Allegheny Energy Reports Third Quarter 2009 Results

• Press Release
• Source: Allegheny Energy, Inc.
• On 8:43 am EDT, Thursday October 29, 2009

GREENSBURG, Pa.--(BUSINESS WIRE)--Allegheny Energy, Inc. (NYSE: AYE - News) today reported financial results for the third quarter of 2009.

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Adjusted net income for the third quarter of 2009 excludes $19.3 million of pre-tax interest expense related to a debt tender offer and net unrealized pre-tax losses of $18.3 million on economic hedges that do not qualify for hedge accounting. Adjusted net income for the third quarter of 2008 excludes $4.0 million of unrealized pre-tax losses on economic hedges.

Adjusted net income is a non-GAAP financial measure. For information on the calculation of adjusted net income for all periods, see the attached reconciliations of non-GAAP financial measures.

“Adjusted earnings grew in the third quarter due to improved results in our regulated delivery and transmission business,” said Paul J. Evanson, Chairman, President and Chief Executive Officer of Allegheny Energy. “However, the weak economy and low power prices reduced earnings in our generation business. We recently completed several financings which improved our liquidity and financial flexibility, and we continue to focus on cost control. We believe Allegheny is well-positioned to benefit from an economic recovery.”

Third Quarter Consolidated Results

Adjusted net income for the third quarter of 2009 increased by $8.7 million compared with the same period in 2008. Key factors contributing to the results include:

• Adjusted operating revenues decreased by $41.6 million, reflecting reduced generation volume, largely due to weak demand and lower power prices, as well as planned outages to complete the installation of scrubbers at the Hatfield’s Ferry power plant. Factors benefiting revenues included higher rates in Pennsylvania, increased cost recovery in Virginia, hedging activity, increased revenue from transmission expansion and increased sales to third parties.
• Fuel expense decreased by $111.2 million, primarily due to reduced generation volume and lower gas prices, partially offset by higher coal prices.
• Purchased power costs were higher by $26.1 million, primarily due to increased purchases from third parties to serve Maryland customers.
• Deferred energy expense increased by $4.4 million due to a fuel and energy cost recovery clause in West Virginia.
• Operations and maintenance costs decreased by $1.1 million.
• Depreciation increased $3.9 million, primarily due to placing some scrubber equipment in service at the Hatfield’s Ferry power plant.
• Adjusted interest expense increased $7.9 million, primarily due to higher debt balances and lower capitalized interest.
• Adjusted income tax expense increased by $13.9 million due to a higher effective tax rate and an increase in adjusted pre-tax income.

Adjusted EBITDA for the third quarter of 2009 was $297.0 million, an increase of $34.4 million compared to the same quarter of the prior year. EBITDA and adjusted EBITDA are non-GAAP financial measures. Details on the calculation of EBITDA and adjusted EBITDA, as well as reconciliations of these financial measures to net income, are attached to this release.

Adjusted net income for the Generation and Marketing segment in both the third quarter of 2009 and 2008 excludes net unrealized pre-tax losses previously discussed, and the 2009 third quarter adjusted results also exclude expense related to a debt tender offer. There were no adjustments in the Delivery and Services segment for the third quarter of either year.

Generation and Marketing: Adjusted net income for the quarter decreased by $18.5 million compared to the same period a year earlier. Results were adversely impacted by lower generation volume and power prices, as well as the scrubber tie-in work at Hatfield’s Ferry and the elimination of an intercompany transfer payment, partially offset by higher generation rates in Pennsylvania, the benefit of hedging activity, lower fuel costs and lower income taxes.

Delivery and Services: Net income for the quarter increased by $27.2 million compared to the same period a year earlier. Key factors contributing to the improved results include increased cost recovery in Virginia, the elimination of an intercompany transfer payment and higher revenues from transmission expansion. These benefits were partially offset by lower retail electricity sales and higher income taxes, primarily due to an increase in pre-tax income.

Nine-Month Consolidated Results

Adjusted net income for the nine months ended September 30, 2009 decreased by $20.1 million compared to the same period in 2008. Adjusted EBITDA for the nine months ended September 30, 2009 increased by $38.5 million compared to the same period of the prior year. Details on the calculation of EBITDA and adjusted EBITDA, as well as reconciliations of these financial measures to net income, are attached to this release.

