NGI The Weekly Gas Market Report
Allegheny Energy’s delivery business Allegheny Power plans tobuy Mountaineer Gas Co. (MGC), a wholly owned subsidiary of EnergyCorp. of America (ECA), for $323 million, including assumption of$100 million in debt. The deal would give Allegheny its second gasdistribution system, assuming the previously announced plan toacquire UtiliCorp’s West Virginia Power division goes through.
Gaining Mountaineer Gas, West Virginia’s largest gas provider,would give Allegheny Energy 11.7 Bcf of gas storage and 200,000 newgas customers in a region where the company already provides energyservices. The deal would grow Allegheny’s service territory to morethan 30,000 square miles and its customer base to 1.6 million.Allegheny expects to manage Mountaineer Gas operations fromCharleston, WV.
“One component of Allegheny Energy’s growth strategy is theexpansion of our energy delivery business,” said Allegheny CEO AlanJ. Noia. “While we will continue to grow our generation and supplyassets, we believe that adding delivery operations increases ourcustomer base and provides stable cash flow while at the same timediversifying our asset portfolio.”
Allegheny expects cost savings to come primarily fromintegration of administrative functions. Mountaineer Gas’ serviceterritory is contiguous to Allegheny Energy’s and adjoins theservice territory of its most recent acquisition, West VirginiaPower. The deal depends upon, among other things, approvals of thePublic Service Commission of West Virginia and the Securities andExchange Commission, both expected within six months. Thecombination is expected to be accounted for as a purchase and isanticipated to be accretive to Allegheny Energy’s earnings in thefirst full year of the combination.
“I think they’re looking to make distribution acquisitions partof growing their customer base,” said Donaldson Lufkin &Jenrette analyst Jay Dobson. “So long as they pay reasonable pricesfor these things, it’s not a terrible strategy. Obviously it’sstill regulated, so it doesn’t have tremendous upside. Thistransaction looks to be on average with other transactions we’veseen.”
In September, Allegheny Power announced plans to buy UtiliCorp’sWest Virginia Power for $75 million (see Daily GPI Sept. 10). Thedeal would add 26,000 electric customers and 24,000 gas customers.At the time, Allegheny also signed a 20-year gas supply agreementwith UtiliCorp subsidiary Aquila Energy.
Last week the Public Service Commission of West Virginia (PSC)gave its blessing to the West Virginia Power deal (see Daily GPIDec. 14). Before completion, the Security and Exchange Commissionstill must give its approval. The purchase has already received thego-ahead from the Federal Energy Regulatory Commission and theFederal Trade Commission. The PSC specified a six-year freeze ofgas base rates and a three-year freeze on electric rates beimplemented. The commission also required a reduction in rates in2003 to rates now offered by Monongahela Power Co., an AlleghenyEnergy subsidiary doing business in West Virginia as AlleghenyPower.
“The interesting thing about the gas purchases is they’recontiguous to our existing service area, but in both cases thereare a few gas customers already in our existing electric servicearea,” said Allegheny spokesman Allen Staggers. “For example, ofthe 200,000 customers of Mountaineer gas, 40,000 are in AlleghenyPower’s existing service area.”
Gas “is the other part of the energy product mix,” Staggerssaid. “By having both we can naturally offer both forms of energyto our customers. We believe it’s a very complementary business toours.” He said the company “would probably continue” to look at gasdistribution assets. “We’re just now finishing up our analysis ofthe West Virginia Power operations as far as how we plan tointegrate those into our company. With this [Mountaineer]acquisition being 10 times as large as that, that’s going to changethings.” With the two acquisitions completed, Allegheny willprovide electric or gas service in every county in West Virginia.
Allegheny also is diving into gas-fired generation for the firsttime with the ongoing installation of two 44 MW units at theSpringdale Power Station in Allegheny County, PA. The company’sgeneration currently is 89% coal, 1% hydro and 10% pumped storage.
Allegheny Energy is headquartered in Hagerstown, MD. AlleghenyPower delivers electricity to about three million people in partsof Maryland, Ohio, Pennsylvania, Virginia, and West Virginia.Allegheny Energy Supply Co. LLC operates and markets competitiveretail and wholesale electric generation and operates regulatedelectric generation for its affiliates. Allegheny Ventures investsin and develops energy-related and telecommunications projects.
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