- The Washington Times - Tuesday, July 9, 2002

Shares of Allegheny Energy Inc. tumbled to a 52-week low yesterday after the Hagerstown, Md., utility owner said it would fall far short of earnings predictions and lay off about 600 workers, or 10 percent of its work force.

Allegheny, which owns utilities in five states including Maryland and Virginia, said yesterday it expects annual earnings to fall between $2.50 and $2.70 cents per share, compared with earlier predictions of $3.60 to $3.70 per share. The news drove share prices down $2.08 to a closing price of $23.95 on the New York Stock Exchange.

Shares have fallen more than 30 percent this year, as Allegheny faced a tough economy for an energy company. The company earned $101.6 million (81 cents per share) in the most recent quarter ended March 31, a decrease of $1.2 million (12 cents) from a year earlier.

"Dramatically lower wholesale energy prices, mild weather and substantially decreased activity in the energy marketing and trading environment are having an effect on our ability to meet prior expectations," said Allegheny's chairman and chief executive, Alan Noia.

The company also said it had unexpected equipment outages and was forced to spend $30 million on replacement power in April and May.

"We've all seen that conditions in energy markets aren't good. I think it was pretty clear earnings were going to go down. However, this is a substantial reduction," said Jeffrey Gildersleeve, an analyst with Argus Research. "Frankly, this is disappointing and it hurts to see earnings erode so quickly."

Energy companies across the country have been cutting earnings estimates, as trading activity declined following the collapse of Enron Corp. Allegheny revealed yesterday it already had eliminated eight jobs from its trading department and did not rule out more cuts there. Furthermore, the company said it expects trading activities will contribute just 10 to 15 cents per share, as opposed to 45 to 50 cents as predicted earlier this year.

To make up for the expected drop in profits, the company said it would reduce operating expenses for the year by $45 million, cancel large generation projects in Indiana and Arizona and fire about 600 workers. Allegheny said it would take an earnings charge of about $40 million from these actions.

But it said the employee layoffs would lead to $5 million in savings this year and $40 million to $50 million annually. The cancellations of the two power-generation projects will mean a $700 million reduction in capital expenditures over the next several years, the company said.

"We firmly believe the path we're on is one that will add value to our shareholders, and we hope to demonstrate those results as the year progresses," said Bruce Walenczyk, vice president and chief operating officer.

Some observers said the cost-cutting moves could have been made sooner to avoid the sudden earnings drop and appease ratings agencies that have viewed energy companies with more scrutiny since Enron's troubles became public in the fall. But, observers said, the moves were likely to help turn its financial performance around.

"You could always say they didn't do things soon enough, but they're clearly taking appropriate actions," Mr. Gildersleeve said. "That's just some of the batten-down-the-hatches action we've seen across the industry."

Allegheny said it would consider plans to offer $400 million to $600 million in common stock or convertible securities.

In April, the company sold $650 million in 10-year notes, after filing with the U.S. Securities and Exchange Commission to sell $1.5 billion in securities.


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