Assessing the Employment Implications of the 2006 Repeal of the Public Utility Holding Company Act P

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Assessing the Employment Implications of the 2006
Repeal of the Public Utility Holding Company Act
(PUHCA)

• Presented by

January 2008
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PUHCA 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 ratepayers 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 1920s that abused their customers and went
  bankrupt in large numbers because of Enron-like
  speculation and accounting scams.

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PUHCA Background

• 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  claiming it was outdated.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.

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Repeal of PUHCA Impact

• Facilitates mergers and acquisitions (MA) in the
  electric utility industry
• Strong European companies and nontraditional
  investors may purchase or invest in U.S.
  utilities.
• The U.S. SECs traditional role in reviewing MA
  proposals eliminated.
• Utility combinations to be contiguous or
  interconnected eliminated.
• State approval for MAs 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.

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Mergers Acquisitions
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Mergers Acquisitions
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Failed Mergers Acquisitions
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Hurdles to Mergers Acquisitions
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Why Change Is Occurring

• 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

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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.

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Survey Questions

• 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

• 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
  re-engineering 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

• 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

• Business Initiatives and Bargaining Outcomes
• Five responses out of 12 (41.7) responded that
  the companys 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.
• 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.

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Survey Results

• 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)
• 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.

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Survey Results

• 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.
• 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.

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Survey Results

• Special Agreements with Unions
• Five out of 11 reported they have entered into
  special agreements with their unions on business
  initiatives
• 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.

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Survey Results

• Special Agreements with Unions
• Most do not have a Neutrality Agreement. For
  those who have one, it was to obtain union
  involvement in business initiatives.

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How are Utilities Responding to Changing Utility
Environment

• Perspective of Tom Schneider, President of
  Restructuring Associates, Inc.
• 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.
• Primary consultant for Kaiser Permanentes
  national bargaining for over 81,000 employees
  represented by over 30 local unions, including
  ESC.
• 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 Employee Engagement