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Allegheny Energy, FirstEnergy tout merger benefits

January 22, 2011|By JULIE E. GREENE | julieg@herald-mail.com
  • The town of Smithsburg is shown Friday night. The impending merger of Allegheny Energy and FirstEnergy could lead to more charitable donations for the local community as well as modest rate credits or reductions for Allegheny's customers and more backup for repairs after major outages, officials with the two utility companies said.
By Colleen McGrath. Staff Photographer

The impending merger of Allegheny Energy and FirstEnergy could lead to more charitable donations for the local community as well as modest rate credits or reductions for Allegheny's customers and more backup for repairs after major outages, officials with the two utility companies said.

On Tuesday, the Maryland Public Service Commission approved the merger with 20 conditions, most of which were consistent with a previous settlement agreement. That started the clock on the 30-day period the merging companies have to respond to the commission's order and left one more regulatory hurdle to clear — approval by the Pennsylvania Public Utility Commission.

The Pennsylvania commission does not have a deadline to act on a proposed settlement, but FirstEnergy spokeswoman Ellen Raines said company officials were comfortable the merger probably would be completed by the end of March.

The resulting company, FirstEnergy, will at least temporarily be the largest electric utility in the nation based on number of customers served, Raines said. The merged companies would serve more than 6 million customers from Ohio to New York.

The merger has cleared U.S. Department of Justice review and was approved by the Federal Energy Regulatory Commission, the Public Service Commission of West Virginia, the Virginia State Corporation Commission and shareholders for both companies.

Akron, Ohio-based FirstEnergy and Greensburg, Pa.-based Allegheny Energy announced the proposed merger Feb. 11, 2010.

While FirstEnergy will be the parent company, it will look to Allegheny's roots for company names in the Allegheny service areas. Customer bills will be issued under the Potomac Edison name in Maryland, West Penn in Pennsylvania and Mon Power, formerly Monongahela Power, in West Virginia, Allegheny officials said.



Giving somethig back



The utilities have agreed to provide rate credits or reductions of varying amounts to Allegheny's customers in Maryland, Pennsylvania and West Virginia.

The original merger proposal called for a $2.5 million rate credit for Allegheny's Maryland customers, but that amount was increased, with Maryland PSC approval, to $6.5 million.

The PSC's conditional approval calls for FirstEnergy to pay the credit, which works out to about $29 for each residential customer, in a single payment within three months of the merger's completion rather than in monthly installments over four years, as had been proposed.

In a Dec. 28, 2010, case filing, the staff of the Maryland PSC requested a minimum rate credit of $26.2 million — about $120 per customer. The Office of People's Counsel, a utility consumer advocacy office, had asked for a $54 million rate credit over five years, according to a Dec. 28 filing by the office.

In West Virginia, customers of Mon Power would receive $7.5 million in rate reductions over a two-year period. The Expanded Net Energy Cost rate charge on bills will be reduced, saving customers $2.5 million in 2012 and $5 million in 2013, according to the Public Service Commission of West Virginia's Dec. 16, 2010, order and Raines.

In Pennsylvania, West Penn Power residential customers would receive almost $11 million in customer credits during a three-year period, according to an Allegheny Energy news release about a proposed settlement with the Pennsylvania commission.

Maryland and West Virginia commission filings note that Potomac Edison and Mon Power cannot seek to recoup merger costs through rates. A proposed settlement with Pennsylvania's commission contains the same statement, Raines said.



Job protection



Maryland and West Virginia's public utility commissions also set conditions to protect Allegheny jobs in their states.

For at least two years, there can be no net job losses due to "involuntary attrition" as a result of the merger, according to decisions by both commissions.

A proposed settlement with the Pennsylvania commission includes a similar stipulation as well as a five-year commitment to maintain various employment levels in Greensburg and Westmoreland County. Those employment benchmarks decrease from at least 800 jobs the first year to 600 jobs in the fourth and fifth years, according to an Allegheny Energy news release on the settlement.

The merger proposal also includes maintaining regional headquarters in Allegheny's service areas for Potomac Edison, West Penn Power and Mon Power, Allegheny Energy officials have said.

