Allegheny Energy Reports Fourth Quarter, Full Year 2009 Financial Results

Allegheny Energy, Inc. (NYSE: AYE) today reported financial results for the fourth quarter and full year 2009.

Adjusted net income for the fourth quarter of 2009 excludes $13.4 million of pre-tax interest expense related to a debt tender offer and unrealized pre-tax gains of $7.9 million from economic hedges that do not qualify for hedge accounting. Adjusted net income for the fourth quarter of 2008 excludes $116.3 million of unrealized pre-tax losses on economic hedges.

Adjusted net income is a non-GAAP financial measure. For information on the calculation of adjusted net income for all periods, see the attached reconciliations of non-GAAP financial measures.

"In 2009 we remained solidly profitable, despite difficult economic conditions,” said Paul J. Evanson, Chairman, President and Chief Executive Officer of Allegheny Energy. "During the year, we made great progress constructing our TrAIL transmission line. We also completed a $1.3 billion scrubber program on time and under budget, reached an agreement to sell the Virginia delivery business, and kept O&M spending flat for the fourth consecutive year. Looking forward, we believe we are well-positioned to benefit from economic recovery. In the meantime, we’ll stay focused on cost control and financial flexibility.”

Fourth Quarter Consolidated Results

Adjusted net income for the fourth quarter of 2009 increased by $25.6 million compared with the same period in 2008. Key factors contributing to the results include:

• Adjusted operating revenues increased by $29.1 million compared to the fourth quarter of 2008, reflecting higher generation rates in Pennsylvania, power hedges, increased capacity revenue and sales to third parties, higher cost recovery in Virginia and increased revenue from transmission expansion. These benefits were partially offset by reduced merchant generation output and lower power prices.
• Fuel expense decreased by $63.7 million reflecting lower output from power plants, partially offset by higher coal prices.
• Purchased power costs increased by $28.9 million primarily due to increased purchases from third parties to serve Maryland customers, partially offset by a gain from the termination of a power purchase agreement in connection with the acquisition of hydro generation facilities.
• Deferred energy cost income decreased by $10.1 million due to the timing of fuel and energy cost recovery in West Virginia, partially offset by the timing of PURPA cost recovery.
• Operations and maintenance expense increased by $4.2 million, reflecting increased costs for outside services, including expenses to restore electric service following December 2009 snow storms, partially offset by a gain associated with the purchase of hydro generation facilities.
• Depreciation increased by $7.5 million due to placing in service scrubber equipment at the Hatfield’s Ferry power plant during 2009.
• Adjusted interest expense increased by $19.5 million, primarily due to a decrease in capitalized interest and higher average debt balances, including debt to finance transmission expansion.
• Adjusted income tax expense decreased by $8.5 million, primarily due to an $18.1 million estimated benefit from a change in Pennsylvania’s net operating loss carryforward tax law. This benefit was partially offset by an increase in adjusted pre-tax income.

Adjusted EBITDA for the fourth quarter of 2009 was $312.4 million, an increase of $44.1 million compared to the same quarter of the prior year. EBITDA and adjusted EBITDA are non-GAAP financial measures. Details on the calculation of EBITDA and adjusted EBITDA, as well as reconciliations of these financial measures to net income, are attached to this release.

Fourth Quarter Segment Results

Allegheny recently changed the composition of its two reportable segments. Merchant Generation includes the company’s unregulated generation business. Regulated Operations consist of transmission and distribution operations, regulated generation and transmission expansion. The table and the narrative below reflect this change for all periods presented.

Adjusted net income in the Merchant Generation segment excludes net unrealized gains and losses from economic hedges that do not qualify for hedge accounting for 2009 and 2008, as well as interest expense related to a debt tender offer in 2009. There were no adjustments in the Regulated Operations segment in either period.

Merchant Generation: Adjusted net income for the quarter increased by $9.9 million compared to the same period a year earlier. Results benefited from lower fuel costs, power hedges, capacity revenue, the purchase of hydro generation facilities and the Pennsylvania tax law change previously mentioned. These factors were partially offset by decreased generation volume, low power prices, the elimination of an intercompany transfer payment, and higher depreciation and interest expense.

