Higher market prices, higher generation rates, increased retail sales and after-tax income related to the recent settlement of a long-running legal battle helped boost Allegheny Energy Inc.’s 4Q2007 earnings to $110.4 million (65 cents/share), up from $64.6 million (38 cents/share) in 4Q2006.
Allegheny CEO Paul Evanson pointed to the company’s recent return to investment grade status and Allegheny’s ability to pay a 15 cents/share dividend in December — the first dividend paid by the company in five years — as signs that Allegheny is on its way to becoming a “top-performing, high-growth utility.”
Key factors contributing to the improved results included operating revenues increasing by $49.4 million compared to 4Q2006, reflecting higher market prices, higher generation rates in Pennsylvania and increased retail sales, partially offset by lower generation output, reflecting unplanned outages at power plants.
Adjusted earnings before interest, taxes, depreciation and amortization for 4Q2007 were $243.6 million, an increase of $8.9 million compared to 4Q2006.
Adjusted net income for the quarter was $78.6 million (46 cents/share), up $16.8 million from 4Q2006. That figure excluded $31.8 million of after-tax income related to a litigation settlement with Merrill Lynch & Co. Inc., primarily representing the reversal of accrued interest no longer required, Allegheny said.
Last month Allegheny and Merrill signed an agreement bringing to an end the legal battle the two had fought since Allegheny’s purchase of Merrill’s Global Energy Market (GEM) energy commodities trading unit in 2001 (see Daily GPI, Jan. 29). Under the settlement agreement, Merrill will convey its minority equity interest in Allegheny Energy Supply Company LLC to Allegheny, Allegheny will make a cash payment of $50 million to Merrill — less than half the amount ordered by a court in 2005 — and all litigation and claims associated with the case will be dismissed, Allegheny said.
“We believe this is a fair settlement, considering the effort, expense and exposure of continued litigation,” Evanson said. “It’s good to put this last vestige of the failed past behind us.”
“We do not expect any further direct income statement impact from the Merrill Lynch settlement,” said Allegheny CFO Phil Goulding. “Under the settlement agreement, we will pay Merrill Lynch $50 million in 2008. This payment will be accounted for as a purchase of minority interest, which will have a balance sheet impact and no charge to income.”
Allegheny’s fuel costs increased by $20.5 million in 4Q2007, reflecting higher coal prices, and purchased power and transmission expense increased by $14.9 million, primarily due to increased purchases of energy and associated services from third parties and increased PURPA generation purchases.
For full-year 2007, Allegheny posted profit of $412.2 million ($2.43/share), up from $319.3 million ($1.89/share) in 2006. Adjusted net income for the year — which excludes after-tax income related to the Merrill settlement and discontinued operations — was $384.8 million ($2.26/share), compared to $307.8 million ($1.83) in 2006.
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