The Potomac Edison facility will be in Western Maryland but a site has not been selected yet, Allegheny spokesman Todd Meyers said. He said the local headquarters is not expected to be in the Downsville Pike building that served as Allegheny Energy's headquarters from 1996 to 2004 and, earlier, as the general office for Potomac Edison when it was a company of Allegheny Power Systems.

James V. Fakult has been selected as president of Maryland Operations, Raines said. Fakult's work history is through FirstEnergy, most recently as general manager of regional operations support for Ohio Edison.

Allegheny has about 380 Maryland-based workers, including about 175 employees at the R. Paul Smith Power Station near Williamsport and the Williamsport Service Center, Allegheny officials said.

Allegheny had 2,103 employees in Pennsylvania and 1,762 in West Virginia as of June 2010, Meyers said.

Raines said she did not know if the number of jobs at the regional headquarters would exceed the number of jobs to be protected in Potomac Edison's service area.



Service areas



When weather permits, Allegheny repair crews could get assistance from FirstEnergy crews to help restore power after major storms, Raines said.

Mother Nature is unpredictable, but there are times when the entire merged service area won't be hit by the same storm or will have areas that can recover more quickly, freeing up crews to help territories that are harder hit, Raines said.

If the entire merged service area got walloped with a major storm and outages, the Allegheny service areas would still have their local repair crews and be no worse off than without the merger, Allegheny spokesman David Neurohr said. Utilities, whether or not they share a parent company, are usually pretty good about helping each other during major storms, he said.

The merged companies had agreed to improve service reliability in terms of duration of outages in Maryland and study ways to improve, according to case filings.

The commission's order and 20 conditions do not appear to address that commitment.

Raines said FirstEnergy and Allegheny would probably address that issue in their response to the commission's order.

Raines said FirstEnergy has been involved in several mergers and after each one, there were improvements in reliability as well as additional value for shareholders, the community and employees.

The utility was working toward the same results with the Allegheny merger, Raines said.

"This is a really exciting chapter in our history. We think that together these companies will be even better than they were operating separately," she said.



Shareholders



The merger was expected to result in FirstEnergy shareholders owning about 73 percent of the merged companies and Allegheny shareholders owning about 27 percent, according to an Allegheny news release.

With the merger, Allegheny shareholders would receive 0.667 shares of FirstEnergy common stock in exchange for each share they own.

As of the stock market's close Friday, Allegheny Energy closed at $26.10 and FirstEnergy closed at $39.57.

Two of the conditions of the Maryland Public Service Commission's approval dealt with dividends.

Potomac Edison is not to pay a dividend without prior commission approval if its equity-to-total capitalization ratio falls below 45 percent or if paying dividends would cause PE's ratio to fall below that percentage, according to the commission's ruling on the merger.

Potomac Edison also cannot pay a dividend without commission approval if any major credit rating agency rates Potomac Edison below investment grade, according to the ruling.



Community



Allegheny's Meyers said FirstEnergy has had a better track record of giving to its service areas than Allegheny in recent years.

Allegheny faced financial difficulties in the mid-2000s that almost led to a bankruptcy filing, Meyers said. As a result, times were tight and Allegheny's sponsorships and donations during the past five or six years were not what they once were, he said.

During that time, Allegheny donated several hundred dollars for fire stations near its facilities in Washington County and in-kind donations such as free labor to organizations, Meyers said.

The company also provided a corporate match for donations by its employees, resulting in the company and employees donating more than $1 million, regionally, to the United Way's 2010 campaign, according to company and United Way officials.

The proposed merger and conditional approval of the Maryland PSC calls for the merging utilities to make community development and charitable contributions, to Allegheny's service areas, that at least match the level of giving Allegheny has provided. That stipulation is to be in effect for the first three years after the merger and calls for corporate giving to be consistent with FirstEnergy's contribution levels in its service areas after that time period.

FirstEnergy and Allegheny officials said that probably means charitable giving would go up after the third year, if not before.

FirstEnergy has its own foundation that matches employee contributions to qualifying educational, cultural, youth, civic, and health and human services organizations, according to the company's 2010 Corporate Responsibility Report. Raines said that program would extend to Allegheny employees after the merger.

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