After months of turmoil and financial woes that brought Allegheny Energy Inc. to the brink of bankruptcy, Chairman, President and Chief Executive Officer Alan J. Noia surprised board members and the investment community yesterday by announcing his retirement after 34 years with the Hagerstown energy company.
Noia will remain with the company until a successor is appointed.
Noia, who started with Allegheny as a surveyor's helper and worked his way up, had been increasingly criticized by investors for allowing debt levels to balloon to $5.1 billion and leading the utility into an energy trading venture that proved disastrous when the energy industry collapsed after California's power crisis and Enron Corp.'s demise.
It was just barely a week ago that Allegheny successfully negotiated a $2.4 billion refinancing deal with lenders after two of its subsidiaries defaulted on key credit agreements in October.
Seeking to reassure investors, company executives said they were aggressively pursuing the sale of several assets and examining ways to further reduce costs and improve operating efficiencies to restore Allegheny's financial health.
But Wall Street was unimpressed. The stock took a dive, falling from $8.20 on Feb. 25, the day the refinancing deal was announced, to $5.50 at yesterday's close on the New York Stock Exchange.
That is an 87 percent drop from the stock's high of $43.86 in April. Management was also criticized for lowering earnings expectation for this year and next.
Noia's departure comes on the eve of a crucial vote by shareholders today to help it raise cash through a private equity sale.
It was unclear whether investors were willing to give up their preemptive right to buy any new shares or convertible securities that Allegheny might issue to raise cash.
"There was some loss of investor confidence in Al," said Chris Ellinghaus, an energy analyst with Williams Capital Group in New York.
"There will be a good chunk of investors who will be pleased to see a change of management. I don't know how positive it will be for the stock, but they wanted to see some change."
Noia informed Allegheny's board at a regularly scheduled meeting in New York yesterday morning and employees were told of his retirement later in the day.
"Over the past year, we have made significant strides in refocusing on our core businesses and addressing the challenges facing the industry and our company, positioning us to deliver value to our shareholders," Noia said in a prepared statement.
"Having recently successfully refinanced our credit facilities, it is the right time for me to retire."
Heads of other distressed utilities also have departed under pressure recently.
In May, the heads of Dynegy Inc. and CMS Energy Corp. quit amid questions over their companies' energy market trades and other corporate troubles.
The head of Houston-based El Paso Corp., a company faced with high debt and a liquidity crisis, also plans on relinquishing control as soon as a successor is found.
In response to speculation that Noia, who assumed the top job in 1996, was forced to retire, Allegheny's vice president of corporate communications, Cynthia A. Shoop, said, "He made the decision to retire."
Allegheny's current plight is a far cry from two years ago, when its stock price was trading in the high $40-range and its revenue was soaring.
The company had rolled out a billion-dollar program to build and buy power plants across the country, bought an energy trading unit from Merrill Lynch & Co. Inc. for $490 million and purchased Midwest power plants from Enron Corp.
Those moves came back last year to haunt Allegheny, which has 1.5 million electricity customers and 230,000 natural gas customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.
Top trader fired
In September, it fired the head of its energy-trading unit for alleged violations of the company's conflict-of-interest policies. Merrill Lynch and Allegheny are now suing each other over the trading unit sale.
In October, Moody's Investor Services downgraded Allegheny's credit rating to below investment grade.
And then its subsidiaries, Allegheny Energy Supply and Allegheny Generating Co., defaulted on loans and its stock price plunged by almost 50 percent.
Allegheny also said its Midwestern plants were losing money because of depressed power prices.
"Everything that could go wrong has gone wrong for the company," said David B. Burks, a utilities analyst with J.J.B. Hilliard, W.L. Lyons. "Maybe new management could come in and restore some of the confidence on Wall Street."
But while Noia is leaving as Allegheny is starting on the track to recovery, there are many obstacles to overcome.
The lawsuit with Merrill Lynch and another with the state of California over a $4.4 billion contract still hangs over Allegheny's head.
The company also has yet to release 2002 and first quarter 2003 financial results. They've warned that earnings will most likely be restated because of errors found during a comprehensive review.
"It's probably time they brought in a younger person to take the company through the waters," said Joan T. Goodman, an energy analyst at the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp.
"[Noia's] probably tired of the rat race, especially after the year he's been through with the refinancing. He's due. I think it will be a positive for the company."