Progress Energy, one of the region's largest employers, has announced a job-reduction plan that makes thousands of employees eligible for early retirement and cuts deeply into the executive ranks.
The reason: Its costs are rising faster than its revenue.
The Raleigh company, which owns electric utilities in the Carolinas and Florida, said Wednesday that about 3,500 employees -- nearly 23 percent of its 15,300 workers -- would be eligible for voluntary early retirement next spring. Eighteen percent of top management positions are being eliminated.
Robert B. McGehee, the company's chairman and chief executive, had told employees in October to expect staff cuts. He said operating costs were growing by about 4 to 5 percent a year, compared with revenue growth of 2.5 percent.
"The time had come for more fundamental and aggressive cost management than the incremental belt-tightening of recent years," McGehee said Wednesday in a statement.
"I also promised them I would start at the top, and that's what I've done."
Twelve of the company's 67 management positions will be cut.
As part of the changes, Progress Energy announced that William D. Johnson would become president and chief operating officer Jan. 1. That makes Johnson, 50, the likely successor when McGehee, 61, retires in about four years.
McGehee held those positions when William Cavanaugh was CEO and chairman.
This shakeup is McGehee's first major initiative since he succeeded Cavanaugh as chairman in May.
In the first nine months of 2004, Progress Energy had net income of $565 million on revenue of $7.4 billion. But the company has been under pressure from Wall Street to reduce the debt lingering from its 2000 acquisition of a Florida utility and to sell off some assets.
Although hurricanes this fall hammered company holdings in Florida, the storms had far less impact than other costs on company expenses. Those costs include rising benefit and pension expenses, higher premiums for corporate insurance and the increased nuclear plant security required after the terror attacks of Sept. 11, 2001.
Many of the hurricane costs are expected to be recouped from a storm fund and higher customer rates in Florida to be set next year. To cover the other cost increases, McGehee has set a goal of saving a total of $75 million to $100 million by 2007.
The company announced its cost-saving plan in October, but details weren't released to workers until employee meetings Wednesday afternoon.
Progress Energy doesn't know how many employees will take early retirement. But spokesman Keith Poston said that if enough workers don't take the voluntary buyouts, the company might resort to layoffs.
Poston said that only the $75 million to $100 million cost-reduction goal had been set and that there is no specific number of job reductions desired.
"When a lot of your costs are rising that are beyond your control -- pensions, medical benefits, prescription drug costs -- you have to make cuts in things you can control, like labor costs," Poston said.
Having fewer workers would mean salaries and company pension contributions would decline, along with a host of other expenses. Employees who take advantage of the early retirement will be paid from a pension kitty already fully funded by the company and workers themselves.
Details of the buyout will be released next week, but employees age 50 with five years of service will be eligible. Those who accept the buyout will get credit for five years of service beyond what they have already worked. Early retirees also will be offered health and welfare retiree benefits at full cost or company-subsidized rates.
Some employees may not be allowed to take early retirement even if they meet the requirements, Poston said.
"In some work groups, there may be limits or caps on numbers of employees able to take early retirement," he said. "We're not going to do anything to jeopardize our reliability, storm response or customer service."
Progress Energy has about 5,878 workers in the Carolinas, including 3,400 in Wake County, where the company is the fourth-largest employer.
Its stock, which has fallen nearly 4 percent this year, closed at $43.55 Wednesday, down 3 cents.
Utility analysts were pleased by the cost reductions but said their overall effect would depend on how many jobs were actually cut. They still want the debt reduced further and are concerned about a pending Internal Revenue Service challenge to tax deductions taken through the company's lucrative synthetic fuel operations.
"Earnings will be under pressure even with this cost-reduction program," said Michael Worms, a utility analyst for Gerard Klauer Mattison in New York.
Staff writer Dudley Price can be reached at 829-4525 or email@example.com.