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 September 30, 2003

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) 10435 Downsville Pike Hagerstown, Maryland 21740-1766 Telephone (301) 790-3400	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) 10435 Downsville Pike Hagerstown, Maryland 21740-1766 Telephone (301) 790-3400	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) 10435 Downsville Pike Hagerstown, Maryland 21740-1766 Telephone (301) 790-3400	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.	Yes	x	No	¨
Allegheny Energy Supply Company, LLC	Yes	¨	No	x
Monongahela Power Company	Yes	¨	No	x
The Potomac Edison Company	Yes	¨	No	x
West Penn Power Company	Yes	¨	No	x
Allegheny Generating Company	Yes	¨	No	x

Number of shares outstanding of each class of common stock as of December 31, 2003:

Allegheny Energy, Inc.	126,969,238		($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.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)

	Allegheny Energy, Inc.:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002	7
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	8
	Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	9

	Allegheny Energy Supply Company, LLC:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002	11
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	12
	Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	13

	Monongahela Power Company:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002	15
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	16
	Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	17

	The Potomac Edison Company:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002	19
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	20
	Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	21

	West Penn Power Company:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002	23
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	24
	Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	25

	Allegheny Generating Company:
	Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002	27
	Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	28
	Balance Sheets as of September 30, 2003 and December 31, 2002	29

	Combined Notes to Consolidated Financial Statements	30

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)	60

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	102

Item 4.	Controls and Procedures	103

PART II.	OTHER INFORMATION	106

Item 1.	Legal Proceedings	106

Item 2.	Changes in Securities and Use of Proceeds	106

Item 3.	Default Upon Senior Securities	106

Item 4.	Submission of Matters to Vote of Security Holders	106

Item 5.	Other Information	107

Item 6.	Exhibits and Reports on Form 8-K	108

Signature		116

GLOSSARY

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., also a holding company.

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., a non-utility, unregulated subsidiary of Allegheny Energy, Inc.

Alliance Energy Services		Alliance Energy Services, LLC, a former indirect subsidiary of Allegheny Ventures, Inc.

Distribution Companies		Collectively, Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company. The Distribution Companies do business as “Allegheny Power.”

Fellon-McCord		Fellon-McCord & Associates, Inc., a former subsidiary of Allegheny Ventures, Inc.

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:

ARO		Asset retirement obligation

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

CAAA		Clean Air Act Amendments of 1990

CDWR		California Department of Water Resources

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

FIN 45		FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others”

FIN 46		FIN 46, “Consolidation of Variable Interest Entities”

GAAP		Generally Accepted Accounting Principles of the United States of America

KWh		Kilowatt-hour

LV Cogen		Las Vegas Cogeneration II

MW		Megawatt

MWh		Megawatt-hour

NSR		The New Source Performance Review Standards, or “New Source Review” applicable to facilities deemed “new” sources of emissions

PJM		PJM Interconnection, LLC, a regional transmission organization

PJM West		The commonly used name of the western extension of PJM Interconnection, LLC

PLR		Provider-of-last-resort

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”

SFAS No. 142		SFAS No. 142, “Goodwill and Other Intangible Assets”

SFAS No. 143		SFAS No. 143, “Accounting for Asset Retirement Obligations”

SFAS No. 149		SFAS No. 149, “Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities”

T&D		Transmission and Distribution

Williams		Williams Energy Marketing and Trading Company

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ALLEGHENY ENERGY, INC.

Consolidated Statements of Operations

(In thousands, except number of shares and per share data)	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
	2003			2002			2003			2002
Total operating revenues	$	637,560		$	537,136		$	1,712,465		$	2,326,834

Cost of revenues:
Fuel consumed for electric generation		160,764			166,095			453,590			436,266
Purchased energy and transmission		82,046			75,060			249,841			265,498
Natural gas purchases		16,198			128,572			137,702			432,099
Deferred energy costs, net		(10,023	)		(3,675	)		(30,647	)		10,908
Other		7,241			37,287			27,427			77,267

Total cost of revenues		256,226			403,339			837,913			1,222,038

Net revenues		381,334			133,797			874,552			1,104,796

Other operating expenses:
Workforce reduction expenses		—			104,170			—			104,170
Operation expense		213,127			218,704			789,309			714,084
Depreciation and amortization		86,039			77,359			243,124			233,226
Taxes other than income taxes		50,301			52,381			161,663			168,570

Total other operating expenses		349,467			452,614			1,194,096			1,220,050

Operating income (loss)		31,867			(318,817	)		(319,544	)		(115,254	)

Other income and (expenses), net (Note 12)		15,154			(34,867	)		96,767			(27,844	)

Interest charges and preferred dividends:
Interest on debt and other		127,282			81,183			350,930			229,176
Allowance for borrowed funds used during construction and interest capitalized		(2,432	)		(3,610	)		(15,853	)		(9,485	)
Dividends on preferred stock of subsidiaries		1,259			1,260			3,778			3,778

Total interest charges and preferred dividends		126,109			78,833			338,855			223,469

Consolidated loss before income taxes, minority interest, and cumulative effect of accounting changes		(79,088	)		(432,517	)		(561,632	)		(366,567	)

Federal and state income tax (benefit)		(26,554	)		(164,883	)		(231,950	)		(141,563	)

Minority interest (benefit)		(1,537	)		(4,618	)		(9,122	)		(4,602	)

Consolidated loss before cumulative effect of accounting changes		(50,997	)		(263,016	)		(320,560	)		(220,402	)
Cumulative effect of accounting changes, net of taxes of $12,974 and $79,596		—			—			(20,765	)		(130,514	)

Consolidated net loss	$	(50,997	)	$	(263,016	)	$	(341,325	)	$	(350,916	)

Weighted average basic and diluted common shares outstanding		126,959,283			125,691,877			126,800,176			125,460,716

Basic and diluted loss per share:
Consolidated loss before cumulative effect of accounting changes	$	(0.40	)	$	(2.09	)	$	(2.53	)	$	(1.76	)
Cumulative effect of accounting changes, net		—			—			(0.16	)		(1.04	)

Consolidated net loss	$	(0.40	)	$	(2.09	)	$	(2.69	)	$	(2.80	)

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY, INC.

Consolidated Statements of Cash Flows

	Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002
Cash flows from operations:
Consolidated net loss	$	(341,325	)	$	(350,916	)
Cumulative effect of accounting changes, net		20,765			130,514

Consolidated loss before cumulative effect of accounting changes		(320,560	)		(220,402	)
Reapplication of SFAS No. 71		(75,824	)		—
Depreciation and amortization		243,124			233,226
Amortization of adverse purchase power contract		(14,298	)		(17,345	)
Loss (gain) on disposal of assets		21,334			(15,033	)
Minority interest		(9,122	)		(4,602	)
Deferred investment credit and income taxes, net		(159,600	)		(7,432	)
Deferred energy costs, net		(30,647	)		10,908
Unrealized losses on commodity contracts, net		483,811			184,497
Workforce reduction expenses		—			94,220
Impairment of unregulated investments		—			38,036
Impairment of generation projects		—			38,488
Changes in certain assets and liabilities:
Accounts receivable, net		100,066			(34,238	)
Materials and supplies		(38,163	)		(40,487	)
Prepaid taxes		(16,252	)		(10,185	)
Taxes receivable/payable, net		181,433			21,044
Accounts payable		(46,539	)		100,765
Benefit plans’ investments		20,993			30,583
Accrued payroll		(12,300	)		(32,087	)
Interest accrued		22,447			25,653
Purchased options		10,053			(24,075	)
Contract termination costs		(47,706	)		—
Other, net		18,447			370

		330,697			371,904

Cash flows used in investing:
Acquisition of electric generating assets		(318,435	)		—
Construction expenditures		(205,604	)		(330,300	)
Proceeds from sale of businesses and assets		55,894			16,556

		(468,145	)		(313,744	)

Cash flows from financing:
Proceeds from credit facilities, notes, and bonds		2,317,257			735,960
Restricted funds on deposit with trustee		(34,175	)		605
Proceeds from issuance of common stock		—			647
Payments on credit facilities, notes, and bonds		(417,797	)		(352,399	)
Cash dividends paid on common stock		—			(145,044	)
Short-term debt, net		(1,131,966	)		(100,582	)

		733,319			139,187

Net change in cash and temporary cash investments		595,871			197,347
Cash and temporary cash investments at January 1		204,231			37,980

Cash and temporary cash investments at September 30	$	800,102		$	235,327

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY, INC.

Consolidated Balance Sheets

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
ASSETS

Current assets:
Cash and temporary cash investments	$	800,102		$	204,231
Accounts receivable:
Billed:
Customer		243,599			316,260
Energy trading and other		107,676			93,700
Unbilled		117,195			166,055
Allowance for uncollectible accounts		(43,399	)		(29,645	)
Materials and supplies (at average cost):
Operating and construction		110,402			111,267
Fuel		111,802			74,768
Taxes receivable		—			185,691
Deferred income taxes		52,667			46,102
Commodity contracts		15,741			156,313
Prepaid taxes		66,209			49,957
Assets held for sale		—			9,259
Restricted funds		111,835			2,351
Other, including current portion of regulatory assets		97,102			77,563

		1,790,931			1,463,872

Property, plant, and equipment:
In service, at original cost		11,632,793			10,976,166
Construction work in progress		162,603			380,959

		11,795,396			11,357,125
Accumulated depreciation		(4,686,817	)		(4,474,551	)

		7,108,579			6,882,574

Investments and other assets:
Excess of cost over net assets acquired (Goodwill)		367,287			367,287
Benefit plans’ investments		7,538			47,309
Unregulated investments		54,233			56,393
Intangible assets		38,648			38,648
Other		44,520			22,685

		512,226			532,322

Deferred charges:
Commodity contracts		4,870			1,055,160
Regulatory assets		563,809			558,811
Other		142,624			107,540

		711,303			1,721,511

Total assets	$	10,123,039		$	10,600,279

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY, INC.

