Allegheny Energy to lay off 600

July 09, 2002|by JULIE E. GREENE

Allegheny Energy announced Monday it will reduce its work force of 6,000 workers by approximately 600 after a disappointing first quarter due to mild weather, a poor economy and lackluster trading.

The utility will try to accomplish the work reduction by offering its white-collar employees early retirement options and through normal attrition, spokeswoman Cynthia Shoop said. The utility normally loses about 200 employees a year to attrition.

If necessary, workers could be laid off, Shoop said.

"It is a possibility, but we're hoping we can achieve the reductions through retirement," Shoop said.

Of Allegheny's 6,000 employees in 15 states, 577 work in the Tri-State area, Allegheny spokesman Guy Fletcher said.

In Washington County, 161 people work at the corporate headquarters near Downsville, 112 work at the Williamsport service center and 59 work at the R. Paul Smith Power Station near Williamsport.


Shoop said she did not know how many local workers may be leaving the utility.

"We need to cut costs, but we need to do it in a way that does not compromise customer service," she said.

The work force reduction is expected to save the utility $5 million this year and $40 million to $50 million in coming years, according to an Allegheny statement.

The utility also is canceling construction of a 1,080-megawatt generating plant in La Paz County, Ariz., and an 88-megawatt plant in St. Joseph County, Ind.

Those moves will save the company approximately $700 million over the next several years, according to the statement.

As a result of its actions, Allegheny said it expects to record charges to earnings in the second and third quarters of 2002. The cancellation of power plants will result in a pretax charge of about $40 million; the charge related to the job cuts hasn't yet been calculated, the utility said.

Wall Street reacted to the news Monday with Allegheny Energy's stock (AYE) dropping 8 percent to close at $23.95 per share on the New York Stock Exchange. The stock closed at $26.03 on Friday.

Mild weather, a poor economy and weak trading activity in the wholesale market contributed to the utility reporting lower earnings per share than expected, Shoop said.

"The economy is weak, which everyone knows," Shoop said.

Stock trading for the industry has been "lackluster," Shoop said. Energy trading overall has been affected by the collapse of energy giant Enron.

The mild winter affected first-quarter earnings, and the mild weather during the early summer could affect second-quarter earnings that will be announced later this month, Shoop said.

The utility's first quarter earnings per share were 81 cents, compared to 93 cents per share during the first quarter of 2001.

"The winter was mild. We just haven't had the colder temperatures in the winter months this year and it is starting to get warmer now, but overall the entire region has experienced milder weather," Shoop said.

In addition, the utility had to pay $30 million for replacement power after unexpected equipment outages in April and May, according to an Allegheny statement. Customers would not have noticed those outages because the overall power network was not interrupted, Shoop said.

Also, Allegheny said it may take a charge against earnings this year reflecting overpayment for two West Virginia utilities - Mountaineer Gas Co. and West Virginia Power Co. - that Allegheny bought in 2000. New accounting rules this year require companies to review the amount, known as "goodwill," that they paid above and beyond the asset's book value.

Allegheny recorded $195 million worth of goodwill in its acquisition of the West Virginia assets.

The disappointing start led Allegheny officials to lower their expectations for the year's earnings.

Allegheny's earnings per share for 2002 are expected to be in the range of $2.50 to $2.70. They had been forecasted to be $3.60 to $3.70 per share. Those figures do not include a 10-cent per share after-tax gain from selling Canaan Valley, W.Va., property recorded in the first quarter, an Allegheny statement said.

Allegheny officials hope most of the job reductions will occur this year to bolster the utility's financial performance, but some reductions may happen next year, Shoop said.

The early retirement option will be offered to eligible white collar employees based on years of service and age, Shoop said. She said the retirement option was a fair and competitive plan, but would not specify terms.

Line workers are not eligible for the retirement option, she said.

"We want to make sure we don't lose a lot of front-line employees who are critical to supplying energy," Shoop said.

Shoop said she could not say whether union jobs would be cut if layoffs are necessary.

Union officials could not be reached Monday for comment.

The Associated Press contributed to this story.

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