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): October 26, 2000
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, Maryland 21740-1766
(Address of principal executive offices)
Registrant's telephone number,
Including area code: (301) 790-3400
<PAGE>
Item 1 - 4. Not Applicable
Item 5. Other Events
Earnings Release
On October October 26, 2000 Allegheny Energy,
Inc. reported record third quarter operating
earnings of, $76.1 million ($.69 per share),
compared to 1999 third quarter earnings of
$71.3 million ($.63 per share), an increase
of 9.5 percent in earnings per share. The
increase in operating earnings was driven by
improved performance by the Company's
regulated business and its recent acquisition
of two energy distribution companies.
Earnings for the nine months ended September
30, 2000, were $233.9 million ($2.12 per
share), excluding the first quarter
extraordinary charge of $70.5 million ($.64
per share). The earnings for the nine months
ended September 30, 1999, were $233.6 million
($1.98 per share). The increase in the year-
to-date earnings per share reflects higher
net revenue in the regulated operations
business and a lower number of average shares
of common stock outstanding as a result of
the Company's 1999 stock repurchase program.
Excluding the extraordinary charges and other
transactions as shown on the following chart,
earnings for the twelve months ended
September 30, 2000, were $305.7 million
($2.77 per share), compared to $305.5 million
($2.56 per share) for the twelve months ended
September 30, 1999. The increase in earnings
per share is primarily attributed to the
Company's 1999 stock repurchase program.
Per share earnings for comparable 2000 and 1999 periods are:
<TABLE>
<CAPTION>
9 Months 9 Months
Third Quarter Ended Sept. Ended Sept.
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary and $.69 $.63 $2.12 $1.98 $2.77 $2.56
Other transactions
Extraordinary charges for West
Virginia,) Maryland, Pennsylvania
restructuring (.64) (.79) (.08)
Extraordinary charge for call premiums (.09)
Merger-related costs (.11)
Cancelled pumped-storage project costs (.07)
Pennsylvania settlement costs (.20)
Reported earnings $.69 $.63 $1.48 $1.98 $1.71 $2.28
</TABLE>
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The 2000 extraordinary charge reflects write-
offs by the Company's subsidiaries,
Monongahela Power Company and The Potomac
Edison Company, as a result of Maryland and
West Virginia restructuring legislation. The
1999 extraordinary charge and the
Pennsylvania settlement costs reflect write-
offs by the Company's subsidiary, West Penn
Power Company, of costs determined to be
unrecoverable due to deregulation proceedings
in Pennsylvania.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of
Financial Accounting Standard (FAS) No. 133,
"Accounting for Derivative Instruments and
Hedging Activities." FAS 133 was
subsequently amended by FAS 137, "Accounting
for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of
FASB Statement No. 133" and FAS 138,
"Accounting for Certain Derivative
Instruments and Certain Hedging Activities an
amendment of FASB Statement No. 133."
Effective January 1, 2001, the Company will
implement the requirements of these
accounting standards.
These Statements establish accounting and
reporting standards for derivative
instruments, including certain derivative
instruments embedded in other contracts,
(collectively referred to as derivatives) and
for hedging activities. They require that an
entity recognize all derivatives as either
assets or liabilities in the statement of
financial position and measure those
instruments at fair value. The Statements
require that changes in the derivative's fair
value be recognized currently in earnings
unless specific hedge accounting criteria are
met. Special accounting for qualifying
hedges allows a derivative's gains and losses
to offset related results on the hedged item
in the income statement or other
comprehensive income, and requires that a
company formally document, designate, and
assess the effectiveness of transactions that
receive hedge accounting.
The Company has organized a cross-functional
project team for implementing FAS 133. The
team has substantially completed the
Company's inventory of financial instruments,
commodity contracts and other commitments for
the purpose of identifying and assessing all
of the Company's derivatives. The team is in
the process of estimating the fair value of
the derivatives, designating certain
derivatives as hedges and assessing the
effectiveness of those derivatives as hedges.
<PAGE>
Although an assessment of all the effects of
FAS 133 has not been completed, it is
expected to increase the volatility in
reported earnings and other comprehensive
income.
