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Merger could mean rate reduction

March 11, 1998|By KERRY LYNN FRALEY

Merger could mean rate reduction

Allegheny Energy customers in Maryland will get a $4.4 million rate reduction once the Hagerstown-based power company completes its proposed $2.6 billion merger deal with Pittsburgh-based DQE Inc., according to an agreement awaiting Maryland Public Service Commission approval.

Based on the company's projected $71 million merger-related savings in the state over 10 years, the rate reduction would translate to a $1.04 cut in the average residential customer's electric bill, company officials said Tuesday.

As a Maryland corporation, the company needs Public Service Commission approval to issue Allegheny Energy stock to DQE shareholders, said Michael P. Morrell, Allegheny Energy's senior vice president and chief financial officer.

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The agreement reflects a compromise in the company's original proposal to divide any merger-related savings equally between customers and shareholders, Morrell said.

Public Service Commission staff, the Maryland Office of People's Counsel, the Maryland Energy Administration, the Department of Natural Resources, large power users Westvaco Corp. in Luke, Md., and Eastalco Aluminum Co. in Buckeystown, Md., were represented in the settlement negotiations, he said.

The People's Counsel, which represents the interest of residential customers, is satisfied that the agreement not only divides the savings fairly but protects Maryland rate payers from unforeseen effects of the merger, said Assistant People's Counsel John Sayles.

While the Public Service Commission could alter or reject the agreement, that isn't likely because its staff was party to it, Sayles said.

Public Service Commission approval is one of a number of state and federal regulatory hurdles the company needs to overcome before it can proceed with the proposed merger, expected to be completed by June, Morrell said.

Nearly a year after the merger plans were announced, the company is expecting the other approvals to come in the next few months, he said.

Allegheny Power serves about 1.4 million homes and businesses in Maryland, West Virginia, Pennsylvania, Virginia and Ohio.

Duquesne Light, a subsidiary of DQE, serves more than 580,000 customers in and around Pittsburgh.

Shareholders of both companies approved the merger in August 1997.

The merger will increase the company's total electricity generating capacity by almost a third to more than 11,000 megawatts, strengthening its ability to compete in a deregulated energy market, Morrell said.

It's also expected to save the company about $1 billion over 10 years, he said.

Part of the savings will result from streamlined operations, which will include phasing out about 500 of a combined 8,300 jobs, most from duplicated departments, by 2001, Morrell said.

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