$2 million difference for Omaha Steel

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Omaha Steel Castings' choice to build a new facility in Wahoo, Neb., instead of Omaha came down to a few key factors — including an almost $2 million difference in the cost of getting power to the foundry and the limited availability of heavy industrial land in the city.

The company's president, Phil Teggart, said he had every intention of keeping Omaha Steel in Omaha. He worked with local economic development officials and the Omaha Public Power District for years as they offered deals and suggested sites. But at the end of the day, the 105-year-old company's business sense overrode the desire to stay close to home.

The deal in Wahoo was just too good to pass up.

Company, city, OPPD and Chamber of Commerce officials agree that Omaha's loss of Omaha Steel stemmed from an unusual set of circumstances and not a lack of effort to retain the jobs.

"Our full resources are applied to every single project that comes in the door. ... That's a commitment we have and we did work with this company for several years," said chamber spokeswoman Karla Ewert. "It just didn't work out."

Over the next couple of years, the company will move its operations and its 225 employees into a new $12 million Wahoo facility.

Teggart started thinking about moving the company almost as soon as he bought it, in 2008.

After years of growth in the city, its midtown location at 46th and Farnam Streets had become an odd fit. Surrounded by homes, businesses, a hospital and a school, a place where steelworkers turn molten metal into machine parts and building frames couldn't stay forever.

Plus, the company was growing. This year's projected $30 million in sales will be nearly double the 2010 number.

With the help of the Greater Omaha Chamber, Teggart located a few potential sites around the city. He said his options were relatively few and far between — an issue Ewert acknowledges can be a challenge for some companies. The remaining areas zoned for heavy industrial use are shrinking.

A report released last year by the Metropolitan Area Planning Agency said the demand for industrial buildings in the area is expected to soar over the next few decades — from 63.4 million square feet in 2010 to 116.3 million square feet by 2035. But progress on developing that land has been slow going. The most recent new industrial park to open in Omaha, near Interstate 80 and Highway 370, is well over a decade old.

Ewert noted that there is space available in the greater metro area. The chamber is part of the Greater Omaha Economic Development Partnership, which serves Douglas, Cass, Sarpy and Washington Counties. In the city of Omaha, most of the available space is on the east side of the city, both north and south.

"In Omaha, there are little to no heavy industrial properties," Teggart said. "And the properties they had were not in the most desirable locations and had extensive site preparation that was required."

That preparation — getting hooked up to power and water and sewer lines, putting roads in the right places — was a big deal for Omaha Steel.

The company eventually narrowed its search to two locations, both in north Omaha. Both offered space to grow, but with a sizable price tag.

Tim Burke, OPPD's vice president of customer services and public affairs, said the cost of providing service to any site comes with several considerations. There is the cost of transformers; OPPD doesn't keep them in stock, so it's a cost for the customer. And connecting to transmission lines can be a logistical puzzle, depending on the site's location.

"We'd have to purchase right of ways, buy and build transmission lines," Burke said. "And in this case, because of the nature of their load ... we'd typically serve them separately because we don't want to impact any other customers."

As with all customers, Burke said, OPPD did a fair amount of negotiation with Omaha Steel.

Early on, the company found a spot that would have been easier to connect, and OPPD offered a no-cost option for setup. That plan fell through when the property sold before Omaha Steel moved on it.

For the other locations, OPPD offered Omaha Steel discounts of as much as 50 percent.

Still, the price was steep. Teggart said it was just over $2 million. Burke says it was a bit lower than that.

Either way, it was a lot of money — but not an unheard of amount.

Burke said some customers have paid twice that amount, if they wanted to locate in a particularly hard-to-reach location or had very specific power needs.

He said OPPD is a big booster of business but can offer only so much to a company.

"Our philosophy in extending services is based on the generation of revenue to support other customers as well," he said. "We don't want to subsidize one customer, to have 350,000 other customers pay inordinate costs for one customer."

Meanwhile, Wahoo, some 40 miles away, had an unusual opportunity on its hands.

The owner of a piece of farmland located next to other industrial development was looking to sell. The price was cheaper than what Omaha Steel was looking at in Omaha.

And the utilities would be no problem: Electricity, sewer and gas lines already crossed the property, and water was less than 200 feet away.

Wahoo has city-run utilities and operates as a power wholesaler with the Nebraska Public Power District.

Jim Gibney, general manager of the Wahoo Board of Public Works, said the infrastructure was put in years ago to serve a section of the city, not for any particular business or development.

There was another added bonus: Omaha Steel could use transformers that had been purchased for an ethanol plant that never got off the ground.

In total, the cost of getting utilities up and running at the Wahoo site would be somewhere in the neighborhood of $20,000 — a far cry from Omaha's nearly $2 million.

"Obviously those were big numbers, but the way that the Wahoo community opened their arms to Omaha Steel was almost as much of a driver as the cost," Teggart said. "It was just a welcome, welcome discussion. ... They really, truly wanted us to come to Wahoo."

Back in Omaha, officials said they're committed to providing an equally big welcome to businesses that want to grow in or relocate to the city.

Ewert said identifying and developing sites for business is a priority. An advisory group with members from the chamber, the city and other agencies is dedicated to that specific task.

"We know to be competitive we absolutely have to have all kinds of sites available," she said.

Sites that attract businesses mean more jobs for areas of the city that often need them most. Ewert said the chamber and Mayor Jim Suttle both are focused on creating jobs east of 72nd Street.

Teggart said he expects the company may lose about half of its current 225 employees because they're unwilling to make the commute to Wahoo. Those positions will be filled with new workers.

In addition, Omaha Steel will likely add 25 more jobs once it's up and running in the new location — and potentially dozens more if the business continues to grow.

"Our projection with the property and parking and locker room facilities is that we'd be able to handle another 20 to 25 percent," Teggart said of his workforce. "That's going to be dependent on business conditions, but the property does give us the opportunity to grow."

That means more jobs that could have landed in north Omaha.

Suttle spokesman Andrew Monson declined to comment on the loss of potential jobs in the city, but said the company's move was regrettable.

"We're disappointed to see them leaving," he said. "But we respect their decision."

Contact the writer:

402-444-1543, erin.golden@owh.com

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