_________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_________________

FORM 10-Q

_________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

Commission File Number	Name of Registrant State of Incorporation Address of Principal Executive Offices and Telephone Number	IRS Employer Identification Number
1-267	ALLEGHENY ENERGY, INC. (A Maryland Corporation) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-5531602
333-72498	ALLEGHENY ENERGY SUPPLY COMPANY, LLC (A Delaware Limited Liability Company) 4350 Northern Pike Monroeville, Pennsylvania 15146-2841 Telephone (412) 858-1600	23-3020481
1-5164	MONONGAHELA POWER COMPANY (An Ohio Corporation) 1310 Fairmont Avenue Fairmont, West Virginia 26554 Telephone (304) 366-3000	13-5229392
1-3376-2	THE POTOMAC EDISON COMPANY (A Maryland and Virginia Corporation) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-5323955
1-255-2	WEST PENN POWER COMPANY (A Pennsylvania Corporation) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-5480882
0-14688	ALLEGHENY GENERATING COMPANY (A Virginia Corporation) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-3079675

This combined Form 10-Q is separately filed by Allegheny Energy, Inc., Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company. Information contained in the Form 10-Q relating to Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company is filed by such registrant on its own behalf. Each of Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company makes no representation as to information relating to registrants other than itself.

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).


Allegheny Energy, Inc. Allegheny Energy Supply Company, LLC Monongahela Power Company The Potomac Edison Company West Penn Power Company Allegheny Generating Company	Yes Yes Yes Yes Yes Yes	X	No No No No No No	X X X X X

Number of shares outstanding of each class of common stock as of July 30, 2004:


Allegheny Energy, Inc.	127,112,883	( $1.25 par value)
Allegheny Energy Supply Company, LLC	(a)
Monongahela Power Company	5,891,000	($50.00 par value)
The Potomac Edison Company	22,385,000	( $0.01 par value)
West Penn Power Company	24,361,586	( no par value)
Allegheny Generating Company	1,000	( $1.00 par value)

(a) The registrant is a limited liability company, the interests in which are not represented by shares.

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Allegheny Energy, Inc.: Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 ..................................................................................................................	7 8 9-10
Allegheny Energy Supply Company, LLC: Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 ..................................................................................................................	11 12 13-14
Monongahela Power Company: Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 ..................................................................................................................	15 16 17-18
The Potomac Edison Company: Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 ..................................................................................................................	19 20 21-22
West Penn Power Company: Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 ................................................................................................ Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 ..................................................................................................................	23 24 25-26
Allegheny Generating Company: Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 .......................................................................................................... Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 .......................................................................................................... Balance Sheets as of June 30, 2004 and December 31, 2003 ...................................................	27 28 29-30
Combined Notes to Financial Statements ............................................................................	31-53
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) ...........................................................................................	53-89
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...........................	90
Item 4. Controls and Procedures ......................................................................................	90
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................................................	92
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities ................................................................................................................	9286
Item 3. Defaults Upon Senior Securities ............................................................................	92
Item 4. Submission of Matters to Vote of Security Holders ............................................	92
Item 5. Other Information ..................................................................................................	93
Item 6. Exhibits and Reports on Form 8-K .......................................................................	94
Signatures ................................................................................................................................	100

GLOSSARY

I. The following abbreviations and terms are used in this report to identify Allegheny Energy, Inc. and its
subsidiaries:


AE	Allegheny Energy, Inc., a diversified utility holding company.
AE Supply	Allegheny Energy Supply Company, LLC, an unregulated generation subsidiary of Allegheny Energy, Inc.
AGC	Allegheny Generating Company, an unregulated generation unit of Allegheny Energy, Inc.
Allegheny	Allegheny Energy, Inc. together with its consolidated subsidiaries.
Allegheny Ventures	Allegheny Ventures, Inc., an unregulated subsidiary of Allegheny Energy, Inc.
Distribution Companies	Collectively, Monongahela Power Company, The Potomac Edison Company and West Penn Power Company. The Distribution Companies do business as "Allegheny Power."
Monongahela	Monongahela Power Company, a regulated subsidiary of Allegheny Energy, Inc.
Mountaineer	Mountaineer Gas Company, a subsidiary of Monongahela Power Company.
Potomac Edison	The Potomac Edison Company, a regulated subsidiary of Allegheny Energy, Inc.
West Penn	West Penn Power Company, a regulated subsidiary of Allegheny Energy, Inc.

II. The following abbreviations and acronyms are used in this report to identify entities and terms relevant to
Allegheny's business and operations:


2003 Annual Report on Form 10-K	Annual Report on the combined Form 10-K of Allegheny Energy, Inc., Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company for the year ended December 31, 2003.
Borrowing Facilities	Agreements entered into on February 25, 2003 and March 13, 2003 by AE, AE Supply, Monongahela and West Penn with various credit providers to refinance and restructure the majority of AE and AE Supply's short-term debt
CDWR	California Department of Water Resources
CDWR contract	2001 power sale contract between AE Supply and the CDWR to hedge certain long-term power purchase commitments. AE Supply sold the CDWR contract and associated hedge transactions in September 2003
Clean Air Act	Clean Air Act of 1970
EITF	Emerging Issues Task Force
EPA	United States Environmental Protection Agency
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission, an independent commission within the Department of Energy
FIN	FASB Interpretation Number
GAAP	Generally Accepted Accounting Principles of the United States of America
KWh	Kilowatt-hour
Mcf	Thousand cubic feet
MW	Megawatt
MWh	Megawatt-hour
NSR	The New Source Performance Review Standards or "New Source Review" standards applicable to facilities deemed "new" sources of emissions;
New AE Facility	Agreement entered into on March 8, 2004 by AE with various credit providers to provide AE with an unsecured $300 million borrowing facility. The New AE Facility is part of the New Loan Facilities.
New Loan Facilities	Agreements entered into on March 8, 2004 by AE and AE Supply with various credit providers to refinance and restructure the majority of the Borrowing Facilities
PJM	PJM Interconnection, LLC, a regional transmission organization
PLR	Provider-of-last-resort
PUHCA	Public Utility Holding Company Act of 1935, as amended
PURPA	Public Utility Regulatory Policies Act of 1978
SEC	United States Securities and Exchange Commission
SFAS	Statement of Financial Accounting Standards
SFAS No. 71	SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation"
SFAS No. 133	SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133", SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133", and SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities"

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Operating revenues	$	657,114		$	359,214		$	1,546,834		$	1,074,905
Operating expenses:
Fuel consumed in electric generation		140,927			134,054			302,882			292,826
Purchased power and transmission		79,772			81,527			160,890			167,795
Cost of utility gas sold		26,603			25,545			117,106			121,504
Deferred energy costs, net		(118	)		(6,965	)		16,613			(20,624	)
Operations and maintenance		245,624			283,867			457,408			596,368
Depreciation and amortization		85,191			79,474			168,482			157,085
Taxes other than income taxes		53,201			50,735			112,714			111,362

Total operating expenses		631,200			648,237			1,336,095			1,426,316

Operating income (loss)		25,914			(289,023	)		210,739			(351,411	)
Other income, net (Note 11)		4,790			1,353			12,864			81,613
Interest expense and preferred dividends:
Interest expense		98,917			114,662			229,846			210,227
Preferred dividend requirements of subsidiary		1,260			1,260			2,519			2,519

Total interest expense and preferred dividends		100,177			115,922			232,365			212,746

Loss before income taxes, minority interest
and cumulative effect of accounting changes		(69,473	)		(403,592	)		(8,762	)		(482,544	)
Income tax benefit		(29,297	)		(167,378	)		(3,723	)		(205,396	)
Minority interest in net (loss) income of subsidiaries		(720	)		(4,695	)		1,139			(7,585	)

Loss before cumulative effect of accounting
changes		(39,456	)		(231,519	)		(6,178	)		(269,563	)
Cumulative effect of accounting changes, net of taxes
of $12,974 (Notes 3 and 12)		--			--			--			(20,765	)

Net loss	$	(39,456	)	$	(231,519	)	$	(6,178	)	$	(290,328	)

Basic and diluted loss per common share:
Loss before cumulative effect of accounting changes	$	(0.31	)	$	(1.82	)	$	(0.05	)	$	(2.13	)
Cumulative effect of accounting changes, net		--			--			--			(0.16	)

Net loss per common share	$	(0.31	)	$	(1.82	)	$	(0.05	)	$	(2.29	)

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2004			2003
Cash Flows From Operating Activities:
Net loss	$	(6,178	)	$	(290,328	)
Cumulative effect of accounting changes, net		--			20,765

Loss before cumulative effect of accounting changes		(6,178	)		(269,563	)
Adjustments for noncash (credits) and charges:
Reapplication of SFAS No. 71		--			(75,824	)
Depreciation and amortization		168,482			157,085
(Gain) loss on asset sales		(12,074	)		30,917
Minority interest		1,139			(7,585	)
Deferred investment credit and income taxes, net		(1,875	)		(142,499	)
Unrealized losses on commodity contracts, net		8,350			380,710
Other, net		65,164			(18,681	)
Changes in certain assets and liabilities:
Accounts receivable, net		46,524			93,919
Materials and supplies		8,468			(31,351	)
Taxes receivable/accrued, net		(38,957	)		96,709
Prepaid taxes		(5,803	)		(9,721	)
Collateral deposits		(66,370	)		(54,110	)
Accounts payable		29,705			(45,722	)
Accrued payroll		(1,411	)		(18,397	)
Interest accrued		8,482			4,672
Purchased options		(1,169	)		11,689
Commodity contract termination costs		(259	)		(47,706	)
Other, net		(27,110	)		(2,115	)

Net cash from operating activities		175,108			52,427

Cash Flows Used In Investing Activities:
Capital expenditures		(118,514	)		(140,539	)
Acquisition of electric generating facility		--			(318,435	)
Proceeds from sale of businesses and assets		13,680			46,168
Decrease (increase) in restricted funds		26,840			(15,467	)
Other investments		(1,653	)		8,826

Net cash used in investing activities		(79,647	)		(419,447	)

Cash Flows (Used In) From Financing Activities:
Net repayments of short-term debt		(53,610	)		(1,122,181	)
Issuance of long-term debt		1,594,921			1,931,507
Retirement of long-term debt		(1,858,638	)		(270,928	)

Net cash (used in) from financing activities		(317,327	)		538,398

Net (decrease) increase in cash and cash equivalents		(221,866	)		171,378
Cash and cash equivalents at beginning of period		528,612			204,231

Cash and cash equivalents at end of period	$	306,746		$	375,609

See accompanying Combined Notes to Financial Statements

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

ASSETS
Current Assets:
Cash and cash equivalents	$	306,746		$	528,612
Accounts receivable:
Customer		202,248			203,801
Unbilled utility revenues		128,358			172,891
Wholesale and other		40,214			46,257
Allowance for uncollectible accounts		(23,086	)		(29,329	)
Materials and supplies		109,901			109,651
Fuel, including stored gas		90,785			98,097
Deferred income taxes		59,501			44,610
Prepaid taxes		52,208			46,405
Collateral deposits		117,545			51,175
Commodity contracts		29,927			24,390
Restricted funds		18,187			120,873
Regulatory assets		52,289			68,665
Other		25,484			31,186

Total current assets		1,210,307			1,517,284
Property, Plant and Equipment:
Generation		6,648,399			6,597,195
Transmission		1,010,961			1,010,062
Distribution		3,602,729			3,549,813
Other		530,562			525,092
Accumulated depreciation		(4,537,368	)		(4,377,917	)

Subtotal		7,255,283			7,304,245
Construction work in progress		194,525			149,232

Total property, plant and equipment		7,449,808			7,453,477
Investments and Other Assets:
Goodwill		367,287			367,287
Investments in unconsolidated affiliates		30,736			51,479
Intangible assets		39,983			41,710
Other		52,115			45,007

Total investments and other assets		490,121			505,483
Deferred Charges:
Commodity contracts		5,847			5,536
Regulatory assets		567,050			577,691
Other		145,803			112,425


Total deferred charges		718,700			695,652
Total Assets	$	9,868,936		$	10,171,896

See accompanying Combined Notes to Financial Statements

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	--		$	53,610
Long-term debt due within one year		157,434			544,843
Accounts payable		312,838			281,514
Accrued taxes		59,270			98,227
Commodity contracts		49,780			41,486
Regulatory liabilities		1,114			2,229
Other		227,351			259,034

Total current liabilities		807,787			1,280,943
Long-term Debt		5,278,874			5,127,437
Deferred Credits and Other Liabilities:
Commodity contracts		65,860			61,125
Investment tax credit		86,669			89,826
Deferred income taxes		878,850			860,323
Obligations under capital leases		28,502			32,483
Regulatory liabilities		443,370			436,118
Adverse power purchase commitments		209,742			218,105
Other		454,334			462,220

Total deferred credits and other liabilities		2,167,327			2,160,200
Minority Interest		26,676			13,457
Preferred Stock of Subsidiary		74,000			74,000
Common Stockholders’ Equity:
Common stock		158,946			158,761
Other paid-in capital		1,449,869			1,447,830
Retained (deficit) earnings		(3,268	)		2,910
Treasury stock		(1,438	)		(1,438	)
Accumulated other comprehensive loss		(89,837	)		(92,204	)

Total common stockholders’ equity		1,514,272			1,515,859
Commitments and Contingencies (Note 15)
Total Liabilities and Stockholders’ Equity	$	9,868,936		$	10,171,896

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Operating revenues	$	265,875		$	(30,173	)	$	628,510		$	180,999
Operating expenses:
Fuel consumed in electric generation		111,610			102,853			240,911			224,567
Purchased power and transmission		25,559			25,411			48,298			61,255
Operations and maintenance		101,840			130,955			176,953			290,624
Depreciation and amortization		35,161			31,316			70,283			61,603
Taxes other than income taxes		12,721			15,617			23,728			29,738

Total operating expenses		286,891			306,152			560,173			667,787

Operating (loss) income		(21,016	)		(336,325	)		68,337			(486,788	)
Other income (expenses), net (Note 11)		322			(100	)		917			(416	)
Interest expense		52,680			72,313			134,587			127,825

Loss before income taxes, minority interest
and cumulative effect of accounting changes		(73,374	)		(408,738	)		(65,333	)		(615,029	)
Income tax benefit		(29,171	)		(171,951	)		(30,864	)		(251,950	)
Minority interest in net income of subsidiaries		1,341			1,075			2,942			2,188

Loss before cumulative effect of accounting changes		(45,544	)		(237,862	)		(37,411	)		(365,267	)
Cumulative effect of accounting changes, net of taxes
of $12,131 (Notes 3 and 12)		--			--			--			(19,533	)

Net loss	$	(45,544	)	$	(237,862	)	$	(37,411	)	$	(384,800	)

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2004			2003
Cash Flows From (Used in) Operating Activities:
Net loss	$	(37,411	)	$	(384,800	)
Cumulative effect of accounting changes, net		--			19,533

