Feb 27, 2003 3 min read

NEW YORK (Dow Jones/AP) – Allegheny Energy Inc. Wednesday said it has sued California seeking up to $10 billion in damages over a long-term power contract, and will restate financial results from last year. An Allegheny subsidiary holds a $4.4 billion contract with the California Department of Water Resources, which has said the deal is overpriced and has sought to have it voided or restructured.

Hagerstown, Md.-based Allegheny Energy is seeking $6 billion to $10 billion for breach of contract and fraud from the CDWR, the Public Utilities Commission, and the Electricity Oversight Board. The claims were filed Friday in the California Board of Control, according to a copy of the filing.

The CDWR has tried for more than a year to renegotiate or cancel the $43 billion in long-term contracts it signed at the height of the state’s energy crisis, when wholesale power prices were at record levels. In late January, CDWR filed a lawsuit in Sacramento Superior Court against Allegheny Energy claiming the company had breached its contract and that the deal was void due to the company’s “declining financial condition” and because it transferred the deal to a newly created unit.

Separately, Allegheny Energy Chief Financial Officer Bruce Walenczyk said a Web cast analyst conference that the company has found more errors in its financial statements and may have to restate unaudited financial data it released for the nine months ended September 30.

On Tuesday, Allegheny Energy said it reached an agreement with its lenders for a new credit agreement totaling $2.4 billion. The utility also forecast earnings of $1 a share for 2003, and 96 cents a share for 2004.

Analysts were expecting 2003 earnings of $1.29 a share, and 2004 earnings of $1.51 a share, according to Thomson First Call.

“They sort of stepped on the neck of investors first thing out of the box,” said analyst Christopher Ellinghaus of Williams Capital. “It clearly portrayed a kind of unpleasant fundamental picture for the company.”

Shares of Allegheny Energy were down $2.48, or 30 percent, at $5.72 in afternoon trading on the New York Stock Exchange.

Allegheny officials attributed the poor forecast mostly to higher debt levels and interest expenses.

In a filing with the Securities and Exchange Commission, the company said it expected to pay $424 million in interest for 2003 and $447 million for 2004. That compares with $221 million for the nine months ended Sept. 30.

On the Web cast, company executives referred to the financial forecast as “base case” and said that they were “reasonably conservative.” They also noted the stress on the energy sector resulted in an abnormal operating environment over the last half-year.

Allegheny Energy’s utility operations provide electricity and natural gas to about 1.7 million customers, or 3 million people, in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

UGI Corp., a Pennsylvania utility, Wednesday said it agreed to buy an 83-megawatt interest from Allegheny Energy in the Conemaugh power plant near Johnstown, Pa. for about $51.3 million.

The coal-fired 1,711-megawatt power plant is owned by a consortium of energy companies and is operated by a unit of Reliant Resources Inc.