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Allegheny Energy buys West Virginia Power

Friday, September 10, 1999

By Patricia Sabatini, Post-Gazette Staff Writer

Like an infant entering toddlerhood, Allegheny Energy Inc. yesterday took another small step in a major expansion and diversification plan, announcing a deal to buy a West Virginia power company and a sister firm that installs and services heating and cooling systems.

Allegheny agreed to pay $75 million for West Virginia Power, an electric and natural gas delivery company owned by Kansas City, Mo.-based UtiliCorp United Inc. The deal doesn't include any power-generating facilities.

Allegheny also will pay $3.45 million for UtiliCorp's Appalachian Electric Heating company, a heating, ventilation and air conditioning business in West Virginia Power's service area.

The deal is relatively small, adding 26,000 electric customers and 24,000 gas customers to Allegheny Power's 3 million electric customers in Pennsylvania, Ohio, West Virginia, Virginia and Maryland. Still, it's significant, since it marks Allegheny's first foray into the natural gas arena.

"[The transaction] makes good sense because it's such a good geographic and strategic fit," Allegheny Power President Jay Pifer said. "It ties into our strategy of adding additional customers and entering the gas business."

Analyst Dan Ford said the deal made sense.

"For Allegheny, it's a natural expansion of their own West Virginia service territory," said Ford, of HSBC Securities in New York.

UtiliCorp., meanwhile, gets rid of a relatively small property a long way from the bulk of its operations.

The $75 million price tag was in line with other recent distribution company sales, Ford said. The acquisition, which is subject to regulatory approvals, is expected to close early next year. It's expected to add to Allegheny Energy's earnings in the first year -- a good indication that the company didn't overpay, Ford said.

West Virginia Power employs about 120, while Appalachian Electric employs about 50.

Pifer said it was too early to say if layoffs were coming.

"We haven't done a detailed analysis of staffing yet. We'll be doing it shortly."

As for customers of West Virginia Power, Pifer said the only change they should expect is improved service.

"We have a big operation in five [contiguous] states, so if there's a service interruption, we have a lot of resources to move in."

West Virginia Power's rates are about 10 percent higher than Allegheny's in that state, but no rollbacks are planned.

"Initially we propose to keep the same rates they're charging now, but over time, rates will be lower than they would have been" without the sale, Pifer said.

Allegheny, based in Hagerstown, Md., also wants to expand its generating capabilities to become a major supplier of electricity in the competitive wholesale and retail markets across the eastern United States.

As part of that quest, the company plans to break ground in a few weeks on a new gas-fired power plant in the northeast corner of Allegheny County.

The new plant, expected to be ready in January, will be fired up when utilities or other customers are looking for power during periods of peak demand.

Allegheny is looking to buy power plants, which a host of companies are selling in the face of deregulation.

The company's expansion strategy follows the breakup last fall of its merger agreement with DQE Inc., parent of Duquesne Light.

A lawsuit Allegheny filed to force DQE to go through with the merger is pending in federal court.

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