SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 12, 1998
ALLEGHENY ENERGY, INC.
(Exact name of registrant as specified in its charter)
Maryland 1-267 13-5531602
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification Number)
10435 Downsville Pike
Hagerstown, MD 21740
(Address of principal executive offices)
Registrant's telephone number,
including area code: (301) 790-3400
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ITEM 1-4. INAPPLICABLE
ITEM 5. OTHER EVENTS
On May 29, 1998, the Pennsylvania Public Utility Commission ("PUC")
issued final orders on the stand-alone restructuring plan ("Stand-Alone Plan")
filed by West Penn Power Company ("West Penn"), a wholly owned subsidiary of
Allegheny Energy ("AYE") Inc., and on the application for approval to merger and
restructuring plan ("Restructuring Plan") filed by DQE, Inc. and AYE. The
restructuring plans were filed in compliance with the Pennsylvania Electric
Generation Customer Choice and Competition Act ("Customer Choice Act"), which
permits retail electric customers a choice of generation supplier and authorizes
utilities to recover their known and measurable transition or stranded costs.
The PUC's final orders are described below. On June 12, AYE filed motions for
reconsideration of both orders.
Orders on West Penn's Stand-Alone Plan
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The PUC ordered a phase-in of customer choice under the following
timetable: on January 1, 1999, 33% of the peak load of each customer class will
be eligible for direct access; on January 2, 1999, 66% of the peak load of each
customer class will be eligible for direct access; and on January 2, 2000, all
customers will be eligible for direct access.
With respect to stranded cost recovery, the PUC's order on West Penn's
Stand-Alone Plan denied in part and accepted in part West Penn's claim. The
PUC's order disallows recovery of approximately $1 billion of West Penn's
stranded cost claim (net present value, pre-tax). The PUC's order sets
transition costs using an administrative forecast of generation market values
and costs. Of the disallowed amount, approximately $830 million relates to the
impact of the determination of generation market value and costs. The other
disallowances relate to regulatory assets, non-utility generation and other
transition costs. AYE will seek reconsideration and/or judicial review of the
stranded cost disallowances and other aspects of the PUC's order.
AYE continues to review the financial impact of the PUC's order.
Ultimately, future financial effects will depend on the number of West Penn
customers who choose to chose a generation suppliers other than West Penn and
the market price of electricity during the transition period, each of which will
affect West Penn's ability to recover its costs. West Penn expects to take a
charge to earnings to reflect disallowances in the order, if the PUC's order, as
issued, remains unchanged, of $400 million to $500 million, including
approximately $200 million related to the Beaver Valley non-utility generation
contract.
West Penn will account for the impacts of the PUC order by taking a
charge to its earnings for the second quarter ending June 30, 1998 if there is
no change in the PUC's order.
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Order on Merger and Restructuring Plan Under the Merger
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The PUC's final order on the merger proceeding allows the transaction
to be consummated but imposed certain conditions to be satisfied prior to
closing. The conditions relate to the mitigation of market power through
membership in an independent system operator ("ISO"), an entity that would
operate the transmission facilities of DQE/AYE and other utilities in the
region. The PUC order will allow DQE and AYE to satisfy this condition through
their current membership in the Midwest ISO, but the PUC held that the Midwest
ISO must be "fully functional" and it must satisfy seven criteria specified by
the PUC before the merger is consummated.
AYE does not expect that these conditions can be satisfied within the
time periods specified in the Merger Agreement. The Merger Agreement provides
that either party may terminate the Agreement on October 5, 1998 if closing has
not occurred by that date or, under certain limited circumstances relating to
the non-receipt of regulatory approvals, closing has not occurred by April 5,
1999. The Midwest ISO is not expected to be fully operational until June 30,
2000. In addition, the Midwest ISO, as presently constituted and as proposed to
the Federal Energy Regulatory Commission, does not meet the seven criteria
specified by the PUC.
The PUC's order also addressed the companies' Restructuring Plan for
the recovery of stranded costs by DQE's wholly owned Subsidiary, Duquesne, and
West Penn in the event the merger is consummated. The order on the Restructuring
Plan sets transition costs using an administrative forecast of generation market
values and costs. The result for West Penn is described above. Applied to
Duquesne, this methodology results in disallowance of a portion of Duquesne's
stranded costs claim. The order also reduces Duquesne's and West Penn's stranded
costs recovery by $152 million and $71 million, respectively, for estimated
generation-related merger synergies and reduces Duquesne's and West Penn's
distribution rates beginning January 1, 2000 by $16 million and $9 million,
respectively, annually to reflect estimated distribution-related merger
synergies.
AYE has filed a motion for reconsideration of both orders and may file
appeals if necessary. As part of its motion for reconsideration of the merger
order, AYE has offered certian interim measures to mitigate market power until
the PUC is satisfied that the Midwest ISO or other measures have resolved any
market power concerns. There can be no assurance that the disallowances
associated with the Merger and Restructuring Plan or other merger conditions
will be modified by the PUC on reconsideration or on appeal.
ITEMS 6-9. INAPPLICABLE
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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.
By: /s/ Thomas K. Henderson
-----------------------------------
Name: Thomas K. Henderson
Title: Vice President
Dated: June 12, 1998
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