Adjusted net income for the Generation and Marketing segment for the nine-month period of 2009 and 2008 excludes net unrealized pre-tax gains associated with economic hedges that do not qualify for hedge accounting and the 2009 nine-month results also exclude interest expense related to the debt tender offer previously discussed. There were no adjustments in the Delivery and Services segment for the nine-month period of either year.

Reconciliation of Non-GAAP Financial Measures

This news release includes presentation of financial information in accordance with generally accepted accounting principles (GAAP), and also includes adjusted net income, EBITDA, adjusted EBITDA and other non-GAAP financial measures as defined in the Securities and Exchange Commission’s Regulation G.

Management believes that presenting these additional financial measures provide investors with a more complete understanding of the core results and underlying trends from which to consider past performance and prospects for the future. These financial measures should not be considered in isolation or viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as a measure of operating performance or liquidity.

Pursuant to the requirements of Regulation G, tables are attached that reconcile non-GAAP financial measures in this release to the most directly comparable GAAP measure.

Investor Conference Call

Allegheny Energy will discuss these results in a live Internet broadcast at 1:00 p.m. Eastern Daylight Time on Thursday, October 29, 2009. To listen, visit www.alleghenyenergy.com. Slides to be used in the Webcast presentation will be available at www.alleghenyenergy.com at approximately 9:30 a.m. Eastern Daylight Time on Thursday, October 29. A taped replay will be available after the live broadcast.

Allegheny Energy

Headquartered in Greensburg, Pa., Allegheny Energy is an investor-owned electric utility with total annual revenues of over $3 billion and more than 4,000 employees. The company owns and operates generating facilities and delivers low-cost, reliable electric service to 1.6 million customers in Pennsylvania, West Virginia, Maryland and Virginia. For more information, visit the company’s Web site at www.alleghenyenergy.com.

Forward-Looking Statements

In addition to historical information, this release may contain a number of "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Words such as anticipate, expect, project, intend, plan, believe, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These include statements with respect to: rate regulation and the status of retail generation service supply competition in states served by Allegheny Energy’s distribution business, Allegheny Power; financing plans; demand for energy and the cost and availability of raw materials, including coal; provider-of-last-resort and power supply contracts; results of litigation; results of operations; internal controls and procedures; capital expenditures; status and condition of plants and equipment; capacity purchase commitments; and regulatory matters. Forward-looking statements involve estimates, expectations and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations. Factors that could cause actual results to differ materially include, among others, the following: plant performance and unplanned outages; changes in the price of power and fuel for electric generation; general economic and business conditions; changes in access to capital markets and actions of rating agencies; complications or other factors that render it difficult or impossible to obtain necessary lender consents or regulatory authorizations on a timely basis; environmental regulations; the results of regulatory proceedings, including proceedings related to rates; changes in industry capacity, development and other activities by Allegheny Energy’s competitors; changes in the weather and other natural phenomena; changes in customer switching behavior and their resulting effects on existing and future load requirements; changes in the underlying inputs and assumptions, including market conditions used to estimate the fair values of commodity contracts; changes in laws and regulations applicable to Allegheny Energy, its markets or its activities; the loss of any significant customers or suppliers; dependence on other electric transmission and gas transportation systems and their constraints or availability; inflationary and interest rate trends changes in market rules, including changes to PJM participant rules and tariffs; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies and accounting issues facing our organization; and the continuing effects of global instability, terrorism and war. Additional risks and uncertainties are identified and discussed in Allegheny Energy’s reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document. Allegheny Energy undertakes no obligation to update its forward-looking statements to reflect events or circumstances after the date of this release.

Notes to Reconciliation of Non-GAAP Financial Measures:

⁽¹⁾ Adjustments relating to certain unrealized gains/(losses) included in GAAP operating revenues:

⁽²⁾ In September, 2009, Allegheny Energy Supply purchased its outstanding 7.80% Notes due 2011 and its 8.25% Notes due 2012 in the aggregate principal amount of $244.3 million, pursuant to a cash tender offer. The costs associated with this purchase in the amount of $19.3 million were charged to interest expense in the GAAP basis consolidated statement of income.

Allegheny Energy, Inc.
Media contact:
David Neurohr
Director, External Communications
Phone: 724-838-6020
Media Hotline: 1-888-233-3583
E-mail: dneuroh@alleghenyenergy.com
OR
Investor contact:
Max Kuniansky
Executive Director, Investor Relations
and Corporate Communications
Phone: 724-838-6895
E-mail: mkunian@alleghenyenergy.com