Consolidated Balance Sheets (Continued)

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	—		$	1,131,966
Long-term debt due within one year		699,289			257,200
Debentures, notes, and bonds reclassified to current		4,888,410			3,662,201
Accounts payable		326,556			380,019
Taxes accrued – other		92,791			97,049
Adverse power purchase commitments		18,297			19,064
Commodity contracts		41,514			191,186
Interest accrued		85,058			62,611
Other, including current portion of regulatory liabilities		180,067			189,537

		6,331,982			5,990,833

Long-term debt		407,291			115,944

Deferred credits and other liabilities:
Commodity contracts		62,959			590,546
Unamortized investment credit		91,415			96,183
Deferred income taxes		934,506			1,079,151
Obligation under capital leases		34,815			39,054
Regulatory liabilities		51,445			111,967
Adverse power purchase commitments		222,616			236,147
Other		308,114			313,106

		1,705,870			2,466,154

Minority interest		11,685			21,841

Preferred stock of subsidiary		74,000			74,000

Stockholders’ equity:
Common stock		158,761			158,261
Other paid-in capital		1,447,830			1,446,180
Retained earnings		16,564			357,889
Treasury stock		(1,179	)		(411	)
Accumulated other comprehensive loss		(29,765	)		(30,412	)

		1,592,211			1,931,507

Commitments and contingencies (Note 16)

Total liabilities and stockholders’ equity	$	10,123,039		$	10,600,279

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY SUPPLY COMPANY, LLC, AND SUBSIDIARIES

Consolidated Statements of Operations

	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002			2003			2002
Total operating revenues	$	238,224		$	(18,074	)	$	419,223		$	670,229

Cost of revenues:
Fuel consumed for electric generation		124,034			130,560			348,601			342,004
Purchased energy and transmission		25,929			28,500			87,184			127,035

Total cost of revenues		149,963			159,060			435,785			469,039

Net revenues		88,261			(177,134	)		(16,562	)		201,190

Other operating expenses:
Workforce reduction expenses		—			40,880			—			40,880
Operation expense		84,219			92,443			374,843			315,903
Depreciation and amortization		34,629			29,167			96,232			90,911
Taxes other than income taxes		12,412			13,802			42,150			49,075

Total other operating expenses		131,260			176,292			513,225			496,769

Operating loss		(42,999	)		(353,426	)		(529,787	)		(295,579	)

Other income and (expenses), net (Note 12)		697			(4,098	)		281			(5,291	)

Interest charges:
Interest on debt and other		79,453			40,111			219,903			115,421
Interest capitalized		(2,055	)		(2,818	)		(14,680	)		(6,841	)

Total interest charges		77,398			37,293			205,223			108,580

Consolidated loss before income taxes, minority interest, and cumulative effect of accounting changes		(119,700	)		(394,817	)		(734,729	)		(409,450	)

Federal and state income tax benefit		(42,719	)		(150,517	)		(294,669	)		(157,978	)

Minority interest		1,429			1,062			3,617			3,117

Consolidated loss before cumulative effect of accounting changes		(78,410	)		(245,362	)		(443,677	)		(254,589	)
Cumulative effect of accounting changes, net of tax of $12,131		—			—			(19,533	)		—

Consolidated net loss	$	(78,410	)	$	(245,362	)	$	(463,210	)	$	(254,589	)

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY SUPPLY COMPANY, LLC, AND SUBSIDIAIRES

Consolidated Statements of Cash Flows

	Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002
Cash flows from (used in) operations:
Consolidated net loss	$	(463,210	)	$	(254,589	)
Cumulative effect of accounting changes, net		19,533			—

Consolidated loss before cumulative effect of accounting changes		(443,677	)		(254,589	)
Depreciation and amortization		96,232			90,911
Loss on disposal of assets		32,802			—
Minority interest in AGC		3,617			3,117
Deferred investment credit and income taxes, net		(113,567	)		(16,146	)
Unrealized losses on commodity contracts, net		479,419			180,849
Workforce reduction expenses		—			30,930
Impairment of generation projects		—			38,488
Changes in certain assets and liabilities:
Accounts receivable, net		(5,472	)		(67,851	)
Affiliated accounts payable		(32,290	)		(11,302	)
Materials and supplies		4,017			(19,575	)
Prepaid taxes		(1,680	)		(7,311	)
Taxes receivable/payable, net		77,192			(32,059	)
Accounts payable		(71,561	)		91,160
Accrued payroll		13			(32,698	)
Interest accrued		16,713			20,472
Purchased options		10,053			(24,075	)
Contract termination costs		(47,706	)		—
Other, net		32,108			(3,071	)

		36,213			(12,750	)

Cash flows used in investing:
Acquisition of electric generating facility		(318,435	)		—
Construction expenditures		(86,694	)		(177,166	)
Proceeds from sale of assets		45,835			—

		(359,294	)		(177,166	)

Cash flows from financing:
Notes payable to parent and affiliates		—			(194,850	)
Restricted funds on deposit with trustee		(31,663	)		—
Proceeds from credit facilities		1,675,219			644,618
Payments on credit facilities, notes, and bonds		(247,264	)		(158,095	)
Short-term debt, net		(796,966	)		117,251
Parent company contribution		23,448			1,950
Return of member’s capital contribution		(12,674	)		—
Dividends paid to minority shareholder		—			(98,033	)

		610,100			312,841

Net change in cash and temporary cash investments		287,019			122,925
Cash and temporary cash investments at January 1		58,862			20,909

Cash and temporary cash investments at September 30	$	345,881		$	143,834

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY SUPPLY COMPANY, LLC, AND SUBSIDIARIES

Consolidated Balance Sheets

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and temporary cash investments	$	345,881		$	58,862
Accounts receivable:
Billed:
Customer		38,707			86,842
Energy trading and other		74,442			19,943
Allowance for uncollectible accounts		(2,478	)		(1,411	)
Materials and supplies (at average cost):
Operating and construction		53,955			55,849
Fuel		40,352			44,469
Taxes receivable		—			69,701
Deferred income taxes		24,634			25,981
Prepaid taxes		19,531			17,851
Prepaid trades		—			2,927
Commodity contracts		19,622			156,704
Restricted funds		107,509			—
Assets held for sale		—			9,259
Other		10,293			20,024

		732,448			567,001

Property, plant, and equipment:
In service, at original cost		5,731,507			5,237,353
Construction work in progress		82,166			245,038

		5,813,673			5,482,391
Accumulated depreciation		(2,166,628	)		(2,069,425	)

		3,647,045			3,412,966

Investments and other assets:
Excess of cost over net assets acquired (Goodwill)		367,287			367,287
Unregulated investments		27,250			28,850
Other		20,860			7,857

		415,397			403,994

Deferred charges:
Commodity contracts		3,847			1,055,160
Other		83,782			66,165

		87,629			1,121,325

Total assets	$	4,882,519		$	5,505,286

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY SUPPLY COMPANY, LLC, AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

	Unaudited
*(In thousands)*	September 30, 2003		December 31, 2002
LIABILITIES AND MEMBERS’ EQUITY:
Current liabilities:
Short-term debt	$	—	$	796,966
Long-term debt due within one year		450,000		114,350
Debentures, notes, and bonds reclassified to current		2,882,056		1,747,785
Accounts payable		177,917		231,960
Accounts payable to affiliates, net		15,732		48,022
Taxes accrued		31,306		23,815
Commodity contracts		41,514		191,186
Interest accrued		49,278		32,565
Other		75,453		68,838

		3,723,256		3,255,487

Long-term debt		91,737		91,719

Deferred credits and other liabilities:
Commodity contracts		62,959		592,471
Unamortized investment credit		60,003		61,710
Deferred income taxes		231,980		356,473
Other		74,668		67,545

		429,610		1,078,199

Minority interest		41,936		31,543

Members’ equity		595,980		1,048,338

Commitments and contingencies (Note 16)

Total liabilities and members’ equity	$	4,882,519	$	5,505,286

See accompanying Combined Notes to Consolidated Financial Statements.

MONONGAHELA POWER COMPANY, AND SUBSIDIARIES

Consolidated Statements of Operations

	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002			2003			2002
Total operating revenues	$	199,929		$	202,085		$	714,996		$	664,280

Cost of revenues:
Fuel consumed for electric generation		36,729			35,534			104,989			94,262
Purchased energy and transmission		44,570			39,024			138,068			120,285
Natural gas purchases		16,193			11,799			137,693			85,740
Deferred energy costs, net		(8,467	)		(4,403	)		(31,409	)		7,824

Total cost of revenues		89,025			81,954			349,341			308,111

Net revenues		110,904			120,131			365,655			356,169

Other operating expenses:
Workforce reduction expenses		—			28,566			—			28,566
Operation expense		66,556			63,576			211,492			187,427
Depreciation and amortization		19,503			18,682			54,917			56,016
Taxes other than income taxes		13,413			14,553			43,945			46,837

Total other operating expenses		99,472			125,377			310,354			318,846

Operating income (loss)		11,432			(5,246	)		55,301			37,323

Other income and (expenses), net (Note 12)		2,058			737			67,924			5,481

Interest charges:
Interest on debt and other		12,837			12,861			40,167			39,427
Allowance for borrowed funds used during construction and interest capitalized		(229	)		(700	)		(858	)		(2,356	)

Total interest charges		12,608			12,161			39,309			37,071

Consolidated income (loss) before income taxes and cumulative effect of accounting change		882			(16,670	)		83,916			5,733

Federal and state income tax (benefit) expense		(4,591	)		(7,513	)		15,705			1,828

Consolidated income (loss) before cumulative effect of accounting change		5,473			(9,157	)		68,211			3,905
Cumulative effect of accounting change, net of taxes of $314 and $79,596		—			—			(456	)		(115,437	)

Consolidated net income (loss)	$	5,473		$	(9,157	)	$	67,755		$	(111,532	)

See accompanying Combined Notes to Consolidated Financial Statements.

MONONGAHELA POWER COMPANY, AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002
Cash flows from operations:
Consolidated net income (loss)	$	67,755		$	(111,532	)
Cumulative effect of accounting change, net		456			115,437

Consolidated income before cumulative effect of accounting change		68,211			3,905
Depreciation and amortization		54,917			56,016
Reapplication of SFAS No. 71		(61,724	)		—
Gain on disposal of assets		—			(1,927	)
Deferred investment credit and income taxes, net		33,525			7,616
Deferred energy costs, net		(31,409	)		7,824
Workforce reduction expenses		—			28,566
Changes in certain assets and liabilities:
Accounts receivable, net		40,540			29,489
Materials and supplies		(41,233	)		(14,409	)
Prepaid taxes		(4,664	)		(3,560	)
Taxes receivable/payable, net		252			2,839
Accounts payable		(9,405	)		14,945
Affiliated accounts payable		31,251			(18,065	)
Interest accrued		3,894			2,845
Other, net		(47	)		12,507

		84,108			128,591

Cash flows used in investing:
Construction expenditures		(52,701	)		(70,155	)
Proceeds from sale of assets		—			3,126
Contribution to affiliate		(9,188	)		—

		(61,889	)		(67,029	)

Cash flows used in financing:
Payments on credit facilities, notes, and bonds		(59,736	)		(26,764	)
Proceeds from credit facilities, notes, and bonds		53,610			—
Short-term debt, net		—			(14,350	)
Notes receivable from affiliates		8,503			47,750
Dividends paid on capital stock:
Preferred stock		(3,778	)		(3,777	)
Common stock		(26,568	)		(21,797	)

		(27,969	)		(18,938	)

Net change in cash and temporary cash investments		(5,750	)		42,624
Cash and temporary cash investments at January 1		55,163			4,439

Cash and temporary cash investments at September 30	$	49,413		$	47,063

See accompanying Combined Notes to Consolidated Financial Statements.

