Mulls layoffs for first time ever

THINKING THE UNTHINKABLE BG&E

August 24, 1993|By David Conn | David Conn,Staff Writer Staff writer Ted Shelsby contributed to this article

In May, the 12 members of Baltimore Gas and Electric Co.'s Executive Leadership Team met to discuss the threats facing the company: large industrial customers being wooed by non-utility power producers; changes in federal law that have made competitors out of once-friendly neighboring utilities.

But it wasn't until the group's meeting on Aug. 9-10 that they made a decision that would have been unthinkable only a few years ago. For the first time in its 177-year history, BG&E might have to lay off employees.

In a letter to his "fellow employees" last week, Chairman Christian H. Poindexter broke the news: In an effort to cut operating expenses by 7 percent next year, or about $46 million, the company will offer a voluntary early retirement package to as many as 1,400 of the company's 9,200 employees. Those who are 50 and older and have at least 15 years of service will be eligible for a buyout package whose details are yet to be announced.

If the company can't come up with enough savings through early retirement incentives, layoffs could follow starting Jan. 1. Affected employees would have two options: take a lump-sum payment; or receive weekly payments plus employment counseling for anywhere from 13 to 52 weeks, depending on their length of service.

Finally, for those who remain,BG&E will "create a market-based compensation system by restructuring our pay grades and job evaluation plans" by 1995, Mr. Poindexter said in the letter. That likely could result in salary cuts.

Although the board of directors hasn't met to vote on the retirement package yet, experience would indicate that between and 700 employees may accept the offer, spokesman Arthur Slusark said.

BG&E earned $222 million last year on sales of $2.49 billion, a 5 percent increase from the previous year, but a far cry from the $274 million in earnings the utility had in 1988 on sales of $1.86 billion.

Earnings from what it calls "diversified activities," such as retail appliance stores and real estate development, fell to $58 million in the first seven months of this year, from $71 million last year. Those earnings amounted to less than 1 percent of the total $182 million earned from January through July this year.

The industrywide competition that's driving this cost-cutting is akin to the changes that shook the telephone industry more than a decade ago, several analysts said. But unlike the mixed bag of results from that industry's deregulation, utility customers probably can expect only one thing in the long run: lower rates.

For utility workers, however, the changes can be wrenching.

"Having been here for so many years and never having a layoff, you just believe it's going to last forever," said Roland Dimeler, a customer service representative returning to his office yesterday with a lunch bag in hand. At age 42 -- "old enough that I can't get another job, but too young for the early retirement" -- Mr. Dimeler is nervous, but not as nervous as some, he said.

"A lot of these people who thought they had these jobs forever really didn't enhance themselves," by keeping up with job skills and continuing education, Mr. Dimeler said.

Of course, some workers will be pleased at the prospect of early retirement. For Frederick Williams, a 55-year-old customer account representative, the timing seems perfect. "I'm happy," the 24-year BG&E veteran said. "I was looking forward to retirement."

What's behind this latest cost-cutting program is competition from several sources, Mr. Slusark said:

* Neighboring utilities, such as Potomac Electric Power Co. in the Washington area, and Delmarva Power & Light Co., which supplies Maryland's Eastern Shore and Delaware.

With the passage of the Federal Energy Policy Act last year, industrial companies can buy their electricity from BG&E's neighboring competitors, who would pay BG&E a fee to be the conduit, or "host."

BG&E's production costs are in the middle one-third of the 10 companies in a three-state "power pool," Mr. Slusark said. The cost-cutting program is aimed at getting the company to the lower one-third.

* Non-utility electrical generators, who are courting some of BG&E's largest industrial customers. Mr. Slusark said these customers, whom he declined to name, represent 7.5 percent of the company's annual revenues. They're considering either buying their electricity from another power supplier or building their own generating plants.

"Electric utilities still have the franchise to distribute power on a retail basis, but they don't have the sole ability to generate power," said Martin C. T. Anderson, executive director of the Mid-Atlantic Independent Power Producers, a Pennsylvania-based trade association of non-utility generators.

That's why, for instance, BG&E was required to solicit competitive bids for the construction of an addition to the Perryman plant in Harford County.

If it is able to cut costs substantially, BG&E stands to gain in several ways, said Deputy People's Counsel Paul Buckley, whose office argues utility rate cases on behalf of consumers.

First, it becomes more competitive. As importantly, the company would stand a much better chance of approaching its maximum allowable rate of return, at least until the next time the Public Service Commission considers a rate change.

Ultimately consumers win, too, Mr. Buckley said, because his office will be able to point to BG&E's lower cost structure in arguing for lower rates for all customers.

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