The Company has certain forward and option
contracts for the future purchase or sale of
electricity that meet the derivative criteria
in FAS 133. The Company also has entered
into option contracts for emission allowances
that qualify as derivatives. The Company
will record an asset or liability on its
balance sheet based on the fair value of the
contracts at the adoption date. The fair
values of these contracts will fluctuate over
time due to changes in the underlying
commodity prices which are influenced by
various market factors, including weather and
availability of regional electric generation
and transmission capacity. The Company
intends to designate a portion of the
electricity contracts as cash flow hedges of
the exposure to variability in expected
future cash flows relating to a forecasted
transaction. The effective portion of the
change in fair value of these contracts will
be recorded in other comprehensive income and
subsequently reclassified into earnings when
the forecasted transaction affects earnings.
The ineffective portion of these contracts,
as well as the change in fair value of all
other derivatives, will be recognized in
earnings in the period of change.
The Company has identified a significant
contract that will require mark-to-market
accounting under the Statement. The terms of
this three year contract entered into on
January 1, 1999, provides a counterparty with
the right to purchase, at a fixed price, 270
megawatts of electricity per hour until
December 31, 2001. Based on the September
30, 2000 forward prices for electricity, the
Company estimates that the fair value of this
contract will represent a liability of
approximately $33 million ($21 million, net
of tax) on January 1, 2001. However, the
fair value of this contract will fluctuate
during 2001 with changes in the underlying
commodity prices which are influenced by
various market factors, including weather and
availability of regional electric generation
and transmission capacity. But the liability
will reduce to zero at December 31, 2001,
with the expiration of the contract. In
accordance with FAS 133, the Company expects
to record a charge against earnings net of
the related tax effect for this contract as a
change in accounting principle as of January
1, 2001.
<PAGE>
<TABLE>
<CAPTION>
ALLEGHENY ENERGY EARNINGS
THIRD QUARTER 2000
<S> <C> <C>
Three months ended September 30, 2000 2000 1999
Sales to regular utility customers,
gigawatt-hours (Note 1) 11,097 11,150
Revenues ($000) (Note 2)
Regular Utility Customers $559,406 $556,824
Other Utility Revenues 34,655 26,873
Gas Revenues 12,328 _
Unregulated Generation 450,445 156,393
Allegheny Ventures 1,624 1,269
Total ($000) $1,058,458 $741,359
Consolidated income ($000) $76,095 $71,332
Basic and diluted earnings per average share (Note 3)
Consolidated earnings per share $0.69 $0.63
Average common shares outstanding (000) 110,436 114,120
Year to date September 30, 2000 2000 1999
Sales to regular utility customers,
gigawatt-hours (Note 1) 33,753 32,794
Revenues ($000) (Note 2)
Regular Utility Customers $1,710,499 $1,646,000
Other Utility Revenues 66,956 64,480
Gas Revenues 25,447 -
Unregulated Generation 977,998 358,927
Allegheny Ventures 9,671 5,343
Total ($000) $2,790,571 $2,074,750
Consolidated income before extraordinary and
other transactions ($000) $233,946 $233,621
West Virginia extraordinary charge (Note 4) (70,505) -
Consolidated net income ($000) $163,441 $233,621
Basic and diluted earnings per average share (Note 3)
Before extraordinary and other transactions $2.12 $1.98
West Virginia extraordinary charge (Note 4) (0.64) -
Consolidated earnings per share $1.48 $1.98
Average common shares outstanding (000) 110,436 118,192
Twelve months ended September 30, 2000 2000 1999
Sales to regular utility customers,
gigawatt-hours (Note 1) 44,803 43,401
Revenues ($000) (Note 2)
Regular Utility Customers $2,258,014 $2,177,135
Other Utility Revenues 82,685 82,158
Gas Revenues 25,447 -
Unregulated Generation 1,139,441 379,253
Allegheny Ventures 18,675 12,911
Total ($000) $3,524,262 $2,651,457
Consolidated income before extraordinary and
other transactions ($000) $305,677 $305,511
West Virginia, Maryland and Pennsylvania
extraordinary charges (Note 4) (87,455) (9,980)
Reacquired debt extraordinary charge (10,018) -
Merger-related costs (11,801) -
Davis pumped-storage generation project costs (8,160) -
Pennsylvania settlement costs - (23,748)
Consolidated net income ($000) $188,243 $271,783
Basic and diluted earnings per average share (Note 3)
Before extraordinary and other transactions $2.77 $2.56
West Virginia, Maryland, and Pennsylvania
extraordinary charges (Note 4) (0.79) (0.08)
Reacquired debt extraordinary charge (0.09) -
Merger-related costs (0.11) -
Davis pumped-storage generation project costs (0.07) -
Pennsylvania settlement costs - (0.20)
Consolidated earnings per share $1.71 $2.28
Average common shares outstanding (000) 110,436 119,262
Note 1: Excludes bulk power transaction sales.