Loss before cumulative effect of accounting changes		(37,411	)		(365,267	)
Adjustments for noncash charges and (credits):
Depreciation and amortization		70,283			61,603
(Gain) loss on asset sales		(5,000	)		32,802
Minority interest in AGC		2,942			2,188
Deferred investment credit and income taxes, net		(18,562	)		(124,701	)
Unrealized losses on commodity contracts, net		4,496			368,341
Other, net		44,182			9,314
Changes in certain assets and liabilities:
Accounts receivable, net		1,604			39,510
Accounts receivable due from/payable to affiliates, net		62,737			(54,747	)
Materials and supplies		(8,065	)		(15,524	)
Taxes receivable/accrued, net		(5,254	)		(1,618	)
Collateral deposits		(74,275	)		(54,110	)
Accounts payable		5,792			(64,721	)
Interest accrued		7,332			5,043
Purchased options		(1,169	)		11,689
Commodity contract termination costs		(259	)		(47,706	)
Other, net		(17,176	)		(13,267	)

Net cash from (used in) operating activities		32,197			(211,171	)

Cash Flows From (Used In) Investing Activities:
Capital expenditures		(33,682	)		(58,592	)
Acquisition of electric generating facility		--			(318,435	)
Proceeds from sale of assets		5,000			45,835
Decrease (increase) in restricted funds		29,657			(13,976	)
Other investments		--			9,452

Net cash from (used in) investing activities		975			(335,716	)

Cash Flows (Used in) From Financing Activities:
Net repayments of short-term debt		--			(796,966	)
Issuance of long-term debt		1,261,040			1,621,603
Retirement of long-term debt		(1,410,905	)		(197,264	)
Parent company contribution		189,400			1,552
Return of parent company contribution		--			(12,674	)
Cash dividends paid to parent		(189,400	)		--
Cash dividends paid to minority shareholder in AGC		(2,871	)		(1,608	)

Net cash (used in) from financing activities		(152,736	)		614,643

Net (decrease) increase in cash and cash equivalents		(119,564	)		67,756
Cash and cash equivalents at beginning of period		251,216			58,862

Cash and cash equivalents at end of period	$	131,652		$	126,618

See accompanying Combined Notes to Financial Statements

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

ASSETS
Current Assets:
Cash and cash equivalents	$	131,652		$	251,216
Accounts receivable:
Wholesale and other		19,140			20,945
Allowance for uncollectible accounts		(2,703	)		(2,903	)
Materials and supplies		54,071			54,791
Fuel		46,579			37,794
Deferred income taxes		20,646			15,317
Prepaid taxes		11,052			16,938
Commodity contracts		41,031			31,640
Collateral deposits		125,450			51,175
Restricted funds		2,002			107,504
Other		5,618			12,264

Total current assets		454,538			596,681
Property, Plant and Equipment:
Generation		5,671,031			5,656,369
Transmission		78,233			78,233
Other		15,809			15,615
Accumulated depreciation		(2,274,026	)		(2,200,197	)

Subtotal		3,491,047			3,550,020
Construction work in progress		92,962			68,276

Total property, plant and equipment		3,584,009			3,618,296
Investments and Other Assets:
Goodwill		367,287			367,287
Investments in unconsolidated affiliate		26,478			27,038
Other		18,273			18,025

Total investments and other assets		412,038			412,350
Deferred Charges:
Commodity contracts		5,847			5,536
Other		104,185			74,619

Total deferred charges		110,032			80,155
Total Assets	$	4,560,617		$	4,707,482

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

	June 30, 2004		December 31, 2003

LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities:
Long-term debt due within one year	$	12,422	$	350,000
Accounts payable		139,621		133,244
Accounts payable to affiliates, net		72,428		9,310
Accrued taxes		16,503		22,912
Commodity contracts		49,780		41,486
Other		56,551		114,413

Total current liabilities		347,305		671,365
Long-term Debt		3,039,919		2,834,479
Deferred Credits and Other Liabilities:
Commodity contracts		65,860		61,125
Investment tax credit		58,318		59,434
Deferred income taxes		159,630		171,294
Other		118,466		98,344

Total deferred credits and other liabilities		402,274		390,197
Minority Interest		42,705		42,669
Members’ Equity		728,414		768,772
Commitments and Contingencies (Note 15)
Total Liabilities and Members’ Equity	$	4,560,617	$	4,707,482

See accompanying Combined Notes to Financial Statements

Table of Contents

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004		2003
Operating revenues	$	201,363		$	198,220		$	530,352	$	515,067
Operating expenses:
Fuel consumed in electric generation		25,051			31,202			57,705		68,260
Purchased power and transmission		51,194			45,688			92,538		93,498
Cost of utility gas sold		26,600			25,541			117,100		121,500
Deferred energy costs, net		(1,327	)		(7,372	)		14,490		(22,942	)
Operations and maintenance		75,773			74,198			138,374		144,936
Depreciation and amortization		18,886			18,584			37,668		35,414
Taxes other than income taxes		16,333			12,405			38,400		30,532

Total operating expenses		212,510			200,246			496,275		471,198

Operating (loss) income		(11,147	)		(2,026	)		34,077		43,869
Other income, net (Note 11)		2,906			1,916			5,094		65,866
Interest expense		12,858			14,157			25,503		26,701

(Loss) income before income taxes and cumulative effect of
accounting change		(21,099	)		(14,267	)		13,668		83,034
Income tax (benefit) expense		(9,336	)		(6,950	)		6,778		20,296

(Loss) income before cumulative effect of accounting
change		(11,763	)		(7,317	)		6,890		62,738
Cumulative effect of accounting change, net of tax of $314 (Note 12)		--			--			--		(456	)

Net (loss) income	$	(11,763	)	$	(7,317	)	$	6,890	$	62,282

See accompanying Combined Notes to Financial Statements

Table of Contents

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2004			2003
Cash Flows From Operating Activities:
Net income	$	6,890		$	62,282
Cumulative effect of accounting change, net		--			456

Income before cumulative effect of accounting change		6,890			62,738
Adjustments for noncash (credits) and charges:
Reapplication of SFAS No. 71		--			(61,724	)
Depreciation and amortization		37,668			35,414
Deferred investment credit and income taxes, net		32,827			28,713
Deferred energy costs, net		14,490			(22,942	)
Other, net		942			163
Changes in certain assets and liabilities:
Accounts receivable, net		16,468			19,090
Materials and supplies		17,015			(15,074	)
Taxes receivable/accrued, net		(37,516	)		18,405
Prepaid taxes		8,056			7,647
Accounts payable		(4,362	)		(9,359	)
Accounts payable to affiliates, net		(16,143	)		37,895
Other, net		(9,484	)		3,726

Net cash from operating activities		66,851			104,692

Cash Flows Used In Investing Activities:
Capital expenditures		(33,960	)		(36,313	)
Proceeds from land sale		68			--
Other investments		(1	)		23

Net cash used in investing activities		(33,893	)		(36,290	)

Cash Flows From (Used In) Financing Activities:
Notes receivable from affiliates		(47,305	)		8,500
Notes payable to affiliate		78			--
Net (repayments) borrowings under short-term debt		(53,610	)		9,785
Issuance of long-term debt		117,334			--
Retirement of long-term debt		(8	)		(16,258	)
Cash dividends paid on capital stock:
Preferred stock		(2,519	)		(2,519	)
Common stock		(13,195	)		(16,377	)

Net cash from (used in) financing activities		775			(16,869	)

Net increase in cash and cash equivalents		33,733			51,533
Cash and cash equivalents at beginning of period		43,971			55,163

Cash and cash equivalents at end of period	$	77,704		$	106,696

See accompanying Combined Notes to Financial Statements

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

ASSETS
Current Assets:
Cash and cash equivalents	$	77,704		$	43,971
Accounts receivable:
Customer		69,608			58,991
Unbilled utility revenues		34,612			59,483
Wholesale and other		4,796			6,202
Allowance for uncollectible accounts		(5,768	)		(4,955	)
Note receivable from affiliate		47,305			--
Materials and supplies		18,428			18,722
Fuel, including stored gas		43,582			60,303
Taxes receivable		21,180			--
Prepaid taxes		16,171			24,227
Regulatory assets		18,334			33,351
Other		13,302			8,582

Total current assets		359,254			308,877
Property, Plant and Equipment:
Generation		934,773			932,827
Transmission		295,378			294,616
Distribution		1,246,838			1,230,006
Other		125,528			127,555
Accumulated depreciation		(1,049,683	)		(1,024,285	)

Subtotal		1,552,834			1,560,719
Construction work in progress		41,992			34,940

Total property, plant and equipment		1,594,826			1,595,659
Investments and Other Assets:
Investment in AGC		42,705			42,634
Other		10,643			10,319

Total investments and other assets		53,348			52,953
Deferred Charges:
Regulatory assets		102,182			102,705
Other		21,286			12,876

Total deferred charges		123,468			115,581
Total Assets	$	2,130,896		$	2,073,070

See accompanying Combined Notes to Financial Statements

Table of Contents

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

	June 30, 2004		December 31, 2003

LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	---	$	53,610
Long-term debt due within one year		68,348		3,348
Note payable to affiliate		1,650		--
Accounts payable		53,155		57,517
Accounts payable to affiliates, net		12,727		28,561
Accrued taxes		27,644		43,980
Deferred income taxes		5,205		--
Interest accrued		12,691		12,169
Other		25,630		34,234

Total current liabilities		207,050		233,419
Long-term Debt		770,305		715,501
Deferred Credits and Other Liabilities:
Investment tax credit		3,664		4,738
Non-current income taxes payable		45,671		45,671
Deferred income taxes		234,664		192,161
Obligations under capital leases		10,578		12,221
Regulatory liabilities		238,100		233,989
Notes payable to affiliates		12,912		14,484
Other		28,974		33,427

Total deferred credits and other liabilities		574,563		536,691
Preferred Stock		74,000		74,000
Common Stockholder’s Equity:
Common stock		294,550		294,550
Other paid-in capital		110,807		110,492
Retained earnings		99,509		108,333
Accumulated other comprehensive income		112		84

Total common stockholder’s equity		504,978		513,459
Commitments and Contingencies (Note 15)
Total Liabilities and Stockholder’s Equity	$	2,130,896	$	2,073,070

See accompanying Combined Notes to Financial Statements

Table of Contents

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Operating revenues	$	216,711	$	207,640	$	463,880	$	461,765
Operating expenses:
Purchased power and transmission		150,344		147,625		321,964		326,981
Deferred energy costs, net		1,209		407		2,123		2,317
Operations and maintenance		25,180		29,842		52,714		58,571
Depreciation and amortization		9,811		9,319		19,552		18,955
Taxes other than income taxes		7,739		7,301		16,632		15,821

Total operating expenses		194,283		194,494		412,985		422,645

Operating income		22,428		13,146		50,895		39,120
Other income, net (Note 11)		2,130		1,150		2,910		18,766
Interest expense		7,665		7,782		15,452		15,620

Income before income taxes and cumulative effect of accounting
change		16,893		6,514		38,353		42,266
Income tax expense		5,917		463		13,555		12,623

Income before cumulative effect of accounting change		10,976		6,051		24,798		29,643
Cumulative effect of accounting change, net of taxes of $50 (Note 12)		--		--		--		(79	)

Net income	$	10,976	$	6,051	$	24,798	$	29,564

See accompanying Combined Notes to Financial Statements

Table of Contents

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2004			2003
Cash Flows From Operating Activities:
Net income	$	24,798		$	29,564
Cumulative effect of accounting change, net		--			79

Income before cumulative effect of accounting change		24,798			29,643
Adjustments for noncash (credits) and charges:
Reapplication of SFAS No. 71		--			(14,100	)
Depreciation and amortization		19,552			18,955
Gain on land sale		--			(1,885	)
Deferred investment credit and income taxes, net		6,545			7,169
Other, net		2,518			2,693
Changes in certain assets and liabilities:
Accounts receivable, net		5,912			(2,515	)
Materials and supplies		(1,911	)		(89	)
Taxes receivable/accrued, net		(2,041	)		21,542
Accounts payable		7,166			4,158
Accounts payable to affiliates, net		(5,677	)		5,394
Other, net		14,381			(5,128	)

Net cash from operating activities		71,243			65,837

Cash Flows Used In Investing Activities:
Capital expenditures		(31,404	)		(23,286	)
Proceeds from land sale		330			1,087

Net cash used in investing activities		(31,074	)		(22,199	)

Cash Flows Used In Financing Activities:
Note receivable from affiliate		(18,199	)		--
Note payable to affiliate		--			(8,500	)
Cash dividends paid on common stock		(16,790	)		(16,790	)

Net cash used in financing activities		(34,989	)		(25,290	)

Net increase in cash and cash equivalents		5,180			18,348
Cash and cash equivalents at beginning of period		31,790			3,169

Cash and cash equivalents at end of period	$	36,970		$	21,517

See accompanying Combined Notes to Financial Statements

Table of Contents

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

ASSETS
Current Assets:
Cash and cash equivalents	$	36,970		$	31,790
Accounts receivable:
Customer		56,976			49,157
Unbilled utility revenues		33,590			45,099
Wholesale and other		4,096			6,358
Allowance for uncollectible accounts		(2,554	)		(2,590	)
Note receivable from affiliate		18,199			--
Materials and supplies		15,054			13,143
Taxes receivable		11,174			11,607
Deferred income taxes		3,894			3,596
Prepaid taxes		3,408			5,102
Other		1,525			5,691

Total current assets		182,332			168,953
Property, Plant and Equipment:
Transmission		316,184			315,762
Distribution		1,123,081			1,100,894
Other		90,552			91,720
Accumulated depreciation		(459,776	)		(445,303	)

Subtotal		1,070,041			1,063,073
Construction work in progress		29,458			21,865

Total property, plant and equipment		1,099,499			1,084,938
Other Assets		9,496			9,119
Deferred Charges:
Regulatory assets		66,223			68,392
Other		7,573			10,322


Total deferred charges		73,796			78,714
Total Assets	$	1,365,123		$	1,341,724

See accompanying Combined Notes to Financial Statements

Table of Contents

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

	June 30, 2004		December 31, 2003

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable	$	31,650	$	24,484
Accounts payable to affiliates, net		44,119		49,667
Accrued taxes		7,669		10,143
Interest accrued		5,010		5,009
Regulatory liabilities		1,114		2,229
Other		27,555		16,565

Total current liabilities		117,117		108,097
Long-term Debt		416,369		416,255
Deferred Credits and Other Liabilities:
Investment tax credit		7,107		7,599
Non-current income taxes payable		57,561		57,561
Deferred income taxes		171,404		163,745
Obligations under capital leases		7,294		8,492
Regulatory liabilities		166,940		163,042
Other		7,225		10,835

Total deferred credits and other liabilities		417,531		411,274
Stockholder's Equity:
Common stock		224		224
Other paid-in capital		221,144		221,144
Retained earnings		192,738		184,730

