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Power Plant Acquisitons: Workforce Management from the Buyer's Perspective

Fortnightly Magazine - December 1998

of states addressing deregulation have chosen to focus their legislative efforts on softening the impact of restructuring on electric utility employees. At least six states have laws specifically requiring action by the existing utility to mitigate the effects of restructuring by providing severance, early retirement packages and retraining of employees. These states include Connecticut, Illinois, Maine, Massachusetts, New Jersey, and Nevada. At least four other states were considering such legislation as of fall 1998, including Michigan, New York, Ohio, and Pennsylvania. Several seller utilities were attempting to extend the coverage of such legislation to buyers by instituting bid conditions on the buyer, extending severance and early retirement requirements beyond the closing date of the sale.

Interestingly, the Maine electric utility restructuring legislation augments the employee severance and protection concept with a successorship provision, requiring generation asset purchasers to recognize the union and adopt the collective bargaining agreement "to the extent permitted by federal law." (Sec. 35-A M.R.S.A. § 3216.) In light of the Com Ed decision, federal law likely would preempt the Maine successorship provision.

In addition, at least six states had enacted or were considering legislation to allow utilities to recover employee-related transition costs, such as severance. These states include Arizona, California, Mississippi, Missouri, Pennsylvania, and Virginia. The statutes can facilitate the buyer's willingness to take on employee costs by allowing the seller to reduce the acquisition price.

Compensation, Productivity. Does a power generation facility now exist in a different labor and job market than a power delivery function? Can stand-alone business units continue to afford defined-benefit plans, or will defined-contribution plans prove a competitive necessity?

What about pay structure? Should future income gains come primarily from general increases, or through incentive pay? Can the new organization continue to justify premium or non-statutory overtime pay?

Since the market pricing of energy services will be somewhat volatile, labor agreements that burden employers with payments for fixed benefits will be non-competitive on customer pricing. Plant owners can meet performance standards through outsourcing or targeted contracting. However, a stand-alone power producer cannot spread labor costs across a fully integrated transmission and distribution company. The buyer must link compensation with growth of income.

At the same time, for a unionized facility, labor contracts and work practices may impede productivity. Any restrictions on scheduling of work and training, assignment of work, overtime distribution, and performance evaluations should be viewed as presumptively unacceptable. And where the business unit employs a baseload staffing philosophy, any restrictions on the use of non-union staff or contractors should be unacceptable. Seniority should be eliminated as a controlling factor in assigning call-out work, scheduling emergency work, scheduling relief overtime or making promotion decisions. Union and non-union employees should adhere to comparable work rules and staffing policies.

Union Reorganization. The acquisition process offers magnificent opportunities for in reinventing the union-management relationship. While deregulation offers leverage to the buyer, ignoring union interests also poses risk. The balance to be drawn depends on each buyer's needs.

For the union to be a meaningful contributor to the employer's success (thereby defining the union's ultimate success), it