Note 2: Excludes intercompany sales between nonutility and utility.
Note 3: Basic and diluted earnings per share are the same.
Note 4: Costs after taxes determined to be unrecoverable as a result of deregulation
proceedings in West Virginia, Maryland, and Pennsylvania.
</TABLE>
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Item 6. Not Applicable
Item 7. Exhibits
Item 7 (a) - (b) Not Applicable
Item 7 (c) Ex. 12 - Statement re computation of ratio
of earnings to fixed charges
Item 8. Not Applicable
Item 9. Regulation FD Disclosure
In addition to the information filed herewith under
the subheading Earnings Release under Item 5, the
Company's October 26, 2000 Earnings News Release
stated as follows:
According to Michael P. Morrell, Senior Vice
President and Chief Financial Officer, the
Company remains well-positioned to take
advantage of changes in the energy
marketplace.
"Allegheny Energy continues to execute its
growth strategy. Our recent acquisitions of
Mountaineer Gas and West Virginia Power are
helping to deliver stable earnings growth,
while our unregulated businesses--Allegheny
Energy Supply and Allegheny Ventures--
continue to perform well in the competitive
marketplace. Although their performance for
the quarter lagged that of the previous third
quarter, our unregulated businesses posted
year-to-date earnings per share that were
more than 26 percent higher than the same
period last year. Our supply business, in
particular, achieved strong year-to-date
earnings growth despite one of the mildest
summers on record in our region," added
Morrell.
"Our Company continues to make progress
toward our goal of growing earnings from
operations by more than 10 percent per year
over the 2000-2004 time frame," he said.
"With our solid third quarter results, we
believe we are well-positioned to meet our
earnings target for the year."
Allegheny Energy remained active during the
third quarter on a variety of fronts aimed at
increasing revenue and adding to shareholder
value. Some of the highlights of the quarter
include:
Allegheny Will Lead the Formation of PJM West
Allegheny Power and the Pennsylvania-New
Jersey-Maryland (PJM) Interconnection, LLC,
announced the execution of an agreement in
principle to develop a new electric
transmission system affiliation which will
expand the Mid-Atlantic energy market,
enabling the Company to take advantage of
<PAGE>
opportunities in one of the country's most
liquid and active competitive energy markets.
We will lead development of the new
initiative, known as PJM West, which will
provide transmission service to all market
participants in accordance with the
requirements of the Federal Energy Regulatory
Commission (FERC) Order 2000, while
simultaneously expanding the PJM market.
Allegheny Plans to Build New Power Plant in Arizona
Allegheny Energy Supply Company, LLC, plans
to construct a 1,080-megawatt (MW) natural
gas-fired merchant generating facility in La
Paz County, Arizona, approximately 75 miles
west of Phoenix. Development of this new
power plant marks a major step forward in our
corporate strategy that includes becoming a
national energy supplier. Construction is
expected to begin on the $540 million
combined-cycle facility in 2002. When
completed in 2005, the facility will boost
Allegheny's generating fleet to about 11,000 MW.
Mountaineer Gas Joins the Allegheny Energy
Family, Adding 200,000 New Customers
We have successfully completed our $323
million purchase of Mountaineer Gas Company--
West Virginia's largest natural gas provider-
-from Energy Corporation of America. The
addition of Mountaineer Gas to the Allegheny
Energy family is another step in our strategy
of diversifying our energy business and
growing through acquisitions, broadening our
reach into new markets. This acquisition
expands Allegheny's service territory to more
than 31,000 square miles and our customer
base to 1.6 million customers. It also
provides us with 11.7 billion cubic feet of
gas storage and 200,000 new natural gas
customers in a region where we already
provide energy services.