Total stockholder's equity		414,106		406,098
Commitments and Contingencies (Note 15)
Total Liabilities and Stockholder's Equity	$	1,365,123	$	1,341,724

See accompanying Combined Notes to Financial Statements

Table of Contents

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Operating revenues	$	278,519	$	269,484	$	583,828	$	565,530
Operating expenses:
Purchased power and transmission		173,479		160,868		365,106		336,740
Operations and maintenance		36,013		40,175		73,530		81,187
Depreciation and amortization		18,421		19,495		37,252		39,725
Taxes other than income taxes		15,995		15,146		33,181		34,728

Total operating expenses		243,908		235,684		509,069		492,380

Operating income		34,611		33,800		74,759		73,150
Other income, net (Note 11)		819		1,504		8,432		2,138
Interest expense		8,250		10,058		17,364		20,567

Income before income taxes and cumulative effect of
accounting change		27,180		25,246		65,827		54,721
Income tax expense		8,545		8,767		19,885		17,454

Income before cumulative effect of accounting change		18,635		16,479		45,942		37,267
Cumulative effect of accounting change, net of tax of $474 (Note 12)		--		--		--		(690	)

Net income	$	18,635	$	16,479	$	45,942	$	36,577

See accompanying Combined Notes to Financial Statements

Table of Contents

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2004			2003
Cash Flows From Operating Activities:
Net income	$	45,942		$	36,577
Cumulative effect of accounting change, net		--			690

Income before cumulative effect of accounting change		45,942			37,267
Adjustments for noncash charges and (credits):
Depreciation and amortization		37,252			39,725
Amortization of adverse power purchase contract		(9,020	)		(9,533	)
Gain on land sales		(6,718	)		--
Deferred investment credit and income taxes, net		6,814			4,778
Other, net		352			287
Changes in certain assets and liabilities:
Accounts receivable, net		7,589			12,756
Materials and supplies		(2,024	)		(653	)
Taxes receivable/accrued, net		(25,624	)		2,406
Prepaid taxes		(21,475	)		(24,829	)
Accounts payable		149			10,564
Accounts payable to affiliates, net		2,220			14,341
Other, net		(1,567	)		(50	)

Net cash from operating activities		33,890			87,059

Cash Flows Used In Investing Activities:
Capital expenditures		(17,046	)		(22,856	)
Proceeds from land sales		8,282			--
Increase in restricted funds		(59	)		(1,491	)

Net cash used in investing activities		(8,823	)		(24,347	)

Cash Flows Used In Financing Activities:
Note payable to affiliate		67,900			--
Retirement of long-term debt		(122,745	)		(39,378	)
Cash dividends paid on common stock		(28,746	)		(11,938	)

Net cash used in investing activities		(83,591	)		(51,316	)

Net (decrease) increase in cash and cash equivalents		(58,524	)		11,396
Cash and cash equivalents at beginning of period		69,453			37,737

Cash and cash equivalents at end of period	$	10,929		$	49,133

See accompanying Combined Notes to Financial Statements

Table of Contents

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

ASSETS
Current Assets:
Cash and cash equivalents	$	10,929		$	69,453
Accounts receivable:
Customer		74,075			71,793
Unbilled utility revenues		60,156			68,310
Wholesale and other		3,413			4,334
Allowance for uncollectible accounts		(11,790	)		(10,985	)
Materials and supplies		18,208			16,184
Taxes receivable		12,538			--
Deferred income taxes		12,538			9,723
Prepaid taxes		21,475			--
Regulatory assets		33,955			35,314
Other		16,773			17,477

Total current assets		252,270			281,603
Property, Plant and Equipment:
Transmission		321,166			321,451
Distribution		1,231,585			1,217,687
Other		230,185			230,240
Accumulated depreciation		(717,101	)		(690,025	)

Subtotal		1,065,835			1,079,353
Construction work in progress		27,767			22,183

Total property, plant and equipment		1,093,602			1,101,536
Other Assets
		6,810			6,563
Deferred Charges:
Regulatory assets		389,693			397,517
Other		9,404			8,117


Total deferred charges		399,097			405,634
Total Assets	$	1,751,779		$	1,795,336

See accompanying Combined Notes to Financial Statements

Table of Contents

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

	June 30, 2004		December 31, 2003

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Long-term debt due within one year	$	72,883	$	157,714
Note payable to affiliate		67,900		--
Accounts payable		29,696		29,547
Accounts payable to affiliates, net		64,551		62,769
Accrued taxes		4,107		17,193
Interest accrued		1,475		1,963
Adverse power purchase commitments		17,385		18,042
Other		31,061		20,121

Total current liabilities		289,058		307,349
Long-term Debt		314,793		352,648
Deferred Credits and Other Liabilities:
Investment tax credit		17,581		18,055
Non-current income taxes payable		45,431		45,431
Deferred income taxes		294,751		283,681
Obligations under capital leases		8,130		9,453
Regulatory liabilities		13,339		13,675
Adverse power purchase commitments		209,742		218,105
Other		13,089		18,257

Total deferred credits and other liabilities		602,063		606,657
Stockholder's Equity:
Common stock		65,842		65,842
Other paid-in capital		248,407		248,407
Retained earnings		231,545		214,349
Accumulated other comprehensive income		71		84

Total stockholder’s equity		545,865		528,682
Commitments and Contingencies (Note 15)
Total Liabilities and Stockholder’s Equity	$	1,751,779	$	1,795,336

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY GENERATING COMPANY
STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Operating revenues	$	17,884	$	17,224	$	35,041	$	34,437
Operating expenses:
Operations and maintenance		2,162		1,233		3,417		2,711
Depreciation		4,251		4,250		8,502		8,536
Taxes other than income taxes		812		854		1,624		1,709

Total operating expenses		7,225		6,337		13,543		12,956

Operating income		10,659		10,887		21,498		21,481
Other income, net (Note 11)		22		78		37		124
Interest expense		1,974		3,572		4,297		7,184

Income before income taxes		8,707		7,393		17,238		14,421
Income tax expense		2,869		2,712		4,431		4,895

Net income	$	5,838	$	4,681	$	12,807	$	9,526

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY GENERATING COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2004			2003
Cash Flows From Operating Activities:
Net income	$	12,807		$	9,526
Adjustments for noncash charges and (credits):
Depreciation		8,502			8,536
Deferred investment credit and income taxes, net		(3,002	)		(3,113	)
Other, net		143			482
Changes in certain assets and liabilities:
Accounts receivable due from/payable to affiliates, net		3,741			10,042
Materials and supplies		941			(1	)
Taxes receivable/accrued, net		(72	)		18,863
Accounts payable		--			6
Interest accrued		--			213
Other, net		(3,505	)		485

Net cash from operating activities		19,555			45,039

Cash Flows Used In Investing Activities:
Capital expenditures		(1,675	)		(1,930	)

Cash Flows Used In Financing Activities:
Notes payable to parent		--			30,000
Net repayments of short-term debt		--			(55,000	)
Cash dividends paid on common stock		(12,500	)		(7,000	)

Net cash used in financing activities		(12,500	)		(32,000	)

Net increase in cash and cash equivalents		5,380			11,109
Cash and cash equivalents at beginning of period		2,272			2,104

Cash and cash equivalents at end of period	$	7,652		$	13,213

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY GENERATING COMPANY
BALANCE SHEETS
(in thousands)
(unaudited)

	June 30, 2004			December 31, 2003

ASSETS
Current Assets:
Cash and cash equivalents	$	7,652		$	2,272
Accounts receivable from affiliates, net		--			1,254
Materials and supplies		1,353			2,294
Other		72			269

Total current assets		9,077			6,089
Property, Plant and Equipment:
Generation		782,700			782,643
Transmission		44,097			44,097
Other		3,542			3,542
Accumulated depreciation		(303,630	)		(295,127	)

Subtotal		526,709			535,155
Construction work in progress		17,494			11,945

Total property, plant and equipment		544,203			547,100
Deferred Charges:
Regulatory assets		8,952			9,076
Other		105			108


Total deferred charges		9,057			9,184
Total Assets	$	562,337		$	562,373

See accompanying Combined Notes to Financial Statements

Table of Contents

ALLEGHENY GENERATING COMPANY
BALANCE SHEETS (continued)
(in thousands)
(unaudited)

	June 30, 2004		December 31, 2003

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable to affiliates, net	$	2,770	$	--
Accrued taxes		2,337		2,409
Interest accrued		2,292		2,292
Other		229		283

Total current liabilities		7,628		4,984
Long-term Debt:
Long-term debt		99,377		99,360
Long-term note payable to parent		30,000		30,000

Total long-term debt		129,377		129,360
Deferred Credits and Other Liabilities:
Investment tax credit		39,253		39,913
Non-current income taxes payable		17,542		17,543
Deferred income taxes		157,643		159,565
Regulatory liabilities		24,991		25,412

Total deferred credits and other liabilities		239,429		242,433
Stockholders' Equity:
Common stock		1		1
Other paid-in capital		172,669		172,669
Retained earnings		13,233		12,926

Total stockholders’ equity		185,903		185,596
Commitments and Contingencies (Note 15)
Total Liabilities and Stockholders’ Equity	$	562,337	$	562,373

See accompanying Combined Notes to Financial Statements

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

The notes to the financial statements that follow are a combined presentation for Allegheny and its consolidated subsidiaries, including subsidiary registrants. The following chart indicates the registrants to which each footnote applies:

	Note	Allegheny	AE Supply	Monongahela	Potomac Edison	West Penn	AGC
1.	Basis of Presentation	X	X	X	X	X	X
2.	Long-Term Debt	X	X	X	X	X	X
3.	Wholesale Energy Activities	X	X
4.	Goodwill and Intangible Assets	X	X	X	X	X	X
5.	Pension Benefits and Postretirement Benefits Other Than Pensions	X	X	X	X	X
6.	Derivative Instruments and Hedging Activities	X	X
7.	Other Comprehensive Income (Loss)	X	X	X	X	X
8.	Business Segments	X		X
9.	Accounting for the Effects of Price Deregulation	X		X	X	X
10.	Loss Per Share	X
11.	Other Income and Expenses, Net	X	X	X	X	X	X
12.	Asset Retirement Obligations	X	X	X	X	X
13.	Guarantees and Letters of Credit	X	X		X
14.	Variable Interest Entities	X	X		X	X
15.	Commitments and Contingencies	X	X	X	X	X	X
16.	Generating Unit Outages	X	X	X
17.	OVEC Transaction	X	X
18.	Subsequent Events	X		X

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Allegheny Energy, Inc., together with its consolidated subsidiaries, should be read in conjunction with the 2003 Annual Report on Form 10-K.

The interim financial statements included herein have been prepared by Allegheny, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Management believes that the disclosures are adequate to make the information presented not misleading.

In the opinion of management, the unaudited interim financial statements included herein reflect all normal recurring adjustments that are necessary for a fair presentation of the results of operations for the three and six months ended June 30, 2004 and 2003, cash flows for the six months ended June 30, 2004 and 2003 and financial position at June 30, 2004 and December 31, 2003. Because of the seasonal nature of Allegheny’s utility operations at Monongahela, Potomac Edison and West Penn, results for the six months ended June 30, 2004 are not necessarily indicative of results that may be expected for the year ending December 31, 2004. For more information on the seasonal nature of Allegheny’s utility operations, see Part I, Item 1, Risk Factors, Other Risk Factors Associated with Our Business, in the 2003 Annual Report on Form 10-K.

Monongahela’s 2004 interim results of operations include adjustments to correct accounting errors made in prior years. These adjustments increased net income in the three and six months ended June 30, 2004 by $0.8 million and $4 million, respectively.

Certain amounts in the December 31, 2003 consolidated balance sheets and the June 30, 2003 statements of operations and cash flows have been reclassified for comparative purposes.

Federal and State Income Taxes. The provision for income tax expense for earnings from operations, and/or the income tax benefit for losses from operations, results in an effective income tax rate that differs from the federal statutory rate of 35 percent, principally due to state income taxes, tax credits, the effects of utility rate-making and certain non-deductible expenses.

Allegheny allocates income tax expense or benefit to its subsidiaries pursuant to its consolidated tax sharing agreement. This corporate allocation may cause significant fluctuations in the effective quarterly tax rates from the statutory rates for the subsidiaries depending on the level of pre-tax profitability.

Stock-Based Employee Compensation. Allegheny maintains a stock-based employee compensation plan, which is described in greater detail in Item 8, Note 17, Stock-based Compensation, in the 2003 Annual Report on Form 10-K. Approximately 0.2 million and 5.4 million stock options were granted under the plan during the three and six months ended June 30, 2004, respectively.

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

Allegheny accounts for stock options under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock option based compensation expense has been recognized in consolidated net loss, because all options granted under the plan had an exercise price that equaled the market price of the underlying stock on the date of the grant. The following table illustrates the effect on consolidated net loss and loss per share as if Allegheny had recorded compensation expense determined under the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Consolidated net loss, as reported	$	(39.5	)	$	(231.5	)	$	(6.2	)	$	(290.3	)
Add:
Stock-based employee compensation included in consolidated net
loss, net of related tax effects		4.8			--			8.8			--
Deduct:
Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects		(5.8	)		(0.2	)		(11.3	)		(1.1	)

Consolidated net loss, pro forma	$	(40.5	)	$	(231.7	)	$	(8.7	)	$	(291.4	)


Basic loss per share:
As reported	$	(0.31	)	$	(1.82	)	$	(0.05	)	$	(2.29	)
Pro forma	$	(0.32	)	$	(1.82	)	$	(0.07	)	$	(2.30	)
Diluted loss per share:
As reported	$	(0.31	)	$	(1.82	)	$	(0.05	)	$	(2.29	)
Pro forma	$	(0.32	)	$	(1.82	)	$	(0.07	)	$	(2.30	)

NOTE 2: LONG-TERM DEBT

In June 2004, Monongahela issued $120 million in aggregate principal amount of 6.70% First Mortgage Bonds, which mature on June 15, 2014. The net proceeds of the bond issuance were used to repay Monongahela’s $53.6 million short-term bridge loan in June 2004 and to fund the July 2004 redemption of $40 million in aggregate principal amount of 8.375% First Mortgage Bonds due 2022 and $25 million in aggregate principal amount of 7.25% First Mortgage Bonds due 2007. Interest on the newly issued 6.70% First Mortgage Bonds is payable semi-annually in arrears on each June 15 and December 15, commencing December 15, 2004. These bonds are redeemable at Monongahela’s option and rank equally in right of payment with its existing or future first mortgage bonds.