MONONGAHELA POWER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and temporary cash investments	$	49,413		$	55,163
Accounts receivable:
Billed:
Customer		44,943			68,261
Other		11,525			4,549
Unbilled		33,622			51,137
Allowance for uncollectible accounts		(11,561	)		(4,878	)
Notes receivable due from affiliates		—			8,503
Materials and supplies (at average cost):
Operating and construction		18,510			18,428
Fuel, including stored gas		71,451			30,300
Deferred energy costs – current		26,119			—
Taxes receivable		25,231			33,018
Prepaid taxes		28,256			23,592
Other, including current portion of regulatory assets		15,102			14,740

		312,611			302,813
Property, plant, and equipment:
In service, at original cost		2,574,872			2,493,002
Construction work in progress		34,175			75,678

		2,609,047			2,568,680
Accumulated depreciation		(1,239,261	)		(1,197,134	)

		1,369,786			1,371,546
Investments and other assets:
Investment in Allegheny Generating Company		41,927			31,533
Other		11,710			6,275

		53,637			37,808
Deferred charges:
Regulatory assets		113,241			90,496
Unamortized loss on reacquired debt		16,036			11,347
Other		8,880			7,106

		138,157			108,949

Total assets	$	1,874,191		$	1,821,116

See accompanying Combined Notes to Consolidated Financial Statements.

MONONGAHELA POWER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

	Unaudited
*(In thousands)*	September 30, 2003		December 31, 2002
LIABILITIES AND STOCKHOLDER’S EQUITY:
Current liabilities:
Debentures, notes, and bonds reclassified to current	$	690,315	$	690,127
Long-term debt due within one year		56,958		65,923
Accounts payable		54,360		63,765
Accounts payable to affiliates, net		53,656		21,472
Taxes accrued - other		34,264		41,799
Deferred energy costs		—		5,452
Interest accrued		16,722		13,385
Other		20,019		17,564

		926,294		919,487

Long-term debt		28,469		28,477

Deferred credits and other liabilities:
Unamortized investment credit		5,275		6,886
Non-current income taxes payable		41,067		41,067
Deferred income taxes		223,794		177,116
Obligations under capital leases		13,230		14,318
Regulatory liabilities		3,929		50,039
Notes payable to affiliates		14,596		15,529
Other		25,132		16,607

		327,023		321,562

Preferred stock		74,000		74,000

Stockholder’s equity:
Common stock		294,550		294,550
Other paid-in capital		110,177		106,770
Retained earnings		113,678		76,270

		518,405		477,590
Commitments and contingencies (Note 16)

Total liabilities and stockholder’s equity	$	1,874,191	$	1,821,116

See accompanying Combined Notes to Consolidated Financial Statements.

THE POTOMAC EDISON COMPANY, AND SUBSIDIARIES

Consolidated Statements of Operations

	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002			2003			2002
Total operating revenues	$	218,270		$	218,846		$	680,035		$	640,924

Cost of revenues:
Purchased energy and transmission		156,553			156,529			483,534			447,087
Deferred energy costs, net		(1,554	)		727			763			3,084

Total cost of revenues		154,999			157,256			484,297			450,171

Net revenues		63,271			61,590			195,738			190,753

Other operating expenses:
Workforce reduction expenses		—			12,793			—			12,793
Operation expense		25,235			25,527			83,806			77,283
Depreciation and amortization		9,703			9,341			28,658			26,999
Taxes other than income taxes		8,296			5,319			24,117			23,279

Total other operating expenses		43,234			52,980			136,581			140,354

Operating income		20,037			8,610			59,157			50,399

Other income and (expenses), net (Note 12)		628			(160	)		19,394			478

Interest charges:
Interest on debt and other		7,796			8,916			23,533			25,249
Allowance for borrowed funds used during construction and interest capitalized		(97	)		(25	)		(214	)		24

Total interest charges		7,699			8,891			23,319			25,273

Consolidated income (loss) before income taxes and cumulative effect of accounting change		12,966			(441	)		55,232			25,604

Federal and state income tax expense (benefit)		3,671			(142	)		16,294			8,250

Consolidated income (loss) before cumulative effect of accounting change		9,295			(299	)		38,938			17,354
Cumulative effect of accounting change, net of taxes of $50		—			—			(79	)		—

Consolidated net income (loss)	$	9,295		$	(299	)	$	38,859		$	17,354

See accompanying Combined Notes to Consolidated Financial Statements.

THE POTOMAC EDISON COMPANY, AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002
Cash flows from operations:
Consolidated net income	$	38,859		$	17,354
Cumulative effect of accounting change, net		79			—

Consolidated income before cumulative effect of accounting change		38,938			17,354
Reapplication of SFAS No. 71		(14,100	)		—
Depreciation and amortization		28,658			26,999
Gain on disposal of assets		(1,885	)		—
Deferred energy costs, net		763			3,084
Deferred investment credit and income taxes, net		10,275			6,380
Workforce reduction expenses		—			12,793
Changes in certain assets and liabilities:
Accounts receivable, net		17,392			(1,223	)
Materials and supplies		379			(2,104	)
Taxes receivable/payable, net		13,475			697
Prepaid taxes		(826	)		5,419
Accounts payable		9,025			(501	)
Accounts payable to affiliates, net		(5,242	)		4,410
Interest accrued		5,763			5,761
Other, net		(71	)		5,106

		102,544			84,175

Cash flows used in investing:
Construction expenditures		(38,750	)		(33,942	)
Proceeds from sale of businesses and assets		1,087			—

		(37,663	)		(33,942	)

Cash flows used in financing:
Short-term debt, net		—			(24,197	)
Notes payable to affiliates		(8,500	)		(5,300	)
Dividends on common stock to parent		(22,385	)		(18,356	)

		(30,885	)		(47,853	)

Net change in cash and temporary cash investments		33,996			2,380
Cash and temporary cash investments at January 1		3,169			1,608

Cash and temporary cash investments at September 30	$	37,165		$	3,988

See accompanying Combined Notes to Consolidated Financial Statements.

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and temporary cash investments	$	37,165		$	3,169
Accounts receivable:
Billed:
Customer		61,261			62,033
Other		6,230			4,759
Unbilled		29,014			46,171
Allowance for uncollectible accounts		(4,413	)		(3,479	)
Long-term notes receivable due in one year		1,179			—
Materials and supplies (at average cost)		13,092			13,471
Taxes receivable		14,962			31,734
Deferred income taxes		3,019			3,022
Prepaid taxes		9,188			8,362
Other		3,790			1,291

		174,487			170,533

Property, plant, and equipment:
In service, at original cost		1,497,244			1,472,006
Construction work in progress		21,150			10,124

		1,518,394			1,482,130
Accumulated depreciation		(593,354	)		(566,796	)

		925,040			915,334

Investments and other assets		3,281			4,380

Deferred charges:
Regulatory assets		53,601			53,632
Unamortized loss on reacquired debt		10,355			10,955
Other		6,843			6,846

		70,799			71,433

Total assets	$	1,173,607		$	1,161,680

See accompanying Combined Notes to Consolidated Financial Statements.

THE POTOMAC EDISON COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

	Unaudited
*(In thousands)*	September 30, 2003		December 31, 2002
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Notes and bonds reclassified to current	$	416,197	$	416,026
Notes payable to affiliates		—		8,500
Accounts payable		27,477		18,452
Accounts payable to affiliates, net		35,557		40,799
Taxes accrued:
Federal and state income		—		919
Other		12,280		14,658
Deferred energy costs		2,229		2,229
Interest accrued		10,772		5,009
Other		14,380		11,758

		518,892		518,350

Deferred credits and other liabilities:
Unamortized investment credit		7,846		8,585
Noncurrent income taxes payable		45,244		45,244
Deferred income taxes		167,008		155,726
Obligations under capital leases		9,258		10,287
Regulatory liabilities		8,051		21,740
Other		4,772		5,686

		242,179		247,268

Stockholder’s equity:
Common stock		224		224
Other paid-in capital		221,144		221,144
Retained earnings		191,168		174,694

		412,536		396,062
Commitments and contingencies (Note 16)

Total liabilities and stockholder’s equity	$	1,173,607	$	1,161,680

See accompanying Combined Notes to Consolidated Financial Statements.

WEST PENN POWER COMPANY, AND SUBSIDIARIES

Consolidated Statements of Operations

	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002			2003			2002
Total operating revenues	$	282,301		$	296,988		$	847,831		$	858,916

Cost of revenues:
Purchased energy and transmission		166,658			172,300			503,398			505,567

Net revenues		115,643			124,688			344,433			353,349

Other operating expenses:
Workforce reduction expenses		—			19,975			—			19,975
Operation expense		35,771			33,212			116,958			120,424
Depreciation and amortization		21,424			19,146			61,149			56,237
Taxes other than income taxes		15,915			18,193			50,643			48,050

Total other operating expenses		73,110			90,526			228,750			244,686

Operating income		42,533			34,162			115,683			108,663

Other income and (expenses), net (Note 12)		13,763			(964	)		15,901			15,199

Interest charges:
Interest on debt and other		9,691			11,658			30,308			35,993
Allowance for borrowed funds used during construction		(51	)		(68	)		(101	)		(311	)

Total interest charges		9,640			11,590			30,207			35,682

Consolidated income before income taxes and cumulative effect of accounting change		46,656			21,608			101,377			88,180

Federal and state income tax expense		15,526			6,300			32,980			28,504

Consolidated income before cumulative effect of accounting change		31,130			15,308			68,397			59,676
Cumulative effect of accounting change, net of taxes of $474		—			—			(690	)		—

Consolidated net income	$	31,130		$	15,308		$	67,707		$	59,676

See accompanying Combined Notes to Consolidated Financial Statements.

WEST PENN POWER COMPANY, AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002
Cash flows from operations:
Consolidated net income	$	67,707		$	59,676
Cumulative effect of accounting change, net		690			—

Consolidated income before cumulative effect of accounting change		68,397			59,676
Depreciation and amortization		61,149			56,237
Amortization of adverse purchase power contract		(14,298	)		(17,345	)
Gain on disposal of assets		(9,583	)		(13,106	)
Deferred investment credit and income taxes, net		3,122			10,912
Workforce reduction expenses		—			19,975
Changes to certain assets and liabilities:
Accounts receivable, net		22,583			3,778
Materials and supplies		(1,361	)		(1,063	)
Prepaid taxes		(9,079	)		(4,694	)
Taxes receivable/payable, net		(3,586	)		(7,201	)
Accounts payable		10,935			(4,892	)
Affiliated accounts payable		(2,942	)		23,989
Interest accrued		2,601			2,922
Other, net		(5,533	)		4,034

		122,405			133,222

Cash flows used in investing:
Construction expenditures		(27,219	)		(46,663	)
Proceeds from sale of assets		9,726			13,429

		(17,493	)		(33,234	)

Cash flows used in financing:
Payments of notes and bonds		(57,441	)		(156,409	)
Proceeds from long-term debt		—			79,690
Notes receivable from affiliates		—			4,750
Notes payable to affiliates		—			15,650
Dividends paid on common stock to parent		(29,234	)		(40,440	)

		(86,675	)		(96,759	)

Net change in cash and temporary cash investments		18,237			3,229
Cash and temporary cash investments at January 1		37,737			6,257

Cash and temporary cash investments at September 30	$	55,974		$	9,486

See accompanying Combined Notes to Consolidated Financial Statements.

