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GPU Plans to Cut, Sell and Improve

October 25, 1999
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GPU Plans to Cut, Sell and Improve

GPU Inc., parent of New Jersey's largest electric utility, GPU Energy, unveiled a multi-point program designed to enhance shareholder returns at the Edison Electric Institute Finance Conference in Orlando, FL, last week. The plan includes a $100 million cost reduction over the next two years, a $40-$50 million investment to improve the company's reliability and a non-core asset sale designed to generate over $500 million.

GPU said the goal of all these moves is to deliver annual earnings which meet or exceed expectations in 2000 and set the company on a 5% earnings growth track for years to come. The company's stock price has suffered in recent months, falling from above $43/share in June to under $33/share in September.

"We are revitalizing this company, and these are the kinds of steps you can expect from us," said Fred Hafer, CEO of GPU Inc.

The plan calls for cost reductions of $55 million in 2000 and an additional $45 million in 2001. The area where most of the cuts will come from are GPU Energy operations. The subsidiary, which serves over two million customers in New Jersey and Pennsylvania, is targeting $30 million of cuts for next year followed by $40 million of additional reductions in 2001. GPU said the cuts would be achieved by eliminating significant amounts of operational overhead expense and by improving the productivity of all its operations.

Jeff Dennard, a GPU spokesman, said layoffs are not out of the question. "Every time a company analyzes its operations in this way, layoffs are a strong possibility. Nothing has been written in stone as of yet, but the need to cut costs could very well cause some job reductions."

The company also indicated that it would not be interested in a major acquisition as a way to boost its stock value. It had been rumored that GPU was in the market for a major acquisition (see NGI, June 14). Future acquisitions, if made, would likely be small in size and would help build GPU's non-regulated businesses, which will be an area of focus, or significantly add value to its existing portfolio, the company said.

The investment to improve reliability was first mentioned last month when the company testified before the New Jersey Board of Public Utilities that it needed to expand its operations in order to better serve its customer base. Last summer the Pennsylvania-New Jersey-Maryland electric grid exceeded its base peak load estimate by almost 4,000 MW, which put a serious strain on GPU's performance.

John Norris

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