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Allegheny expects to file annual report soon

July 25, 2003|by JULIE E. GREENE

julieg@herald-mail.com

Allegheny Energy officials expect to file an annual report for 2002 no later than September, according to a recent U.S. Securities and Exchange Commission filing.

The filing, made July 17, reveals more information about accounting errors the utility has been investigating since last year and lists several documents the company filed, but which it asks the commission to keep confidential for now.

Those documents include an unaudited financial report for last year, financial projections, and a memo concerning the consequences of bankruptcy.

Allegheny spokesman Guy Fletcher wrote in an e-mail to The Herald-Mail that it is not uncommon for a regulated company to ask that certain information be kept confidential in such an SEC filing.

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Company officials are asking that the financial information be kept confidential because it is preliminary, Fletcher wrote. The SEC needs to be able to review that information in deciding whether to grant Allegheny's request to continue accessing funds, he wrote.

Allegheny is once again warning shareholders of a threat of bankruptcy if it is not given permission to continue accessing $2.2 billion in financing.

In the filing, Allegheny is asking the SEC for permission to continue using the money because its common equity ratio had fallen below 28 percent, the level the SEC says must be maintained to access the funds.

The filing notes that the common equity ratio for Allegheny's energy trading subsidiary, Allegheny Energy Supply Company, was near 20 percent and could get lower.

Allegheny was able to stave off a bankruptcy threat in February when it announced a $2.4 billion financing deal.

Still, Allegheny and Allegheny Energy Supply, are facing a "critical liquidity need" because Allegheny has experienced weaker financial performance than expected and shortages of cash in 2002 and early 2003, the filing states.

Allegheny officials attribute this in large part to the deterioration of the merchant power and energy trading businesses, the filing states.

To improve its liquidity situation Allegheny officials have sold some assets and continue to try to sell others.

Allegheny Energy Supply officials are negotiating the sale of the utility's California Department of Water Resources contract, the filing states.

According to the SEC filing, Allegheny Energy Supply must pay $250 million toward that $2.4 billion financing deal by the end of the year. Allegheny must pay $8 million each financial quarter.

Allegheny has yet to release its 2002 annual report because company officials are still reviewing last year's records after finding errors, company officials have said.

The SEC filing states that Allegheny expects to release its 2002 annual report no later than September. Quarterly reports for last year will be released or restated soon after, the filing states.

So far Allegheny's comprehensive review of its financial statements has turned up "numerous accounting errors and internal control deficiencies," the filing states.

According to the SEC filing, the most significant of those errors and deficiencies are:

- Inadequate reconciliation of accounts.

- Lack of adherence to or the presence of accounting policies.

- Improper classification of transactions.

- Improper cut-off of transactions.

Many of those deficiencies were "aggravated" by troubles Allegheny had integrating its energy trading business, the filing states.

According to the SEC filing, the documents Allegheny Energy filed and asked to be kept confidential include:

- Preliminary financial results for 2002.

- Financial projections for Allegheny Energy and Allegheny Energy Supply, including statement of assumptions underlying financial projections.

- Memorandum concerning the consequences of bankruptcy.

- Explanation of Allegheny's program to reduce debt and maintain level dividend payouts by the operating companies. The operating companies are West Penn Power Company, Monongahela Power Company, Potomac Edison Company and Mountaineer Gas Company.

- Projected dividend payouts by the operating companies.

- Letter evaluating potential interest of investors to acquire Allegheny Energy common stock.

- Aggregate realized cash loss in the West market.

- Operating and cash losses of Allegheny's trading business.

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