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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 28, 1998
ALLEGHENY ENERGY, INC.
(Exact name of registrant as specified in its charter)
Maryland 1-267 13-5531602
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
10435 Downsville Pike
Hagerstown, MD 21740
(Address of principal executive offices)
Registrant's telephone number,
including area code: (301) 790-3400
Items 1 -4 Not Applicable
Item 5. Other Events.
On July 28, 1998, Alan J. Noia (Chairman, President and
Chief Executive Officer of Allegheny Energy, Inc.) received
the attached letter from David. D. Marshall (President and
Chief Executive Officer of DQE, Inc.)
On July 30, 1998, Allegheny Energy, Inc., distributed
the attached press release which responded to the letter
referenced above and included a letter from Alan J. Noia to
David D. Marshall.
Item 6 Not applicable
Item 7 Exhibits:
1. Letter dated July 28, 1998, from David D. Marshall
to Alan J. Noia.
2. Allegheny Energy press release dated July 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Allegheny Energy, Inc.
Dated: July 30, 1998 By: /s/ Theresa J. Colecchia
Name: Theresa J. Colecchia
Title: Counsel
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Exhibit 1
Mr. Alan J. Noia
Chairman, President and Chief Executive Officer
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, MD 21740-1766
Dear Al:
Having reviewed the PaPUC's orders regarding the
proposed merger and associated restructuring plans, DQE's
Board of Directors today determined that the findings
contained therein will result in a failure of the conditions
to DQE's obligation to consummate the merger. Specifically,
the findings constitute a material adverse effect under the
Agreement and Plan of Merger. Under the merger agreement,
DQE is not required to consummate the merger under these
circumstances and we do not intend to do so.
The PaPUC order on West Penn's restructuring plan
disallows approximately $1 billion in stranded costs. $830
million of that amount relates to the administrative
determination of market value adopted by the PaPUC.
Allegheny has testified that this disallowance will cause
severe financial harm.
Duquesne's restructuring plan, by contrast, permits
recovery of all but $140 million of Duquesne's stranded
costs. The positive results associated with this plan are
due to the PaPUC's acceptance of divestiture as the means
for determining Duquesne's generation-related stranded
costs. All customer representatives, including the City of
Pittsburgh, the Office of Consumer Advocate, the Industrial
Intervenors, and the PaPUC Trial Staff, strongly supported
this proposal as the fairest method for determining and
mitigating
stranded costs.
In April 1997, when DQE and Allegheny entered into the
merger agreement, Pennsylvania had recently adopted the
Customer Choice Act, which required both Duquesne and West
Penn to file restructuring plans to recover their stranded
costs. The merger agreement provided for the possibility
that the PaPUC orders could adversely affect one company
such that the other would not be obligated to close the
transaction. That, unfortunately, has now occurred. DQE
cannot, under these circumstances, proceed with the
transaction.
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Mr. Alan J. Noia
July 28, 1998
Page 2
It also is relevant that, in addition to the
disallowances incurred by West Penn, Duquesne would incur an
additional $370 million disallowance if the merger were to
be consummated. Together, the stranded cost disallowances
applicable to the merged company under the merger
restructuring plan would total $1.5 billion. Of that amount,
$1.2 billion would represent the disallowances associated
with
the PaPUC's administrative determination of stranded costs
($830 million for West Penn; $370 million for Duquesne).
DQE also does not accept the market power mitigation
conditions contained in the PaPUC's July 23, 1998 order on
reconsideration. The conditions institute another trial at
the PaPUC on market power in January 2000. The PaPUC will
have the authority, at the conclusion of the trial, to order
2500 MW of divestiture and to exercise authority over which
plants are sold and which purchasers are eligible to bid on
them. This is particularly troublesome given that, once the
plants are sold, there is no provision for adjusting the
companies' stranded cost recovery, including for generation
synergies foregone as a result of the divestiture. Both
companies have previously stated that a merger approval
containing such an open-ended condition would be
unacceptable.
In consideration of the foregoing, DQE's Board of
Directors has concluded that it cannot, consistent with its
fiduciary duty to shareholders, consummate the merger under
these circumstances.
