As his company continues to grapple with a heavy debt load, the CEO of Allegheny Energy last week was unable to completely rule out the possibility of Allegheny selling one of its core assets in order to shore up its tattered balance sheet. Specifically, Allegheny CEO Paul Evanson mentioned the possibility of the company’s parting with one of its core properties located within PJM Interconnection.

“We just have too much debt in the capital structure, so we’re going to have to bring that down,” Evanson said in a conference call with investors. “We have been focused on selling non-core assets and some non-productive or non-income producing assets.” Among other things, Allegheny has been looking to unload its Mountaineer Gas segment. But the sale of Mountaineer and other kinds of non-income producing assets is likely only to net somewhere in the $250 million range, he added.

“I still think we have to do more than that to bring that debt level down. It’s just higher than it should be,” so Allegheny continues to evaluate a number of alternatives, including the possibility of equity issuances, Evanson said. “We may have to look at selling one or so of our core assets, if really need be.”

An analyst on the call asked Evanson to explain the difference between Allegheny selling core assets and selling the company outright.

“I’ve been trying to focus solely on selling assets outside of PJM and the legacy assets, but I just wanted to alert everyone that — depending on conditions and depending on how we refinance and depending [on] what happens in lawsuits, etc. — we are not unwilling to sell, say, one core asset,” Evanson responded. “I think we have, at least, four major coal facilities in PJM, all of them, I think, worth significant value, and, I think if need be, selling one of them is not equivalent to selling the company by any stretch,” the Allegheny CEO said.

Allegheny recently announced financial results for the first and second quarters of 2003 and said that it had filed the related quarterly financial reports on Form 10-Q with the Securities and Exchange Commission (SEC). Allegheny expects to file its third quarter financial reports in January.

“As expected, results for the first six months of 2003 reflect major losses in Allegheny’s trading activities in the Western United States energy markets, including the write-down from renegotiating the California contract,” Evanson said in a prepared statement. “By selling that contract in September and closing out other positions, we are now largely out of Western financial trading.”

Allegheny Energy Supply Co. LLC and Allegheny Trading Finance in September completed the sale of an energy supply contract with the California Department of Water Resources and associated hedge transactions to J. Aron & Co., a subsidiary of the Goldman Sachs Group, for approximately $354 million.

Evanson said that 2004 “will be a time of transition for the company as we focus on becoming timely with our SEC filings, refinancing our debt, and creating a high-performance culture that will improve both quality and cost. I am confident that we are taking the right steps for long-term success.”

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