In union circles, they call it "burial insurance." That apt phrase denotes the severance, early retirement and re-training packages negotiated for veteran utility workers sideswiped by a changing market.

So far, labor has won some insurance: through legislation in California and in Maine; through a commission order in Massachusetts; and a pending settlement agreement in New York City, prompted by a commission order.

Labor lost hard in Pennsylvania and in Rhode Island, however. Worker protections weren't built into restructuring decisions in those states. One union official calls the Pennsylvania episode a "thief in the night."

The protection agreements, in most cases, give workers 24 to 30 months of guaranteed employment through the transition to a free, and often, divested market. Those not kept get a golden parachute.

For the rest of the nation, the future of worker protection promises to put labor through its paces and to test the political mettle of legislators and utilities.

Weighing the Costs

Changes from electric restructuring have cut roughly 25 percent of utility labor nationwide since 1990, says Jim Dushaw of the International Brotherhood of Electrical Workers. Between the IBEW and the Utility Workers Union of America, the two major utility unions, there are now about 270,000 collective bargaining unit employees. That's about 65% of the 413,000 utility workers nationwide, according to 1995 data from the U.S. Energy Information Administration.

Litigation will shape the future of worker protections. It appears that states will preserve workers' jobs if utilities sell off plant and equipment to new competitors. Collective bargaining units, however, won't be protected, although there's disagreement on this point. Maine, for instance, seems to have covered all the bases in its restructuring bill (see sidebar).

One union attorney says divestiture won't lead to "union busting." Yet a third union source notes that under the National Labor Relations Act, unless 51% of existing employees are kept through a company-to-company transaction, the bargaining unit expires and "you start from scratch."

So utilities could find themselves negotiating downsizing solutions with their unions without legislative mandates. One utility representative says that's how his company would prefer to handle matters. Looking at the deals struck, a severance/early retirement package for 1,000 workers could cost $100 million or more.

Utilities will have to weigh those costs against the idea of relying on lower-wage workers to handle a product that forms the keystone of a highly reliable system, the unions say. Commissioners and legislators, meanwhile, must decide which end of this political hot potato to hold. They may find it difficult to tell consumers: "We're restructuring the industry to lower costs, but on top of stranded charges, we've got a worker protection assessment. It's only $100 million or so (em pennies on your kilowatt-hour rate."

To a consumer who has lost a job to corporate pruning, and who's looking for pennies-per-kWh savings through retail wheeling, this argument may ring hollow. Why should a utility worker receive more protection than a trained factory hand at Intel Corp.?

"Utilities have never had to face the issue of layoffs being a major issue," argues Carl Wood, UWUA's national representative. "That hasn't been part of the environment. Now the rules have changed."

Because the change is sudden and made by administrative or legislative fiat, not by an economic process, there should be a remedy, not a kick in the pants, the unions believe.

The unions don't expect much help from utilities in winning legislatively spun worker protections. That would mean utilities would have to recognize trained workers are needed for reliable systems, says Dushaw, the IBEW's utility department director.

"Unless the local union leadership steps forth and takes the political initiative, the utilities are not going to help us," he says. "They've got a problem enough having their stranded cost calculations accepted by state commissions ... to include a worker share in that, that kind of generosity just doesn't exist.

"No one really wants to publicly say we're going to discount the employees and plainly turn them out to pasture without consideration. I can't think of anybody who's actually saying that. It's just by non-inclusion that it occurs."

Maybe the utilities aren't ready for deregulation. Asked about worker protection leanings related to legislation, a representative of an 18,000-employee utility says he has to ask management. Later he says, "Their first reaction was, 'Well, it's really something we need to address and get a position on.' We've got a task force meeting next week."

Wood says unions aren't encountering much resistance from utilities over the issue. "Where the resistance is mostly going to come from is the large consumer organizations who just see this as another additive to their stranded costs," he says.

Casting a Safety Net

The six states with the most worker protection activity by mid-summer were California, Illinois, Massachusetts, Michigan, New York and Ohio.

California. When it comes to worker protections, not much is contained in Assembly Bill 1890, California's restructuring legislation. But what's there is important, notes Wood (see sidebar). A few paragraphs in the bill were enough to move utilities and bargaining units to fleshed-out solutions. In early July, the Public Utilities Commission was reviewing packages negotiated between Pacific Gas & Electric and Southern California Edison (Docket No. R.94-04-031, Decision 97-06-060).

"They're probably going to end up being different types of agreements," Wood says.

Because PG&E deals with a single union, it will be easier for employees to move from job to job to stay on board. The utility wants to retain generation sector workers through the two years it provides operation and maintenance services to new owners. Required by AB 1890 to sell half of its fossil-fuel plants, PG&E has decided to sell all eight.

