jacked up the worldwide price of the fuel. Indianapolis Coke was able to charge more for coke last year, wringing $143 from a ton of coke sold vs. $129 in 2003.

Revenue last year rose nearly 9 percent, to $97.5 million, despite a 1.4-percent decrease in tons of coke sold.

Meeting demand

"Right now, we're fairly close to full capacity," said Harrison, whose crews are preparing to squeeze out another 5 percent by repairing and replacing some of the brick that lines the coke ovens. Many of the ovens have been kept burning continuously for 50 years, a requirement of physics because going cold would contract the steel sleeves and brick, causing fatal cracks.

Earlier this year, Indianapolis Coke hired about 30 more workers, bringing its ranks to 365. Plant managers say they're looking to hire at least 10 more workers this year.

Generations of workers have been making coke here since the early 1900s. Citizens acquired the operation in 1908, when Teddy Roosevelt was president and as Henry Ford introduced the Model T. Today, the annual payroll tops $20 million. Average pay of $18 an hour is not insignificant at a time when other Hoosier manufacturers are moving operations to Mexico and Asia.

The upbeat market and employment picture contrasts with concerns of nearby residents and regulators about pollution. Monitoring stations at Indianapolis Public School 21 have detected elevated levels of benzene in the air near the plant. Benzene has been linked to leukemia and central nervous system disorders.

A consortium that includes neighborhood groups, the Indiana Department of Environmental Management and the city's air pollution control agency are poring over results and working on recommendations. A final report should be out by yearend.

Citizens said it has spent $110 million on environmental upgrades since 1971.

Hedge against hard times

The century-old plant is no longer as important to the city's gas supply as it is to diversifying Citizens' revenue stream. Until the 1950s, when Citizens began tapping into an interstate gas pipeline, all the gas Citizens sent to homes and businesses in the city came from this coke plant-a byproduct of baking coal.

The last cubic foot of coke gas was fed into Citizens' distribution pipeline in the late 1990s.

Now, the coke oven gas is used to fire ovens and the rest is sent to Citizens Thermal Energy, a subsidiary that uses the gas to produce steam and chilled water for downtown businesses. What's not used is stored in a gargantuan blue tank that hovers on the city's southeast horizon.

The bottom will again fall out of the coke market, as is typical of any cyclical industry. Citizens, which essentially is a city-owned trust rather than a shareholderowned utility, has held onto the coke business partly because it can run countercyclical to its other operations-helping mitigate income risk.

"It has in some cases generated revenue that has offset the cost to [gas] customers, at least in theory," said Jerry Polk, an Indianapolis attorney who is counsel for Citizens Action Coalition in utility matters.

"The roots of the parent company are here," said Citizens spokesman Dan Considine. "Because we don't have shareholders, we're able to take a longer view."

That view soon will no longer include customer DaimlerChrysler, which is set to close its Indianapolis foundry by year-end. Harrison said Detroit-based Daimler-Chrysler is a relatively small portion of the plant's customer base and that, already, a buyer in Mexico has inquired about the foundry's portion of coke.
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