Allegheny Energy Inc. said yesterday that it had fired the president of its energy-trading division after uncovering "a small number of business transactions" that violated the company's corporate policies regarding conflict of interest.
In a statement, Hagerstown-based Allegheny said it doesn't think the transactions will require any restatement of past earnings or "have any significant adverse effects on future results."
Cynthia A. Shoop, vice president of corporate communications, said Allegheny had announced in July that it planned to cut back its New York-based energy-trading operations, and that Daniel L. Gordon, president of the energy-trading division, would be leaving the company next year.
Now, the company said, its action "accelerates that planned departure."
"The only thing that I would say is that I cooperated fully, and I obviously regret and disagree with their conclusion, and I wish them well," Gordon told Bloomberg News. "I'm not going to comment any further."
Shoop declined to comment on the nature of the questioned transactions, which she said had occurred late last year and early this year, or on whether the company was referring the matter to law-enforcement authorities.
The business of buying and selling megawatts of energy has proved troublesome for Allegheny and other utilities.
An energy-trading boom began in 1992, after the federal government began deregulating such transactions.
Instead of the staid business of supplying power to customers in local markets, utilities were free to sell energy to each other.
Allegheny set out to vault itself into the top ranks of energy dealers. Last year, it snapped up Merrill Lynch's energy-trading unit for $490 million.
Soon afterward, it announced a $4.5 billion contract to sell California enough energy to power up to a million homes for 10 years.
Such trading accounted for about half of Allegheny's $10 billion in revenue last year, Shoop said.
Impact of Enron
Allegations of illegal or deceptive trading by Enron Corp. and others "put a shadow over all energy traders," she said. Allegheny found that "a lot of our partners were no longer in business, there wasn't a lot of trading going on, and it didn't appear to be a good business for us to be in" on a national scale.
By July, Allegheny had announced cutbacks in trading and other activities, scrapping plans to build two power plants and saying it would eliminate 600 jobs across the company.
Shoop said that the questioned energy-trading transactions turned up in a regular review rather than in an investigation begun in response to problems at Enron and other companies.
"We have internal controls throughout our organization," the spokeswoman said. "We routinely look at all of our operations. We found the suspicious activities, investigated them, and took action."
Michael P. Morrell, president of Allegheny Energy Supply Co. LLC, the unit that included the trading division, will supervise trading directly, Allegheny Energy said.
New vice president
In addition, Thomas J. Kalup, who had worked in strategic planning and energy sales, was named vice president of origination and trading, and will oversee the planned cutbacks in energy trading, the company said.
Gordon's firing was announced after the close of stock markets.
Allegheny shares closed at $19.18 yesterday, down 29 cents. That's less than half the share price this spring.
While Allegheny was building its energy-trading profile, its shares rose from less than $25 in March 2000 to a high of $54.79 in May of last year.