Allegheny Energy
(AYE) recently appealed to the Public Service Commission of West Virginia for a base rate (covers non-fuel costs of the utility) increase of $122 million. The proposed increase, if approved, will generate a return on equity (ROE) of 12.25% for the company.

This base-rate increase, which will be Allegheny’s first since 1994, will help the company to cover rising business costs and maintain financial stability at its West Virginia operations. Following the raise, bills for residential customers using 1,000 kilowatt hours of electricity per month would rise by about 14% to $95 from current charges of $83.

Allegheny will continue to benefit from its stable and regulated electric power operations. The positive investment factors for the company include higher generation rates in Pennsylvania and Maryland, increased residential usage, approvals for transmission projects and steady progress with scrubbers.

However, growing environment-related capital expenditures, emission and hedging costs, rising taxes, substantial interest burden on account of expansion plans and higher coal prices remain areas of concern. Going forward, we see shares of Allegheny performing in line with the broader market and reiterate our Neutral recommendation.

Read the full analyst report on “AYE”
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