Under the New AE Facility, AE has obtained a $300 million credit facility comprised of a $100 million term loan and a $200 million revolving credit facility. Debt outstanding under the New AE Facility is accounted for as long-term debt because there are no scheduled repayments of such debt during the 12 months following June 30, 2004. The revolving credit facility contains a sub-facility under which a maximum of $100 million of letters of credit may be outstanding at any given time. At June 30, 2004, the full amount of the $100 million term loan was outstanding, and $73.4 million was outstanding under the revolving credit facility, of which $16.4 million represented outstanding letters of credit. Accordingly, AE, at June 30, 2004, had available revolving credit capacity of $126.6 million, including up to $83.6 million available for the issuance of additional letters of credit. In July 2004, an outstanding $10 million letter of credit issued on behalf of Potomac Edison under an arrangement with another bank expired and was replaced with a new letter of credit issued under the New AE Facility.

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

Issuances and Redemptions:

The following issuances and redemptions of debt were made by the registrants:

	Three Months Ended June 30, 2004				Six Months Ended June 30, 2004
(In millions)	Issuances		Redemptions		Issuances		Redemptions
Allegheny Energy:
New AE Facility	$	--	$	43.0	$	225.0	$	68.0
Borrowing Facilities		--		--		--		257.0

		--		43.0		225.0		325.0

AE Supply:
AE Supply Loans		--		3.1		1,250.0		3.1
Borrowing Facilities		--		--		28.3		1,407.8

		--		3.1		1,278.3		1,410.9

Monongahela:
First Mortgage Bonds		120.0		--		120.0		--
Short-Term Debt		--		53.6		--		53.6

		120.0		53.6		120.0		53.6

West Penn:
Medium-Term Notes		--		84.0		--		84.0
Transition Bonds		--		18.9		--		38.7

		--		102.9		--		122.7

Total AE Consolidated:
Borrowing Facilities						28.3		1,664.8
First Mortgage Bonds		120.0		--		120.0		--
Medium-Term Notes		--		84.0		--		84.0
Short-Term Debt		--		53.6		--		53.6
New AE Facility		--		43.0		225.0		68.0
AE Supply Loans		--		3.1		1,250.0		3.1
Transition Bonds		--		18.9		--		38.7

Total	$	120.0	$	202.6	$	1,623.3	$	1,912.2

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

As of June 30, 2004, scheduled maturities of long-term debt for the remainder of 2004 and for full years thereafter are as follows:

(In millions)	2004			2005			2006			2007			2008			Thereafter			Total
Allegheny Energy:
Medium-Term Notes	$	---		$	300		$	---		$	---		$	---		$	---		$	300
New AE Facility		--			--			--			157			--			--			157
Convertible Preferred Securities		--			--			--			--			300			--			300

Total Allegheny Energy	$	---		$	300		$	---		$	157		$	300		$	---		$	757

AE Supply:
Pollution Control Bonds	$	---		$	---		$	---		$	92		$	---		$	191		$	283
Other Notes		--			--			--			380			--			1,050			1,430
Debentures-AGC		--			--			--			--			--			100			100
AE Supply Loans		7			12			12			12			12			1,192			1,247

Total AE Supply	$	7		$	12		$	12		$	484		$	12		$	2,533		$	3,060

Monongahela:
First Mortgage Bonds	$	65		$	---		$	300		$	---		$	---		$	190		$	555
Pollution Control Bonds		--			--			--			16			--			70			86
Other Notes		3			3			3			3			4			74			90
Medium-Term Notes		--			--			--			--			--			110			110

Total Monongahela	$	68		$	3		$	303		$	19		$	4		$	444		$	841

Potomac Edison:
First Mortgage Bonds	$	---		$	---		$	---		$	---		$	---		$	320		$	320
Medium-Term Notes		--			--			100			--			--			--			100

Total Potomac Edison	$	---		$	---		$	100		$	---		$	---		$	320		$	420

West Penn:
Transition Bonds	$	35		$	73		$	76		$	80		$	44		$	---		$	308
Medium-Term Notes		--			--			--			--			--			80			80

Total West Penn	$	35		$	73		$	76		$	80		$	44		$	80		$	388

AGC:
Debentures	$	---		$	---		$	---		$	---		$	---		$	100		$	100

Total AGC	$	---		$	---		$	---		$	---		$	---		$	100		$	100

Total AE Consolidated:
First Mortgage Bonds	$	65		$	---		$	300		$	---		$	---		$	510		$	875
Transition Bonds		35			73			76			80			44			--			308
Pollution Control Bonds		--			--			--			108			--			261			369
Other Notes		3			3			3			383			4			1,124			1,520
Medium-Term Notes		--			300			100			--			--			190			590
Debentures		--			--			--			--			--			100			100
New AE Facility		--			--			--			157			--			--			157
AE Supply Loans		7			12			12			12			12			1,192			1,247
Convertible Preferred Securities		--			--			--			--			300			--			300
Unamortized debt expense,
discount, premium and terminated
interest rate swap		(3	)		(3	)		(1	)		(1	)		(1	)		(8	)		(17	)
Eliminations		--			--			--			(2	)		--			(11	)		(13	)

Total AE Consolidated	$	107		$	385		$	490		$	737		$	359		$	3,358		$	5,436

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 3: WHOLESALE ENERGY ACTIVITIES

As of January 1, 2003, Allegheny adopted EITF Issue No. 02-3, “Accounting for Contracts Involved in Energy Trading and Risk Management,” which resulted in a change in Allegheny’s accounting for certain commodity contracts related to AE Supply’s energy trading activities. Accordingly, AE Supply recorded a charge against earnings in the first quarter of 2003 of $12.2 million, net of income taxes ($19.7 million before income taxes), as the cumulative effect of a change in accounting principle. See Note 6, Derivative Instruments and Hedging Activities, below for more information regarding the treatment of these contracts.

During the second quarter of 2004, AE Supply recorded a loss of $11.7 million related to the release to a third party of pipeline capacity for the period November 2004 through November 2007. The release is associated with a long-term natural gas transportation agreement effective through April 30, 2018. This loss was recorded in the statement of operations as purchased power and transmission expense.

NOTE 4: GOODWILL AND INTANGIBLE ASSETS

There have been no changes in goodwill for the period December 31, 2003 to June 30, 2004.

The components of intangible assets that are included in the caption property, plant and equipment on the consolidated balance sheets were as follows:

	As of June 30, 2004				As of December 31, 2003
(In millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Land easements, amortizable:
AE Supply	$	0.2	$	---	$	0.2	$	---
Monongahela		2.0		0.8		2.0		0.8
Potomac Edison		54.8		14.6		54.7		14.1
West Penn		38.8		9.9		38.7		9.7
AGC		1.4		0.7		1.4		0.7

Total land easements, amortizable		97.2		26.0		97.0		25.3
Land easements, unamortizable (Monongahela)		31.6		--		31.4		--
Natural gas rights (Monongahela)		6.6		3.9		6.6		3.8

Total	$	135.4	$	29.9	$	135.0	$	29.1

The intangible assets included in investments and other assets on the consolidated balance sheets of $40 million at June 30, 2004 and $41.7 million at December 31, 2003 relate to an additional minimum pension liability. See Item 8, Note 16, Pension Benefits and Postretirement Benefits Other Than Pensions, in the 2003 Annual Report on Form 10-K for more information.

Amortization of intangible assets was $0.4 million ($0.2 million for Potomac Edison and $0.1 million each for West Penn and Monongahela) for the three months ended June 30, 2003. Amortization of intangible assets for the six months ended June 30, 2003 was $0.8 million ($0.4 million for Potomac Edison and $0.2 million each for West Penn and Monongahela).

Amortization expense is estimated to be $1.5 million annually for 2004 through 2008.

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 5: PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Substantially all of the employees of Allegheny are employed by Allegheny Energy Service Corporation (AESC) and are covered by one noncontributory, defined benefit pension plan.

The components of the net periodic benefit costs for pension benefits and for postretirement benefits other than pensions (principally health care and life insurance) for employees and covered dependents for the three and six months ended June 30, 2004 and 2003 and the allocation by Allegheny, through AESC, of costs for pension and other postretirement benefits other than pensions were as follows:

	Pension Benefits for the Three Months Ended June 30,						Postretirement Benefits other than Pensions for the Three Months Ended June 30,
(In millions)	2004			2003			2004			2003
Components of net periodic benefit cost:
Service cost	$	5.9		$	5.4		$	1.1		$	1.0
Interest cost		15.6			15.5			3.9			4.3
Expected return on plan assets		(17.3	)		(18.7	)		(1.6	)		(1.6	)
Amortization of unrecognized transition obligation		0.1			0.2			1.5			1.5
Amortization of prior service cost		1.1			1.2			0.1			0.1
Amortization of net loss		1.3			0.1			--			--

		6.7			3.7			5.0			5.3
Curtailments, settlements and special termination benefits		1.9			3.4			--			5.6

Net periodic benefit cost	$	8.6		$	7.1		$	5.0		$	10.9

Allocation of net periodic benefit costs:
Monongahela	$	2.1		$	2.1		$	1.5		$	3.2
Potomac Edison		1.1			1.0			1.1			1.9
West Penn		1.5			1.4			1.3			2.4
AE Supply		3.8			2.5			1.1			3.3
AE		0.1			0.1			--			0.1

Net periodic benefit cost	$	8.6		$	7.1		$	5.0		$	10.9

Table of Contents

	Pension Benefits for the Six Months Ended June 30,						Postretirement Benefits other than Pensions for the Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Components of net periodic benefit cost:
Service cost	$	11.7		$	10.9		$	2.2		$	1.9
Interest cost		31.3			31.2			7.8			8.5
Expected return on plan assets		(34.6	)		(37.4	)		(3.1	)		(3.1	)
Amortization of unrecognized transition obligation		0.3			0.3			2.9			3.0
Amortization of prior service cost		2.1			2.4			0.2			0.2
Amortization of net loss		2.5			0.1			--			--

		13.3			7.5			10.0			10.5
Curtailments, settlements and special termination benefits		3.3			10.5			--			5.6

Net periodic benefit cost	$	16.6		$	18.0		$	10.0		$	16.1

Allocation of net periodic benefit costs:
Monongahela	$	4.4		$	5.1		$	3.0		$	5.0
Potomac Edison		2.3			2.6			2.1			3.0
West Penn		3.2			3.7			2.5			3.7
AE Supply		6.4			6.4			2.3			4.3
AE		0.3			0.2			0.1			0.1

Net periodic benefit cost	$	16.6		$	18.0		$	10.0		$	16.1

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

Employer Contributions. During the three months ended June 30, 2004, Allegheny made voluntary contributions of $0.1 million to the Supplemental Executive Retirement Plan (SERP), and voluntary contributions of $6.3 million to its postretirement benefits other than pensions.

During the six months ended June 30, 2004, Allegheny made voluntary contributions of $19.4 million to its pension plans, including $0.2 million to the SERP, and voluntary contributions of $10.9 million to its postretirement benefits other than pensions.

As of June 30, 2004, Allegheny anticipates contributing an additional $8.3 million to fund pension plans in 2004, including $0.1 million to the SERP, for a total contribution to pension plans during 2004 of $27.7 million. Allegheny anticipates contributing an additional amount ranging from $10.2 million to $15.2 million to fund postretirement benefits other than pensions in 2004, for a total contribution to postretirement benefits other than pensions in 2004 ranging from approximately $21.1 million to $26.1 million.

Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act). As previously disclosed in Item 8, Note 16, Pension Benefits and Postretirement Benefits Other Than Pensions, in the 2003 Annual Report on Form 10-K, Allegheny has elected to follow the deferral provisions of FASB Staff Bulletin Position No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP 106-1). The Medicare Act provides for subsidies for employers that provide prescription drug coverage for their retirees as long as the plan is equivalent to, or better than, the Medicare Part D Prescription Drug Plan. FSP 106-1 permitted employers that provide such drug benefits to make a one-time election to defer accounting for any effects of the Medicare Act under certain circumstances.

FSP 106-2, which was issued in May 2004, supercedes FSP 106-1 and provides guidance on accounting for the effects of the new Medicare prescription drug legislation for employers whose prescription drug benefits are actuarially equivalent to the drug benefit under Medicare Part D. FSP 106-2 is effective as of the first interim period after June 15, 2004. Allegheny has not yet determined whether benefits provided by its plan are actuarially equivalent and, accordingly, any measures of its accumulated postretirement benefit obligation and/or net postretirement benefit costs do not reflect any amount associated with the subsidies provided under the Medicare Act. When final regulations are adopted, the approach that Allegheny ultimately selects to account for the effects of the new legislation may require Allegheny to change previously reported information.

NOTE 6: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Allegheny utilizes derivative instruments to manage its exposures to various market risks, as described in the 2003 Annual Report on Form 10-K. The following information supplements, and should be read in conjunction with, Item 8, Note 4, Energy Trading Activities, and Note 9, Derivative Instruments and Hedging Activities, in the 2003 Annual Report on Form 10-K.

Allegheny did not have any instruments that were designated as hedges for accounting purposes for the three and six months ended June 30, 2004. AE Supply records commodity contracts related to energy trading that are derivative instruments at their fair value as components of operating revenues, in accordance with SFAS No. 133, EITF 02-3 and EITF 03-11, unless the contract falls within the normal purchases and normal sales scope exception. Contracts that are designated as normal purchases and normal sales are accounted for under accrual accounting, therefore, are not recorded on the balance sheet at their fair values.

For the three months ended June 30, 2004, AE Supply reported net losses (including realized and unrealized losses) of $36.5 million. For the six months ended June 30, 2004, AE Supply reported net gains (including realized and unrealized gains) of $4.3 million. For the three and six months ended June 30, 2003, AE Supply reported net losses (including realized and unrealized losses) of $303.4 million and $405.6 million, respectively.

AE Supply has designated certain contracts as cash flow hedges effective July 1, 2004. Future changes in fair value will be reflected in other comprehensive income (loss), and existing derivative liabilities associated with each contract at the time of designation will be realized in earnings over the remaining period of such contract’s term, in accordance with the estimated cash flow of such contract at the time of the designation. These contracts expire at various dates through December 31, 2006 and represent an aggregate liability at June 30, 2004 of $27.6 million.

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 7: OTHER COMPREHENSIVE INCOME (LOSS)

Allegheny’s consolidated comprehensive income (loss) and the components of other comprehensive income (loss), net of income taxes, for the three and six months ended June 30, 2004 and 2003 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Consolidated net loss	$	(39.5	)	$	(231.	5)	$	(6.2	)	$	(290.	3)
Other comprehensive income (loss) net of tax:
Minimum pension liability adjustment		--			--			2.3			--
Other		0.1			--			0.1			(0.1	)

Consolidated comprehensive loss	$	(39.4	)	$	(231.	5)	$	(3.8	)	$	(290.	4)

Monongahela and Potomac Edison recorded unrealized gains on available-for-sale securities for the three and six months ended June 30, 2004. West Penn recorded unrealized losses on available-for-sale securities for the three and six months ended June 30, 2004. AE Supply recorded other comprehensive income of $0.1 million for the six months ended June 30, 2004. None of these gains or losses was material, either individually or in the aggregate.

The other comprehensive loss of $0.1 million for the six months ended June 30, 2003 relates primarily to AE Supply.

