Nassco Seeks to Parlay Power Plant Into Major Ship Contract

In the highly competitive world of shipbuilding, a little edge can go a long way--to contracts worth hundreds of millions and even billions of dollars.

That is why National Steel and Shipbuilding Co., the largest shipbuilder on the West Coast and one of the city’s largest employers, is hopeful that a proposed privately owned power plant will help give it the competitive edge on a Navy contract worth $2.5 billion to build three “baby flattops,� carriers designed specifically for helicopter operations.

The stakes are high. If Nassco’s bid is successful, the contract would be the largest in the company’s history. That translates into jobs.

The company now employs about 4,800 people and pays them an average of $12.50 an hour. To build the helicopter carriers, it would need to increase its work force by almost half, to 7,000 employees. That means new jobs for 2,200 workers, jobs that would last for four years, from 1988 to 1992, while the ships are being built. Nassco hasn’t had a work force that large since 1980.

Since then, the recession of the early 1980s and increased foreign competition have cut into Nassco’s new construction work, though the company, a subsidiary of the multinational construction conglomerate Morrison-Knudsen Co., remains healthy and profitable. As it vies for the Navy contract, it faces American shipbuilding competitors in the Southeast and Gulf states, specifically in New Orleans; Pascagoula, Miss., and Newport News, Va., and another in Bath, Maine.

A new power plant, from which the company would buy relatively cheap electricity, is one of the ways the company hopes to make its bid more competitive.

But officials of both Nassco and Energy Factors Inc., the growing San Diego-based power-generating company that would build, own and operate the $36-million power facility, are reluctant to talk about the matter in detail. They say that, while negotiations are moving ahead on the deal, it will take 30 days or so before a final agreement is reached, and there is a possibility, despite everyone’s optimism, that it could fall through.

There are also other concerns. Nassco President Richard H. Vortmann says publicity about his company’s interest in buying electricity from Energy Factors could get back to his competitors, who would adjust their bids to counter Nassco’s edge. And Richard Kay, Energy Factors vice president of finance, said: “We have many steps to go through yet . . . and we’re not ready to tell Wall Street about it.�

But the proposal to build the power plant, called a cogeneration facility because it will provide both electricity and steam and can do it more cheaply than San Diego Gas & Electric Co. can sell it, has already crossed into the public arena.

Nassco has asked the San Diego Unified Port District to modify the company’s lease to accommodate the power plant. The firm’s sprawling shipyard at the foot of 28th Street near the southern end of the San Diego-Coronado Bay Bridge is on nearly 100 acres of Port District property, for which it pays rent of $186,000 a year.

Nassco wants the Port District to approve a change in the lease giving one acre on Harbor Drive, next to the U.S. Naval Station, to Energy Factors, which would then build its cogeneration plant. The plant is to be capable of producing 49 megawatts of power, or enough for about 49,000 homes.

Earlier this month, the Port District commissioners tentatively approved the lease change, after Vortmann told the commission that Nassco had been losing contracts to its Southeastern competitors and that buying electrical power from the Energy Factors facility would save it “several million� dollars a year, an amount he said will help the company submit a competitive bid. Vortmann also said Port District approval is necessary because the helicopter carrier bids are due in four to six weeks.

Vortmann, in an interview this week, said Nassco has long considered using low-cost power from cogeneration, but that only in the last couple of months had negotiations started with Energy Factors. While labor and materials make up most of Nassco’s expenses, Vortmann said, a reduction in utility costs seemed the most attainable.

“Utility costs here are the highest in the nation, and higher than any of our competitors pay,� said Vortmann. “But of the three (labor, materials and utilities), energy was the largest we could bring down . . . . This was our motivation.� The company now buys electricity from SDG&E;, and Vortmann says his company pays 14 cents a kilowatt hour for it, compared to the 4 cents to 5 1/2 cents paid by his competitors.

But Vortmann won’t specify exactly how much Nassco would save by buying electricity from Energy Factors, a company that since June has announced contracts worth about $104 million to build various cogeneration plants around the country.

Although much has been made about Nassco’s link to the proposed Harbor Drive power plant, the shipbuilding company wouldn’t be its biggest electrical customer. The top customer would be SDG&E; itself.

Nassco would only buy about seven megawatts, or 14%, of the electrical energy produced (the Navy would purchase the steam). The rest would be sold to SDG&E;, which under federal law is required to buy the power and is the key reason private industry in recent years has entered the cogeneration field.

This difference between a facility built for Nassco and one primarily to be used by SDG&E; posed a minor problem for the Port District, which generally has required companies that lease port property to be primarily involved in marine-related activities.

“Frankly, we were a little concerned that because of the size of the plant, the gas company (SDG&E;) would be getting a real windfall from our property,� said Don Nay, director of the Port District. “They get a chance to buy power at a bargain rate and then bill the ratepayers . . . at their regular rate.�

The Port District, Nay said, was concerned with “leasing our property for the benefit of the gas company.� It initially sought, among other things, to have the power facility built no larger than necessary to provide power to Nassco. “We were told that because of economies of scale, a large plant was more economically feasible,� Nay said. The shipbuilding company also made it clear that a cheap source of energy would help make Nassco competitive in the future, not just for the upcoming helicopter carrier contract.

Overriding all the concerns, said Nay, was that the Port District was in a position to help Nassco by only having to make a modest change in the lease. “Any time we can do something like that to keep a tenant and a tremendous number of jobs . . . without giving away the company store, we’ll do it,� said Nay.

Final approval of the lease change, which must go through an environmental clearance procedure, will be made by the Port Commission sometime in the next several months.

Vortmann, downplaying the impact of the proposed power plant, said, “It’s just one of several things we’re trying to do to be more competitive. Every little bit helps.