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Allegheny hearing is Monday

November 29, 2002|by JULIE E. GREENE

julieg@herald-mail.com

HAGERSTOWN - In a hearing that is to begin Monday, Allegheny Energy Supply will attempt to protect an energy supply contract with the state of California that's worth $1.3 billion to its parent company, Allegheny Energy, a company spokeswoman said.

California officials requested the hearing before an administrative law judge in an attempt to void or reduce the price structure of an 11-year contract with Allegheny Energy Supply. State officials signed the contract in March 2001 following an energy crisis and at a time when energy prices were higher than normal.

The price reached in that agreement, $61 per megawatt hour, is higher than the current market for power on the West Coast. The current market has stabilized around $30 to $40 a megawatt hour, according to the California Electricity Oversight Board.

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At the time the contract was signed, the market for a megawatt hour was $250 to $350.

"We feel very comfortable that the claims asserted against this contract are without merit and that (the judge will) rule in our favor," Allegheny Energy Supply spokeswoman Janice Lantz said Wednesday.

The dispute between Allegheny and the California Department of Water Resources actually involves two energy supply contracts, but it is the long-term contract that is worth 12 percent of Allegheny Energy's total assets that has been the focal point.

Prior to Wednesday, Lantz had only referred to the 11-year contract as "very, very valuable."

On Wednesday, Lantz said that contract alone was a $1.3 billion asset for Allegheny Energy.

Lantz said having the contract voided or reduced would not affect ratepayers and she doesn't think it would affect jobs.

"For shareholders, that's a different story. That's a billion dollar asset on our books," Lantz said.

Allegheny Energy's board of directors will meet in early December to determine shareholders' next dividend, Lantz said. The dividend will be 0 to 50 percent of the previous dividend, which was 43 cents per share, Lantz said. The lower dividends are expected to continue through at least the fourth quarter of 2003, the company has stated.

The contract's importance is why Allegheny officials have been exploring "every possible channel" to resolve the dispute, Lantz said.

That included filing an emergency motion on Oct. 29 asking the Federal Energy Regulatory Commission to decide the matter immediately rather than let it proceed to the December hearing.

The FERC has ignored Allegheny's pleas and as of Tuesday had left the matter to be addressed by the judge, according to FERC spokeswoman Barbara Connors. Connors could not be reached Wednesday.

Lantz said, as of Wednesday, it looked like the matter was going to hearing on Monday and Allegheny officials were preparing for that.

The hearing is expected to take two to three weeks, Lantz said. A decision isn't expected until February.

Allegheny officials had hoped the matter would be quickly resolved because they claim it is "inflicting significant financial harm" on Allegheny Energy and its energy trading subsidiary, Allegheny Energy Supply, according to a FERC filing.

The Oct. 29 filing stated that Allegheny Energy had lost about $4.6 billion in shareholder value since the FERC set the December hearing date in April. Allegheny's stock has fallen from $43.86 in April to $7.05 on Wednesday.

Allegheny officials have stated in FERC filings that the uncertainty over the California matter led to its debt rating being downgraded to "junk" status. The uncertainty also had affected Allegheny's efforts to get favorable loan terms and amounts.

Allegheny Energy is trying to get financing to sustain agreements with some energy trading partners.

Allegheny Energy announced Wednesday that two subsidiaries, Allegheny Energy Supply and Allegheny Generating Co., received extended waivers through Dec. 31 from bank lenders under syndicated credit agreements. Allegheny had announced Oct. 8 that those subsidiaries were in technical default of credit agreements after the parent company declined to post additional collateral.

Allegheny Energy's financial situation has been ailing in the aftermath of the Enron collapse, troubles in the energy trading market and a disappointing first quarter due to mild weather, a poor economy and lackluster trading.

The company announced in July that it would reduce its work force of 6,000 workers by approximately 600. The company was going to do this through normal attrition and by offering its white-collar employees early retirement.

Lantz said 650 employees are accepting early retirement with 520 to 585 of those expected to leave by the end of the year.

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