SCE, too, will sell double the plants mandated. The particulars of its employee protection agreement were in negotiations at press time. SCE union employees in California top 5,950 and after the two years of AB 1890 protection lapse, as many as 600 workers could be lost, depending on the evolution of the market, Wood noted. The SCE position will differ from PG&E's, because it plans to stay in the O&M business. "So [there] we're not really trying to get big severance packages," Wood says. "We're trying to find a way to keep jobs."

Looking at the country, labor is not looking for a one-size-fits-all solution, he says. "There are some states that are low-cost producer states where we really don't anticipate any job loss.

"We don't view this worker protection thing in isolation with the overall policy issue of maintaining a reliable and affordable utility system," he adds. "We think they're really intimately tied to each other. Our goal is not to get all of our members out on early retirement and severances. It's to keep the industry going and to keep our people employed."

But beyond the two years of legislated protection in California, that may prove difficult.

In the agreement negotiated between PG&E and IBEW Local 1245, which represents about 750 PG&E employees, the issue of successor clauses arose. Successor clauses (em where a new owner would have to honor current labor agreements (em form a key part of the worker protection debate across the country.

It's an issue that also has emerged in Illinois and New York (see below).

Jack McNally, business manager for IBEW Local 1245, says the clause negotiated could have been stronger. Although the new owner will have to recognize the collective bargaining unit, the union will have to bargain for a new contract.

McNally admits the costs of worker protections are hard to predict, because he doesn't know how many employees will take the packages. He estimates as much as $200,000 per employee, or $40 million if 200 employees took the package.

Wood says the amount isn't worth worrying about, compared to overall stranded costs. "In California, the worker protections are chump change in the entire equation," he says. "At most, we're talking millions compared to billions."

The California union locals discovered legislators have been sympathetic to their perspective.

But other commissions and legislatures may want to wash their hands when it comes to workers hurt by power plant transfers or divesture or other restructuring fallout. Officials may want to leave worker perplexities to utilities and unions. "Do the Pontius Pilot" is the phrase used by one commission official.

Illinois. That reluctance to get involved may explain why, on March 31, the Illinois Commerce Commission approved the sale of Commonwealth Edison Co.'s Kincaid Generating Station without considering the future of the 155 bargaining-unit employees. See, Re Commonwealth Edison Co., Docket Nos. 96-0245, 96-0248, March 31, 1997, 1997 Ill.PUC LEXIS 174.

According to David Farrell, ICC representative, the commission had decided the labor issue was none of its business, that its discussion was limited to the plant sale and related ratepayer benefits. Under state statute, there's not much the commission can do about workers anyway, he says. Reviewing the docket, "it simply says that IBEW was first denied entry into the case," Farrell says. "They took it up with the commission. The commission said you can come in to the case and accept the record as it is right now, which was somewhat late in the game."

Earlier, IBEW Local 15 had filed suit in federal district court against ComEd, Kincaid Generation LLC and the Illinois commission, alleging that the plant sale agreement violated the Illinois Collective Bargaining Successor Employer Act. That statute makes any collective bargaining agreement binding on a successor employer if union contract contains a successor clause. ComEd responded in kind, filing its own suit against Local 15. The utility claimed that the National Labor Relations Act and the federal Labor Management Relations Act preempted the state successor law.

On February 21, Judge Wayne R. Andersen found in favor of the utility, ruling that federal law preempted the Illinois successor statute. See, Commonwealth Edison Co. v. IBEW, Local 15, 961 F.Supp. 1169 (N.D.Ill.). In his opinion, Judge Andersen cited the U.S. Supreme Court, which held in 1974 that a new employer should have the right not to hire any of the employees of its predecessor See, Howard Johnson Co. Inc. v. Detroit Local Joint Executive Bd., et al., 417 U.S. 249, at 261-62 (1974). According to Judge Andersen, the Illinois law had invaded substantive aspects of the bargaining process, something not envisioned under the National Labor Relations Act.

"The state of Illinois may not require a new employer such as Kincaid to honor the terms of a collective bargaining agreement it neither assumed nor bargained for," Andersen wrote. "Such regulation is prohibited by the NLRA and is left to the free play of economic forces."

For good measure Andersen also cited a 1994 case that overturned a similar successor statute. See, United Steelworkers of America, AFL-CIO-CLC v. St. Gabriel's Hosp., 871 F.Supp.335 (D.Minn.1994).

Meanwhile, the IBEW has appealed Andersen's decision to the U.S. Court of Appeals for the Seventh Circuit.

Charles A. Werner of Schuchat, Cook & Werner, also attorney for the union local, says he will argue that because all the business affiliated with Kincaid is in-state, the successor statute should apply and not be pre-empted by federal law.

