Energy maker buys entree

Allegheny unit gains a national network to sell its power

Becoming top 10 dealer

March 17, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

In another step toward becoming one of the top 10 power marketers in the nation, Allegheny Energy Inc. of Hagerstown announced yesterday that its subsidiary completed a $490 million purchase of Global Energy Markets, formerly Merrill Lynch & Co. Inc.'s energy trading unit.

As part of the purchase price, Merrill Lynch gained a 2 percent equity stake in Allegheny Energy Supply Co., Allegheny Energy's power generation subsidiary and the purchaser of Global.

The transaction is expected to add 30 to 40 cents a share almost immediately to Allegheny Energy's earnings and increase earnings by more than 10 percent a year.

"It's a very good deal for the company because it gives Allegheny Energy a national-level energy trading and marketing organization that will enhance the value of their emerging, unregulated generating fleet," said Maurice E. May, an equity analyst who covers a number of power companies for Friedman, Billings, Ramsey and Co.

"Quite a few independent power companies have these trading operations - in Baltimore, Constellation Energy Group has a first-rate one.

"It is an important component for a growing, independent power-producing company," May said.

In the transaction, which was first announced on Jan. 8, Allegheny Energy Supply is getting a powerful new unit.

After only two years, Global Energy Markets is ranked in the top 20 in the nation in terms of electric volume traded as of the third quarter of 2000 by Power Markets Weekly, an industry trade publication.

Global Energy Markets will change its name to Allegheny Energy Global Markets and give Allegheny Energy Supply the support infrastructure necessary to trade electricity, natural gas and other fuels on the national wholesale market.

The trading unit will continue to be based in New York City and be headed by Daniel L. Gordon, the former head of Global.

"The Global Energy Markets acquisition brings significant value to our shareholders and positions our company among the top players in the national energy marketplace," said Alan J. Noia, chairman, president and chief executive of Allegheny.

Allegheny officials had previously said that the addition of a commodity marketing and trading unit would enhance the value of Allegheny Energy Supply in the event of an initial public offering and spin-off.

Its neighbor, Constellation, is planning to complete a similar maneuver this year when it splits into two publicly traded companies, one an unregulated business that will generate and sell power nationwide and the other a regional electric company that will be called BGE Corp. and include its regulated subsidiary, Baltimore Gas and Electric Co.

"The power-trading business has become more sophisticated over the years," May said. "It is hard to determine exactly how this will affect them, but these companies seem to make more money when energy prices are volatile and less money when prices are stable.

"Energy prices have been pretty agitated this year so profitability should remain high - should it stay that way."

Shares of Allegheny rose 33 cents on the New York Stock Exchange yesterday to close at $45.83.

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