SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27892; 70-10232)
Allegheny Energy, Inc.
Order Authorizing the Issuance of Common Stock Under Non-Employee Director Stock Plan
September 22, 2004
Allegheny Energy, Inc. ("Allegheny"), Greensburg, Pennsylvania, a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), has filed a declaration ("Declaration") with the Securities and Exchange Commission ("Commission") under sections 6(a) and 7 of the Act and rule 54 under the Act. The Commission issued a notice of the Declaration on August 9, 2004 (HCAR No. 27883).
Allegheny delivers electric energy to approximately 1.6 million customers in parts of Maryland, Ohio, Pennsylvania, Virginia, and West Virginia, and natural gas to approximately 230,000 customers in West Virginia through the following wholly-owned regulated public utility companies: West Penn Power Company, The Potomac Edison Company, Monongahela Power Company, and Mountaineer Gas Company.
Allegheny requests authority from the Commission to issue shares of common stock, $1.25 par value (the "Common Stock") in accordance with the terms of a Non-Employee Director Stock Plan (the "Plan"). Under the Plan, Allegheny proposes to issue up to 300,000 shares of Common Stock to its non-employee directors.1 The Plan provides that, on March 31, 2004 and each March 31, June 30, September 30 and December 31 thereafter, Allegheny will issue a number of shares as determined by the Board of Directors ("Board"), up to a maximum of 1,000 shares of Common Stock (the "Share Payment") to each person then serving as a non-employee director for services rendered during the quarter.2 In addition, any director whose service terminates during the quarter due to death or disability will be issued the same Share Payment. For 2004, the Board has set the quarterly Share Payment to each non-employee director at 800 shares of Common Stock. The Share Payments are in addition to cash compensation that each non-employee director receives for Board service. The Plan will supersede and replace Allegheny's prior policy of granting $12,000 worth of Common Stock annually to non-employee directors as part of his or her director compensation.
The Plan has been approved by Allegheny's Board and by Allegheny's stockholders at the company's 2004 annual meeting of stockholders. No Share Payments will be made under the Plan, until Allegheny receives the Commission's authorization under the Act, which is the only regulatory approval required prior to making the Share Payment. Share Payments that were due under the Plan since March 31, 2004 will be made within 10 business days of the date of this order.
Allegheny states that the Plan is intended to aid Allegheny in attracting and retaining non-employee directors by encouraging and enabling them to acquire a financial interest in Allegheny, and to align the economic interest of the participants with those of Allegheny's stockholders. Allegheny further represents that the Board has determined that the compensation to be made to non-employee directors under the Plan is appropriate in type and amount and competitive with compensation paid to directors by other companies of similar size and in similar businesses.
The Plan will be administered by the Board, which will have authority to interpret the Plan's provisions, and adopt, amend and rescind rules and regulations for the Plan. The Board, without further stockholder approval, may amend the Plan to conform the Plan to securities or other laws, rules, regulations or requirements applicable to the Plan, and may generally amend the Plan. The Board, however, cannot, without prior stockholder approval, amend the Plan to: (1) change the number of shares of Common Stock available for issuance under the Plan; or (2) increase from 1,000 the maximum number of shares that can be issued each quarter to each non-employee director. The Board may also suspend or discontinue the Plan, in whole or in part, but any suspension or discontinuance will not affect any shares of Common Stock issued under the Plan prior to that action.
The request is subject to rule 54 of the Act. Allegheny does not satisfy the requirements of rule 53(a)(1). The Commission has authorized Allegheny to invest up to $2 billion in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") and found that this investment would not have either of the adverse effects set forth in rule 53(c).3 As of June 30, 2004, Allegheny's "aggregate investment," as defined in rule 53(a)(l), was approximately $220 million. Allegheny is, however, no longer in compliance with the financing conditions of the Financing Order or the revised financing conditions of subsequent orders. One of the revised financing conditions is that Allegheny maintain a common equity ratio of at least 28%. As of June 30, 2004, Allegheny's common equity ratio was 21.6%. As a result, Allegheny is no longer able to make any investments in EWGs and FUCOs, without further authorization from the Commission.
Allegheny currently complies with, and will comply with, rules 53(a)(2), 53(a)(3), and 53(a)(4). None of the circumstances described in 53(b)(1) have occurred. The circumstances described in rule 53(b)(2) and (b)(3) have occurred.
Allegheny asserts that the requirements of rule 53(c) are met. Allegheny believes that the requested authorization will not have a substantial adverse impact upon the financial integrity of Allegheny, its public utility company subsidiaries ("Operating Companies") or their customers. The ratio of common equity to total capitalization of each of the Operating Companies will continue to be maintained at not less than 30 percent and will not be affected by the proposed transactions. Finally, Allegheny notes that each of the Operating Companies is subject to regulation by state commissions that are able to protect utility customers within their respective states.
The fees, commissions and expenses incurred or to be incurred in connection with this Declaration will be approximately $10,000. Allegheny maintains that no state or federal regulatory agency, other than the Commission, has jurisdiction over the requested authority.
Due notice of the filing of this Declaration has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act and rules are satisfied and that no adverse findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the Declaration, as amended, be permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
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