"The facts of this case [deal] with the sale of a generating station in Illinois to an outfit that will continue to operate the same station basically with the same people doing the same thing to the same customers with the same coal and the same control by the Illinois Commerce Commission. The state laws should apply."

He insists it's not a collective bargaining issue at stake, that the union isn't asking for collective bargaining: "It's just if you come in and get [employees] you ought to at least not drop their wages 50 percent." Nonunion plants included, he adds.

Stepping back, Werner says he doesn't think asset transfers will lead to union busting.

But the grand slam question is this: Should Andersen's decision stand, how will it be reconciled with worker protection legislation now being considered in Illinois?

Ironically (em considering its position in the Kincaid case (em Commonwealth Edison supports the proposed Illinois legislation. Glenn D. Newman, the utility's associate general counsel for labor, offers some reasons.

"The language in the proposed legislation makes no reference to collective bargaining agreements and would be a job protection for all non-supervisory employees," he says. "What it's looking for there is to maintain the same terms and conditions of employment. And you may have to look to a collective bargaining agreement, but it doesn't necessarily require you to do that. There does appear to be some case law supporting the fact that when it's not tied to collective bargaining like that, it's not pre-empted."

He admits the legislation could be legally challenged. "But it certainly presents a much different picture than what was presented to Judge Andersen."

The bill made it through the state Assembly, but got stymied in the Senate. It will be revisited in the fall (see sidebar). It could include securitization money for the employee buyouts. The IBEW will lobby hard for the bill.

Massachusetts. Massachusetts has no employee protection legislation, but the Department of Public Utilities' restructuring order (Order No. 96-25) calls for "reasonable" employee costs of divestiture and restructuring to be recoverable. The department left it up to the utilities and unions to hammer out actual language (em subject to DPU approval.

According to Joanne F. Goldstein, UWUA general counsel, New England Electric System has agreed with workers on restructuring protections. Other companies in the state (em Eastern Utilities Associates, Commonwealth Electric Co., and Boston Edison (em were progressing along the same lines. Some utilities have yet to file, Goldstein says.

The UWUA attorney says "private agreements" prevent the pitfalls of an Illinois scenario.

"If a utility company and a new owner and the union all agree, then there's absolutely no legal issues," she says. "If utility X tells new owner Y that part of the condition of sale is you need to assume the collective bargaining agreement, it's a private deal. And I don't see that there's any legal issue. The NLRA only becomes a potential problem (em I'm not conceding that it is a problem (em if the state ordered it."

She says she is concerned that new owners, such as those that buy generating plants, won't be receptive to unions. "But we think that new owners generally will value the existing workforces and the union structure. ... We're cautiously confident," she adds.

The NEES agreement, with the DPU's stamp, may help bolster that confidence. NEES has 3,200 union employees and 1,700 non-union employees. One hundred employees work in New Hampshire and about 950 in Rhode Island. The balance work in Massachusetts.

Simultaneous with the employee demands of the DPU restructuring docket, NEES sold its 18 non-nuclear generating plants in early August to a Pacific Gas & Electric Co. affiliate, U.S. Generating Co.

It is just this sort of ownership uncertainty that makes worker protections more desired by organized labor.

William F. Dowd, NEES labor relations/compensation director, places the worker protection package at $85 million, although the company has no idea how many workers will take early retirements or enhanced severance packages; no surveys have been done. The union piece of that package is $46 million.

"We have said the total stranded investment the company has sought for recovery is $4 billion," he says. "It's clear enough that $85 million in a $4 billion total recovery is not a huge component."

The cost could be assessed to the new owners of the generation business, he says.

In Massachusetts, UWUA estimates put the stranded employees' charge at 2 mills, on top of the 2.82-cent, per-kilowatt charge for other stranded costs, a charge that increases by cents over the 10-year recovery period. Goldstein says the charge, calculated on $50 million in employee costs and $700 million in total stranded costs, would last a year.

NEES's Rhode Island employees won't be as protected, and Dowd explains.

"At the time of the [restructuring] legislation in Rhode Island, the worker protection issues were not as grave because in the Rhode Island statute the divestiture requirement was only 15 percent. We didn't get the full requirement to unload the entire generation business until September or October of '96. ... If we had the knowledge of September-October in June-July, we perhaps would have seen to it that there was greater protection for workers."

New York. About 11,000 utility workers at UWUA Local 1-2 in New York City were awaiting a Public Service Commission review of a settlement agreement that included worker protections. The agreement was signed by Consolidated Edison Co. and the union on March 12 (Case No. 96-E-0897).

