2nd UPDATE:Prices Below Estimates In 2nd Allegheny Pa Auction
June 05 2009 - 1:34PM
Dow Jones News
Retail electricity prices averaged a lower-than-expected $71.64
per megawatt-hour in Allegheny Energy Inc.'s (AYE) second auction
to supply customers in Pennsylvania as the state continues to move
toward market-based rates.
This compares with the April auction's $72.80 average for
residential customer supply. The contracts amount to about 5.3
million megawatt-hours of power generation. Allegheny didn't
disclose winning bidders besides its own energy supply
business.
Shares of the power company rose 5.4% in recent trading Friday
to $26.66 as analysts viewed the results positively, with
Allegheny's generation business winning more valuable contracts to
supply commercial and industrial customers.
Allegheny is buying power to supply customers once rate caps at
its utility in western and central Pennsylvania expire at the end
of next year. Customers can either shop for a supplier or stay with
the utility, which passes through the energy costs.
The latest auction results come during an ongoing slump in power
prices, driven by a sharp drop in industrial electricity demand and
weak prices for natural gas, which play a role in setting power
prices. Allegheny had moved up the dates of its first two auctions
to take advantage of the market dip.
Credit Suisse analysts were forecasting a price of about
$74/MWh, while Deutsche Bank analysts projected the auction would
clear at $71.80.
Allegheny also bought power for commercial and industrial
customers, with the price averaging $75.40/MWh.
Allegheny operates regulated electric utilities and merchant
power plants that sell their output at market prices rather than
regulated rates. The company's merchant generation business,
Allegheny Energy Supply, said it won two nonresidential supply
contracts totaling 700,000 megawatt-hours over a 17-month period
beginning Jan. 1, 2011. The company projects the contracts will
increase pretax margin $16/MWh in 2011 compared to 2010, according
to a regulatory filing.
In the April auction, the Greensburg, Pa., company said it had
won residential contracts to deliver a total of 650,000
megawatt-hours over the same period, expecting an increased pretax
margin of $10/MWh in 2011. Allegheny estimated the round-the-clock,
energy-only price at the PJM Western Hub was $57/MWh when bids were
submitted for the auction compared to $55/MWh in the April
auction.
The results were positive for Allegheny, with commercial and
industrial prices coming in better than anticipated while
residential prices met expectations, Deutsche Bank analysts said in
a note to clients Friday.
The fact that Allegheny's supply business only won a fraction of
the auction's energy load isn't a negative, the analysts added,
since the company likely will have opportunities to sell its 2011
output at more attractive prices in the future.
Prices in the auction are for full requirement service, which
includes a variety of factors besides energy, such as variations in
customer demand. Allegheny's utility is scheduled to hold six
additional auctions into 2012.
Other Pennsylvania utilities are going through similar processes
as the state moves to market-based prices from rate caps. PPL Corp.
(PPL) will see rate caps for its customers expire at the end of the
year, while utilities owned by Exelon Corp. (EXC) and FirstEnergy
Corp. (FE) will move to market-based rates in 2011.
Allegheny projected a $9.62-a-month, or 11%, increase for a
typical Pennsylvania residential customer's bill starting in 2011
from the auction results.
-By Mark Peters, Dow Jones Newswires; 201-938-4604;
mark.peters@dowjones.com
(Christine Buurma contributed to this article.)