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Allegheny Energy, Inc. Q2 2010 Earnings Call Transcript

Allegheny Energy, Inc. Q2 2010 Earnings Call Transcript

Allegheny Energy, Inc. (AYE)

Q2 2010 Earnings Call Transcript

August 4, 2010 1:00 pm ET

Executives

TST Recommends

Max Kuniansky – Executive Director, IR and Corporate Communications

Paul Evanson – Chairman, President and CEO

Kirk Oliver – SVP and CFO

Analysts

Brian Chin – Citigroup

Ali Agha – SunTrust Robinson Humphrey

Paul Patterson – Glenrock Associates

Reza Hatefi – Decade Capital

Edward Heyn – Catapult

Brian Russo – Ladenburg Thalmann

Daniele Seitz – Dudack Research

Kevin [ph] – Credit Suisse

Robert Howard – Prospector Partners

Presentation

Operator

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» Allegheny Energy Inc. Q2 2009 Earnings Call Transcript

Good afternoon and welcome to the Allegheny Energy second quarter 2010 financial results conference call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mr. Max Kuniansky, Executive Director, Investor Relations and Corporate Communications. Sir, please go ahead.

Max Kuniansky

Good afternoon, everyone, and thanks for joining us. If you have to leave the call before it’s over, you can listen to the taped replay. You can listen to the replay by telephone, on our Web site, or by podcast and we’ll make it available through August 11.

Some of our statements will be forward-looking. These statements involve risks and uncertainties, and are based on currently available information. Actual results may differ significantly from the results and the outlook we discuss today.

Please refer to our earnings news release and our SEC filings regarding factors that may cause actual results to differ from the forward-looking statements made on this call. Our presentation includes some non-GAAP financial measures. On our Web site, you’ll find the reconciliations required under the SEC’s Regulation G.

After our prepared remarks, we will take your questions and we do ask that you try to limit your questions to two each, so we have time to get to as many of you as possible.

And now let me introduce Paul Evanson, Chairman, President and Chief Executive Officer of Allegheny Energy.

Paul Evanson

Thanks, Max, and good afternoon, everyone, and thanks for joining us. Today, we reported adjusted earnings of $0.57 per share for the second quarter, up substantially from $0.41 a year ago. These results exclude costs related to our proposed merger with FirstEnergy, unrealized losses on hedges and a $45 million gain on the sale of our Virginia territory.

A number of factors affected our results but a major factor was lower operations and maintenance expense. These lower costs were primarily due to timing of special maintenance expenses at the merchant power plants. Such costs were down $34 million in the quarter over the prior year period. We had less than one week of planned outages in this quarter compared to 21 weeks in same period last year, when we were doing maintenance at three supercritical plants.

Results in the second quarter also benefited from a 41% increase in Merchant Generation output reflecting the fewer planned outages, higher power crisis and stronger demand. The capacity factor of the supercriticals was back to a more normal 76% in the quarter. The higher revenues were partially offset by the roll off of favorable power hedges.

In our regulated business overall sales were up 3.5% in the second quarter this year. Industrial sales increased 9% continuing the trend that we saw in the first quarter. These figures exclude sales in Virginia. We completed the sale of our Virginia distribution operations on June 1 of this year.

In addition, we reversed $9 million of West Virginia storm costs booked in the first quarter because of the favorable commission ruling. Finally, earnings from our transmission projects benefited results in the quarter.

Now looking at key areas of focus for the year, we’ve made good progress on our top priority completing the merger with FirstEnergy. On July 16, the Securities and Exchange Commission declared our registration statement effective and we mailed our proxy material. A special meeting to approve the merger is set for September 14. FirstEnergy will also hold its shareholder meeting at the same day.

In addition, we’ve filed all required applications for regulatory approval, both federal and state. Procedural schedules are now in place in all jurisdictions. As you would expect with the merger of this size and scope, a number of parties have intervened in the proceedings.

Based on the schedules, we think it’s reasonable to expect decisions in Virginia as early as September from the Federal Energy Regulatory Commission in the fourth quarter, and in Pennsylvania, Maryland and West Virginia in the first quarter of next year.

Turning now to our other priorities, we remain on track for a smooth transition to market-bases rates in Pennsylvania, where rate caps expire at the end of this year. Our regulated business has contracted about 70% of the power needed to serve residential and small and medium commercial and industrial customers for the full year 2011.

Based on the contracts in place and assuming future prices are similar to the most recent auction, average monthly residential electric bills would only increase 4%, while small commercial and industrial bills would actually decrease by 2%. The next auction will be held in October and is heavily weighted toward commercial and industrial load.

Moving now to our transmission projects, the 500-kV Trans-Allegheny Interstate Line or TrAIL remains on schedule for in-service in June 2011. Right-of-way acquisition and substation construction are nearly complete. 83% of the towers have been constructed and 48% of the wire has been installed.

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