WEST PENN POWER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and temporary cash investments	$	55,974		$	37,737
Accounts receivable:
Billed:
Customer		75,809			79,964
Other		5,875			8,661
Unbilled		54,559			68,746
Allowance for uncollectible accounts		(15,860	)		(14,405	)
Materials and supplies (at average cost)		17,956			16,595
Taxes receivable		1,799			7,966
Deferred income taxes		12,223			13,986
Prepaid taxes		9,079			—
Regulatory assets		35,411			34,776
Other		7,350			5,328

		260,175			259,354
Property, plant, and equipment:
In service, at original cost		1,763,141			1,724,221
Construction work in progress		20,875			27,595

		1,784,016			1,751,816
Accumulated depreciation		(670,381	)		(626,696	)

		1,113,635			1,125,120

Investments and other assets		7,540			3,333

Deferred charges:
Regulatory assets		388,859			406,575
Unamortized loss on reacquired debt		3,603			3,988
Other		4,233			7,751

		396,695			418,314

Total assets	$	1,778,045		$	1,806,121

See accompanying Combined Notes to Consolidated Financial Statements.

WEST PENN POWER COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

	Unaudited
*(In thousands)*	September 30, 2003		December 31, 2002
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Long-term debt due within one year	$	158,551	$	75,996
Notes and bonds reclassified to current		370,333		510,229
Accounts payable		39,389		28,454
Accounts payable to affiliates, net		42,724		45,666
Taxes accrued:
Federal and state income		—		—
Other		6,775		16,528
Interest accrued		4,648		2,047
Adverse power purchase commitments		18,297		19,064
Other		17,095		16,458

		657,812		714,442
Deferred credits and other liabilities:
Unamortized investment credit		18,292		19,003
Noncurrent income taxes payable		24,017		24,017
Deferred income taxes		300,886		298,154
Obligations under capital leases		10,277		12,064
Regulatory liabilities		13,843		13,936
Adverse power purchase commitments		222,616		236,147
Other		10,804		7,333

		600,735		610,654
Stockholder’s equity:
Common stock		65,842		65,842
Other paid-in capital		248,407		248,407
Retained earnings		205,249		166,776

		519,498		481,025
Commitments and contingencies (Note 16)

Total liabilities and stockholder’s equity	$	1,778,045	$	1,806,121

See accompanying Combined Notes to Consolidated Financial Statements.

ALLEGHENY GENERATING COMPANY

Statements of Operations

	Unaudited Three Months Ended September 30,				Unaudited Nine Months Ended September 30,
*(In thousands)*	2003		2002		2003		2002
Affiliated operating revenues	$	17,997	$	16,222	$	52,434	$	47,748

Operating expenses:
Workforce reduction expenses		—		17		—		17
Operation expense		1,381		1,504		4,092		3,941
Depreciation		4,251		4,247		12,787		12,741
Taxes other than income taxes		855		904		2,564		2,717

Total operating expenses		6,487		6,672		19,443		19,416

Operating income		11,510		9,550		32,991		28,332

Other income and (expenses), net (Note 12)		31		4		155		5

Interest on debt and other		2,925		3,057		10,109		8,807

Income before income taxes		8,616		6,497		23,037		19,530

Federal and state income tax expense		2,397		1,890		7,292		5,978

Net income	$	6,219	$	4,607	$	15,745	$	13,552

See accompanying Combined Notes to Financial Statements.

ALLEGHENY GENERATING COMPANY

Statements of Cash Flows

	Unaudited Nine Months Ended September 30,
*(In thousands)*	2003			2002
Cash flows from operations:
Net income	$	15,745		$	13,552
Depreciation		12,787			12,741
Deferred investment credit and income tax, net		(4,658	)		(5,702	)
Changes in certain assets and liabilities:
Materials and supplies		(82	)		(9	)
Taxes receivable/payable, net		13,598			1,299
Accounts payable		1			466
Affiliated accounts receivable/payable, net		13,096			4,531
Interest accrued		(2,281	)		(2,358	)
Other, net		773			216

		48,979			24,736
Cash flows used in investing:
Construction expenditures		(3,863	)		(1,395	)

Cash flows used in financing:
Notes payable to affiliate		30,000			(62,850	)
Payments on credit facilities, notes, and bonds		(50,000	)		—
Contribution from parent		40,000			—
Short-term debt, net		(55,000	)		55,000
Cash dividends paid on common stock		(10,500	)		(10,500	)

		(45,500	)		(18,350	)

Net change in cash and temporary cash investments		(384	)		4,991
Cash and temporary cash investments at January 1		2,104			11

Cash and temporary cash investments at September 30	$	1,720		$	5,002

See accompanying Combined Notes to Financial Statements.

ALLEGHENY GENERATING COMPANY

Balance Sheets

	Unaudited
*(In thousands)*	September 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and temporary cash investments	$	1,720		$	2,104
Accounts receivable from parents/affiliates, net		—			11,807
Materials and supplies (at average cost)		2,311			2,229
Taxes receivable affiliated/nonaffiliated		—			11,929
Other		563			363

		4,594			28,432
Property, plant, and equipment:
In service, at original cost		830,282			829,428
Construction work in progress		7,079			4,070

		837,361			833,498
Accumulated depreciation		(290,877	)		(278,090	)

		546,484			555,408
Deferred charges:
Regulatory assets		8,108			8,108
Unamortized loss on reacquired debt		4,947			5,368
Other		110			237

		13,165			13,713

Total assets	$	564,243		$	597,553

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	—		$	55,000
Long-term debt due within one year		—			50,000
Debentures reclassified as current		99,352			99,273
Accounts payable to affiliates, net		1,289			—
Taxes accrued		1,669			—
Other		1,303			3,238

		103,613			207,511

Long-term note payable to parent		30,000			—

Deferred credits and other liabilities:
Unamortized investment credit		40,243			41,233
Deferred income taxes		164,050			167,089
Regulatory liabilities		25,622			26,252
Taxes payable to affiliates – long-term		18,199			18,199
Other		2			—

		248,116			252,773

Stockholders’ equity:
Common stock		1			1
Other paid-in capital		172,669			132,669
Retained earnings		9,844			4,599

		182,514			137,269

Total liabilities and stockholders’ equity	$	564,243		$	597,553

See accompanying Combined Notes to Financial Statements.

ALLEGHENY ENERGY, INC.

Combined Notes to Consolidated Financial Statements

September 30, 2003

(UNAUDITED)

The notes to the consolidated financial statements that follow are a combined presentation for Allegheny and its subsidiary registrants. The following chart indicates the registrants to which the footnotes apply:

Note

Allegheny

AE Supply

Monongahela

Potomac Edison

West Penn

AGC

1. Basis of Presentation

2. Debt Covenants and Liquidity Strategy

3. Energy Trading Activities

4. Assets Held for Sale

5. Goodwill and Other Intangible Assets

6. Workforce Reduction Expenses

7. Derivative Instruments and Hedging Activities

8. Other Comprehensive Income (Loss)

9. Business Segments

10. Accounting for the Effects of Price Deregulation

11. Loss Per Share

12. Other Income and Expenses, Net

13. Asset Retirement Obligations

14. Guarantees

15. Variable Interest Entities

16. Commitments and Contingencies

17. Subsequent Events

ALLEGHENY ENERGY, INC.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

Allegheny Energy, Inc. (AE) together with its consolidated subsidiaries (Allegheny) delayed the filing of its various reports including the annual report on Form 10-K for 2002 and quarterly reports on Form 10-Q for the third quarter of 2002 and the first, second, and third quarters of 2003, with the Securities and Exchange Commission (SEC), as the result of a comprehensive accounting review of its financial processes, records, and internal controls. The accompanying unaudited interim financial statements of Allegheny Energy, Inc., together with its consolidated subsidiaries, should be read in conjunction with the 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, 2002.

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 Generally Accepted Accounting Principles of the United States of America (GAAP) have been condensed or omitted, and management believes that the disclosures are adequate to make the information presented not misleading.

In the opinion of management, the unaudited interim financial statements reflect all normal recurring adjustments which are necessary for a fair presentation of the consolidated results of operations for the three and nine months ended September 30, 2003, and 2002; cash flows for the nine months ended September 30, 2003, and 2002; and financial position at September 30, 2003, and December 31, 2002. Because of the seasonal nature of Allegheny’s utility operations at Monongahela, Potomac Edison, and West Penn, results for the three and nine months ended September 30, 2003, are not necessarily indicative of results that may be expected for the year ending December 31, 2003. For more information on the seasonal nature, see Part I, Item 1, Risk Factors, Other Risk Factors Associated with Our Business, in Allegheny’s 2002 Annual Report on Form 10-K.

Certain amounts in the December 31, 2002, consolidated balance sheets for Allegheny, AE Supply, and West Penn 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, which differs from the federal statutory rate of 35.0 percent, principally due to state income taxes, tax credits, effects of utility rate making and certain non-deductible expenses.

Stock-Based Employee Compensation. Allegheny maintains a stock-based employee compensation plan, which is described in greater detail in Item 8, Note 18, Stock-Based Compensation, to the consolidated financial statements of Allegheny’s 2002 Annual Report on Form 10-K. There were 1,210,000 stock options deemed granted in the period from July 1, 2003 through September 30,

2003, in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” Additionally, 1,500,000 stock options were deemed granted in the period from April 1, 2003 through June 30, 2003 in accordance with SFAS No. 123. There were no stock options granted during the first quarter of 2003.

