IBEW Systems Council U-08 (Locals 433 Inglis FL, 626 Avon Park FL, 682 St. Petersburg FL, 1412 , Orlando, 1491 Enterprise FL) faces threat of Layoffs

Progress cuts may include layoffs
Executives say the search for new efficiencies will evaluate the organization from top to bottom.
By LOUIS HAU, Times Staff Writer
Published October 13, 2004

Faced with rising costs for employee pensions and medical benefits, Progress Energy Inc. said Tuesday it is planning a major cost-cutting initiative that might include layoffs.

In a memo to employees, Progress chairman and chief executive Bob McGehee warned of "some hard choices in the months ahead" as the Raleigh, N.C., parent of Progress Energy Florida of St. Petersburg attempts to reverse a "serious mismatch" between its revenues and costs. McGehee said revenue is growing at 2.5 percent a year, while costs are rising 4 to 5 percent a year.

This unsustainable pattern, which isn't related to the company's efforts to restore electricity after Florida's recent spate of hurricanes, will continue if "left unchecked and without significant rate increases," McGehee said.

Further contributing to Progress' financial challenges is the expiration of federal tax credits for coal-based synthetic fuel at the end of 2007. Progress is one of the nation's largest recipients of the controversial credit, an important source of net income, and is scrambling to make up for the pending earnings hit.

To keep its financial house in order, Progress will look for ways to save money at every level of the company, starting at the top, where it will consider the consolidation of some senior management functions, McGehee said.

Work force reductions and a re-evaluation of the company's use of outside contractors and consultants will also be part of the effort.

In a question-and-answer section attached to McGehee's message, Progress told employees its priority "is to minimize impacts of organizational reductions through attrition, increased scrutiny on hiring, possibly an early-retirement program and other means, but those initiatives alone likely will not get us where we need to be."

Translation: layoffs are likely.

But spokesman Keith Poston emphasized the cost-reduction effort will affect all facets of the company's operations, not just employment.

"There will likely be layoffs sometime at the end of the year," Poston said. "But layoffs are not option 1. In fact, they're not even options 2, 3 or 4."

The International Brotherhood of Electrical Workers will be closely following the company's cost-reduction initiative, said W.O. "Butch" Enyard, business manager for IBEW System Council U-8 in Crystal River, which represents Progress line workers and power plant workers.

Enyard said this isn't the first time for employees of Florida Power Corp., which was bought out in 2000 by Carolina Power & Light to form Progress.

"We've been through it before - same old stuff, just new faces," he said.

Cutting costs is critical for Progress' financial health and its continued ability to grow its dividend, Poston said.

He added that it is important if Progress is to remain an independent company. Failure to squeeze more efficiencies out of its operations could tempt a would-be acquirer to do so itself, he said.

"We'd like to control our destiny," Poston said. "If we do these things ourselves, we can continue to be the driver, and not the follower."

Pension payments and rising health-care costs are a problem for companies everywhere but they present particularly stiff challenges for regulated electric utilities which can't grow beyond their designated service territories. This is also true for Progress, despite the fact it is among several investor-owned utilities in Florida that have enjoyed strong customer growth in recent years.

McGehee said in his memo the company will seek ways to grow revenue at Progress Ventures, which includes the company's unregulated wholesale power business.

Progress did not release information about its cost-cutting plans to Wall Street. Progress' shares closed Tuesday at $42.30, up 26 cents.

Louis Hau can be reached at 813 226-3404 or hau@sptimes.com
PROGRESS ENERGY INC.

HEADQUARTERS: Raleigh, N.C.
Parent of two regulated electric utilities, Progress Energy Florida Inc. of St. Petersburg (1.5-million customers) and Progress Energy Carolinas of Raleigh (1.4-million customers). Also runs other businesses, including unregulated wholesale power, coal mining, natural gas production, rail transport and telecom businesses.

FULL-TIME EMPLOYEES: 15,300, including 4,689 at Progress Florida and 5,878 at Progress Carolinas.

REVENUE FOR SIX MONTHS ENDED JUNE 30: $3.406-billion, up 5 percent from $3.237-billion a year earlier.

NET INCOME FOR SIX MONTHS ENDED JUNE 30: $262-million, down 30 percent from $376-million a year earlier.
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