Allegheny Energy agrees to end agreement, pay firm

August 21, 2003|by JULIE E. GREENE

Allegheny Energy Supply Co. officials agreed to terminate another tolling agreement, significantly reducing the financial exposure of its parent company, Allegheny Energy Inc., in the energy trading business, company officials announced Wednesday.

Allegheny will pay $114 million to Las Vegas Cogeneration II after the utility closes on its sale of a long-term energy contract with California Department of Water Resources and gets approval from a majority of its lenders, according to an Allegheny news release.

Allegheny Energy Supply, Allegheny Energy's energy trading subsidiary, entered into the 15-year tolling agreement with Las Vegas Congeneration II in May 2001, the release states. Las Vegas Cogeneration II is a 222-megawatt natural gas-fired generating plant that began commercial service in January 2003, the release states.

A tolling agreement allows Allegheny to use energy from other power plants, in this case Las Vegas Cogeneration II, to serve its customers.

The financial status of Allegheny and several other companies in the energy trading business were in jeopardy in the wake of the Enron collapse in December 2001.

To right the company financially, Allegheny scaled back its energy trading operations, canceled development of some generating facilities and announced a year ago an offer of early retirement to approximately 600 of its 6,000 workers. About 650 employees chose to take early retirement, company officials have said.

Allegheny was on the brink of filing for bankruptcy protection until company officials announced in February a financing deal for $2.4 billion.

To raise cash, the company adopted an aggressive stance in selling assets such as power plants.

Last month Allegheny announced a deal to sell its 11-year energy trading contract with California for $405 million. The move accomplished two of Allegheny's goals, to raise cash and scale back the utility's involvement in energy trading.

The California deal is expected to be complete by the end of the year, the same time a $250 million loan payment is due from Allegheny Energy Supply.

On Aug. 1, Allegheny Energy Supply officials announced an agreement to end a 1,000-megawatt tolling agreement with Williams Energy Marketing & Trading Co. Under the deal, Allegheny will pay $128 million to Williams.

Allegheny Energy officials could not be reached on Wednesday.

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