AE Supply contributed $45.5 million and $37.4 million of the consolidated comprehensive loss of $39.4 million and $3.8 million for the three and six months ended June 30, 2004, respectively. AE Supply also contributed $237.9 million and $384.9 million of the consolidated comprehensive loss of $231.5 million and $290.4 million for the three and six months ended June 30, 2003, respectively. These losses by AE Supply were partially offset by comprehensive income attributable to other consolidated subsidiaries of Allegheny included in the calculation of consolidated comprehensive income.

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 8: BUSINESS SEGMENTS

Allegheny manages and evaluates its operations in two business segments, the Delivery and Services segment and the Generation and Marketing segment. Monongahela operates in both segments. All other Allegheny subsidiaries operate in only one segment. The Delivery and Services segment consists primarily of the operations of Potomac Edison, West Penn and Monongahela’s electric and gas transmission and distribution businesses and also includes the operations of Allegheny Ventures. The Generation and Marketing segment includes the operations of AE Supply, AGC and the West Virginia jurisdictional generating assets of Monongahela.

Business segment information for Allegheny is summarized below. Significant transactions between reportable segments are shown as eliminations to reconcile the segment information to consolidated amounts.

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Total operating revenues:
Delivery and Services	$	699.7		$	665.5		$	1,569.8		$	1,516.4
Generation and Marketing		326.4			33.3			759.2			314.1
Eliminations		(369.0	)		(339.6	)		(782.2	)		(755.6	)

Total	$	657.1		$	359.2		$	1,546.8		$	1,074.9

Operating income (loss):
Delivery and Services	$	65.7		$	39.6		$	161.8		$	133.6
Generation and Marketing		(40.9	)		(335.7	)		52.8			(472.6	)
Eliminations		1.1			7.1			(3.9	)		(12.4	)

Total	$	25.9		$	(289.0	)	$	210.7		$	(351.4	)

Interest expense:
Delivery and Services	$	33.6		$	32.7		$	68.1		$	63.8
Generation and Marketing		65.3			82.0			161.8			146.4
Eliminations		--			--			(0.1	)		--

Total	$	98.9		$	114.7		$	229.8		$	210.2

Consolidated income (loss) before cumulative effect of
accounting changes:
Delivery and Services	$	24.2		$	4.3		$	63.2		$	53.7
Generation and Marketing		(64.4	)		(240.2	)		(67.0	)		(315.6	)
Eliminations		0.7			4.4			(2.4	)		(7.6	)

Total	$	(39.5	)	$	(231.5	)	$	(6.2	)	$	(269.5	)

Cumulative effect of accounting changes, net:
Delivery and Services	$	---		$	---		$	---		$	(1.3	)
Generation and Marketing		--			--			--			(19.5	)
Eliminations		--			--			--			--

Total	$	---		$	---		$	---		$	(20.8	)

Consolidated net income (loss):
Delivery and Services	$	24.2		$	4.3		$	63.2		$	52.4
Generation and Marketing		(64.4	)		(240.2	)		(67.0	)		(335.1	)
Eliminations		0.7			4.4			(2.4	)		(7.6	)

Total	$	(39.5	)	$	(231.5	)	$	(6.2	)	$	(290.3	)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

Business segment information for Monongahela is summarized below. Significant transactions between reportable segments are shown as eliminations to reconcile the segment information to consolidated amounts.

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Total operating revenues:
Delivery and Services	$	201.2		$	185.3		$	523.8		$	479.1
Generation and Marketing		71.2			79.9			157.4			177.5
Eliminations		(71.0	)		(67.0	)		(150.8	)		(141.5	)

Total	$	201.4		$	198.2		$	530.4		$	515.1

Operating income (loss):
Delivery and Services	$	9.2		$	(3.7	)	$	48.4		$	28.2
Generation and Marketing		(20.3	)		1.7			(14.3	)		15.7
Eliminations		--			--			--			--

Total	$	(11.1	)	$	(2.0	)	$	34.1		$	43.9

Interest expense:
Delivery and Services	$	8.5		$	8.8		$	16.0		$	15.8
Generation and Marketing		4.4			5.4			9.5			10.9
Eliminations		--			--			--			--

Total	$	12.9		$	14.2		$	25.5		$	26.7

Consolidated income (loss) before cumulative effect of accounting
change:
Delivery and Services	$	2.4		$	(6.9	)	$	19.0		$	8.3
Generation and Marketing		(14.2	)		(0.4	)		(12.1	)		54.4
Eliminations		--			--			--			--

Total	$	(11.8	)	$	(7.3	)	$	6.9		$	62.7

Cumulative effect of accounting change, net:
Delivery and Services	$	---		$	---		$	---		$	(0.4	)
Generation and Marketing		--			--			--			--
Eliminations		--			--			--			--

Total	$	---		$	---		$	---		$	(0.4	)

Consolidated net income (loss):
Delivery and Services	$	2.4		$	(6.9	)	$	19.0		$	7.9
Generation and Marketing		(14.2	)		(0.4	)		(12.1	)		54.4
Eliminations		--			--			--			--

Total	$	(11.8	)	$	(7.3	)	$	6.9		$	62.3

Table of Contents

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 9: ACCOUNTING FOR THE EFFECTS OF PRICE DEREGULATION

Allegheny’s reserve for adverse power purchase commitments, which is recorded entirely on West Penn’s consolidated balance sheets, decreased for the six months ended June 30, 2004 and 2003 as follows:

			Six Months Ended June 30,
(In millions)			2004			2003
Decrease in adverse power purchase commitments			$	9.0		$	9.5

Allegheny's consolidated balance sheets include the amounts listed below for generating assets no longer subject to SFAS No. 71.

(In millions)	June 30, 2004			December 31, 2003
Property, plant and equipment	$	4,078.0		$	4,052.4
Amounts under construction included above		73.8			54.1
Accumulated depreciation		(1,873.6	)		(1,823.9	)

As described in Item 8, Note 13, Accounting for the Effects of Price Regulation, in the 2003 Annual Report on Form 10-K, the provisions of SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation,” were reapplied to Monongahela’s West Virginia jurisdictional generating assets in the first quarter of 2003. Upon reapplication of SFAS No. 71, Monongahela and Potomac Edison recorded gains of $61.7 million and $14.1 million, respectively, in other income and expenses, net, in their consolidated statements of operations. These gains were the result of the elimination of rate stabilization reserves and the re-establishment of regulatory assets related to deferred income taxes and deferred losses on reacquired debt.

The information used to compute Allegheny’s income (loss) per share for the three and six months ended June 30, 2004 and 2003 was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except share data)	2004			2003			2004			2003
Basic and Diluted Earnings Per Share--Numerator
Loss before cumulative effect of accounting changes	$	(39.5	)	$	(231.5	)	$	(6.2	)	$	(269.5	)
Cumulative effect of accounting changes		--			--			--			(20.8	)

Net loss	$	(39.5	)	$	(231.5	)	$	(6.2	)	$	(290.3	)

Basic and Diluted Earnings Per Share--Denominator
Weighted average common shares outstanding		126,971,447			126,883,664			126,970,373			126,719,304

Shares potentially issuable under:
Stock options		209,319			--			38,985			--
Performance shares		106,963			251,894			106,963			251,894
Stock units		1,756,859			--			1,398,604			--
Convertible securities		25,000,000			--			25,000,000			--

Total		27,073,141			251,894			26,544,552			251,894

The effects of shares potentially issuable under stock options, performance shares, stock units and convertible securities are not included in the calculation of diluted earnings per share, as these amounts are antidilutive.

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 11: OTHER INCOME AND EXPENSES, NET

Other income and expenses, net, represents non-operating income and expenses before income taxes. The following table summarizes other income and expenses, net, for the three and six months ended June 30, 2004 and 2003.

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Allegheny:
Reapplication of SFAS No. 71	$	---		$	---		$	---		$	75.8
Impairment charges related to unregulated investments		--			--			(2.3	)		--
Coal brokering income		1.0			0.6			1.0			1.3
Gain on sale of land		0.5			--			7.1			1.9
Interest and dividend income		1.3			1.4			3.1			2.6
Other		2.0			(0.6	)		4.0			--

Total	$	4.8		$	1.4		$	12.9		$	81.6

AE Supply:
Interest and dividend income	$	0.5		$	0.6		$	1.3		$	0.9
Other		(0.2	)		(0.7	)		(0.4	)		(1.3	)

Total	$	0.3		$	(0.1	)	$	0.9		$	(0.4	)

Monongahela:
Reapplication of SFAS No. 71	$	---		$	---		$	---		$	61.7
Equity in earnings of AGC		1.3			1.1			2.9			2.2
Interest and dividend income		0.3			0.4			0.6			0.7
Other		1.3			0.4			1.6			1.3

Total	$	2.9		$	1.9		$	5.1		$	65.9

Potomac Edison:
Reapplication of SFAS No. 71	$	---		$	---		$	---		$	14.1
Coal brokering income		1.0			0.6			1.0			1.3
Gain on sale of land		0.3			--			0.3			1.9
Other		0.8			0.6			1.6			1.5

Total	$	2.1		$	1.2		$	2.9		$	18.8

West Penn:
Gain on sale of land	$	0.1		$	---		$	6.7		$	---
Interest and dividend income		0.2			0.1			0.5			0.4
Other		0.5			1.4			1.2			1.7

Total	$	0.8		$	1.5		$	8.4		$	2.1

AGC:
Interest income	$	---		$	0.1		$	---		$	0.1

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 12: ASSET RETIREMENT OBLIGATIONS (ARO)

The effect of adopting SFAS No. 143, “Asset Retirement Obligations,” on Allegheny’s consolidated statements of operations was recorded as a cumulative effect of accounting change, net of tax, in the three months ended March 31, 2003. The effect, by registrant, was as follows:

(In millions)	Property, Plant and Equipment, Net		Non-Current Regulatory Asset		Non-Current Liabilities (AROs)		Decrease in Pre-Tax Income			Decrease in Net Income
AE Supply	$	0.3	$	---	$	12.2	$	(11.9	)	$	(7.4	)
Monongahela		3.0		2.3		6.1		(0.8	)		(0.4	)
Potomac Edison		0.1		--		0.2		(0.1	)		(0.1	)
West Penn		--		--		1.2		(1.2	)		(0.7	)

Total Allegheny	$	3.4	$	2.3	$	19.7	$	(14.	0)	$	(8.6	)

With respect to property, plant and equipment at Monongahela for which AROs were identified and for which the cost of removal currently is being recovered through rates, Allegheny believes it is probable that any difference between expenses under SFAS No. 143 and expenses recovered currently in rates will be recoverable in future rates. Accordingly, Allegheny is deferring such expenses as a regulatory asset.

Allegheny’s ARO balance increased from $22.5 million at December 31, 2003 to $24.3 million at June 30, 2004. This increase, of which $1.5 million and $0.3 million related to AE Supply and Monongahela, respectively, was due to accretion.

Certain estimated removal costs that are not qualified as AROs are being recovered through the rate-making process. Such costs are recorded by Allegheny’s regulated subsidiaries as regulatory liabilities (assets) as follows:

(In millions)	June 30, 2004			December 31, 2003

Monongahela	$	235.3		$	230.5
Potomac Edison		159.7			155.9
West Penn		(8.0	)		(6.6	)

Total	$	387.0		$	379.8

NOTE 13: GUARANTEES AND LETTERS OF CREDIT

At June 30, 2004, Allegheny provided guarantees, either directly or indirectly, of $39.7 million for contractual obligations of affiliated companies.

Allegheny does not carry any amounts as liabilities on its consolidated balance sheets for its obligations with respect to $30.6 million of the $39.7 million in guarantees. Of these $30.6 million in guarantees, approximately $15.8 million were issued by AE in connection with the purchase, sale, exchange or transportation of wholesale natural gas, electric power and related services, $4.7 million were issued by AE in connection with a lease agreement, $10 million were issued by Allegheny Ventures in connection with loans and other financing-related matters and $0.1 million were issued by AE Supply in connection with the sale of wholesale electric power.

Effective January 1, 2003, Allegheny began recording as liabilities at their fair value, all guarantees issued or modified after that date. As of June 30, 2004, Allegheny’s consolidated balance sheet reflected liabilities for $9.1 million of the total $39.7 million in outstanding guarantees. The $9.1 million in guarantees recorded as liabilities were issued by AE Supply in connection with the sale of the CDWR contract and related hedge transactions and the performance of a put option issued in connection with an asset sale.

In addition, $26.4 million in letters of credit were outstanding at June 30, 2004, including $16.4 million in letters of credit under the New AE Facility and a $10 million letter of credit issued on behalf of Potomac Edison under an arrangement with a different bank. This $10 million letter of credit expired in July 2004 and was replaced with a new letter of credit under the New AE Facility. None of these letters of credit is recorded on Allegheny’s balance sheet.

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

NOTE 14: VARIABLE INTEREST ENTITIES

Allegheny adopted FASB’s Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities (FIN 46R),” as of March 31, 2004. FIN 46R requires Allegheny to consolidate entities or contracts that represent a variable interest in variable interest entities (VIEs) if Allegheny is determined to be the primary beneficiary of the VIE.

Under FIN 46R, Allegheny consolidated Hunlock Creek Energy Ventures as of March 31, 2004. This entity operates two plants that produce and sell electricity to Allegheny and a third party. The consolidation resulted in an increase in total assets as of March 31, 2004 of $16.5 million. Consolidation of this entity had no impact on Allegheny’s net income or stockholders’ equity.

Allegheny determined that West Penn and Potomac Edison each has a long-term electricity purchase contract with an unrelated independent power production company (IPP) that represents a variable interest under FIN 46R. These VIEs would be consolidated if either West Penn or Potomac Edison is determined to be the primary beneficiary of the applicable VIE. Based on a qualitative analysis, Allegheny does not believe that either West Penn or Potomac Edison is the primary beneficiary of either of these VIEs. Allegheny has been unable to obtain certain quantitative information from the IPPs necessary to fully support this position. Allegheny is attempting to obtain the necessary financial information from each IPP in order to complete such an analysis. FIN 46R does not require Allegheny to consolidate these VIEs until Allegheny is able to obtain this information.

West Penn and Potomac Edison have annual estimated power purchases from these two IPPs in the amount of $47 million and $95 million, respectively. West Penn recovers a portion and Potomac Edison recovers the full amount of the cost of the applicable power contract in their rates charged to consumers. Neither West Penn nor Potomac Edison is subject to any risk of loss associated with the applicable VIE, because neither of them has any obligation to the applicable IPP other than to purchase the power that the VIE produces according to the terms of the applicable electricity purchase contract.

NOTE 15: COMMITMENTS AND CONTINGENCIES

Reference is made to Item 3, Legal Proceedings, and Item 8, Note 24, Commitments and Contingencies, in the 2003 Annual Report on Form 10-K.

Environmental Matters:

Allegheny is subject to various laws, regulations and uncertainties as to environmental matters. Compliance may require Allegheny to incur substantial additional costs to modify or replace existing and proposed equipment and facilities and may adversely affect the cost of future operations.

