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Allegheny lists losses in second quarter

Allegheny Energy's business strategy will focus on its traditional utility business

Allegheny Energy's business strategy will focus on its traditional utility business

August 01, 2002|by DAN KULIN /Staff Writer

dank@herald-mail.com

The "evaporation" of energy trading markets in the wake of the Enron collapse was a factor in Allegheny Energy's $32.3 million loss in the second quarter of 2002, company Chairman, President and Chief Executive Officer Alan J. Noia said Wednesday.

In a conference call with Wall Street analysts Wednesday afternoon, Noia said Enron turned the energy trading market upside down. As a result Allegheny's purchase of Merrill Lynch & Co.'s energy trading unit in March 2001 for $490 million did not produce the profits anticipated, he said.

Noia said that while "no reasonable person could have predicted" the path of the energy trading market over the past year, he took responsibility for the company's financial performance.

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Allegheny's financial reports also attributed some of the loss to less income from electricity generation, and reported a charge of $23.3 million for the cancellation of an Arizona power plant, as well as a $5.5 million loss on unregulated investments.

Allegheny Energy's business strategy will now focus on the company's traditional utility business, and it will further downsize the energy trading operation, Noia said.

An Allegheny statement said the company will also look to sell assets, and follow through with cost-cutting measures announced in early July. Those include reducing its 6,000-person work force by about 10 percent.

Company spokeswoman Cynthia A. Shoop said the reductions will most likely come through early retirements and resignations.

Gregory Fries, company general manager of investor relations, said no specific assets are targeted for sale.

Allegheny, which is based in Hagerstown, has about 3 million electric and natural gas customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

Shoop said the second-quarter loss will not affect customers' rates or customer service.

Even with the loss for the second quarter - April 1 to June 30 - Allegheny stock rose $2.97, more than 16 percent, to $21.05, on Wednesday.

John Hershey III, senior vice president at the firm Ferris, Baker Watts, said the stock price was down before Wednesday in anticipation of worse second-quarter news.

The actual loss, combined with Noia telling analysts that he still expects the company to earn $2.50 a share this year, was encouraging, Hershey said.

"People turned their expectations to the future," he said.

The $32.3 million second-quarter loss, comes after Allegheny had about an $89 million profit in the first quarter of 2002. In the second quarter of 2001, Allegheny had a $115.8 million profit.

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