Assessing the Employment Implications of
the 2006 Repeal of the Public Utility Holding
Company Act (PUHCA)
Presented by:
Jim Voye
Director of Research and
Corporate Affairs
International Brotherhood
of Electrical Workers
Steve Rayburn
Labor Relations Director
Pacific Gas & Electric
Company
January 2008
1
Tom Schneider
President
Restructuring Associates,
Inc.
PUHCA
2
– Background
•
Federal consumer protection law passed in 1935.
•
Regulated parent or “holding” companies of electric and natural gas utilities so that rates
could not be raised by charging high fees to utilities for services from affiliates.
•
Parent or “holding” companies could not speculate in riskier businesses with ratepayer’s
money – such speculation harms utilities’ credit and raises their cost of borrowing money,
thereby, raising customers’ utility bills.
•
Utility parent companies required to incorporate in the same state where the utility operates
so state can regulate them, or to be regulated by the Securities and Exchange Commission
(SEC) if they operate in several states.
•
Non-utilities, such as oil companies or investment banks, not allowed to own utilities.
•
SEC to approve any merger or utility acquisition by a holding company to prevent the
reappearance of the huge electric and natural gas cartels of the 1920’s that abused their
customers and went bankrupt in large numbers because of Enron-like speculation and
accounting scams.
2
PUHCA – Background
3
•
Utility industry and would-be owners of utilities lobbied Congress heavily to repeal PUHCA,
claiming it was outdated.
•
Energy Policy Act of 2005 passed both houses of Congress and signed into law on August
8, 2005, repealing PUHCA, despite consumer, environmental, union and credit rating
agency objections.
•
Repeal became effective February 8, 2006.
3
Repeal of PUHCA – Impact
•
Facilitates mergers and acquisitions (M&A) in the electric utility industry
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–
–
–
–
4
Strong European companies and nontraditional investors may purchase or invest in
U.S. utilities.
The U.S. SEC’s traditional role in reviewing M&A proposals eliminated.
Utility combinations to be contiguous or interconnected eliminated.
State approval for M&A’s still required.
States and Federal Energy Regulatory commission (FERC) granted additional authority
to review utilities’ books and to ensure financial integrity and non-abuse of market
power.
4
Mergers & Acquisitions
2007
1.
2.
2006
5
1.
2.
3.
4.
5.
6.
7.
8.
Private equity firms KKR, Texas Pacific Group and Goldman Sachs announced their intention to purchase TXU by
way of leveraged buyout for $45 billion.
Puget Sound Energy/Australian-based Macquarie Consortium. Gives PSE a $5 billion cash infusion to satisfy
renewable-resource laws, strengthen its network against storm damage and accommodate the region's growing
population.
9.
10.
Dynegy Inc./LS Power Development Corp.
Duquesne Light Holdings, Inc./DQE Merger Sub, Inc./DQE Holdings LLC
WPS Resources Corporation/Peoples Energy Corporation
Green Mountain Power corporation/Northern New England Energy Corporation
NorthWestern Corporation/BBI Glacier
Boston Edison Co./Cambridge Electric Light/Commonwealth Electric/Canal Electric
National Grid/KeySpan Energy
ITC Holdings Corp./International Transmission Company/Michigan Transco Holdings, Limited Partnership/Michigan
Electric Transmission Company, LLC/Trans-Elect NTD Path 15, LLC
Florida Power & Light/Constellation Energy (Merger terminated 11/06)
Georgia Power/Savannah Electric
2005
1.
2.
3.
4.
MidAmerican Energy Holdings Company/Scottish Power plc/PacifiCorp Holdings, Inc./PacifiCorp
Duke Energy Corporation/Cinergy Corporation
Exelon Corp./Public Service Enterprise Group, Inc. (Merger terminated 9/14/06)
PNM Resources, Inc.,/SW Acquisition, L.P./TNP Enterprises, Inc./Texas-New Mexico Power
2004
1.
Ameren Corporation/Dynegy, Inc./Illinova Corporation/Illinova Generating Company
5
Mergers & Acquisitions
6
2003
0
2002
1.
2.
3.
4.
Ameren Corporation/Central Illinois Light Company
Duke Energy Corporation/Engage Energy America, LLC/Fredericksen Power L.P.
Northwest Natural Gas Co./Portland General Electric Co.
Reliant Resources, Inc./Orion Power Holdings, Inc.
6
Failed Mergers & Acquisitions
7
2006
Exelon Corporation/Public Services Enterprise Group
2006
Constellation Energy/Florida Power and Light
7
Hurdles to Mergers & Acquisitions
8
•
Regulatory Uncertainty
•
Customer Rates
•
Service Reliability
•
Impact on Employees
•
Savings
8
Why Change Is Occurring
9
•
Increasing mergers and acquisitions.
•
Adapt to the global marketplace and keep pace with the industry
•
Competitive Threats
•
Deregulation / Municipalization
•
Customer Expectations have increased – efficiency, cost-conscious, environmental
concerns
•
Investment needed in existing infrastructure and new tools
•
Employees need better tools, resources and business processes
9
Survey – Demographics
•
•
•
A survey was sent to 63 Utilities throughout the
United States.
Responses were received from 30 of the
Utilities.
The companies have on average 46% of their
workforces unionized.
Number of Employees
10
less than 500
3
500 - 1,000
2
1,000-5,000
15
5,000-10,000
7
more than 10,000
3
Grand Total
30
10
State
Frequency
AL
1
AZ
3
CA
2
CT
1
FL
3
HI
1
ID
1
IN
4
MI
3
NJ
1
NV
1
NY
1
OR
2
PA
2
TX
1
WA
2
WI
1
Survey – Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
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Does your company currently have any business initiatives to address competition in the
utility industry?