Clean Air Act Matters: Allegheny’s compliance with the Clean Air Act has required, and may require in the future, the installation of expensive post-combustion control technologies on many of its power stations.

The Clean Air Act mandates annual reductions of SO₂ and created an SO₂ emission allowance trading program. AE Supply and Monongahela comply with current SO₂ emission standards through a system-wide plan combining emission controls, burning less sulfur fuel and utilizing emission allowances. AE Supply estimates that its banked allowances will permit it to comply economically with SO₂ limits through 2005 and possibly beyond. Allegheny continues to study a combination of banking and trading allowances, additional emission controls and low sulfur fuel to meet future SO₂ compliance obligations.

Table of Contents

In 1998, the EPA finalized its Nitrogen Oxide (NOx) State Implementation Plan (SIP) call rule (known as the NOx SIP call), which addressed the regional transport of ground-level ozone and required the equivalent of a uniform 0.15 lb/mmBtu emission rate throughout a 22-state region, including Maryland, Pennsylvania and West Virginia, beginning in May 2003. The District of Columbia Circuit Court of Appeals issued a subsequent order that postponed the initial compliance date of the NOx SIP call from May 2003 to May 2004. Maryland and Pennsylvania implemented their respective SIP call rules in May 2003. West Virginia’s SIP call rules were effective as of May 2004.

AE Supply and Monongahela are in the process of installing NOx controls to meet the Pennsylvania, Maryland and West Virginia SIP calls. These NOx controls include Selective Catalytic Reduction at the Harrison Power Station and Pleasants Power Station and Selective Noncatalytic Reduction at Hatfield’s Ferry Power Station and Fort Martin Power Station, as well as burner modifications at Mitchell Power Station. The NOx compliance plan functions on a system-wide basis, similar to the SO₂ compliance plan. AE Supply and Monongahela also have the option in some cases, to purchase alternate fuels, NOx allowances or power on the market, if needed, to supplement their compliance strategies. AE Supply and Monongahela estimate their emission control activities, in concert with their inventory of banked allowances, will facilitate their compliance with NOx limits established by the SIP through 2005 and possibly beyond.

In August 2000, AE received a letter from the EPA requesting that it provide information and documentation relevant to the operation and maintenance of the following ten electric generating stations, collectively including 22 generating units: Albright, Armstrong, Fort Martin, Harrison, Hatfield’s Ferry, Mitchell, Pleasants, Rivesville, R. Paul Smith and Willow Island. AE Supply and Monongahela own these electric generating stations. The letter requested information under Section 114 of the Clean Air Act to determine compliance with the Clean Air Act and related requirements, including potential application of the NSR standards of the Clean Air Act, which can require the installation of additional air pollution control equipment upon the major modification of an existing facility. Responsive submissions were made during 2000 and 2001. In July 2002, AE received a follow-up letter from the EPA requesting clarifying information and provided responsive information. A meeting between the EPA and AE was held on July 16, 2003. At this time, AE is engaged in discussions with the EPA with respect to environmental matters, including NSR issues.

Similar inquiries have been made of other electric utilities and have resulted in enforcement proceedings in most cases. AE believes that its subsidiaries’ generating facilities have been operated in accordance with the Clean Air Act and the rules implementing it. The experience of other energy companies, however, suggests that, in recent years, the EPA has narrowed its view regarding the scope of the definition of “routine maintenance” under its rules, thereby broadening the range of actions subject to compliance with NSR standards. Section 114 information requests concerning facility modifications are often followed by enforcement actions.

If NSR standards are applied to Allegheny’s generating stations, in addition to the possible imposition of fines, compliance would entail significant expenditures. However, on April 13, 2004, Duke Energy (Duke) reported that the EPA and three intervening environmental groups have agreed to drop their lawsuit against Duke, which alleged that Duke violated the NSR standards. In addition, the final Routine Maintenance, Repair and Replacement Rule (RMRR) recently released by the EPA is more consistent with the energy industry’s historical compliance approach. On December 24, 2003, the U.S. Court of Appeals for the District of Columbia Circuit issued an order to stay the RMRR, which was scheduled to go into effect on December 26, 2003. The stay delays implementation of the RMRR. At this time, AE and its subsidiaries are not able to determine the effect that these actions may have on them.

On February 2, 2004, the EPA informed AE that it intended to provide the New York Attorney General, pursuant to his request, certain records that AE provided to the EPA pursuant to its request under Section 114 of the Clean Air Act. On April 23, 2004, AE Supply was notified by the Pennsylvania Department of Environmental Protection (PADEP) that PADEP had requested that the EPA provide it with records that AE provided to the EPA pursuant to the EPA’s request under Section 114 of the Clean Air Act. At this time, AE and its subsidiaries are not able to determine the effect these actions may have on them.

Table of Contents

On May 20, 2004, AE, AE Supply, Monongahela and West Penn received a Notice of Intent to Sue Pursuant to Clean Air Act §7604 (the Notice) from the Attorneys General of New York, New Jersey and Connecticut (collectively, the AGs) and from PADEP. The Notice alleges that Allegheny made major modifications to some of its West Virginia facilities in violation of the Prevention of Significant Deterioration (PSD) provisions of the Clean Air Act. The Notice alleged modification in violation of the PSD provisions at the following coal-fired facilities: Albright Unit No. 3; Fort Martin Units No. 1 and 2; Harrison Units No. 1, 2 and 3; Pleasants Units No. 1 and 2 and Willow Island Unit No. 2. The Notice also alleged PSD violations at the Armstrong, Hatfield’s Ferry and Mitchell plants in Pennsylvania and identifies PADEP as the lead agency regarding those facilities. AE is in active discussions with the AGs and PADEP to resolve the issues raised by the Notice. If these issues are not resolved, the AGs and PADEP may commence litigation. As stated above, AE is also engaged in discussions with the EPA relating to these issues.

Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) Claim: On March 4, 1994, the Distribution Companies received notice that the EPA had identified them as potentially responsible parties (PRPs) with respect to the Jack’s Creek/Sitkin Smelting Superfund Site. Initially, approximately 175 PRPs were involved, however, the current number of active PRPs has been reduced as a result of settlements with de minimis contributors and other contributors to the site. The costs of remediation will be shared by all past and active responsible parties. In 1999, a PRP group that included the Distribution Companies entered into a consent order with the EPA to remediate the site. It is currently estimated that the total remediation costs to be borne by all of the responsible parties will not exceed $30 million. Allegheny accrued $1 million representing its estimated share of the remediation costs. The balance of this accrued liability was $0.5 million at June 30, 2004.

Other: Oil and PCB contamination has been noted at the Connellsville West Side facility as part of the National Pollutant Discharge Elimination System permit review process. Steps have been taken to control the contamination, and monitoring is continuing at the site. The internal investigation into the source of the oil is ongoing in accordance with several PADEP programs. West Penn has accrued estimated total remediation costs for this facility.

Other Litigation:

Putative Class Actions Under California Statutes: Nine related putative class action lawsuits against AE Supply and more than two dozen other named defendant power suppliers were filed in various California superior courts during 2002. These class action suits were removed from state court and transferred to the U.S. District Court for the Southern District of California. Eight of the suits were commenced by consumers of wholesale electricity in California. The ninth, Millar v. Allegheny Energy Supply Co., et al., was filed on behalf of California consumers and taxpayers. The complaints allege, among other things, that AE Supply and the other defendant power suppliers violated California’s antitrust statute and the California unfair business practices statute by manipulating the California electricity market. The suits also challenge the validity of various long-term power contracts with the State of California, including the CDWR contract.

On August 25, 2003, the U.S. District Court granted AE Supply’s motion to dismiss seven of the eight consumer class actions with prejudice. The plaintiffs have appealed to the United States Court of Appeals for the Ninth Circuit.

AE Supply was never served in the eighth consumer class action, Kurtz v. Duke Energy Trading and Marketing, LLC. The allegations in this complaint were substantively identical to those in the dismissed actions. On February 18, 2004, plaintiffs in Kurtz voluntarily dismissed the action without prejudice.

The District Court separately granted plaintiffs’ motion to remand in the ninth action, Millar, on July 9, 2003. On December 18, 2003, the plaintiffs filed an amended complaint, solely on behalf of consumers, naming certain additional defendants, including The Goldman Sachs Group, Inc. (Goldman Sachs) in California Superior Court, San Francisco County. The case was transferred back to the U.S. District Court for the Southern District of California in early 2004. In May 2004, plaintiffs moved to remand the case to state court. The defendants have opposed the motion and it remains outstanding.

Under the terms of the agreement relating to the sale of the CDWR contract, AE Supply and one of its affiliates have agreed to indemnify Goldman Sachs and its affiliate J. Aron & Company, under certain conditions, for any losses arising out of the class action litigation up to the amount of the purchase price.

AE Supply cannot predict the outcome of these matters.

Nevada Power Contracts: On December 7, 2001, Nevada Power Company (NPC) filed a complaint with the FERC against AE Supply seeking FERC action to modify prices payable to AE Supply under three trade confirmations dated December 4, 2000, January 16, 2001 and February 7, 2001, between Merrill Lynch and NPC, and entered into under the Western Systems Power Pool Master Agreement. The transactions related to power sales during 2002. NPC’s claim was based, in part, on the assertion that dysfunctional California spot markets had an adverse effect on the prices NPC was able to negotiate with Merrill Lynch under the contracts. NPC filed substantially identical complaints against a number of other energy suppliers. On December 19, 2002, the Administrative Law Judge (ALJ) issued findings that no contract modification was warranted. The ALJ determined in favor of NPC that AE Supply, rather than Merrill Lynch, was a proper subject of NPC’s complaint.

On June 26, 2003, the FERC affirmed the ALJ’s decision upholding the long-term contracts negotiated between NPC and Merrill Lynch, among others. The FERC did not render a decision on whether AE Supply, rather than Merrill Lynch, was the real party in interest to the three trade confirmations at issue. On November 10, 2003, the FERC issued an order, on rehearing, affirming its conclusion that the long-term contracts should not be modified. On July 3, 2003, Snohomish County filed a petition for review of the FERC’s June 26 order with the U.S. Court of Appeals for the Ninth Circuit (Snohomish County Proceeding). On December 17, 2003, AE Supply filed a motion to intervene in the Snohomish County Proceeding in the Ninth Circuit. The NPC petitions have been consolidated in the Ninth Circuit, and additional appeals have been filed. AE Supply cannot predict the outcome of this matter.

Sierra/Nevada: On April 2, 2003, NPC and Sierra Pacific Resources, Inc. (together, Sierra/Nevada) initiated a lawsuit in U.S. District Court in Nevada against AE and AE Supply, together with Merrill Lynch & Co. and Merrill Lynch Capital Services, Inc. (together, Merrill). The complaint alleged that AE, AE Supply and Merrill engaged in fraudulent conduct in connection with NPC’s application to the Public Utilities Commission of Nevada (Nevada PUC) for a deferred energy accounting adjustment, which allegedly caused the Nevada PUC to disallow $180 million of NPC’s deferred energy expenses. Sierra/Nevada asserted three causes of action against AE and AE Supply arising from the alleged fraudulent conduct. These include: (1) tortious interference with Sierra/Nevada’s contractual and prospective economic advantages; (2) conspiracy and (3) violations of the Nevada state Racketeer Influenced and Corrupt Organization (RICO) Act. Sierra/Nevada filed an amended complaint on May 30, 2003 in which it asserted a fourth cause of action against AE and AE Supply for wrongful hiring and supervision. Sierra/Nevada seeks $180 million in compensatory damages plus attorneys fees. Under the RICO count, Sierra/Nevada seeks in excess of $850 million. AE and AE Supply filed motions to dismiss the complaints on May 6, 2003 and June 23, 2003. Additional motions have been filed. AE and AE Supply cannot predict the outcome of this matter.

Litigation Involving Merrill Lynch: AE and AE Supply entered into an asset purchase agreement with Merrill Lynch and affiliated parties in 2001, under which AE and AE Supply purchased Merrill Lynch’s energy marketing and trading business for approximately $489 million and an equity interest in AE Supply of nearly two percent. The asset purchase agreement provided that Merrill Lynch would have the right to require AE to purchase Merrill Lynch’s equity interest in AE Supply for $115 million plus interest calculated from March 16, 2001 in the event that certain conditions were not met.

On September 24, 2002, certain Merrill Lynch entities filed a complaint against AE in the U.S. District Court for the Southern District of New York, alleging that AE breached the asset purchase agreement by failing to repurchase the equity interest in AE Supply from Merrill Lynch and seeking damages in excess of $125 million.

On September 25, 2002, AE and AE Supply commenced an action against Merrill Lynch in the Supreme Court of the State of New York for the County of New York. The complaint in that lawsuit alleges that Merrill Lynch fraudulently induced AE to enter into the purchase agreement and that Merrill Lynch breached certain representations and warranties contained in the purchase agreement. The lawsuit sought damages in excess of $605 million, among other relief.

On October 23, 2002, AE filed a motion to stay Merrill Lynch’s federal court action in favor of AE and AE Supply’s action in New York state court. On May 29, 2003, the U.S. District Court for the Southern District of New York denied AE’s motion to stay Merrill Lynch’s action and ordered that AE and AE Supply assert their claims against Merrill Lynch, which were initially brought in New York state court, as counterclaims in Merrill Lynch’s federal court action. As a result, AE and AE Supply dismissed the New York state action and, on June 13, 2003, AE and AE Supply filed an answer and asserted affirmative defenses and counterclaims against Merrill Lynch in the U.S. District Court for the Southern District of New York. The counterclaims allege that Merrill Lynch fraudulently induced AE and AE Supply to enter into the purchase agreement, that Merrill Lynch breached certain representations and warranties contained in the purchase agreement and that Merrill Lynch breached fiduciary duties owed to AE and AE Supply. The counterclaims seek damages in excess of $605 million, among other relief.

On August 29, 2003, AE and AE Supply filed amended counterclaims that, among other things, added a claim against Merrill Lynch for negligent misrepresentation. On November 24, 2003, the court dismissed AE and AE Supply’s counterclaim for rescission and struck their demand for a jury trial with respect to certain counterclaims. AE and AE Supply’s counterclaims for negligent misrepresentation, fraudulent inducement, breach of contract, breach of fiduciary duty and punitive damages remain in place. On January 23, 2004, the court granted a motion filed under seal by the U.S. Attorney for the Southern District of New York to intervene and stay deposition discovery for approximately six months. Document discovery continued during the pendency of the stay, which expired on July 16, 2004. On July 12, 2004, AE and AE Supply filed a motion for leave to file amended counterclaims to reflect, among other things, developments concerning Daniel L. Gordon, the former head of energy trading for AE Supply. The court has not yet ruled on this motion. The case has been set for trial on February 3, 2005.