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-based employee compensation expense has been recognized in consolidated net loss, as 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. Allegheny adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of SFAS No. 123,” effective for interim periods beginning after December 15, 2002. The following table illustrates the effect on consolidated net loss and loss per share as if Allegheny had applied the fair value recognition provisions of SFAS No. 123:

	Three Months Ended September 30,						Nine Months Ended September 30,
*(In millions, except per share data)*	2003			2002			2003			2002
Consolidated net loss, as reported	$	(51.0	)	$	(263.0	)	$	(341.3	)	$	(350.9	)
Add:
Stock-based employee compensation included in consolidated net loss, net of related tax effects		2.2			—			2.4			—
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		2.4			1.0			2.9			3.1

Consolidated net loss, pro forma	$	(51.2	)	$	(264.0	)	$	(341.8	)	$	(354.0	)

Loss per share (basic and diluted):
As reported	$	(0.40	)	$	(2.09	)	$	(2.69	)	$	(2.80	)
Pro forma	$	(0.40	)	$	(2.10	)	$	(2.70	)	$	(2.82	)

NOTE 2: DEBT COVENANTS AND LIQUIDITY STRATEGY

Debt Covenants

In October 2002, Allegheny announced that AE, AE Supply, and AGC were in default under their principal credit agreements after AE Supply declined to post additional collateral in favor of several trading counterparties. The requests for additional collateral resulted from a downgrade in Allegheny’s credit rating below investment grade by Moody’s Investors Services, Inc. During the period November 2002 through February 2003, AE, AE Supply, and AGC obtained waivers of, and amended, certain covenants to these principal credit agreements. The total debt classified as current, in accordance with EITF Issue No. 86-30, “Classification of Obligations When a Violation is Waived by the Creditor,” in the accompanying consolidated balance sheets related to such defaults was approximately $4,888.4 million at September 30, 2003. See the discussion below concerning other defaults on additional long-term debt that also resulted in the classification of that debt as current.

Allegheny refinanced existing debt and issued new debt on February 25, 2003 and March 13, 2003, as the result of its entry into the Borrowing Facilities, as described below. See Item 8, Note 3, Debt Covenants and Liquidity Strategy, to the consolidated financial statements in the 2002 Annual Report on Form 10-K for both Allegheny and AE Supply for additional information regarding the Borrowing Facilities. Issuance costs associated with the Borrowing Facilities totaled $46.6 million, of which $46.3 million has been deferred and will be amortized using the effective interest rate method over the life of the Borrowing Facilities.

AE, AE Supply, Monongahela, and West Penn entered into agreements (Borrowing Facilities) totaling $2,447.8 million with various credit providers to refinance and restructure the bulk of AE and AE Supply’s short-term debt.

Following is a summary of the terms of the Borrowing Facilities:

1.	Facilities at AE, Monongahela, and West Penn:

•

A $305.0 million unsecured facility with AE, Monongahela, and West Penn as the designated borrowers, and under which AE has utilized the full facility amount. Borrowings under this facility bear interest at a London Interbank Offering Rate (LIBOR) based rate plus a margin of five percent or a designated money center bank’s base rate plus a margin of four percent. This facility requires quarterly amortization payments of $7.5 million;

•

A $25.0 million unsecured credit facility at AE. This facility had an interest rate of a designated money center bank’s base rate plus a margin of four percent and was retired in July 2003; and

•

A $10.0 million unsecured credit facility at Monongahela. On September 24, 2003, this facility was renegotiated as part of a $55 million revolving facility of which $53.6 million was drawn. The remainder of the facility is no longer available. The interest on the facility is dependent upon the type of advance and consists of a base rate plus an applicable margin or a LIBOR-based rate plus an applicable margin. As of December 31, 2003, the LIBOR-based rate was approximately 4.63 percent. This facility matures in September 2004.

2.	Facilities at AE Supply:

•

A $987.7 million credit facility (the Refinancing Credit Facility) at AE Supply, of which $893.4 million is secured by substantially all of the assets of AE Supply. Borrowings under the facility bear initial interest at a LIBOR-based rate plus a margin of six percent or a designated money center bank’s base rate plus a margin of five percent on the secured portion. The interest rate margin applicable to unsecured borrowings under the facility is 10.5 percent. This facility requires amortization payments of approximately $23.6 million in September 2004, and $117.8 million in December 2004, and matures in April 2005;

•

A $470.0 million credit facility, of which $420.0 million was drawn and $50.0 million is no longer committed. The facility is secured by substantially all of AE Supply’s assets. Borrowings under the facility bear interest at a LIBOR-based rate plus a margin of six percent or a designated money center bank’s base rate plus a margin of five percent. In December 2003, $250.0 million of the facility was repaid. This facility requires a final amortization payment of $170.0 million in September 2004; and

•

A $270.1 million credit facility (the Springdale Credit Facility) associated with the financing of the construction of AE Supply’s new generating facility in Springdale, Pennsylvania and which is secured by a combination of that facility and substantially all of AE Supply’s assets. Borrowings under the facility bear interest at a LIBOR-based rate plus a margin of six percent or a designated money center bank’s base rate plus a margin of five percent, on the portion secured by substantially all of AE Supply’s assets. The interest rate margin applicable to the remainder of the borrowings under the facility is 10.5 percent. This facility requires amortization payments of $6.4 million in September 2004, and $32.2 million in December 2004, and matures in April 2005.

In addition, $380.0 million of indebtedness related to the discontinued St. Joseph, Indiana generating project, in the form of A-Notes, was restructured and assumed by AE Supply. Of this debt, $343.7 million is secured by substantially all the assets of AE Supply, other than its new generating facility in Springdale, Pennsylvania. The secured portion of this debt bears an interest rate of 10.25 percent, and the unsecured portion bears interest at 13.0 percent. This debt matures in November 2007.

The $420.0 million borrowed by AE Supply under the $470.0 million facility represents new liquidity. The Borrowing Facilities at AE Supply also refinanced $1,637.8 million of existing debt and letters of credit, including $894.9 million outstanding under various credit agreements, and $270.1 million outstanding related to the construction of AE Supply’s generating facility in Springdale, Pennsylvania, which went into commercial operation in July 2003. The Borrowing Facilities at AE, Monongahela, and West Penn refinanced $340.0 million of existing debt and letters of credit.

Until August 1, 2003, after certain conditions associated with securing the collateral under the Borrowing Facilities were met on July 19, 2003, the LIBOR component charged AE Supply under the Borrowing Facilities with respect to secured borrowings had a two percent floor. Also, since AE Supply was unable to secure all of the Borrowing Facilities and the restructured A-Note debt before July 31, 2003, the interest rates charged on the amounts not so secured increased to a spread of 10.5 percent over the applicable LIBOR-based rate, which contains a two percent floor for unsecured borrowings, or the designated money center bank’s base rate for the Refinancing Credit Facility and the Springdale Credit Facility, and the interest rate increased to 13.0 percent for the unsecured portion of the $380.0 million A-Note debt retroactively to February 25, 2003, the closing date of the Borrowing Facilities. The total amounts unsecured under the Refinancing Credit Facility, the Springdale Credit Facility, and the A-Note debt are approximately $94.3 million, $175.8 million, and $36.3 million, respectively.

AE Supply utilized $2,057.8 million under the Borrowing Facilities and the restructured A-Notes. Of the total, either AE Supply’s new generating facility in Springdale, Pennsylvania or substantially all of AE Supply’s assets secured $1,927.2 million. A covenant in AE Supply’s public debt places limitations, with certain exceptions, upon the issuance of secured debt. This limitation will constrain AE Supply’s ability to borrow additional funds until outstanding debt is reduced.

The interest rates payable by AE Supply under certain parts of the Borrowing Facilities are tied to AE Supply’s credit ratings. Should AE Supply’s credit ratings improve from its current ratings to certain specified higher ratings, the rate of interest AE Supply would be required to pay under the Refinanced Credit Facility and the Springdale Credit Facility could decrease by 0.5 percent to 1.0 percent for the secured portion of those credit facilities.

Allegheny is required to meet certain financial tests, as defined in the Borrowing Facilities agreements, including:

•

fixed-charge coverage ratio of 1.10 through the first quarter of 2005; and

•

maximum debt-to-capital ratio of 75 percent in 2003 and 72 percent in 2004 and the first quarter of 2005.

AE Supply also is required to meet certain financial tests, as defined in the Borrowing Facilities agreements, including:

•

minimum earnings before interest, taxes, depreciation, and amortization (EBITDA), as defined in the agreements, of $100.0 million by June 30, 2003, increasing to $304 million by December 31, 2003, to $430.0 million in increments for the 12 months ending each quarter through the first quarter of 2005;

•

interest coverage ratio of not less than 0.75 through June 30, 2003, increasing to 1.10 by December 31, 2003, 1.50 by December 31, 2004, through the first quarter of 2005; and

•

minimum net worth of $800.0 million (subject to downward adjustment under specific circumstances).

Effective July 22, 2003, Allegheny and AE Supply were granted waivers from compliance with all of the above financial tests for the first and second quarters of 2003. Effective August 22, 2003, Allegheny and AE Supply received additional waivers of the financial tests for the third quarter of 2003. Effective December 22, 2003, Allegheny and AE Supply received additional waivers of financial tests for the fourth quarter of 2003. During the third quarter of 2003, Allegheny paid $2.2 million to obtain these waivers.

The Borrowing Facilities also have provisions requiring prepayments out of the proceeds of asset sales and debt and equity issuances, as follows:

•

75 percent of the net proceeds of sales of assets of Allegheny (excluding AE Supply and its subsidiaries) up to $400.0 million, and 100 percent thereafter;

•

75 percent of the net proceeds of sales of assets of AE Supply and its subsidiaries up to $800.0 million, and 100 percent thereafter, excluding AE Supply’s new facility in Springdale, Pennsylvania;

•

100 percent of the net proceeds of any sale of AE Supply’s new facility in Springdale, Pennsylvania;

•

100 percent of the net proceeds of debt issuances (excluding specified exemptions, including an exemption of up to $50 million for the Distribution Companies and refinancings meeting certain criteria);

•

100 percent of net proceeds from equity issuances;

•

50 percent of Allegheny’s (excluding AE Supply and its subsidiaries) excess cash flow (as defined in the Borrowing Facilities); and

•

50 percent of AE Supply’s excess cash flow (as defined in the Borrowing Facilities).

The Borrowing Facilities also contain restrictive covenants that limit Allegheny’s ability to: borrow funds; incur liens; enter into a merger or other change of control transaction; sell assets; make investments; prepay indebtedness; amend contracts; pay dividends and other distributions on Allegheny’s equity; and operate Allegheny’s business, by requiring it to adhere to an agreed business plan.

Substantially all of the debt of AE, AE Supply, Monongahela, Potomac Edison, West Penn, and AGC remains classified as current, in accordance with EITF Issue No. 86-30, “Classification of Obligations When a Violation is Waived by the Creditor,” as the result of noncompliance with certain financial reporting covenants. Allegheny and AE Supply have obtained waivers of these covenants for each of the quarterly reporting periods through December 31, 2003. For the debt obligations at Monongahela, Potomac Edison, West Penn, and AGC, the classification as current is the result of noncompliance with certain reporting requirements in their various indenture agreements. See Item 8, Note 3, Debt Covenants, to the consolidated financial statements in the 2002 Annual Report on Form 10-K for Monongahela, Potomac Edison, and West Penn, and Item 8, Note 2, Debt Covenants, to the consolidated financial statements in the 2002 Annual Report on Form 10-K for AGC for additional information regarding the nature of these financial reporting covenant violations.

