AEP to cut up to 10% of workers

AEP to cut up to 10% of workers

Apr 15 - McClatchy-Tribune Regional News - Dan Gearino The Columbus Dispatch, Ohio

Despite sales and profit numbers that many companies would envy in recent times, American Electric Power plans to cut its work force by as much as 10 percent, potentially affecting several hundred workers in central Ohio.

The Columbus-based utility will offer buyouts to all 21,700 employees in its 11-state territory. AEP has about 4,200 employees in central Ohio.

If too few workers accept the offer by the end of this month, the next step would be layoffs, the company said.

"We must realign our cost structure to the new economic realities we now face and find significant savings this year that are sustainable," said Michael Morris, chairman, president and CEO, in a letter to employees.

He cited two main reasons for the move to cut costs: a drop in electricity sales because of the recession, and recent rate decisions by regulators in several states that fell short of AEP's requests.

In Ohio, AEP is in the second year of a three-year rate increase. The company had wanted to raise rates 15 percent each year for all three years, but the Public Utilities Commission of Ohio approved increases that were about half as much.

While the headwinds were strong, the company's sales and profit were relatively stable. In 2009, sales were $13.5 billion, down 7 percent from the previous year, and profit was $1.36 billion, down 2 percent.

AEP had hoped to ride out the downturn without major cuts in staffing, but the economy has not improved quickly enough, said spokesman Pat Hemlepp.

"The recession ended up being deeper than a lot of people anticipated, and the recovery has been painfully slow," he said.

The buyout offers follow several other efforts to reduce costs, including project delays, a hiring freeze and a freeze on nearly all pay raises, the company said.

The cuts likely will be the largest for AEP in at least a decade, and they follow a period of expansion, with about 2,300 employees added between 2005 and 2008.

AEP is one of several Ohio utilities that had news about job cuts yesterday. Dominion, which has customers in northeastern Ohio, said it has agreed to buyouts with 1,400 workers, or 8 percent of its work force. Duke Energy, which has customers in southwestern Ohio, said 900 workers have accepted buyouts, or 5 percent.

Like AEP, both Dominion and Duke have multistate territories.

The work-force reductions shouldn't be viewed as signs that utilities are in trouble, said Peter Hartley, an energy economist at Rice University in Houston. He said automation is forcing some of the cuts.

"This whole industry is going through a lot of technological change, and that's probably reducing the need for workers," he said.

Another factor is the potential for higher costs related to regulation, he said, particularly in the area of carbon emissions.

But Ohio consumer advocates don't think AEP has anything to complain about when it comes to regulation within Ohio.

"They're making plenty of money in Ohio," said Dave Rinbolt, executive director of Ohio Partners for Affordable Energy, an advocacy group for low-income residents.

He speculated that the cost-cutting might be an attempt to please investors and increase the company's share price.

Morris hinted as much in his letter:

"The tough fact is that revenues from retail and wholesale activities are not adequate to deliver continued value to shareholders, reward our hard-working employees and ensure adequate investment to deliver a reliable supply of affordable power to our customers," he said.

Employees who take the buyout will receive a lump-sum payment of two weeks of pay for every year of service, with a minimum of eight weeks' pay. In addition, employees can get up to 18 months of reduced-cost medical and dental coverage.

It is too early to know how the actions will affect central Ohio. AEP has a corporate headquarters Downtown and offices in Gahanna and Groveport. AEP is one of the top 20 largest employers in the region.

"While many may view this as a welcome opportunity to transition to the next phase of their lives, I fully understand that these initiatives will be unsettling to some employees," Morris said. "However, they are necessary in order to keep our company sustainable and successful."

dgearino@dispatch.com