The federal government is holding approximately $43 million and other assets of Daniel L. Gordon. Both AE and Merrill Lynch have filed petitions with the U. S. District Court for the Southern District of New York claiming rights to the funds.

AE and AE Supply cannot predict the outcome of these matters.

Putative Shareholder, Derivative and Benefit Plan Class Actions: From October 2002 through December 2002, plaintiffs claiming to represent purchasers of AE’s securities filed 14 putative class action lawsuits against AE and several of its former senior managers in U.S. District Courts for the Southern District of New York and the District of Maryland. The complaints alleged that AE and senior management violated federal securities laws when AE purchased Merrill Lynch’s energy marketing and trading business with the knowledge that the business was built on illegal wash or round-trip trades with Enron, which the complaints alleged artificially inflated trading revenue, volume and growth. The complaints asserted that AE’s fortunes fell when Enron’s collapse exposed what plaintiffs claim were illegal trades in the energy markets. All of the securities cases were transferred to the District of Maryland and consolidated. The plaintiffs filed an amended complaint on May 3, 2004 that alleged that the defendants violated federal securities laws by failing to disclose weaknesses in Merrill Lynch’s energy marketing and trading business, as well as other internal control and accounting deficiencies. The amended complaint seeks unspecified compensatory damages and equitable relief. On July 2, 2004, AE moved to dismiss the amended complaint. The plaintiff’s response to the motion to dismiss is due on August 16, 2004.

In February and March 2003, two putative class action lawsuits were filed against AE in U.S. District Courts for the Southern District of New York and the District of Maryland. The suits allege that AE and a senior manager violated the Employee Retirement Income Security Act of 1974 (ERISA) by: (1) failing to provide complete and accurate information to plan beneficiaries regarding the energy trading business, among other things; (2) failing to diversify plan assets; (3) failing to monitor investment alternatives; (4) failing to avoid conflicts of interest and (5) violating fiduciary duties. The ERISA cases were consolidated in the District of Maryland. On April 26, 2004, the plaintiffs in the ERISA cases filed an amended complaint, adding a number of individuals as defendants and clarifying the nature of their claims. On June 25, 2004, the defendants filed a motion to dismiss the amended complaint.

In June 2003, a shareholder derivative action was filed against AE’s Board of Directors and several former senior managers in the Supreme Court of the State of New York for the County of New York. The suit alleges that the Board and senior management breached fiduciary duties to AE that have exposed AE to the securities class action lawsuits. The derivative action has been stayed pending the commencement of discovery in the securities cases.

AE cannot predict the outcome of these matters.

Table of Contents

Claims Related to Alleged Asbestos Exposure: Monongahela, Potomac Edison and West Penn have also been named as defendants along with multiple other defendants in pending asbestos cases alleging bodily injury involving multiple plaintiffs and multiple sites (the asbestos suits). These suits have been brought mostly by seasonal contractor employees and do not involve allegations of either the manufacture, sale or distribution of asbestos-containing products by Allegheny. The asbestos suits arise out of historical operations and are related to the removal of asbestos-containing materials from Allegheny’s premises. Allegheny’s historical operations were insured by various foreign and domestic insurers, including Lloyd’s of London. Allegheny’s asbestos-related litigation expenses have to date been reimbursed in full by recoveries from its historical insurers, and Allegheny believes that it has sufficient insurance to respond fully to the asbestos suits. Certain of Allegheny’s insurers, however, have contested their obligations to pay for the future defense and settlement costs relating to the asbestos suits. Allegheny is currently involved in two asbestos insurance-related actions that were commenced in 2003, Certain Underwriters at Lloyd’s, London et al. v. Allegheny Energy, Inc. et al., Case No. 21-C-03-16733 (Washington County, Md.), and Monongahela Power Company et al. v. Certain Underwriters at Lloyd’s London and London Market Companies, et al., Civil Action No. 03-C-281 (Monongalia County, W.Va.), (collectively, the “actions”). The parties in the actions are seeking an allocation of responsibility for Allegheny’s historic asbestos liability. Allegheny is continuing to receive payments from its insurance during the pendency of these actions, specifically the sum of $625,000, payable in equal parts on each of July 1, 2005 and 2006. During the three months ended June 30, 2004, Allegheny did not receive any insurance recoveries related to the asbestos cases. During the three months ended March 31, 2004, Allegheny received insurance recoveries of $0.3 million, net of $0.1 million of legal fees, related to the asbestos cases. There were no such insurance recoveries received during the six months ended June 30, 2003. Allegheny does not believe that the existence or pendency of either the asbestos suits or the actions involving its insurance will have a material impact on its consolidated financial position, results of operations or cash flows. Allegheny believes that it has established adequate reserves, net of insurance receivables and recoveries, to cover existing and future asbestos claims. As of June 30, 2004, Allegheny had 1,434 open cases remaining. Between June 30, 2004 and July 26, 2004, Allegheny was served with complaints filed on behalf of an additional 35 plaintiffs. While Allegheny believes that all of the cases are without merit, it cannot predict the outcome of the litigation.

Suits Related to the Gleason Generating Facility: Allegheny Energy Supply Gleason Generating Facility, LLC, a subsidiary of AE Supply, is the defendant in a suit brought in the Circuit Court for Weakley County, Tennessee, by residents living in the vicinity of the generating facility in Gleason, Tennessee. The original suit was filed on September 16, 2002. AE Supply purchased the generating facility in 2001. The plaintiffs are asserting claims based on trespass and/or nuisance, claiming personal injury and property damage as a result of noise from the generating facility. They seek a restraining order with respect to the operation of the plant and damages of $200 million. A mediation session was held on June 17, 2004, but the parties did not reach settlement. AE has undertaken property purchases and other mitigation measures. Allegheny cannot predict the outcome of this suit.

AE Supply has demanded indemnification from Siemens Westinghouse, the manufacturer of the turbines used in the Gleason Generating Facility, pursuant to the terms of the related equipment purchase agreement. On October 17, 2002, Siemens Westinghouse filed a request for a declaratory judgment in the Court of Common Pleas of Allegheny County, Pennsylvania seeking a declaration that the prior owner released Siemens Westinghouse from this liability through a release executed after Allegheny purchased the Gleason facility. AE Supply filed a motion for summary judgment to dismiss the action, on May 6, 2004. AE cannot predict the outcome of this matter or whether it will be able to recover amounts from Siemens Westinghouse.

SEC Matters: On October 9, October 25 and November 5, 2002, AE received subpoenas from the SEC. The subpoenas principally concerned: (1) the departure of Daniel L. Gordon; (2) AE’s litigation with Merrill Lynch; (3) AE Supply’s valuation and management of its trading business; (4) AE’s November 4, 2002 press release concerning its financial statements; (5) the departure of AE’s and its subsidiaries’ Controller, Thomas Kloc, in June 2002 and (6) AE’s acquisition of power plants from Enron. AE and AE Supply responded to the subpoenas.

On January 16, 2004, the SEC requested that AE voluntarily produce certain documents in connection with an informal investigation of AE. AE has responded to the SEC’s request for documents. The SEC also has taken testimony from one current and several former employees. AE is cooperating fully with the SEC.

Commodities Futures Trading Commission (CFTC) Subpoenas: On October 2, 2002 and January 15, 2003, AE and AE Supply received subpoenas from the CFTC for documents relating to natural gas and electricity trading. AE and AE Supply responded to the subpoenas. On July 6, 2004, the CFTC closed its investigation, although it reserved the discretion to reopen the investigation in the future.

Table of Contents

EPMI Adversary Proceeding: On May 9, 2003, Enron Power Marketing, Inc. (EPMI), a Chapter 11 debtor, commenced an adversary proceeding against AE Supply in its bankruptcy case that is pending in the U.S. Bankruptcy Court for the Southern District of New York. The complaint alleges that AE Supply owes EPMI: (1) $27,646,725 for accounts receivable due and owing for energy delivered prior to the commencement of EPMI’s bankruptcy case and (2) $8,250,000 in cash collateral previously posted to AE Supply, less any amounts owed to AE Supply as a result of EPMI’s default under a master trading agreement between the parties and certain transactions arising thereunder. EPMI also seeks certain declaratory relief, including a declaration that the arbitration provision found in the master trading agreement is unenforceable. On August 1, 2003, AE Supply filed an answer asserting affirmative defenses. Many similar cases have been filed by, or against, EPMI in its bankruptcy case. The bankruptcy court has determined that such cases should be resolved through mediation, if possible. Mediation of the subject complaint began on October 28, 2003, and a second mediation session is scheduled for September 13, 2004. AE Supply is unable to predict the outcome of this matter.

LTI Arbitration: On April 22, 2004, Leasing Technologies International, Inc. and its shareholders (collectively, LTI) filed a demand for arbitration against Allegheny Ventures and AE before the American Arbitration Association. In December 2000, Allegheny Ventures entered into an agreement to acquire LTI, an equipment leasing company. Allegheny Ventures terminated the agreement on May 4, 2003. LTI alleges that the termination of the agreement was unjustified and seeks damages in an unspecified amount for breach of the agreement, as well as other consequential damages. On June 11, 2004, AE and Allegheny Ventures filed an answer to LTI’s demand, denying all claims. AE cannot predict the outcome of this matter.

Ordinary Course of Business: The registrants are from time to time involved in litigation and other legal disputes in the ordinary course of business. Each registrant is of the belief that there are no other legal proceedings which could materially impair its operations or materially or adversely affect its financial condition or liquidity.

NOTE 16: GENERATING UNIT OUTAGES

On November 3, 2003, a fire occurred in Unit No. 2 at the Hatfield’s Ferry Power Station located near Masontown, Pennsylvania. Hatfield’s Ferry Unit No. 2 is a 570 MW coal-fired generating unit owned by AE Supply and Monongahela. As a result of the fire, the unit’s generator, turbine and certain associated equipment sustained significant damage. On February 9, 2004, a generator failure occurred in Unit No. 1 at the Pleasants Power Station located in Willow Island, West Virginia. Pleasants Unit No. 1 is a 650 MW coal-fired generating unit owned by AE Supply and Monongahela. As a result of the generator failure, the unit’s generator and associated equipment sustained damage. Both units returned to service in June 2004. Allegheny estimates that the costs associated with these outages for the three and six months ended June 30, 2004 were approximately $59 million and $93 million, respectively, consisting primarily of lost revenues (net of fuel cost savings) and repair and replacement costs (net of anticipated insurance proceeds).

NOTE 17: OVEC Transaction

In May 2004, AE and AE Supply signed an agreement to sell their nine percent equity interest and power rights in the Ohio Valley Electric Corporation (OVEC) to Buckeye Power Generating, LLC (Buckeye), an affiliate of Buckeye Power, Inc. of Columbus, Ohio. Buckeye will pay $102 million in cash and become responsible for approximately $37 million in OVEC debt under the OVEC Inter-Company Power Agreement. Following the closing of the transaction, AE Supply will retain the rights to nine percent of the power (approximately 203 megawatts) until March 12, 2006. The agreement remains subject to certain closing conditions, including third party consents and state and federal regulatory approvals.

NOTE 18: SUBSEQUENT EVENTS

Sale of Mountaineer Gas

On August 4, 2004, Monongahela signed a definitive agreement to sell its natural gas operations in West Virginia to a partnership composed of IGS Utilities, LLC, IGS Holdings LLC and affiliates of ArcLight Capital Partners, LLC for $141 million in cash and the assumption of approximately $87 million of long-term debt, subject to certain closing adjustments. In addition, the buyer will pay Monongahela, over a three-year period, certain amounts due to Monongahela from affiliates holding or owning West Virginia natural gas operations. These amounts currently aggregate approximately $16 million and will be finally determined at the closing of the transaction. Monongahela expects to utilize net proceeds from the sale to reduce debt. Monongahela’s natural gas operations consist of the natural gas assets of Monongahela referred to as the West Virginia Power Gas Services assets, Mountaineer and Mountaineer Gas Services, which is a subsidiary of Mountaineer. The total assets of the natural gas operations were approximately $338 million at June 30, 2004, and the revenues of the natural gas operations were approximately $190 million for the six months ended June 30, 2004.

During the third quarter of 2004, Monongahela expects to write-down its investment in its natural gas operations to the expected net proceeds from the sale. The write-down is expected to result in a charge against earnings of approximately $40 million, before income taxes ($25 million net of income taxes).

The agreement is subject to certain closing conditions, third party consents and state and federal regulatory approvals, including approval of a rate adjustment from the Public Service Commission of West Virginia.

Stock Unit Awards

Through June 30, 2004, Allegheny recorded compensation expense related to stock units issued to certain of its executive officers using the variable method of accounting. Allegheny intends to settle the stock units as they vest in shares of common stock and received SEC authorization to do so on June 30, 2004. Accordingly, commencing in the third quarter of 2004, Allegheny will record compensation expense relating to stock unit awards using the fixed method of accounting.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

This MD&A includes information relating to Allegheny, AE Supply, Monongahela, Potomac Edison, West Penn and AGC. Where appropriate, information relating to a specific entity is identified as such. The following discussion and analysis should be read in conjunction with the Financial Statements and Combined Notes to Financial Statements included in this report, as well as the Financial Statements and Supplementary Data and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2003 Annual Report on Form 10-K.

Forward-Looking Statements

In addition to historical information, this report contains a number of forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as anticipate, expect, project, intend, plan, believe and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. These statements may include, among others, statements with respect to:

• regulation and the status of retail generation service supply competition in states served by the Distribution Companies;
• the closing of various agreements;
• results of litigation;
• financing plans;
• demand for energy and the cost and availability of inputs;
• demand for products and services;
• capacity purchase commitments;
• PLR and power supply contracts;
• results of operations;
• capital expenditures;
• status and condition of plants and equiment;
• regulatory matters;
• internal controls and procedures and
• accounting issues.

Forward-looking statements involve estimates, expectations and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations.

Factors that could cause actual results to differ materially from expectations include, among others, the following:

• complications or other factors that render it difficult or impossible to obtain necessary lender consents or regulatory authorizations on a timely basis;
• general economic and business conditions;
• changes in access to capital markets;
• the continuing effects of global instability, terrorism and war;
• changes in industry capacity, development and other activities by Allegheny's competitors;
• changes in the weather and other natural phenomena;
• changes in technology;
• changes in the price of power and fuel for electric generation;
• the results of regulatory proceedings, including proceedings related to rates;
• changes in the underlying inputs, including market conditions and assumptions used to estimate the fair values of commodity contracts;
• changes in laws and regulations applicable to Allegheny, its markets or its activities;
• environmental regulations;
• the loss of any significant customers and/or suppliers and
• the effects of accounting policies issued periodically by accounting standard-setting bodies.

A detailed discussion of certain factors affecting the risk profile of the registrants is provided under the caption Item 1, Risk Factors, in the 2003 Annual Report on Form 10-K.

Table of Contents

ALLEGHENY RESULTS OF OPERATIONS

All comparisons presented under the results of operations for Allegheny and each of the other registrants compare operating results and other statistical information for the three and six months ended June 30, 2004 to operating results and other statistical information for the three and six months ended June 30, 2003.