The debt holders have not provided Monongahela, Potomac Edison, West Penn, and AGC with any notices of default under the agreements. Such notices, if received, would allow Monongahela, Potomac Edison, West Penn, and AGC either 30 or 60 days to cure their respective noncompliance before the debt holders could accelerate the due dates of the debt obligations.

On September 29, 2003, Mountaineer obtained waivers with respect to its Note Purchase Agreements extending the respective agreements’ covenant due dates for its 2002 annual audited financial statements until October 31, 2003. Also, Mountaineer has obtained waivers from its obligation to deliver unaudited financial statements to the noteholders for the first, second, and third quarters of 2003. Mountaineer provided its 2002 annual audited financial statements to noteholders on October 31, 2003. Mountaineer provided its first quarter 2003 financial statements to the noteholders on December 30, 2003. Mountaineer is required to deliver the second and third quarter 2003 unaudited financial statements to the noteholders by January 29, 2004.

Liquidity Strategy

Allegheny has prepared its financial statements assuming that it will continue as a going concern. However, Allegheny’s noncompliance with certain of its reporting obligations under its debt covenants (described above) and the resultant classification of certain debt as current has caused its independent auditors, PricewaterhouseCoopers LLP, to issue a modified opinion on its 2002 financial statements contained within the 2002 Annual Report on Form 10-K that indicates there is substantial doubt about Allegheny’s ability to continue as a going concern (a “Going Concern” opinion). The 2002 financial statements do not include any adjustments that might result from the resolution of this uncertainty.

Allegheny has adopted a long-term strategy of focusing on the core generation and T&D businesses in which it has been historically engaged. Allegheny will seek, consistent with regulatory constraints, to manage its business lines as

an integrated whole. Implementing this strategy will be a significant challenge, in part, because of the continuing legacy of past transactions that have negatively affected Allegheny’s operations and financial condition.

Allegheny has taken a number of recent actions to improve its financial condition. These steps include substantial senior management changes; completion of key financing transactions, including the refinancing of principal credit facilities (as discussed above); a private placement of certain securities; exiting from Western United States energy markets; refocusing trading activities; asset sales; restructuring and cost reduction initiatives; and improving internal controls and reporting.

Private Placement: On July 24, 2003, Allegheny obtained $291 million ($275 million after deducting various fees and placement agents’ commissions) from its issuance to a wholly-owned special purpose finance subsidiary of AE, Allegheny Capital Trust I (Capital Trust), of units consisting of $300 million principal amount of 11⁷/8 percent Notes due 2008 and warrants for the purchase of up to 25 million shares of AE’s common stock, exercisable at $12 per share. The warrants are mandatorily exercisable if AE’s common stock price equals or exceeds $15 per share over a specified averaging period occurring after June 15, 2006. The warrants are stapled to the Notes and may be exercised only through the tender of the Notes. The finance subsidiary obtained proceeds required to purchase the units by issuing $300 million liquidation amount of its 11⁷/8 percent Mandatorily-Convertible Trust Preferred Securities to investors in a private placement. The holder of a preferred security is entitled to distributions on a corresponding principal amount of Notes and may direct the exercise of warrants stapled to the Notes in order to convert the preferred securities into AE common stock. AE fully and unconditionally guarantees Capital Trust’s payment obligations under the preferred securities. Allegheny’s consolidated balance sheets reflect the Notes as long-term debt. The Notes and AE’s guarantee of Capital Trust’s payment obligations are subordinated only to indebtedness arising under the agreements governing certain of AE’s indebtedness under the Borrowing Facilities, and may be subordinated to indebtedness incurred to refinance such indebtedness.

Exiting from Western United States Energy Markets: Allegheny worked throughout 2003 to accomplish AE Supply’s effective exit from the Western United States energy markets. Its positions based in the Western United States had been a substantial source of earnings and cash flow volatility and risk, and trading in these markets does not fit with Allegheny’s new business model.

Renegotiation and Sale of CDWR Contract. In June 2003, AE Supply entered into a settlement agreement with the State of California to resolve the state’s litigation regarding its power supply contracts with the CDWR. The terms of the settlement reduced the volume of power to be delivered from 2005-2011 and reduced the sale price of off-peak power to be delivered from 2004-2011, which in turn substantially reduced the value of the contract. (See Item 8, Notes 26 and 23, Commitments and Contingencies, of AE’s and AE Supply’s 2002 Annual Report on Form 10-K, respectively, under “Other Litigation-Settlement of Litigation Related to Power Supply Contracts with the CDWR” for additional information.) On September 15, 2003, Allegheny closed the sale of the CDWR contract and associated hedge transactions, to J. Aron & Company, a subsidiary of The Goldman Sachs Group, Inc., for approximately $354 million. Allegheny has applied $214 million of the sale proceeds to required payments under agreements entered into to terminate

tolling agreements with Williams Energy Marketing and Trading Company (Williams) and Las Vegas Cogeneration II (LV Cogen), a unit of Black Hills Corporation, as described below. Allegheny will apply an additional $28 million of the proceeds to make required payments in March and September of 2004 under the agreement with Williams. Approximately $26 million is being held in a pledged account for the benefit of AE Supply’s creditors. This arrangement is intended to enhance AE Supply’s ability to refinance certain unsecured borrowings. Approximately $71 million of the sale proceeds were placed in escrow for the benefit of J. Aron & Company, pending Allegheny’s fulfillment of certain post-closing requirements. When the escrowed funds are released, approximately $50 million will be added to the pledged account and AE Supply will receive the balance. The remaining $15 million of sale proceeds have been used to partially offset certain of the hedges related to the CDWR contract and to pay fees and expenses associated with the transaction.

Agreement to Terminate Williams Toll. In July 2003, AE Supply entered into a conditional agreement with Williams to terminate its 1,000 MW tolling agreement with Williams. Under the agreement, AE Supply made an initial payment to Williams of approximately $2.4 million to satisfy certain amounts under a related hedge agreement. Allegheny made a $100 million payment to Williams after the close of the sale of the CDWR contract. Allegheny will make two payments of $14 million to Williams in March and September of 2004. The tolling agreement will terminate when the final $14 million payment is made.

Termination of LV Cogen Toll. In mid-September 2003, AE Supply terminated its 222 MW tolling agreement with LV Cogen. Allegheny made a $114 million termination payment to LV Cogen after the closing of the sale of the CDWR contract.

In September 2003, AE Supply exited the Western United States energy trading markets, including all related contracts and hedge agreements. As a result, Allegheny recorded a net loss of approximately $101.6 million and $520 million for the three and nine months ended September 30, 2003, respectively. This loss is recorded as a component of net revenues in the consolidated statements of operations for the three and nine months ended September 30, 2003. This loss was determined without including the approximately $71 million of sale proceeds that were placed in escrow pending Allegheny’s fulfillment of certain post-closing requirements.

Refocusing Trading Activities: Adoption of Asset-Based Trading Strategy. AE Supply is reorienting its trading operations from high-volume financial

trading in national markets to asset optimization and hedging within its region. AE Supply implemented this rebalancing by exiting the Western United States energy markets, together with unwinding other substantial non asset-based trading positions, which has enabled AE Supply to reduce its long-term trading-related cash outflows and collateral obligations. AE Supply is seeking to concentrate its efforts in the PJM, Midwest, and Mid-Atlantic markets where it has a physical presence and greater market knowledge. Ultimately, AE Supply intends to conduct asset optimization and hedging activities with the primary objective of locking in cash flows associated with AE Supply’s portfolio of core physical generating and load positions.

As part of refocusing its activities, AE Supply moved its energy marketing operations from New York to Monroeville, Pennsylvania in May 2003. This transition resulted in ongoing cost savings and improved integration with AE Supply’s generation activity. The reduced staffing levels reflect the newly revised focus of the trading function. Management believes that both trading and marketing and generation operations can be enhanced by locating trading personnel closer to personnel managing AE Supply’s generating assets. Personnel involved in the separate functions can be cross-trained and will be better positioned to enhance the relationship between the two functions.

Asset Sales: In 2002, Allegheny announced that it was considering asset sales as part of an overall strategy to address its liquidity requirements. Allegheny has achieved the sale of its most significant assets with a nexus to the Western United States. Allegheny has also closed the sale of its interest in the Conemaugh Generating Station (Conemaugh), as described below. Allegheny continues to consider the sale of additional assets, especially non-core assets, including Mountaineer.

Land Sales. Effective February 14, 2002, West Penn, through its subsidiary, The West Virginia Power & Transmission Company, sold 12,000 acres of land in Canaan Valley, West Virginia, to the U.S. Fish & Wildlife Service for $16 million. Effective December 18, 2002, it also sold a 2,468 acre tract of land for $6.9 million and made a charitable contribution of a 740 acre tract in Canaan Valley, West Virginia, to Canaan Valley Institute.

Fellon-McCord and Alliance Energy Services, LLC. Effective December 31, 2002, AE sold Fellon-McCord, its natural gas and electricity consulting and management services firm, and Alliance Energy Services, LLC, (Alliance Energy Services) a provider of natural gas supply and transportation services, to Constellation Energy Group for approximately $21.8 million.

Conemaugh Generating Station. On June 27, 2003, AE Supply completed the sale of its 83 MW share of the coal-fired Conemaugh Generating Station, located near Johnstown, Pennsylvania, to a subsidiary of UGI Development Corporation (UGI), for approximately $46.3 million, which does not include a contingent amount of $5 million. This contingent amount could be received in full, in part, or not at all, depending upon AE Supply’s performance of certain post-closing obligations.

Middle Cheat River Canyon. In July 2003, West Penn, through its subsidiary, The West Virginia Power & Transmission Company, completed the sale of approximately 5,600 acres of land in Preston County, West Virginia to Allegheny Wood Products, Inc. for a net sales price of $9.6 million.

Restructuring and Cost Reduction Initiatives: Allegheny has taken several actions to align its operations with its strategy and reduce its cost structure.

Termination of Non-Core Construction Activity. In 2002, AE Supply ceased construction and planning of various merchant generation projects to attempt to conserve cash and other resources and focus its resources on its core generating assets.

Restructuring of Operations. As fully described in Note 6, Workforce Reduction Expenses, below, in July 2002, Allegheny announced a restructuring plan intended to strengthen its financial performance by, among other things, reducing its workforce. Allegheny has achieved workforce reductions of more than ten percent through a voluntary Early Retirement Option (ERO) program and selected staff reductions. In 2002, approximately 600 eligible employees accepted the ERO program resulting in a charge of $82.6 million, before income taxes. Allegheny will continue to take actions intended to reduce costs and improve productivity in all of its operations.

