Customer-service jobs likely casualty in utility merger

October 4, 2010

Two dozen or so customer-service jobs could go down the drain after Citizens Energy Group buys the city’s water and sewer utilities, according to regulatory filings.

The Indiana Utility Regulatory Commission is weighing the proposed $1.9 billion deal, which would combine the city’s utilities with Citizens, which operates Citizens Gas, and steam and chilled water divisions.

Citizens Energy estimates the merger could produce annual savings of $60 million by the third year, in part through a streamlined supply chain, and contracting and consolidated administrative functions.

Customer-service consolidation would produce among the smallest savings, at about $3.9 million in the third year, although it could represent the largest toll on employment.

An estimate prepared by Citizens’ consultant, Booz & Co. Inc., shows the potential to eliminate 17 out of the total 131 customer-service jobs now performed individually by Citizens and by Veolia.

Veolia has operated the water utility under contract for the city since 2002.

The estimate also shows the potential to eliminate six billing-service positions among the 19 total the two companies now maintain. As for non-labor costs within customer service, the combined utilities could save nearly $2 million annually in postage and remittance-processing costs.

Customer-service job losses could be handled entirely through attrition, however, because they tend be of a high-turnover nature, said Citizens spokesman Dan Considine.

"We’re looking at about a two-year period for the integration,” Considine said.

 As for other positions that could be eliminated, “we really don’t have a number,” he said, adding that integration work is just beginning.

Complicating matters might be union issues. Considine said Veolia’s customer service workers are represented by the Service Employees International Union. Under contract terms with Veolia, those workers, if their jobs are eliminated, must be offered other jobs at the utility.

Job cuts are not expected to be major contributors to merger savings, according to Thomas J. Flaherty, a senior VP of Booz & Co., in Dallas.

“The pre-existing structure and delivery model of the entities involved in this combination limits the impact of the combination on the number of staffing reductions that typically arise from utility mergers,” Flaherty said in testimony filed with the IURC.

One reason is the varied types of utilities, from water to gas, each with a specialized skill set.

The largest single savings from combining the utilities is an estimated $15-million-a-year reduction from the supply chain.

Flaherty said the combination will allow for economies of scale from aggregating related work activities and service agreements with third-party providers. Savings will come from lower per-unit costs for the services provided due to a broader contract or the repackaging of work into more attractive options to the contractor, he said.

“This ... realignment and volume purchasing of services is the primary method through which service-procurement savings are realized,” he said. Over 40 percent of the contract base is overlapping, “providing for significant opportunity to optimize the sourcing of these services on a combined basis.”

One “unique” area of savings in the supply chain involves the potential to save $6 million a year by allowing Citizens to take on certain capital projects now performed by Veolia. Under its contract with the city, Veolia is able to charge a margin of 12 percent over and above the costs it incurred to complete the capital work, Flaherty said.

Other large savings areas identified by Booz were $12.6 million in corporate center savings, such as consolidating overlapping finance functions, and $6.6 million in common design and engineering roles.

It’s not been determined to what degree Citizens will contract out some functions now performed by Veolia to wastewater operator United Water.

Veolia has a staff of 436; United, about 190 people locally, according to records.

The estimated $60 million in annual savings from the merger should trickle down to customers of all five utilities, officials say.

The sale of the water and sewer utilities should generate more than $425 million for the city, which plans to spend it on city infrastructure projects such as roads and bridges.

Citizens, a public charitable trust, is assuming more than $1 billion in debt from the city utilities.


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