Jul 9, 2002 3 min read

HAGERSTOWN, Md. (AP) – Allegheny Energy Inc. said Monday it will cut 600 jobs, or 10 percent of its work force, and cancel construction of two power plants to help cut costs after an unexpectedly weak first half. The company – with customers in parts of Maryland, Ohio, Pennsylvania, Virginia and West Virginia – also lowered its 2002 earnings estimate by more than 25 percent, citing lower wholesale energy prices, mild winter and spring weather, and substantially decreased energy trading since the collapse of Enron Corp. Allegheny invested heavily last year in energy trading operations. The news sent Allegheny Energy’s stock price down 8 percent, or $7.99 a share, to close at $23.95 on thge.

Most of this year, through a combination of early retirements, normal attrition and layoffs, the company said. Allegheny employs 6,000 people overall. It did not release information about where layoffs would occur. Those actions will reduce costs by about $5 million this year and by $40 million to $50 million annually in coming years, Allegheny said.

The Hagerstown-based company also said it has canceled construction of a 1,080-megawatt generating plant in La Paz County, Ariz., and an 88-megawatt plant in St. Joseph County, Ind., reducing capital expenses by about $700 million over the next several years.

Those actions and others are aimed at lowering pretax operating expenses by $45 million for the rest of 2002, Allegheny said.

“These are challenging times for our company, but we are taking immediate action to bolster our financial performance,” Allegheny chairman Alan J. Noia said. “The Allegheny Energy management team and I recognize that these challenging times call for prudent and decisive actions that will allow us to continue to provide shareholder value, while offering customer service that is unmatched in our industry.”

The company estimated 2002 earnings at $2.50 to $2.70 a share, down from its previous forecast of $3.60 to $3.70 per share. The consensus forecast of analysts surveyed by Thomson Financial/First Call was for 2002 earnings of $3.15 a share.

Allegheny will announce second-quarter earnings later this month.

As a result of its actions, Allegheny said it expects to record charges to earnings in the second and third quarters of 2002. The cancellation of power plants will result in a pretax charge of about $40 million; the charge related to the job cuts hasn’t yet been calculated, the company said.

In addition, Allegheny said it may take a charge against earnings this year reflecting overpayment for two West Virginia companies – Mountaineer Gas Co. and West Virginia Power Co. – that Allegheny bought in 2000. New accounting rules this year require companies to review the amount, known as “goodwill,” that they paid above and beyond the asset’s book value.

Allegheny recorded $195 million worth of goodwill in its acquisition of the West Virginia assets.