Regulated Operations: Net income for the quarter increased by $15.7 million compared to the same period a year earlier. Key factors contributing to the improvement include increased cost recovery in Virginia, the elimination of an intercompany transfer payment and higher income from transmission expansion, partially offset by lower revenues from retail sales and higher income taxes due to an increase in pre-tax income.

Twelve-Month Consolidated Results

Consolidated adjusted net income for the twelve months ended December 31, 2009 increased by $5.5 million compared to the same period in 2008 due to improved results from Regulated Operations. Net income from Regulated Operations benefited from higher cost recovery in Virginia, transmission expansion and the elimination of an intercompany transfer payment. Adjusted net income from Merchant Generation was adversely affected by lower generation volume, low power prices and the elimination of an intercompany transfer payment.

Adjusted EBITDA for the twelve-month period increased $82.7 million compared to the same period of the prior year. Details on the calculation of EBITDA and adjusted EBITDA, as well as reconciliations of these financial measures to net income, are attached to this release.

Twelve-Month Segment Results

Adjusted net income in the Merchant Generation segment for both years excludes the previously discussed unrealized gains and losses on economic hedges that do not qualify for hedge accounting, as well as interest expense related to debt tender offers in 2009.

Reconciliation of Non-GAAP Financial Measures

This news release includes presentation of adjusted net income, EBITDA, adjusted EBITDA and other non-GAAP financial measures as defined in the Securities and Exchange Commission’s Regulation G.

Management believes that presenting these additional financial measures provide investors with a more complete understanding of the core results and underlying trends from which to consider past performance and prospects for the future. These financial measures should not be considered in isolation or viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as a measure of operating performance or liquidity.

Pursuant to the requirements of Regulation G, tables are attached that reconcile non-GAAP financial measures in this document to the most directly comparable GAAP measure.

Investor Conference Call

Allegheny Energy will discuss these results in a live Internet broadcast at 1:00 p.m. Eastern Standard Time on Friday, February 5, 2010. To listen, visit www.alleghenyenergy.com. Slides to be used in the Webcast presentation will be available at www.alleghenyenergy.com several hours prior to the broadcast. A taped replay will be available after the live broadcast.

Allegheny Energy

Headquartered in Greensburg, Pa., Allegheny Energy is an investor-owned electric utility with total annual revenues of over $3 billion and more than 4,000 employees. The company owns and operates generating facilities and delivers low-cost, reliable electric service to 1.6 million customers in Pennsylvania, West Virginia, Maryland and Virginia. For more information, visit the company’s Web site at www.alleghenyenergy.com.

Forward-Looking Statements

In addition to historical information, this release may contain a number of "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Words such as anticipate, expect, project, intend, plan, believe, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These include statements with respect to: rate regulation and the status of retail generation service supply competition in states served by Allegheny Energy’s distribution business, Allegheny Power; financing plans; demand for energy and the cost and availability of raw materials, including coal; provider-of-last-resort and power supply contracts; results of litigation; results of operations; internal controls and procedures; capital expenditures; status and condition of plants and equipment; capacity purchase commitments; and regulatory matters. Forward-looking statements involve estimates, expectations and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations. Factors that could cause actual results to differ materially include, among others, the following: plant performance and unplanned outages; changes in the price of power and fuel for electric generation; general economic and business conditions; changes in access to capital markets and actions of rating agencies; complications or other factors that render it difficult or impossible to obtain necessary lender consents or regulatory authorizations on a timely basis; environmental regulations; the results of regulatory proceedings, including proceedings related to rates; changes in industry capacity, development and other activities by Allegheny Energy’s competitors; changes in the weather and other natural phenomena; changes in customer switching behavior and their resulting effects on existing and future load requirements; changes in the underlying inputs and assumptions, including market conditions used to estimate the fair values of commodity contracts; changes in laws and regulations applicable to Allegheny Energy, its markets or its activities; the loss of any significant customers or suppliers; dependence on other electric transmission and gas transportation systems and their constraints or availability; inflationary and interest rate trends changes in market rules, including changes to PJM participant rules and tariffs; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies and accounting issues facing our organization; and the continuing effects of global instability, terrorism and war. Additional risks and uncertainties are identified and discussed in Allegheny Energy’s reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document. Allegheny Energy undertakes no obligation to update its forward-looking statements to reflect events or circumstances after the date of this release.

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

Notes to Reconciliation of Non-GAAP Financial Measures: