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

Fortnightly Magazine - December 1998
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How to survive in a seller's market.

Divesting power plants today may look very much like a seller's market. Buyers may believe they lack the necessary leverage to take an aggressive position on workforce transition.

In fact, to secure union support, and thereby restrict buyer flexibility, several recent plant sales have imposed all or some of the following conditions:

• Buyer must recognize the union as the authorized bargaining agent;

• Buyer must adopt the collective bargaining agreement for the existing term, which may have been recently extended in anticipation of the sale;

• Buyer must provide "equivalent" or otherwise duplicate existing pension and welfare benefit plans, providing full credit for service, vesting and eligibility purposes; and

• Buyer must offer comparable employment to all current plant employees, including those on long-term disability.

Such conditions have been imposed in part or whole in the Commonwealth Edison State Line sale, the Central Maine Power sale, the Boston Edison sale and the New England Electric System sale. They also have been required of bidders by Montana Power Company and New York State Electric and Gas, to name just a few.

In practice, it appears that the seller can nearly always reduce the critical labor-related issues to just a few and render them immune to buyer influence. Operating non-union is almost never an option for the buyer, since the seller typically has gained workforce and community support by requiring a union-friendly transaction. Moreover, the buyer's influence over the how and extent of workforce reduction has often been constrained by the seller's promises to its employees and bidding restrictions. Similarly, the buyer's ability to implement immediate change is restricted by the existence of long-term collective bargaining agreements, which at the very least establish a baseline of future expectations.

Nevertheless, many of the assets now for sale are relatively old. Often they are poorly maintained, in need of repowering or retrofitting. Their value lies in how they can be operated (em not how they are operated now. Buyers must not lose sight of that in pricing a potential acquisition or in pushing sellers on the process of workforce transition.

In fact, the buyer probably wants to operate differently from the seller, often with greater workforce flexibility, lower per-hour costs, and a more competitive labor cost structure. More than likely, the buyer envisions different objectives, such as:

(1) Staffing for baseload operation, using overtime and contractors for peaks and outages;

(2) High reliability and availability, but as a low-cost provider;

(3) Greater sensitivity to customers, without being overly solicitous or compromising.

The buyer also may hold certain key cultural values, such as a willingness to adjust labor strategy to local political or business environments. By contrast, the seller may want nothing more than a minimum of grief from the union, the employees, local politicians and the media.

Prospective buyers will find that they can influence labor matters (em before and during the bidding process, and during the closing of a power generation acquisition. They should approach each acquisition with a well-defined sense of what they need to succeed, and not hesitate to