Having now received final PaPUC orders, DQE believes
that it currently has the right to terminate the agreement
unilaterally on several grounds. However, in view of the
considerable efforts that both companies have spent on this
project, and out of respect for you and Allegheny's Board of
Directors, we invite Allegheny to join with us in promptly
agreeing to a termination by mutual consent. Such a mutual
termination would permit both companies to return to
business in the ordinary course and devote their full
attention to a timely implementation of retail choice in
Pennsylvania while avoiding the distractions that could be
associated with a unilateral termination. In the event,
however, that Allegheny is not willing to consider such a
termination by mutual consent, please be advised that DQE
will exercise its right to terminate the agreement
unilaterally not later than the October 5, 1998 date set
forth in Section 8.2 if circumstances do not change
sufficiently to remedy the adverse effects described above.
Consistent with its obligations under the securities
laws, DQE will disclose this letter publicly.
Sincerely,
/s/ David
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Exhibit 2
FOR IMMEDIATE RELEASE
Allegheny Energy Will Pursue Merger;
Urges DQE To Live Up To Obligations
Hagerstown, Md., July 30, 1998 - Allegheny Energy, Inc.
(NYSE: AYE) today pledged to continue to pursue its merger with
Pittsburgh-based DQE, Inc. (NYSE: DQE), despite this week's
announcement that DQE wants to terminate the companies' merger
agreement.
In a letter today from Allegheny Energy Chairman, President,
and Chief Executive Officer Alan J. Noia to DQE Chief Executive
Officer David D. Marshall, Noia informed DQE that it "has no
right to terminate the merger agreement now and will have no
right to refuse to close the merger when regulatory approvals are
obtained."
Noia urged DQE to reconsider its position and called on
Marshall to live up to the company's obligation to fully
cooperate in obtaining approvals needed to complete the merger.
Allegheny Energy will continue to seek the remaining approvals
from federal regulatory agencies, including the Federal Energy
Regulatory Commission, the Department of Justice/Federal Trade
Commission, and the Securities and Exchange Commission.
Last week, the companies received approval from the
Pennsylvania Public Utility Commission (PUC), which recognized
the significant benefits the merger would provide to consumers,
shareholders, employees, and communities. The merger has also
been approved by the companies' shareholders, the Nuclear
Regulatory Commission, and the Maryland Public Service
Commission. The City of Pittsburgh, the Public Utilities
Commission of Ohio, employees, labor unions, and others have also
publicly endorsed the merger.
According to news reports, Pennsylvania officials expressed
disappointment over DQE's position on the merger. In a press
release issued July 29, the Pennsylvania PUC said it was
"surprised and dismayed" at DQE's actions. PUC Chairman John
Quain cautioned DQE "against using the Commission as an excuse to
get out of the deal."
The following is today's letter from Alan J. Noia to David
D. Marshall.
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July 30, 1998
Mr. David D. Marshall
President and Chief Executive Officer
DQE, Inc.
411 Seventh Avenue
Pittsburgh, PA 15219
Dear David:
I have reviewed your letter of July 28 and must say I
completely disagree with it. DQE has no right to terminate the
merger agreement now and will have no right to refuse to close
the merger when regulatory approvals are obtained. DQE also
remains obligated to cooperate with Allegheny Energy in obtaining
regulatory approvals. The Pennsylvania PUC has struck a
reasonable balance between the interests of customers,
shareholders, and employees in our merger case. Indeed, our
merger approval has been obtained on terms that are more
favorable to us than you urged that we propose. West Penn's
restructuring order is now the subject of litigation and may be
improved, but even if it is not, the effects of that order do not
constitute a material adverse effect giving DQE a right not to
close our merger.
I note that you are quite careful in your correspondence not
actually to terminate our agreement, although, of course, your
letter and other actions constitute a material breach of the
merger agreement by DQE. Our merger agreement remains in full
force and, notwithstanding DQE's actions, Allegheny Energy
remains committed to our merger and will continue to work toward
its completion. If DQE pursues the course outlined in your July
28 letter and prevents completion of our merger, Allegheny Energy
will pursue all remedies available to protect the legal and
financial interests of Allegheny Energy and its shareholders. The
damages to which you are exposing DQE are enormous and while I
hope that you will reconsider your course, I am fully prepared to
act if you do not.
It is time to put our business differences aside, get on
with the merger, and put our companies together as smoothly and
quickly as possible for the benefit of customers, shareholders,
and employees.
Sincerely,
/s/ Alan J. Noia
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