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Allegheny's losses mount

The utility had $334.4 million in losses for the first three quarters of this year and may seek Chapter 11 protection.

The utility had $334.4 million in losses for the first three quarters of this year and may seek Chapter 11 protection.

December 20, 2002|by JULIE E. GREENE

julieg@herald-mail.com

HAGERSTOWN - Allegheny Energy officials announced Thursday the utility had $334.4 million in losses for the first three quarters of this year, and said they may seek Chapter 11 bankruptcy protection if they can't secure financing.

The news led to Allegheny's stock decreasing almost 17 percent, or $1.38 per share, to close at $6.90 per share on Thursday.

"I think the real key for Allegheny, and the key to the market's reaction today, is that there was no announcement of a secured financing deal. Without any announcement, the market is wrestling with uncertainty over whether the company will be able to get the much-needed financing," said securities analyst Jeff Gildersleeve of Argus Research in New York.

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Allegheny officials took the unusual step Thursday of posting unaudited financial numbers for the nine months ending Sept. 30, even though the company has yet to issue its third quarter earnings. The company also still needs to reissue financial statements for its first and second quarters after finding accounting errors.

Christopher Ellinghaus, an energy analyst with Williams Capital Group in New York, said he thinks the chances of Allegheny filing for bankruptcy are "slim."

"I'm expecting the banks to extend credit before mid-January," Ellinghaus said.

"We wanted to disclose what steps we might need to take if these issues are unresolved," Allegheny Energy spokeswoman Cynthia Shoop said. "The inability to achieve the financing is an issue that may cause us to seek bankruptcy protection."

Allegheny received authority from the Securities and Exchange Commission in October to borrow up to $2 billion in secured financing, but is still negotiating with bankers.

Allegheny Energy's net losses for the first three quarters of this year were $334.4 million, or $2.67 per share, compared with earnings of $353.2 million, or $2.98 per share, during that same time period a year ago.

Allegheny Energy's energy trading subsidiary, Allegheny Energy Supply, had $248.4 million in net losses during the first three quarters of this year, compared with earnings of $200.1 million during that time period a year ago, according to Allegheny's filing with the SEC.

A big part of why Allegheny reported $334.4 million in losses were $356.3 million in losses from energy trading contracts for which Allegheny officials reassessed the value under current market conditions, Allegheny Energy Supply spokeswoman Janice Lantz said.

Many of those contracts are in the West Coast market, where energy prices have plummeted to market prices that are more normal, historically. Energy prices had escalated during an energy crisis in that market about two years ago.

Other contributors to Allegheny's losses included expenses incurred in canceling the construction of some generating plants and accepting early retirement from approximately 600 employees or 10 percent of its work force, according to Shoop and the company's financial statement.

To tackle its debt, the utility is continuing measures it began earlier this year, Allegheny Energy spokeswoman Debbie Beck said. The company is trying to sell some generating plants and scaling back its energy trading business.

Customer rates will not be affected by the latest news, Shoop said.

Allegheny officials are not planning to cut jobs or offer more employees early retirement, Shoop said.

Earlier this month, Allegheny reported that 650 employees accepted early retirement, but Shoop said some employees may have changed their minds. Most of the employees who did accept early retirement are expected to leave by the end of the year, she said.

On Dec. 5, Allegheny officials announced the utility was suspending its quarterly dividend this month to save about $54 million in the fourth quarter. It was the first time the company had suspended a dividend to shareholders of common stock in at least 54 years.

Shoop said Thursday that Allegheny officials expect the dividend could be suspended through 2003. That could change if the company's financial situation changes, she said.

The utility's total debt was $5.1 billion as of Sept. 30, Beck said.

Shoop said it was too soon to speculate on the company's fourth quarter earnings. Company officials are still determining the cost of getting power restored to thousands of customers after an ice storm on Dec. 11.

Also on Thursday, an administrative law judge concluded that two contracts Allegheny has with Nevada Power should not be modified as Nevada Power had requested, according to the Federal Energy Regulatory Commission. The judge's conclusion still needs to be approved by the FERC.

Those contracts were worth $24 million, Lantz said. Allegheny Energy took over the contracts when it bought Merrill Lynch & Co.'s energy-trading business last year, she said.

Allegheny officials were pleased with the judge's decision in the case, Lantz said. The Nevada case is similar to a dispute between Allegheny Energy Supply and the state of California, in which both sides are still awaiting a decision from the FERC.

In that case, California is trying to get the price per megawatt hour lowered or have the contract voided because the terms were set when the market price was much higher. The largest contract between the two is a $1.3 billion asset for Allegheny Energy. When that contract was signed in March 2001, the company stated it would be worth $4.5 billion during its 11-year term, Lantz said.

In addition to energy trading, Allegheny Energy provides electricity and natural gas to about 1.7 million customers, or about 3 million people, in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

The Associated Press contributed to this story.

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