New Director Elected to Allegheny Energy Board
Lewis B. Campbell, Chairman and Chief
Executive Officer of Textron, Inc. (NYSE:
TXT), has been elected to the Allegheny
Energy Board of Directors. Throughout his
career, Campbell has held a number of
leadership positions at Textron, as well as
at General Motors. His extensive experience
and background in market-driven businesses
will be a real asset for Allegheny Energy as
we move forward with our growth initiatives
in competitive markets.
Allegheny Energy invites investors, the news
media, and others to listen to a live
internet broadcast of the Company's analyst
conference call to discuss third quarter
earnings on October 27 at 11 a.m. (EST). The
<PAGE>
call will be available by visiting
www.alleghenyenergy.com or
www.streetevents.com and clicking on an
available audio link. The call will also be
archived on both web sites for replay
purposes for 10 working days after the live
broadcast.
Certain statements above constitute forward-
looking statements with respect to Allegheny
Energy, Inc. Such forward-looking statements
involve known and unknown risks,
uncertainties, and other factors that may
cause the actual results, performance, or
achievements of Allegheny Energy to be
materially different from any future results,
performance, or achievements expressed or
implied by such forward-looking statements.
Such factors may affect Allegheny Energy's
operations, markets, products, services, and
prices. Such factors include, among others,
the following: general and economic and
business conditions; industry capacity;
changes in technology; changes in political,
social, and economic conditions; regulatory
matters; integration of the operations of
Allegheny Energy; regulatory conditions
applicable to the transaction; the loss of
any significant customers; and changes in
business strategy or business plans.
<PAGE>
<TABLE>
<CAPTION>
ALLEGHENY ENERGY HIGHLIGHTS
September 30, 2000
<S> <C> <C> <C>
Third Quarter 2000 1999 Incr. (Decr.)
Revenue from Regular Utility Customers ($ millions)
Residential $220 $238 -7.6%
Commercial 135 130 3.8%
Industrial 188 177 6.2%
Wholesale and Other 16 12 33.3%
Total Regular Utility Transactions $559 $557 0.4%
Revenue from Other Utility Transactions ($ millions) (Note 1) $35 $27 29.6%
Gas Revenues ($ millions) $12 $0
Unregulated Generation ($ millions) (Note 1) $450 $156 188.5%
Allegheny Ventures ($ millions) (Note 1) $2 $1 100.0%
Sales to Regular Utility Customers (gigawatt-hours)
Residential 3,227 3,497 -7.7%
Commercial 2,467 2,380 3.7%
Industrial 5,027 4,877 3.1%
Wholesale and Other 376 396 -5.1%
Total Regular Utility Transactions 11,097 11,150 -0.5%
Other Operation and Maintenance ($ millions) * $140 $144 -2.8%
Year to Date
Revenue from Regular Utility Customers ($ millions)
Residential $713 $705 1.0%
Commercial 396 376 5.3%
Industrial 555 533 4.1%
Wholesale and Other 47 32 46.9%
Total Regular Utility Transactions $1,711 $1,646 3.9%
Revenue from Other Utility Transactions ($ millions) (Note 1) $67 $64 4.7%
Gas Revenues ($ millions) $25 $0
Unregulated Generation ($ millions) (Note 1) $978 $359 172.4%
Allegheny Ventures ($ millions) (Note 1) $10 $5 100.0%
Sales to Regular Utility Customers (gigawatt-hours)
Residential 10,300 10,313 -0.1%
Commercial 7,104 6,729 5.6%
Industrial 15,213 14,638 3.9%
Wholesale and Other 1,136 1,114 2.0%
Total Regular Utility Transactions 33,753 32,794 2.9%
Other Operation and Maintenance ($ millions) * $430 $425 1.2%
Twelve Months Ended
Revenue from Regular Utility Customers ($ millions)
Residential $938 $918 2.2%
Commercial 521 496 5.1%
Industrial 742 717 3.5%
Wholesale and Other 57 47 21.3%
Total Regular Utility Transactions $2,258 $2,178 3.7%
Revenue from Other Utility Transactions ($ millions) (Note 1) $83 $82 1.2%
Gas Revenues ($ millions) $25 $0
Unregulated Generation ($ millions) (Note 1) $1,139 $379 200.5%
Allegheny Ventures ($ millions) (Note 1) $19 $13 46.2%
Sales to Regular Utility Customers (gigawatt-hours)
Residential 13,549 13,541 0.1%
Commercial 9,332 8,849 5.5%
Industrial 20,422 19,556 4.4%
Wholesale and Other 1,500 1,455 3.1%
Total Regular Utility Transactions 44,803 43,401 3.2%
Other Operation and Maintenance ($ millions) * $616 $583 5.7%
* Other operation and maintenance excludes fuel, purchased power costs,
and transmission by others. Amounts for the twelve months ended September
2000 include $19.7 million merger-related costs and $16.2 million related
to the Davis pumped-storage generation project. Amounts for year to date
September 1999 include $5.0 million for MidAtlantic Energy litigation
settlement costs. Amounts for the twelve months ended September 1999
include $21.3 million for Pennsylvania settlement costs and MidAtlantic
Energy litigation settlement costs.
