`Stodgy' Allegheny becomes live wire in energy markets

Long-ignored utility in Hagerstown turns into Wall Street star

January 28, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

HAGERSTOWN - There's high-voltage action at the headquarters of Allegheny Energy Inc. these days.

First, there's the power company's impressive stock market performance last year. Add to that the billion-dollar program the company began recently to build and buy power plants across the country.

Finally, Allegheny recently announced that it is purchasing an energy trading unit, the final component it needed to buy and sell electricity, natural gas and coal on the open market.

Not bad for a low-profile company that has been virtually ignored by its peers and the investment world for years.

While no one was looking, Allegheny, based on the edge of this Western Maryland city of 36,000, pulled off moves to transform itself from a quiet electric company into a power in the national energy market.

"It's been a very rewarding couple years for us, especially in this last year, when things started coming together for us and Wall Street started noticing us," said Alan J. Noia, Allegheny's president, chief executive officer and chairman, who joined the company as a surveyor's helper in 1966.

"But there's not a whole lot of time to feel good these days, because we're constantly moving on to the next thing.

"We're not this stodgy old utility anymore," Noia said. "We've been saying that for years, but no one believed us."

At least not until recently.

After Allegheny's stock price shot up 79 percent last year - mostly because of its plan to build and acquire more power plants - analysts say the company seems assured of meeting its goal of increasing earnings by 10 percent a year. Ten of 12 analysts tracking Allegheny have marked the company a "buy" or "strong buy."

Another sign of Allegheny's growing prominence appeared in December, when it was added to the Standard & Poor's 500 index, a closely monitored stock market benchmark made up of leading U.S. companies.

Forbes, in issuing its Platinum List of the 400 best big U.S. companies this year, included Allegheny. Forbes said the energy company and the other 399 companies had demonstrated "an innate ability to adapt to change; a hunger to innovate and go against the grain; resiliency in a down industry and amid doubts on Wall Street; and a relentless will to be miserly even in boom times."

If Allegheny's plans to acquire Merrill Lynch & Co. Inc.'s energy-trading unit, Global Energy Markets, go through without a hitch this year, the company will become the 11th-largest power marketer in the nation, competing with its better known neighbor, Baltimore's Constellation Energy Group Inc.

"In time, investors will become increasingly aware of how much progress this company has made," said David Burks, a utilities analyst at J. J. B. Hilliard, W. L. Lyons Inc. in Louisville, Ky. "We view them as a high-quality, well-managed energy company. They've been very pro-active in some of the steps they've taken in recent years, and they've made a commitment to expand their generation capacity.

"Clearly, the company is gaining in size and scale. If they continue to deliver, it will be reflected in an ongoing higher stock price."

Before Allegheny could get bigger, the company had to slim down. It also had to start thinking about diversifying.

Deregulation of the electric industry was looming when Noia took over as CEO in 1996. Noia mapped out a strategy to prepare Allegheny - which can trace its beginnings back 100 years, when power stations were created to provide electricity to railroad companies and lighting for rural towns - for the change.

First, he moved the company's headquarters from Greensburg, a Pittsburgh suburb, to a 365-acre Hagerstown site with plenty of room to expand.

Then, Noia reorganized the old operating structure. Instead of a parent company with three subsidiary utilities and other affiliates, Allegheny created a delivery business, supply business and a venture business, each with its own president.

The delivery business, Allegheny Power, serves 1.6 million customers in five states and includes the regulated utilities Monongahela Power Co., serving customers in West Virginia and Ohio; Potomac Edison Co., serving Western Maryland and parts of Virginia and West Virginia; and West Penn Power Co., serving Western Pennsylvania.

Allegheny Energy Supply Co. operates and markets retail and wholesale electricity generation, and Allegheny Ventures invests in and develops real estate, telecommunications and energy-related projects.

As part of the restructuring, Allegheny reduced its work force by about 20 percent, to 4,800, through layoffs, retirement and attrition. Today, the company has 5,200 employees, with growth coming from acquisitions.

Noia also beefed up Allegheny's lobbying efforts on Capitol Hill to deal with pending energy legislation and politics, and focused the financial department on expanding the company.

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