Suspension of Dividends. The Board of Directors of AE determined not to declare a dividend on AE’s common stock for the fourth quarter of 2002. Covenants contained in Allegheny’s Borrowing Facilities entered into in February 2003, and in the indenture entered into in connection with the issuance of the convertible trust preferred securities in July 2003, as well as regulatory limitations under PUHCA, are expected to preclude AE from declaring or paying cash dividends for the foreseeable future.

Elimination of Preemptive Rights. On March 14, 2003, AE’s common stockholders approved an amendment to AE’s articles of incorporation eliminating common stockholders’ preemptive rights. The elimination of preemptive rights removed an obstacle to AE’s ability to privately place equity or convertible securities.

Improving Internal Controls and Reporting: Commencing in the third quarter of 2002, Allegheny undertook a comprehensive and extended review of its financial information and internal controls and procedures. This review included extensive involvement by top management and directors, independent auditors and other outside professional services firms. Allegheny continues to address its controls environment and reporting procedures, as well as its SEC filing and other outstanding reporting obligations. See Part I, Item 4, Controls and Procedures, below, for a detailed discussion.

Associated Risks: There are many attendant risks, both with Allegheny’s current liquidity situation and the measures that have been undertaken to remedy the situation in the short-term. These risks can be viewed as liquidity risks associated with the Borrowing Facilities, asset sales risks, and restructuring risks.

Liquidity Risks Associated with the Borrowing Facilities: These risks include increased interest rate risk and additional borrowing costs. Also, required prepayments under the Borrowing Facilities will absorb a large portion of future estimated cash flows and will limit Allegheny’s ability to raise capital for purposes other than debt repayment.

Asset Sales Risks: If asset sales do occur, it is likely that they would not be at terms as favorable as the market conditions existing when the assets were originally acquired. This situation could expose Allegheny to a loss in value on those assets.

Restructuring Risks: In association with the workforce reductions, winding-down and relocation of the energy trading operations, and the cancellation of construction projects, Allegheny is faced with the risk of losing experienced personnel, diverting management resources away from continuing operations, and failing to realize anticipated cost reductions.

There is no guarantee that Allegheny will be able to complete its plan to strengthen its liquidity in the short-term and move to its long-term strategy of remaining an integrated energy company with a focus on its fundamental power generation and delivery businesses.

Other Matters Concerning Liquidity and Capital Requirements: Allegheny’s wholesale marketing, energy trading, fuel procurement, and risk management activities require direct and indirect credit support. The amount of credit support required is affected by market price changes for electricity, natural gas, and other energy-related commodities and Allegheny’s credit rating. Such credit support might be in the form of letters of credit, cash deposits, or liquid securities.

For 2002 and 2003, Allegheny’s cash flows were adequate to meet all of its payment obligations and to fund capital expenditures. Allegheny expects that cash flows from operations will not be sufficient in 2004 to cover future obligations, including capital expenditure requirements. Allegheny expects that it will need to arrange for alternative financing or sell certain assets in order to repay the principal amounts under the Borrowing Facilities scheduled for the third and fourth quarters of 2004.

Allegheny continues to seek to refinance the outstanding debt of AE and AE Supply with banks and other financial institutions and has filed an application with the SEC for approval for the refinancing. There is no assurance that SEC approval will be obtained or, if the approval is obtained, that AE and AE Supply will be able to refinance their indebtedness on satisfactory terms or at all.

NOTE 3: ENERGY TRADING ACTIVITIES

As of January 1, 2003, EITF Issue No. 02-3, “Accounting for Contracts Involved in Energy Trading and Risk Management,” resulted in a change in the Company’s accounting for certain commodity contracts related to AE Supply’s energy trading activities. AE Supply analyzed its commodity contracts to determine which contracts are derivatives as defined by SFAS No. 133. The contracts determined to be derivatives continue to be recorded at their fair value.

As a result of the adoption of EITF Issue No. 02-3, AE Supply recorded a charge against earnings of $12.1 million, net of income taxes ($19.7 million, before income taxes) as the cumulative effect of a change in accounting principle on January 1, 2003. This charge represents the fair value of those contracts previously accounted for under EITF Issue No. 98-10, “Accounting for Energy Trading and Risk Management Activities,” that no longer qualify for mark-to-market accounting. Under EITF Issue No. 02-3, mark-to-market accounting is precluded for energy trading contracts that are not derivatives pursuant to SFAS No. 133.

The netting of gains and losses of trading revenues under EITF 02-3 with associated costs can result in negative revenue amounts. For the three months ended September 30, 2003 and 2002, AE Supply reported $45.4 million and $321.8 million in losses from wholesale operating revenues, respectively. These amounts are a component of, and reported as, operating revenues in AE Supply’s consolidated statements of operations. For the nine months ended September 30, 2003 and 2002, AE Supply reported $451.0 million and $210.8 million, respectively, in losses from wholesale operating revenues.

The net fair value of AE Supply’s commodity contracts decreased by $509.2 million for the nine months ended September 30, 2003, as a result of $499.1 million of unrealized losses recorded during the first nine months of 2003 which are comprised of changes in market conditions ($159.9 million), the renegotiation of CDWR contract terms ($152.2 million), the sale of energy trading portfolios and contracts ($167.3 million), the cumulative effect of the adoption of EITF 02-3 ($19.7 million), and option premium expirations of ($10.1 million) during the first nine months of 2003. There has been, and may continue to be, significant volatility in the market prices for electricity and natural gas at the wholesale level, which will affect AE Supply’s operating results.

NOTE 4: ASSETS HELD FOR SALE

AE Supply had the following assets held for sale at September 30, 2003 and December 31, 2002:

(In millions)

September 30,

2003

December 31,

2002

Turbine/Generator set from a cancelled project

—

9.3

In September 2002, AE Supply cancelled the planned construction of a 79 MW barge-mounted generation project. As a result of AE Supply’s decision to sell the turbine/generator set that was acquired for this project, the investment in the turbine/generator set was classified as an asset held for sale and written down to its estimated fair value in the third quarter of 2002. The sale of the turbine/generator set was completed in August 2003 at its book value of $8.0 million.

In February 2003, a subsidiary of AE Supply entered into an agreement to sell its 83 MW share of the coal-fired Conemaugh Generating Station (Conemaugh) to UGI Development Company (UGI) for approximately $46.3 million. As a result, AE Supply has written down its investment in Conemaugh to approximately $45.8 million, which represents the agreed upon sales price less estimated costs to sell the asset. This write-down resulted in a loss of approximately $28.5 million, before income taxes, which was recorded in operation expense on the consolidated statements of operations for the three months ended March 31, 2003. In June 2003, the agreement was modified to include $5.0 million for contingent consideration, bringing the total purchase price to $51.3 million. The loss above does not include any amounts of contingent consideration. The sale of Conemaugh was completed in June 2003.

AE Supply’s assets held for sale are included in Allegheny’s Generation and Marketing segment.

NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS

There have been no changes in goodwill from the period December 31, 2002 to September 30, 2003.

The components of other intangible assets, excluding an intangible asset of $38.6 million related to an additional minimum pension liability (See Item 8, Note 17, Pension Benefits and Postretirement Benefits Other Than Pensions, of AE’s 2002 Annual Report on Form 10-K), were as follows:

	As of September 30, 2003				As of December 31, 2002
*(In millions)*	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Included in Property, Plant, and Equipment on the consolidated balance sheets:
Land easements, amortizable	$	97.0	$	25.0	$	97.0	$	24.1
Land easements, unamortizable		31.4		—		31.6		—
Natural gas rights		6.6		3.7		6.6		3.5

Total	$	135.0	$	28.7	$	135.2	$	27.6

Amortization of other intangible assets was $0.4 million and $5.4 million, for the three months ended September 30, 2003 and 2002, respectively, and $1.1 million and $27.3 million for the nine months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003, the $1.1 million of amortization was comprised primarily of $0.5 million for Potomac Edison, $0.3 million for West Penn, and $0.2 million for Monongahela. Amortization for 2003 does not include amortization for Alliance Energy Services, which was sold on December 31, 2002. Amortization for the three and nine months ended September 30, 2002 related to Alliance Energy Services was $5.0 million and $25.8 million, respectively.

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

NOTE 6: WORKFORCE REDUCTION EXPENSES

In July 2002, Allegheny announced a restructuring plan to strengthen its financial performance. The restructuring activities included a company-wide workforce reduction and a reorganization of Allegheny’s energy trading division.

Allegheny has achieved workforce reductions of approximately ten percent, most of which occurred in 2002, primarily through a voluntary early retirement option (ERO) program and selected staff reductions. The ERO program offered enhanced pension and medical benefits and required eligible employees to make an election by September 16, 2002. The costs for the workforce reduction under the ERO program were determined in accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” For the year ended December 31, 2002, approximately 600 eligible employees accepted the ERO program, resulting in a charge of $82.6 million, before income taxes ($49.5 million, net of income taxes). Allegheny also offered a Staffing Reduction Separation Program (SRSP) for employees whose positions were being eliminated as part of the workforce reductions and severance for certain energy trading employees. The severance and other employee-related

costs have been accounted for in accordance with EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” For the year ended December 31, 2002, Allegheny recorded a charge of $25.0 million, before income taxes ($15.3 million, net of income taxes), related to approximately 80 employees whose positions had been eliminated. Workforce reduction costs have been recorded in “Workforce reduction expenses” on the consolidated statements of operations.

Of the total pre-tax workforce reduction expenses of $107.6 million recorded in 2002, $104.2 million, before income taxes, was recorded during the three and nine months ended September 30, 2002. Of the $104.2 million in charges incurred, approximately $10 million was paid out during the three-month period ended September 30, 2002, and approximately $82.6 million was recorded as a pension and postretirement benefit liability in Allegheny’s consolidated balance sheets and approximately $8.0 million was recorded as an other current liability at September 30, 2002. A majority of the $8.0 million was owed by AE Supply. As of September 30, 2003, there were no amounts remaining as accrued liabilities. There were no workforce reduction expenses recorded in the three and nine months ended September 30, 2003. For additional information see the Restructuring Charges and Workforce Reduction Expenses notes to the consolidated financial statements in the 2002 Annual Report on Form 10-K (Item 8, Note 8 for AE and AE Supply) and the Workforce Reduction Expenses notes to the consolidated financial statements in the 2002 Annual Report on Form 10-K (Item 8, Note 6 for Monongahela, Note 4 for Potomac Edison and West Penn, and Note 3 for AGC).

NOTE 7: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Allegheny utilizes derivative instruments to manage its exposures to various market risks as described in its 2002 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, to the consolidated financial statements in Allegheny’s 2002 Annual Report on Form 10-K.

For the nine months ended September 30, 2003, Allegheny did not have any instruments that were designated as a hedge for accounting purposes. AE Supply records commodity contracts related to energy trading that are derivative instruments at their fair value in accordance with SFAS No. 133. See Note 3, Energy Trading Activities, above.