Executive Overview

Allegheny’s core businesses are its generation business and its electricity transmission and distribution business both of which it operates primarily through direct and indirect subsidiaries. These operations are aligned in two operating segments, the Delivery and Services segment and the Generation and Marketing segment. Additional information regarding the composition and activities of these segments is included in the 2003 Annual Report on Form 10-K. AE, Allegheny’s parent holding company, is a registered public utility holding company subject to SEC regulation under PUHCA with respect to, among other things, transactions with affiliates, sales or acquisitions of assets, issuance of securities, distributions and permitted lines of business.

Operating Statistics

The following table provides kilowatt-hour and cubic feet sales information for electricity and gas, respectively, for the three and six months ended June 30, 2004 and 2003.

	Three Months Ended June 30,							Six Months Ended June 30,
	2004		2003		Change			2004		2003		Change
Delivery and Services:
Electricity sales (million kilowatt-hours)		11,300		10,940		3.3	%		23,687		23,254		1.9	%
Natural gas sales (million cubic feet)		3,229		3,591		(10.1	%)		17,520		19,153		(8.5	%)
Usage per customer (kilowatt-hours)
Residential		2,614		2,484		5.2	%		6,196		6,032		2.7	%
Commercial		14,751		13,839		6.6	%		29,485		28,602		3.1	%
Industrial		192,836		189,194		1.9	%		378,563		369,986		2.3	%
Generation and Marketing:
Generation (million kilowatt-hours)		10,218		10,909		(6.3	%)		22,450		24,143		(7.0	%)
Heating degree days*		492		584		(15.8	%)		3,363		3,613		(6.9	%)
Cooling degree days*		269		119		126.1	%		270		119		126.9	%

* The regulated utility operations of the Distribution Companies are weather sensitive. Weather conditions directly influence the volume of electricity or natural gas delivered by the regulated utility. Degree day data is used to estimate amounts of energy required to maintain comfortable indoor temperature levels based on each day’s average temperature. Heating degree days is the measure of the variation in the weather based on the extent to which the average daily temperature falls below 65° Fahrenheit, and cooling degree days is the measure of the variation in the weather based on the extent to which the average daily temperature rises above 65° Fahrenheit.

Table of Contents

Income (Loss) Summary

	Three Months Ended June30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Segment Basis*
Delivery and Services:
Operating revenues	$	699.7		$	665.5		$	1,569.8		$	1,516.4
Operating income	$	65.7		$	39.6		$	161.8		$	133.6
Income before income taxes, minority interest and
cumulative effect of accounting changes	$	35.7		$	7.4		$	103.9		$	88.3
Net income	$	24.2		$	4.3		$	63.2		$	52.4
Generation and Marketing:
Operating revenues	$	326.4		$	33.3		$	759.2		$	314.1
Operating (loss) income	$	(40.9	)	$	(335.7	)	$	52.8		$	(472.6	)
Loss before income taxes, minority interest and
cumulative effect of accounting changes	$	(106.3	)	$	(418.1	)	$	(108.8	)	$	(558.5	)
Net loss	$	(64.4	)	$	(240.2	)	$	(67.0	)	$	(335.1	)
Consolidated Basis
Income (Loss)
Delivery and Services	$	24.2		$	4.3		$	63.2		$	53.7
Generation and Marketing		(64.4	)		(240.2	)		(67.0	)		(315.6	)
Eliminations		0.7			4.4			(2.4	)		(7.6	)

Consolidated loss before cumulative effect
of accounting changes		(39.5	)		(231.5	)		(6.2	)		(269.5	)
Cumulative effect of accounting changes, net		--			--			--			(20.8	)

Consolidated net loss	$	(39.5	)	$	(231.5	)	$	(6.2	)	$	(290.3	)

Basic and Diluted Income (Loss) Per Share**
Delivery and Services	$	0.19		$	0.04		$	0.50		$	0.42
Generation and Marketing		(0.51	)		(1.89	)		(0.53	)		(2.49	)
Eliminations		0.01			0.03			(0.02	)		(0.06	)

Consolidated loss before cumulative effect
of accounting changes		(0.31	)		(1.82	)		(0.05	)		(2.13	)
Cumulative effect of accounting changes, net		--			--			--			(0.16	)

Consolidated net loss	$	(0.31	)	$	(1.82	)	$	(0.05	)	$	(2.29	)

* Excludes eliminations
** The effects of stock options, performance shares, stock units and convertible securities are not included in the calculation of diluted income (loss) per share, as these amounts are antidilutive.

Consolidated loss before cumulative effect of accounting changes decreased $192 million and $263.3 million for the three and six months ended June 30, 2004, respectively. These decreases were primarily due to reduced realized and unrealized losses in the Generation and Marketing segment and, to a lesser extent, improved profitability in the Delivery and Services segment offset by costs associated with plant outages. Additionally, both the Delivery and Services segment and the Generating and Marketing segment had lower operations and maintenance expense for the three and six months ended June 30, 2004.

Results for the six months ended June 30, 2004 were significantly impacted by outages at two generating facilities. On November 3, 2003, a fire occurred in Unit No. 2 at the Hatfield’s Ferry Power Station located near Masontown, Pennsylvania. Hatfield’s Ferry Unit No. 2 is a 570 MW coal-fired generating unit owned by AE Supply and Monongahela. As a result of the fire, the unit’s generator, turbine and certain associated equipment sustained significant damage. On February 9, 2004, a generator failure occurred in Unit No. 1 at the Pleasants Power Station located in Willow Island, West Virginia. Pleasants Unit No. 1 is a 650 MW coal-fired generating unit owned by AE Supply and Monongahela. As a result of the generator failure, the unit’s generator and associated equipment sustained damage. Both units returned to service in June 2004. Allegheny estimates that the costs associated with these outages for the three and six months ended June 30, 2004 were approximately $59 million and $93 million, respectively, consisting primarily of lost revenues (net of fuel cost savings) and repair and replacement costs (net of anticipated insurance proceeds).

Consolidated net loss included $12.2 million, net of income taxes, for the six months ended June 30, 2003, reflecting the cumulative effect of the accounting change associated with the adoption of EITF Issue No. 02-3, “Accounting for Contracts Involved in Energy Trading and Risk Management.” See Note 3, Wholesale Energy Activities, above for additional information.

Consolidated net loss also included $8.6 million, net of income taxes, for the six months ended June 30, 2003, reflecting the cumulative effect of the accounting change associated with the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations.” See Note 12, Asset Retirement Obligations, above for additional information.

Operating Revenues

Total operating revenues for the three and six months ended June 30, 2004 and 2003 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2004			2003			2004			2003
Delivery and Services:
Retail electric	$	610.5		$	581.0		$	1,291.4		$	1,250.7
Retail natural gas		37.7			33.5			181.4			148.2
Transmission services and bulk power		32.9			34.9			68.8			80.8
Unregulated services		11.7			10.7			16.0			25.7
Other affiliated and non affiliated energy services		6.9			5.4			12.2			11.0

Total Delivery and Services revenues		699.7			665.5			1,569.8			1,516.4

Generation and Marketing:
Wholesale *		(33.0	)		(304.1	)		5.6			(407.8	)
Affiliated and other		359.4			337.4			753.6			721.9

Total Generation and Marketing revenues		326.4			33.3			759.2			314.1

Eliminations		(369.0	)		(339.6	)		(782.2	)		(755.6	)

Total operating revenues	$	657.1		$	359.2		$	1,546.8		$	1,074.9

* In accordance with EITF 02-3, energy trading revenues are reported net of purchased energy, which resulted in negative revenue amounts for the three months ended June 30, 2004 and 2003 and for the six months ended June 30, 2003.

Delivery and Services: Retail electric revenues for the three and six months ended June 30, 2004 increased $29.5 million and $40.7 million, respectively. These increases were primarily due to increases in residential, commercial and industrial sales resulting from increased usage. The increased usage by residential and commercial customers was primarily the result of an increase in cooling degree days, partially offset by a decrease in heating degree days.

Retail natural gas revenues increased $4.2 million and $33.2 million for the three and six months ended June 30, 2004, respectively, primarily due to an increase in retail tariffs effective October 2, 2003 and April 1, 2004 to cover increases in purchased gas costs. These increases were partially offset by decreases in residential, commercial and industrial gas sales resulting from decreased usage. The decreased usage by residential and commercial customers was primarily the result of a decrease in heating degree days.

Transmission services and bulk power revenues decreased $2 million and $12 million for the three and six months ended June 30, 2004, respectively. The decrease in transmission services and bulk power revenues for the three months ended June 30, 2004 was primarily due to the loss of several wholesale customers as a result of contract expirations, partially offset by higher PJM transmission service revenue. The decrease in transmission services and bulk power revenues for the six months ended June 30, 2004 was due to the loss of several wholesale customers and lower PJM transmission service revenue.

Unregulated services revenues increased $1 million for the three months ended June 30, 2004, due to higher revenue recognition on the South Mississippi Electric Power Association (SMEPA) percentage of completion construction contract. Unregulated services revenues decreased $9.7 million for the six months ended June 30, 2004, primarily due to lower revenue recognition on the SMEPA construction contract.

Generation and Marketing: Operating revenues for the three and six months ended June 30, 2004 increased by $293.1 million and $445.1 million, respectively. These increases principally resulted from lower realized and unrealized losses in 2004.

Operating revenues for the three months ended June 30, 2004, were $326.4 million. These revenues include PLR revenues of $367.7 million, revenues from other trading activities of $3.8 million and other revenues of $9.3 million, less $54.4 million representing the excess of PJM load expense over PJM generation and other revenues.

Operating revenues for the six months ended June 30, 2004 were $759.2 million. These revenues include PLR revenues of $773.3 million, revenues from other trading activities of $4.4 million, other revenues of $16.9 million and the release of $68.1 million in escrow proceeds associated with the sale of the CDWR contract and related hedge transactions, less $103.5 million representing the excess of PJM load expense over PJM generation and other revenues.

Operating revenues for the three and six months ended June 30, 2004 were negatively impacted by the outages at Hatfield's Ferry Unit No. 2 and Pleasants Unit No. 1.

Wholesale and other revenues for the three and six months ended June 30, 2004 increased $271.1 million and $413.4 million, respectively, primarily due to reduced realized and unrealized losses. These reductions reflect AE Supply’s exit from the Western U.S. energy markets in 2003 and the release of escrow proceeds related to the sale of the CDWR contract and related hedge transactions.

Affiliated and other revenues for the three and six months ended June 30, 2004 increased $22 million and $31.7 million, respectively. These increases were primarily due to increased sales volumes and prices under long-term power sales agreements between AE Supply and the Distribution Companies.

Operating Expenses

Fuel consumed in electric generation: Fuel consumed in electric generation, which relates entirely to the Generation and Marketing segment, represents the cost of coal, natural gas and oil burned at Allegheny’s generating stations to produce electricity. Fuel consumed in electric generation increased $6.9 million and $10.1 million for the three and six months ended June 30, 2004, respectively. This increase was primarily due to the increased cost of fuel consumed at the gas-fired generating stations. The usage of gas-fired facilities increased partly as the result of the July 2003 start-up of the generating facility in Springdale, Pennsylvania. These increases were partially offset by a decrease in coal expenses in the three and six months ended June 30, 2004, primarily due to a decrease in coal consumed at Hatfield’s Ferry Unit No. 2 and Pleasants Unit No. 1 during the outages at those facilities.

Table of Contents

Purchased power and transmission: Purchased power and transmission expense for the three and six months ended June 30, 2004 and 2003 consisted of the following items:

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2004		2003		2004		2003
Delivery and Services:
From PURPA generation *	$	45.0	$	53.0	$	96.1	$	108.9
Other purchased energy		379.1		354.0		796.5		761.0

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

TABLE OF CONTENTS

GLOSSARY

ALLEGHENY ENERGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(unaudited)

ALLEGHENY ENERGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)

ALLEGHENY ENERGY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)

ALLEGHENY ENERGY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (continued)(in thousands)(unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIESCONSOLIDATED STATEMENT OF OPERATIONS(in thousands)(unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) (unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued)(in thousands) (unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)(unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)(unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands) (unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (continued)(in thousands)(unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands) (unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)(unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands) (unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (continued)(in thousands) (unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands) (unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued)(in thousands)(unaudited)

ALLEGHENY GENERATING COMPANYSTATEMENTS OF OPERATIONS(in thousands)(unaudited)

ALLEGHENY GENERATING COMPANYSTATEMENTS OF CASH FLOWS(in thousands)(unaudited)

ALLEGHENY GENERATING COMPANYBALANCE SHEETS(in thousands)(unaudited)

ALLEGHENY GENERATING COMPANYBALANCE SHEETS (continued)(in thousands)(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 1: BASIS OF PRESENTATION

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 2: LONG-TERM DEBT

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 3: WHOLESALE ENERGY ACTIVITIES

NOTE 4: GOODWILL AND INTANGIBLE ASSETS

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 5: PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

COMBINED NOTES TO FINANCIAL STATEMENTS(unaudited)

NOTE 6: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

COMBINED NOTES TO FINANCIAL STATEMENTS(unaudited)

NOTE 7: OTHER COMPREHENSIVE INCOME (LOSS)

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 8: BUSINESS SEGMENTS

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 9: ACCOUNTING FOR THE EFFECTS OF PRICE DEREGULATION

NOTE 10: INCOME (LOSS) PER SHARE

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 11: OTHER INCOME AND EXPENSES, NET

COMBINED NOTES TO FINANCIAL STATEMENTS (unaudited)

NOTE 12: ASSET RETIREMENT OBLIGATIONS (ARO)

NOTE 13: GUARANTEES AND LETTERS OF CREDIT

COMBINED NOTES TO FINANCIAL STATEMENTS(unaudited)

NOTE 14: VARIABLE INTEREST ENTITIES

NOTE 15: COMMITMENTS AND CONTINGENCIES

Environmental Matters:

Other Litigation:

NOTE 16: GENERATING UNIT OUTAGES

NOTE 17: OVEC Transaction

NOTE 18: SUBSEQUENT EVENTS

Sale of Mountaineer Gas

Stock Unit Awards

Forward-Looking Statements

ALLEGHENY RESULTS OF OPERATIONS

Operating Revenues

Operating Expenses

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
(unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

ALLEGHENY ENERGY SUPPLY COMPANY, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

MONONGAHELA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

WEST PENN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(unaudited)

ALLEGHENY GENERATING COMPANY
STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

ALLEGHENY GENERATING COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

ALLEGHENY GENERATING COMPANY
BALANCE SHEETS
(in thousands)
(unaudited)

ALLEGHENY GENERATING COMPANY
BALANCE SHEETS (continued)
(in thousands)
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

COMBINED NOTES TO FINANCIAL STATEMENTS
(unaudited)

MONONGAHELA POWER CO /OH/ 10-Q