Allegheny Energy subsidiary Monongahela Power Co. has reached an agreement to sell all of its natural gas distribution operations in West Virginia to a partnership of IGS Utilities LLC, IGS Holdings LLC and affiliates of ArcLight Capital Partners LLC for $141 million in cash, $87 million in assumed long-term debt and $16 million to settle certain inter-company accounts over the next three years.

Allegheny said proceeds from the sale would be used to reduce debt. “The sale of our West Virginia natural gas operations is another milestone in our financial recovery plan,” stated Chairman Paul J. Evanson. “By selling this business, we can now focus better on our core electric generation and delivery business.”

The sale includes Mountaineer Gas Co., a subsidiary of Monongahela Power, and the West Virginia Power Gas Services assets — both of which do business in West Virginia as Allegheny Power. It also includes Mountaineer Gas Services, a subsidiary of Mountaineer Gas.

“The natural gas businesses that are in this deal were both acquired in 2000 so they are relatively recent additions and are two pieces of our company that can logically be broken apart,” said Allegheny spokesman Allen T. Staggers.

Allegheny expects to record a loss on the sale of $40 million ($25 million, net of income taxes) in the third quarter of 2004. The agreement is subject to certain closing conditions and approvals. Closing of the sale is expected to be completed in early 2005.

Allegheny has sold a number of assets over the last two years to reduce debt, strengthen its balance sheet and avert bankruptcy. Earlier this year, it announced the sale of Ohio Valley Electric to Buckeye Power. It also has sold several power plants and other unregulated businesses.

“I think we’re on the road to financial recovery,” said Staggers. “I think our chairman and CFO will probably have a lot more to say about that tomorrow [during a second quarter earnings conference call with analysts]. “In 2003 I don’t think that it’s any secret that we narrowly averted bankruptcy. A key to improving our finances was accomplished earlier this year when we announced that we closed a new credit facility and long-term loan agreements. In essence we refinanced the company,” and are in much better shape because of it, said Staggers.

The company said late Thursday that it posted a second quarter loss of $39.5 million, or 31 cents a share, compared to a loss of $231.5 million, or $1.82 a share, in the same quarter a year earlier.

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