Pennsylvania-based energy company Allegheny Energy, Inc. (NYSE: AYE) posted mixed results for 1Q 2007 earnings. On the positive side, retail sales of energy increased 5%, plant efficiency increased, operating revenues increased $2 million, and debt expense declined by $8.2 million.. On the negative side, coal costs were up by $13.5 million, wiping out all the gains in increased sales and plant efficiency. Retail market prices for energy were down further eroding the gain produced by increased sales volume. Net income for the quarter was down by $4.5 million to $109.7 million or $.65 EPS. EBITDA for 1Q 2007 was $312.6 million, a decrease of $9.5 million.

Now for the bad news. The West Virginia Public Service Commission just recently ordered Allegheny Energy to decrease rates by $132 million to 2 Allegheny Enengy subsidiaries, while allowing Allegheny Enegy to pass on a $126 million fuel charge to customers. Net loss to Allegheny Energy is an additional $6 million. This is, relatively speaking, not that big a deal for Allegheny Energy, which posts annual revenues in excess of $3 billion. But the company did get slapped around in public for being heavy-handed in trying to push more costs than allowed onto customers. Its long term growth prospects are not rosy. There is growing opposition to its new power line project in its transmission area in West Virginia, Pennsylavia and Maryland. It's P/E multiple, 27.63, is the highest among its competitors while its EPS, $1.87, is the lowest. Allegheny Energy suspended dividend payments in December 2002 and has yet to reinstitute them. None of its cost factors are going to change for the better in the immediate future. It is best to look elsewhere for utility stock investment possibilities. The stock recently closed at $51.81, down $1.10.

MOST NOTEWORTHY: Some of the more notable downgrades today include Alcatel-Lucent (ALU), AstraZeneca plc (AZN), GlaxoSmithKline plc (GSK) and Motorola, Inc (MOT):

• Goldman Sachs downgraded shares of Alcatel-Lucent (NYSE: ALU) to Neutral from Buy on integration issues, as the firm does not expect a sales recovery before Q3.

• JP Morgan cut both AstraZeneca plc (NYSE: AZN) and GlaxoSmithKline plc (NYSE: GSK) to Underweight from Neutral on valuation.

• RBC downgraded Motorola Inc (NYSE: MOT) to Sector Perform from Outperform; following Motorola's pre-announcement, the firm expects shares to trade sideways for the balance of the year.

OTHER DOWNGRADES:

• Bank Of America downgraded Aeropostale, Inc (NYSE: ARO) to Neutral from Buy with a $42 target based on valuation.

• RF Micro Devices, Inc (NASDAQ: RFMD) was cut to Sector Perform from Outperform at CIBC citing the risk from Motorola; the firm believes RFMD's story outside of Motorola remains strong and consistent but sees downside to FY08 targets given MOT's contribution to RFMD's top line.

• Raymond James downgraded Yamana Gold Inc (NYSE: AUY) to Outperform from Strong Buy. UBS also downgraded Yamana to Reduce from Neutral.

• Citigroup cut Allegheny Energy, Inc (NYSE: AYE) to Hold from Buy with a $53 target.

• Lehman downgraded International Rectifier Corp (NYSE: IRF) to Equal Weight from Overweight and a $40 target.

• Raytheon Co (NYSE: RTN) was downgraded to Sell from Neutral at Goldman based on valuation.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).