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Allegheny subsidiary to sell power to California

March 23, 2001

Allegheny subsidiary to sell power to California



By ANDREW SCHOTZ

andrews@herald-mail.com

A division of Allegheny Energy Inc. has signed a 10-year, $4.5 billion contract to supply electricity to the state of California.

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Allegheny Energy Supply Company, LLC, will provide up to 1,000 megawatts of electricity - enough to supply about 1 million homes - from four gas-fired plants in southern California, according to Michael P. Morrell, the president of Allegheny Energy Supply Co., the company's electric generation division.

Morrell said the amount of electricity is "a small speck" compared to what California needs as the state endures massive energy difficulties.

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But for parent company Allegheny Energy, which has its headquarters in Hagerstown but is going after a share of the national energy market, the sales contract is one of company's biggest, he said.

The contract was announced Thursday and took effect the same day.

California is trying to secure 6,000 megawatts of electricity by this summer, said Steven Maviglio, a spokesman for Gov. Gray Davis.

Also Thursday, Davis announced licenses for three new gas-fired power plants that will contribute more than 2,000 megawatts to California's electricity supply.

California's energy crisis is a fallout from its deregulation of the electricity industry five years ago. Its two largest utilities are nearing bankruptcy and power shortages have forced the state to impose rolling blackouts, affecting hundreds of thousands of users.

In January, the governor gave the responsibility of buying power to the California Department of Water Resources, which negotiated the Allegheny Energy Supply Co. contract.

The Department of Water Resources in Sacramento, the state's largest energy user, runs a statewide water distribution system.

"We're a net user of energy," said department spokesman Jeff Cohen. "We can generate some of our energy, but not all of it."

The Allegheny Energy Supply Co. contract will start at 150 megawatts, or 150,000 watts, this year. That will fluctuate slightly before peaking at 1,000 megawatts from 2005 to 2011, Morrell said.

This marks the company's "first meaningful transaction" since Allegheny Energy Supply Co. acquired Merrill Lynch Global Energy Markets last Friday and turned it into an energy marketing subsidiary, Morrell said.

When Allegheny Energy Supply Co. obtained Merrill Lynch Global Energy Markets, one of the top 20 electricity traders in the nation by volume, it also obtained the rights to the output of 1,000 watts in California, he said.

Morrell would not reveal the rate Allegheny Energy Supply Co. is charging California for electricity. But he said it is "substantially below" the rates found in that state's volatile short-term market.

California residents in the areas Allegheny Energy Supply Co. has begun serving won't be as vulnerable to planned blackouts, but they won't notice a difference in their bills, which are currently capped, Morrell said.

Allegheny Power, another division of Allegheny Energy, provides natural gas and electricity to about 3 million people in Maryland, Pennsylvania, West Virginia, Ohio and Virginia.

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