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Allegheny Energy records a profit

May 11, 2004|by JULIE E. GREENE

julieg@herald-mail.com

Allegheny Energy Inc. reported its first quarterly profit in two years Monday, but company officials said they expect a loss in the second quarter.

The second-quarter loss is expected because power demand is traditionally lower during those months, because the company is increasing spending to improve its power plants and because two plants still are offline, said Chief Financial Officer Jeffrey D. Serkes during a conference call with analysts Monday.

Allegheny officials expect the utility to return to profitability in the second half of the year, he said.

The company, which has offices southwest of Hagerstown, reported a consolidated net income of $33.3 million, or 25 cents per share, for the first quarter of 2004, according to a company statement.

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That compares with a consolidated net loss of $58.8 million, or 46 cents per share for the first quarter of 2003, according to the company statement.

The last time the utility reported a first quarter profit was the first quarter of 2002, spokeswoman Janice Lantz said. It was after the second quarter of 2002 that the company got behind in its financial reporting, she said.

The company's financial condition has improved with a possible bankruptcy filing being averted last year due to several steps, including refinancing deals and the sale of some assets.

Company officials are considering selling nonstrategic assets and are negotiating a deal to sell Mountaineer Gas, Allegheny Chairman and Chief Executive Officer Paul J. Evanson said during the conference call.

Despite the first quarter profit, this year will continue to be one of transition, Evanson said in a prepared statement.

While the utility benefited from a $68.1 million gain related to proceeds from the sale of a large California energy supply contract being released from escrow, and from related hedges, the news was not all good, Evanson said.

Officials with the power company estimate two outages will cost the company approximately $34 million in pre-tax income for the first quarter, according to the company statement. That includes lost revenue and repair and replacement costs.

Last November, the company's Hatfield's Ferry Unit No. 2 in southwestern Pennsylvania went offline after a fire and has not returned to service, Lantz said. In February, a problem with a generator at Pleasants Unit No. 1 in northcentral West Virginia caused an outage, she said.

On the plus side, Allegheny's operations and maintenance expenses decreased by $84.1 million, including a $22.2 million decrease in the cost of outside services such as legal, consulting and advisory fees.

Some of those outside services were needed because the company discovered errors in its financial reporting in recent years, Lantz said.

At the height of Allegheny's problems last year, there were more than 70 outside accountants helping Allegheny, Serkes said. That number has been significantly reduced, he said.

The company posted a profit for the first quarter due to some one-time events, including the proceeds from the California contract sale being released, Lantz said. Another event was a $14 million write-off from 2003 refinancing costs, she said.

Taking into account those events, the adjusted net loss for the first quarter was $300,000, or 1 cent per diluted share, according to the company statement and Lantz.

Lantz said Allegheny officials do not plan to reinstate dividend payments for the foreseeable future.

In December 2002, company officials announced that for the first time in at least 54 years they would not issue a quarterly dividend to shareholders of common stock.

The company's loan agreements and the federal Public Utility Holding Company Act restrict Allegheny's ability to pay dividends, Lantz said.

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