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Allegheny Power loses lawsuit

December 03, 1999

From Staff and Wire Reports

PITTSBURGH - A federal judge Friday potentially ended the long-winded merger dispute between electricity providers DQE Inc. and Allegheny Energy, ruling in favor of DQE's decision to back out of the proposed $4.3 billion deal.

U.S. District Judge Robert Cindrich issued a 90-page decision, finding in DQE's favor in all of its claims, according to his office.

DQE Inc. is the parent company of Duquesne Light Co., based in Pittsburgh. Allegheny Energy Inc., based in Hagerstown, is the parent company of Allegheny Power. The merger would have created one of the nation's largest electricity utility providers.

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"We are still studying the order, but we are obviously delighted with the result," said Victor Roque, executive vice president and general counsel for DQE Inc.

Allegheny Energy spokeswoman Cynthia A. Shoop said the company will study the 90-page decision before deciding whether or not to appeal.

"We're obviously disappointed with the decision," she said. "Right now, we're reviewing our options."

Shoop said customers would not feel any impact from the decision. The impact on stockholders is harder to determine, she said.

The company's stock closed up 3/16 on Friday.

While the decision is bad news, Shoop said, investors should focus on current projects. For instance, Allegheny is acquiring a small company in West Virginia.

"We're a very progressive company," she said. "We have a lot of other projects under way."

The utility changed its name years ago to Allegheny Energy, which would have been the name of the merged company. But Shoop said the name change was meant to reflect the company's role as an energy provider, not just a producer of electricity.

More than a year ago, DQE backed out of the proposed merger, saying the deal would force it to take on too much of Allegheny Energy's "stranded costs"- investments in power plants and other equipment and facilities that can't be recovered through the lower rates paid in a deregulated market.

DQE argued that the Pennsylvania Public Utility Commission set the amount of stranded costs it could recover too low to allow it to go through with the proposed merger.

Allegheny Energy sued to try to force DQE to go through with the deal or collect damages it says it suffered from DQE's decision to back out.

In March, the 3rd U.S. Circuit Court of Appeals in Philadelphia agreed with Allegheny Energy that DQE shouldn't be allowed to sell off assets until the merger case was decided. But since backing out of the deal, DQE has been far from shy in making other deals - even with the Allegheny Energy lawsuit hanging over the company.

First, the Pittsburgh company signed an agreement with another partner in the energy business - FirstEnergy Corp. of Akron, Ohio - to swap assets, giving up holdings in eight generating stations for total control of three facilities belonging to FirstEnergy.

Then, in September, DQE announced a proposed $1.7 billion deal with Orion Power Holdings Inc. in Baltimore to sell its four electricity-generating plants, along with those acquired in the asset swap with FirstEnergy.

The cash from the deal was expected to allow DQE to make substantial cuts in rates for residential customers.

A trial on the merger began in October in Cindrich's court, concluding late last month.

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