North American Energy Producers Cut Costs to Raise Profits

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he following is an advisory by Industrailinfo.com (Industrial Information Resources, Inc.; Houston, TX). Energy companies are trying to counter a soft energy market by taking a more cautious approach to business strategy. Companies are delaying or canceling new projects and reducing work forces in hopes of increasing profits in 2002. Some of these companies include Canadian utility Ontario Power Generation (Toronto, Ontario), which has announced a cut of 17 percent of its workforce or 2,000 employees. Midwest Generation LLC (Chicago, Illinois), an Edison International (NYSE: EIX) (Rosemead, California) subsidiary Independent Power Producer (IPP), has announced cuts of 7.25 percent or 76 employees. Constellation Energy Group (NYSE: CEG) (Baltimore Md) announced a cut of 10 percent or 900 employees. FirstEnergy Corp (NYSE: FE) announced they were cutting 265 more personnel, bringing total job reductions and reassignments to 668 personnel and reducing costs by a combined $53 million a year.

The FirstEnergy reduction was brought about by a mega-merger with GPU Incorporated. Ontario Power Generation is facing a competitive market place brought on by deregulation and is cutting employees and selling assets. Constellation is trying to recoup some foreign losses and Midwest Generation is trying to become more profitable. As deregulation continues and more mergers take place, the trend of fewer people to handle more responsibilities will continue.

In addition to employment concerns, there is the question of equipment maintenance. The present trend is leaning towards operating the equipment for longer intervals between maintenance overhauls. This is a short-term money saving option that may risk job safety performance and cause equipment to become unreliable in the long run. Also the California deregulation debacle demonstrated that if equipment goes offline due to breakdowns, it can lead to electrical shortages that can have effects on other industries.