Note 1: Excludes intercompany sales between nonutility and utility.
</TABLE>
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<TABLE>
<CAPTION>
ALLEGHENY ENERGY EARNINGS COMPARISON
(Dollars per Share)
September 2000 versus September 1999
<S> <C> <C>
Quarter Year-to-Date
2000
Utility EPS $0.571 $1.724
Nonutility EPS:
Unregulated Generation 0.113 0.379
Allegheny Ventures 0.005 0.015
Extraordinary Charge (0.000) (0.638)
Reported EPS 0.689 1.480
1999
Utility EPS 0.461 1.665
Nonutility EPS:
Unregulated Generation 0.161 0.322
Allegheny Ventures (AYP Capital) 0.003 (0.010)
Extraordinary Charge 0.000 0.000
Reported EPS 0.625 1.977
Variance (2000 Reported EPS less 1999 Reported EPS) $0.064 ($0.497)
Variance Reconciliation *
Net Revenues:
Sales and Deliveries:
Number of Customers $0.023 $0.039
Weather (0.050) (0.045)
Usage/Cost of Energy 0.024 0.082
Pennsylvania CTC True-Up Accrued 0.020 (0.040)
West Virginia Power Acquisition 0.025 0.094
Mountaineer Gas Acquisition 0.031 0.031
Other Revenues (0.004) 0.006
Total Net Revenues Variance ** 0.069 0.167
Operation & Maintenance:
Production 0.009 (0.013)
Transmission and Distribution (0.027) (0.025)
Customer Accounting and Services (0.005) 0.010
Administrative and General 0.015 (0.034)
Total Operation & Maintenance Variance (0.008) (0.062)
Other:
Depreciation 0.036 0.039
Taxes other than Income Taxes (0.051) (0.088)
Other Income 0.009 0.052
Interest Costs (0.080) (0.208)
Preferred Dividends of Subsidiaries 0.031 0.016
Redemption Premium on Preferred Stock 0.004 0.032
Repurchase of Shares 0.022 0.139
Income Tax 0.049 0.055
All Other (0.019) (0.026)
Total Other Variance 0.001 0.011
Allegheny Ventures Variance 0.002 0.025
Total EPS Variance before Extraordinary Charge 0.064 0.141
Extraordinary Charge 0.000 (0.638)
Total EPS Variance $0.064 ($0.497)
* For comparative purposes, unregulated generation
is reflected in the various categories.
** Revenues less fuel, purchased power costs and
transmission by others.
</TABLE>
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<TABLE>
<CAPTION>
ALLEGHENY ENERGY SALES COMPARISON
Gigawatt-Hours
September 2000 versus September 1999
<S> <C> <C> <C> <C> <C> <C>
Third Third Year-to Year-to
Quarter Quarter Date Date
2000 1999 % Change 2000 1999 % Change
Monongahela Power 2,942 2,836 3.7% 8,791 8,189 7.4%
Potomac Edison 3,404 3,472 -2.0% 10,500 10,372 1.2%
West Penn Power 4,751 4,842 -1.9% 14,462 14,233 1.6%
Regular Utility Transact 11,097 11,150 -0.5% 33,753 32,794 2.9%
Unregulated Generation 10,257 3,344 206.7% 27,588 9,588 187.7%
</TABLE>
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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.
/s/ THOMAS K. HENDERSON
Name: Thomas K. Henderson
Title: Vice President
Dated: October 27, 2000
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EXHIBIT INDEX
Exhibit
Ex. 12 Statement re computation of ratio of earnings to fixed charges
