Potomac Edison will buy Hagerstown power system Parties agree to price, freeze on rates and layoffs

July 25, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Potomac Edison Co. yesterday reached an agreement with the city of Hagerstown to purchase its municipal electric distribution system for $20 million in cash and a promise to freeze customers' rates through 2001.

The agreement, to be voted on by residents in a November referendum, also calls for Potomac Edison to retain Hagerstown City Light's 36 employees for at least two years, invest a minimum of $8 million to upgrade the system, and add a customer-service facility in downtown Hagerstown.

"In light of the electric utility industry's new competitive environment, we realize that we need to continually look for ways to grow the company," said Cynthia Shoop, a Potomac Edison spokeswoman.

Potomac Edison will add 17,000 new Hagerstown customers with the agreement, but the utility declined to provide projections on how the purchase would affect its earnings.

Hagerstown City Light purchases wholesale power from Potomac Edison, which last year cost the city $13.1 million. City Light generated a profit of $750,000 in 1995.

Potomac Edison, a subsidiary of the Allegheny Power System Inc., has $1.6 billion in assets and 362,000 customers in Western Maryland, Virginia and West Virginia.

Allegheny, a $6.5 billion power concern, has a service territory that includes parts of Pennsylvania and Ohio. In all, the Hagerstown-based company serves 1.5 million customers.

The two key elements to cementing the deal, in the works since 1993, were the rate freeze and job protections, said Merle S. Elliott, chairman of an eight-member task force created to study Potomac Edison's proposal. Originally, the utility offered to buy City Light for $13.5 million.

The city sought those guarantees because, on average, Potomac Edison's residential customers pay 17 percent more for electricity than Hagerstown City Light customers, Shoop said.

Furthermore, Allegheny announced plans this year to slash 1,000 jobs and take a restructuring charge of up to $100 million.

Additionally, Potomac Edison has pledged not to raise rates by more than the Consumer Price Index after 2001.

"The view of the committee was that this was a business not likely to expand for the city, we had a buyer that was willing to pay a reasonable price, along with a rate freeze and a number of attractive protections and enhancements," Elliott said.

Pub Date: 7/25/96

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