Among other provisions, the agreement calls for a 50-percent divestiture of in-city generation by 2002, excluding nuclear assets.

According to Seth Goldstein, the local's staff attorney, the union's major employee concern is divestiture and what happens when generating plants are sold. There's a successor clause in the bargaining unit's most recent contract, but that pact expires June 24, 2000.

Under the settlement agreement, the new owner would have to recognize the union and the contract, which includes the successor clause.

But the union attorney insists the local is not finished with what it's seeking. Legislation pending before the state Assembly, called Competition Plus, would mandate the commission to require that generating plant sales must be contingent on their safe and reliable operation at least two years after the sale (em similar to California's protections. Two years would give the union and the acquiring company time to develop a relationship, Goldstein says.

The legislation also would call for recognition of successor clauses. While that issue was struck down and is on appeal in Illinois, New York is a different court circuit, and Goldstein feels the New York legislation is strong enough to withstand a challenge.

There also are protections in the bill against bringing unskilled workers into plants.

"How can you protect the worker without protecting their right to have a collective bargaining agreement?" Goldstein asks. "By not protecting the collective bargaining agreements, you're not protecting the employees. You can't separate the two of them. You just can't.

"We will not allow Enron or any other company to come in, take over plants and hire back or replace our employees for half the wages," he says. "These are hard-fought gains of collective bargaining that took 50 years."

Ohio. Like New York union reps, those in Ohio also are recommending the California job protection model to their legislators, says James Keller, UWUA v.p. and Ohio-area regional director. There are about 5,500 union workers at the state's four investor-owned utilities. Over the last six years, Keller estimates 2,500 employees have left through early retirement, severance and layoffs.

The UWU planned a "deregulation summit" in Columbus late last month (em duplicating one in Washington, D.C., in June (em so that union reps could lobby state legislators. As many as half a dozen union reps have testified before the Joint Committee on Electric Utility Deregulation about stranded employee costs.

Priscilla D. Mead, Republican co-chair of the Joint Committee, says the panel was preparing a report, expected in early October, that should lead to legislation. One of her concerns about employee protections is that packages tailored to exiting employees should not be so enticing as to decimate the workforce.

She says her state suffered in telecom when Ameritech Corp. offered an early retirement plan to cut costs. "They had such a stupendous response that they have suffered a severe service problem. ... Their seasoned people chose to retire early and it left the system very vulnerable in the service area."

The Ohio Public Utilities Commission was trying to resolve those complaints.

Two of the utilities that operate in Ohio, American Electric Power Co. Inc. and Cinergy Corp., don't appear as ready as politicians or unions to tackle job protection issues in legislation.

"We're not in favor of any legislative approach," says AEP representative Pat Hemlepp. "We do have a collective bargaining system in place. We're in constant talks with our union employees and this is something that should be addressed at the bargaining table."

Hemlepp, whose company claims 8,325 Ohio employees and has reduced 1,200 jobs company-wide since 1995, adds some caveats. "We're not opposed to limited and specific provisions in any deregulation legislation that would take into account retraining employees, if their job is eliminated because of changes necessary to compete in the deregulated environment," he says. "But we do believe the creation of new jobs and other employment opportunities through deregulation could reduce the need for these sorts of programs."

Meanwhile, at Cinergy, spokesperson Steve Brash says it's the first time he has heard of worker protections brought up in the context of legislation: "We have not taken any position in any of the discussions that we've had on legislative or regulatory issues on matters involving employee protection."

Who's Next?

Wisconsin could mark the next locus of worker protection controversy. A bill related to worker protection during mergers was making its way through the Legislature (see sidebar).

The state boasts low-cost electricity. Its electric industry includes large investor-owned utilities anxious to compete in other states, plus a small investor-owned utility, rural electric co-operatives and municipal utilities. The IBEW, to some degree, sits in the middle, with workers in all those entities (em groups that have divergent opinions on restructuring.

But that may be just one more union problem on the way to winning worker protections.

Union officials confided privately that they all must put aside turf and personality conflicts to promote their employee protection agenda. Tension among unions have existed for years, since they share territory and organizing targets. And in the past, the IBEW has felt that because of its larger size, the UWUA should merge with them.

"They're not willing to be quite as aggressive" on worker protection issues, says a UWUA official of the IBEW. "We're maybe a little more militant."

Union coordination for lobbying efforts, meanwhile, hasn't been so successful in Ohio or New York, the official says.

"This is a thing that we're all pretty reluctant to say too much about because it's an internal problem we need to overcome. If we can't overcome it, then it's going to have negative consequences for all of us." t

Joseph F. Schuler Jr. is an associate editor of PUBLIC UTILITIES FORTNIGHTLY. E-mail: schuler@pur.com

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