If yes, please describe the initiative.
How long has your company been working on these initiatives?
Have your business initiatives resulted in the loss of any bargaining unit positions in the
past two years? If so, how many? In what areas?
Have your business initiatives resulted in the addition of any bargaining unit positions? If
so, how many? In what areas?
Are your unions supportive of your business initiatives? Why?
Are your employees supportive of your business initiatives? Why?
Are bargaining unit employees involved/engaged in the design and roll out of business
initiatives? How?
Have you entered into any special agreements with your unions on business initiatives?
Please explain.
Do you have a Neutrality Agreement with your unions?
If yes, why did you enter into a Neutrality Agreement?
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Survey – Results
1.
Business Initiatives to Address Competition
•
Nine responses out of 14 (64.3%) answered that their
company has business initiatives to address competition in
the utility industry.
•
Companies seem to have programs designed to apply reengineering and technology to current work processes.
Many of these might impact labor agreement provisions and
companies have been in discussion with unions to try to
achieve these modifications.
•
Examples of reported business initiatives are included below:
Business Initiatives
Yes
9
No
5
No Response
16
Total
30
•Performance improvements, processes and benchmarking. (3)
•Business Transformation – developing new lines of business. (2)
•Restructuring – investment in de-regulated operations, expansion of wholesale marketing; efficiency
measures, restructuring, use of contractors, etc. (2)
•Use of Technology – to perform work in the most cost effective, efficient manner and provide safe, reliable
service. The use of technology will provide performance dashboards, automated meter reading, use of
GPS for routing and safety, online work order management systems, automated overtime callout system. (2)
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Survey – Results
2.
Business Initiatives and Bargaining Outcomes
•
Five responses out of 12 (41.7%) responded that the
company’s business initiatives have resulted in the loss of
bargaining unit positions in the last two years. This loss
has occurred in various areas such as gas and electric
operations, clerical, construction, leakage, stores, services
and sales.
•
13
Some companies reported that business initiatives have
resulted in the addition of bargaining unit positions in the
areas of management, administrative/support in central
scheduling and dispatch, wind generation and standard
lab, and power plant employees due to newer plants being
brought on-line. One company reported the addition of
management employees is not so much directly tied to the
business initiatives but as a result of their Neutrality
Agreement.
13
Loss of Bargaining Unit
Positions
Yes
5
No
7
No Response
18
Total
30
Addition of Bargaining Unit
Positions
Yes
6
No
6
No Response
18
Total
30
Survey – Results
3.
Union and Employee Support for Business Initiatives
•
Unions are generally supportive of business initiatives to a
certain degree for the following reasons:
•
Company provided a Neutrality Agreement and
enhanced workforce Transition benefits. (1)
•
It is in their best interest that the business prosper.
(2)
•
•
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However, Union leaders are taking a cautious approach.
•
The union leadership supports the initiative.
However, they are under pressure from members
and so have to “play their role” at times. (1)
•
They feel that it threatens to further reduce their
numbers. (5)
For the most part, employees are interested in improving
processes and are supportive if they and their union is
involved. One company commented that their employees
are unhappy with the scope and pace of change which has
challenged their history of entitlement.
14
Support from Union
Yes
8
No
2
No Response
20
Total
30
Support from Employees
Yes
9
No
2
No Response
19
Total
30
Survey – Results
4.
Bargaining Unit Employee Involvement
•
Four out of 11 reported that bargaining unit employees are
engaged in the design and rollout of business initiatives.
They are typically involved in the design, implementation,
training and roll out of processes.
•
•
•
15
Two companies involved bargaining unit employees in
subgroups as trainers/subject matter experts, participation
in test groups or model offices and committees to review
initiatives early in the development of initiatives.
One company reported that they have had joint meetings
with union and supervisory employees to discuss changes
to labor agreement work processes.
Although, in general, management met with union
leadership to plan the initiatives in the early stages of the
project, it appears that they did not meet and interact with
the unions enough.
15
Bargaining Unit Employee
Involvement
Yes
4
No
7
No Response
19
Total
30
Survey – Results
5.
16
Special Agreements with Unions
•
Five out of 11 reported they have entered into special
agreements with their unions on business initiatives:
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Agreements made with major bargaining units.
•
Negotiations have resulted in agreements in the areas
of consolidation of work and offices, ClickSchedule,
SmartMeter project, workforce flexibility, dual
commodity Estimators and SAP.
•
Created a travelers bargaining unit – NECA look-alike.
•
Voluntary severance programs offered to create
opportunity for employees to move out of workgroups
facing reduction. Relocation allowance for employees
who move to keep employment.
•
Currently in mid-term contract negotiations on some of
the initiatives. Unions have agreed to pilot some of the
initiatives without filing grievances.
•
Provision in contract allows changes by mutual
agreement which has been used to make some
changes.
16
Special Agreements
Yes
5
No
6
No Response
19
Total
30
Survey – Results
5.
Special Agreements with Unions
•
17
Most do not have a Neutrality Agreement. For those
who have one, it was to obtain union involvement in
business initiatives.
17
Neutrality Agreement with
Unions
Yes
2
No
11
No Response
17
Total
30
How are Utilities Responding to Changing Utility Environment
•
Perspective of Tom Schneider, President of Restructuring Associates, Inc.
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Who is RAI?
•
Nationally-known consulting company based in Washington, D.C., that specializes in
helping companies and unions work together to achieve superior business results.
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Primary consultant for Kaiser Permanente’s national bargaining for over 81,000 employees
represented by over 30 local unions, including ESC.
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Significant experience in the utility industry with a number of companies, including Cinergy,
Detroit Edison, Commonwealth Edison and Wisconsin Energy.
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An Integrated Approach
Business Transformation
+
Culture Transformation
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Employee Engagement
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