FirstEnergy to acquire Allegheny Energy

FirstEnergy has acquired Allegheny Energy for $4.7 billion in a deal that would create one of the largest utility groups in the US.  The combined company would have 10 regulated power utilities across seven states, including New York, Ohio, Pennsylvania, Maryland, New Jersey, Virginia and West Virginia. It would have a total 24,000 megawatts of generating capacity from coal, nuclear, natural gas, oil and renewable power. The new company would retain the FirstEnergy name and be based in Akron, Ohio. It would be 70 percent dependent on coal for power generation, although 70 percent of that production would come from modern coal units that have been fitted with scrubbers to cut emissions. Neither company has to date been heavily involved with smart grid investments, which are designed to replace the predominantly electromechanical system with a digital network that is intended to improve efficiency. However, FirstEnergy recently received federal stimulus funds to test smart metersÔÇödigital meters that send regular readings, allowing utilities to charge different prices based on demand. FirstEnergy said it expected to close the deal with Allegheny in 12 to 14 months. The combined company would have more than six million customers, $16 billion in annual revenue and $1.4 billion in annual net income. ÔÇ£The combination of our companies is a natural fit that will accelerate our efforts to strengthen the operating performance of our generating fleet while building on our long-standing dedication to customers, shareholders and employees,ÔÇØ said Anthony J. Alexander, president and CEO of FirstEnergy, commenting on the news. Paul J. Evanson, chairman, president and CEO of Allegheny, added: ÔÇ£We plan on working closely with FirstEnergy to integrate the businesses while maintaining both companiesÔÇÖ long-standing focus on reliability, customer service, quality and safety.ÔÇØ The companies will have to persuade state regulators, who are often opposed to mergers because of issues such as job cuts and reduced spending on maintenance, that the deal will offer something to customers. FirstEnergy said the combined utility would be able to produce 70 percent more electricity and offers a more competitive cost structure. The two companies also forecast pre-tax synergies growing from about $180 million in the first full year following the merger to $350 million in the second year. They said their customer base would increase by 35 percent. Allegheny, which is based in Greensburg, Pennsylvania, has two large transmission projects, including the PATH high-voltage interstate transmission line, the proposed route of which stretches from West Virginia to Maryland. However, the company is facing opposition from those who say the line would open up a larger market for coal-fired power production.