Allegheny Gets Rate Hike Approval - Analyst Blog

Allegheny Energy Inc. (AYE) received approval from the Public Service Commission of West Virginia to increase the base rate for its residential consumers. The base rate covers the cost of operation and capital investment of the utilities. This will imply a 4.5% increase in the monthly bill of a residential customer using 1,000 kilowatt hours of power in a month.

Allegheny Energy’s two electric distribution utilities, Monongahela Power and The Potomac Edison Company, operate as Allegheny Power in the state. The company initially asked for a $122 million increase in electricity rates. The request was later revised to $95 million. The base rate revision will increase the monthly bill for a residential customer using 1,000 kilowatt-hours by $4.10 per month to $95.88 from $91.78 as of June 29, 2010.

The adjusted earnings of Allegheny Energy Inc. at the end of first-quarter 2010 were 61 cents compared with 67 cents at the end of first-quarter 2009. The actual results of the quarter were 9 cents lower than the Zacks Consensus expectation of 70 cents. The Zacks Consensus Estimate for 2010 is $2.10 per share and for 2011 is $2.28 per share.

We believe the rate increase was necessary for Allegheny Energy to recover higher costs, as the last increase of rates was approved in 1994 and since then the consumer price index has increased by 45%. We believe the higher generation rates, rising residential usage, ongoing transmission projects and the disposal of retail distribution operations in Virginia are the positive catalysts for the company.

However, we presently maintain a Neutral rating and Zacks Rank # 4 on the stock as these benefits would likely be offset by the pending regulatory approvals for its merger with FirstEnergy, lower industrial demand, higher emission and hedging costs, and lower output

Based in Greensburg, Pennsylvania , Allegheny Energy Inc. owns and operates electric generation facilities, and delivers electric services to customers in Pennsylvania, West Virginia, Maryland and Virginia. The major competitors of the company are Dominion Resources Inc. (D), FirstEnergy Corp. (FE) and PPL Corporation (PPL).