NOTE 8: OTHER COMPREHENSIVE INCOME (LOSS)

Allegheny’s comprehensive income (loss), and the components of other comprehensive income (loss), net of income taxes, for the three and nine months ended September 30, 2003 and 2002, were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Consolidated net loss	$	(51.0	)	$	(263.0	)	$	(341.3	)	$	(350.9	)
Other comprehensive income (loss), net of income taxes
Unrealized holding (losses) gains on available for sale securities, net of income taxes		—			(0.1	)		—			—
Reclassification adjustment for gains (losses) included in net loss, net of income taxes		—			0.4			(0.1	)		1.3

Net unrealized gains (losses) on available for sale securities		—			0.3			(0.1	)		1.3

Unrealized gains on cash flow hedges, net of income taxes		—			8.0			—			33.7
Reclassification adjustment for losses included in net loss, net of income taxes		—			(0.8	)		—			(8.7	)

Net unrealized gains on cash flow hedges		—			7.2			—			25.0

Other		0.6			—			0.6			—

Total other comprehensive income (loss)		0.6			7.5			0.5			26.3

Consolidated comprehensive loss	$	(50.4	)	$	(255.5	)	$	(340.8	)	$	(324.6	)

Of the net unrealized gains on cash flow hedges, net of income taxes of $7.2 million and $25.0 million for the three and nine months ended September 30, 2002, respectively, $7.1 million and $26.0 million are related to Alliance Energy Services, which was sold on December 31, 2002. The remaining amounts of a net unrealized gain of $0.1 million for the three-month period ended September 30, 2002, and a net unrealized loss of $1.0 million for the nine-month period ended September 30, 2002 were related to AE Supply.

NOTE 9: BUSINESS SEGMENTS

All registrants, except for Allegheny and Monongahela, have only one segment. Allegheny and Monongahela manage and evaluate their operations in two business segments: 1) Delivery and Services and 2) Generation and Marketing.

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.

	Allegheny
	Three Months Ended September 30,						Nine Months Ended September 30,
*(In millions)*	2003			2002			2003			2002
Total operating revenues:
Delivery and Services	$	689.0		$	857.8		$	2,205.3		$	2,561.9
Generation and Marketing		305.5			56.7			619.6			867.9
Eliminations		(356.9	)		(377.4	)		(1,112.4	)		(1,103.0	)

Total	$	637.6		$	537.1		$	1,712.5		$	2,326.8

Operating income (loss):
Delivery and Services	$	64.9		$	28.7		$	198.5		$	189.2
Generation and Marketing		(41.1	)		(349.2	)		(513.7	)		(301.2	)
Eliminations		8.1			1.7			(4.3	)		(3.3	)

Total	$	31.9		$	(318.8	)	$	(319.5	)	$	(115.3	)

Consolidated income (loss) before cumulative effect of accounting changes:
Delivery and Services	$	29.2		$	(23.2	)	$	82.9		$	41.9
Generation and Marketing		(85.1	)		(240.6	)		(400.7	)		(260.1	)
Eliminations		4.9			0.8			(2.7	)		(2.2	)

Total	$	(51.0	)	$	(263.0	)	$	(320.5	)	$	(220.4	)

Cumulative effect of accounting changes, net:
Delivery and Services	$	—		$	—		$	(1.2	)	$	(130.5	)
Generation and Marketing		—			—			(19.6	)		—

Total	$	—		$	—		$	(20.8	)	$	(130.5	)

Consolidated net income (loss):
Delivery and Services	$	29.2		$	(23.2	)	$	81.7		$	(88.6	)
Generation and Marketing		(85.1	)		(240.6	)		(420.3	)		(260.1	)
Eliminations		4.9			0.8			(2.7	)		(2.2	)

Total	$	(51.0	)	$	(263.0	)	$	(341.3	)	$	(350.9	)

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.

	Monongahela
	Three Months Ended September 30,						Nine Months Ended September 30,
*(In millions)*	2003			2002			2003			2002
Total operating revenues:
Delivery and Services	$	188.0		$	187.1		$	667.0		$	636.7
Generation and Marketing		84.6			91.2			262.1			238.1
Eliminations		(72.7	)		(76.2	)		(214.1	)		(210.5	)

Total	$	199.9		$	202.1		$	715.0		$	664.3

Operating income (loss):
Delivery and Services	$	5.7		$	(10.4	)	$	33.9		$	37.3
Generation and Marketing		5.7			5.2			21.4			—

Total	$	11.4		$	(5.2	)	$	55.3		$	37.3

Consolidated income (loss) before cumulative effect of accounting change:
Delivery and Services	$	2.0		$	(11.0	)	$	10.3		$	8.0
Generation and Marketing		3.5			1.8			57.9			(4.1	)

Total	$	5.5		$	(9.2	)	$	68.2		$	3.9

Cumulative effect of accounting change, net:
Delivery and Services	$	—		$	—		$	(0.5	)	$	(115.4	)
Generation and Marketing		—			—			—			—

Total	$	—		$	—		$	(0.5	)	$	(115.4	)

Consolidated net income (loss):
Delivery and Services	$	2.0		$	(11.0	)	$	9.8		$	(107.4	)
Generation and Marketing		3.5			1.8			57.9			(4.1	)

Total	$	5.5		$	(9.2	)	$	67.7		$	(111.5	)

NOTE 10: 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 as follows for the three and nine months ended September 30, 2003 and 2002:

	Three Months Ended September 30,				Nine Months Ended September 30,
*(In millions)*	2003		2002		2003		2002
Decrease in adverse power purchase commitments	$	4.8	$	5.8	$	14.3	$	17.3

As described in Item 8, Notes 14, 10, and 7, Accounting for the Effects of Price Deregulation, to the consolidated financial statements in the 2002 Annual Report on Form 10-K for AE, Monongahela, and Potomac Edison, respectively, 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, during the three months ended March 31, 2003, primarily as a result of the elimination of the rate stabilization reserve and the re-establishment of regulatory assets related to deferred income taxes.

As of December 31, 2002, Allegheny had no generating assets subject to SFAS No. 71. As a result of the reapplication of SFAS No. 71 in the first quarter of 2003, Monongahela’s generating assets became subject to SFAS No. 71. Allegheny’s consolidated balance sheets include the amounts listed below for generating assets not subject to SFAS No. 71.

*(In millions)*	September 30, 2003			December 31, 2002
Property, plant, and equipment	$	4,057.1		$	4,604.8
Amounts under construction included above		77.7			291.4
Accumulated depreciation		(1,802.4	)		(2,257.2	)

NOTE 11: LOSS PER SHARE

Allegheny’s average basic and diluted shares for purposes of computing loss per share for the three and nine months ended September 30, 2003 and 2002, were as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2002	2003	2002
Basic common shares outstanding	126,959,283	125,691,877	126,800,176	125,460,716
Shares contingently issuable	*	*	*	*
Diluted common shares outstanding	126,959,283	125,691,877	126,800,176	125,460,716

*	Effects not included as amounts are not dilutive.

The excluded shares of common stock from the diluted common shares outstanding listed above that are contingently issuable under Allegheny’s stock option plans and as a result of the $300 million principal amount of 11⁷/8 percent Mandatorily-Convertible Trust Preferred Securities for the three and nine months ended September 30, 2003 and 2002, were as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2002	2003	2002
Shares contingently issuable	25,273,393	328,282	25,273,393	328,282

NOTE 12: OTHER INCOME AND EXPENSES, NET

Other income and expenses, net, represent non-operating income and expenses before income taxes. The following table summarizes Allegheny’s other income and expenses, net, for the three and nine months ended September 30, 2003 and 2002.

	Three Months Ended September 30,						Nine Months Ended September 30,
*(In millions)*	2003			2002			2003			2002
Allegheny:
Reapplication of SFAS No. 71	$	—		$	—		$	75.8		$	—
Impairment charges related to unregulated investments		—			(28.9	)		—			(42.7	)
Gain on sale of land		9.6			—			11.5			14.3
Gain on sale of fixed assets		—			—			—			1.8
Write down of assets held for sale		—			(4.8	)		—			(4.8	)
Interest and dividend income		2.3			1.3			4.9			4.6
Other		3.3			(2.5	)		4.6			(1.0	)

Total	$	15.2		$	(34.9	)	$	96.8		$	(27.8	)

AE Supply:
Write down of assets held for sale	$	—		$	(4.8	)	$	—		$	(4.8	)
Interest and dividend income		1.0			0.6			1.9			0.9
Gain on sale of fixed assets		—			—			—			1.3
Other		(0.3	)		0.1			(1.6	)		(2.7	)

Total	$	0.7		$	(4.1	)	$	0.3		$	(5.3	)

Monongahela:
Reapplication of SFAS No. 71	$	—		$	—		$	61.7		$	—
Gain on sale of land		—			—			—			1.8
Interest and dividend income		0.3			1.2			1.0			4.0
Equity in earnings (losses) of AGC		1.4			1.0			3.6			3.1
Other		0.3			(1.5	)		1.6			(3.4	)

Total	$	2.0		$	0.7		$	67.9		$	5.5

Potomac Edison:
Reapplication of SFAS No. 71	$	—		$	—		$	14.1		$	—
Gain on sale of land		—			—			1.9			—
Other		0.6			(0.2	)		3.4			0.5

Total	$	0.6		$	(0.2	)	$	19.4		$	0.5

West Penn:
Gain on sale of land	$	9.6		$	—		$	9.6		$	12.5
Gain on sale of fixed assets		—			—			—			0.4
Interest and dividend income		0.3			0.2			0.8			1.8
Other		3.9			(1.2	)		5.5			0.5

Total	$	13.8		$	(1.0	)	$	15.9		$	15.2

AGC:
Interest income	$	—		$	—		$	0.1		$	—

NOTE 13: ASSET RETIREMENT OBLIGATIONS

Effective January 1, 2003, Allegheny adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets. SFAS No. 143 requires that the fair value of asset retirement costs for which Allegheny has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost. The liability is accreted (increased) to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or records a gain or loss if it is settled at a different amount.

Allegheny recorded retirement obligations primarily related to ash landfills, underground and aboveground storage tanks, and natural gas wells. Allegheny also has identified a number of retirement obligations associated with certain other assets that have not been recorded, because the fair value of such obligations cannot be reasonably estimated, due primarily to the indeterminate lives of the assets.

The effect of adopting SFAS No. 143 on Allegheny’s consolidated statements of operations was a cumulative effect adjustment to decrease net income by $8.6 million ($14.0 million, before income taxes). The effect of adopting SFAS No. 143 on Allegheny’s consolidated balance sheets was a $3.4 million increase in property, plant, and equipment, net, a $2.3 million increase in non-current regulatory assets, and the recognition of $19.7 million in non-current liabilities. The effect of adopting SFAS No. 143 on Allegheny’s subsidiaries, which was recorded in the period ending March 31, 2003, was as follows:

	Effect of Adopting SFAS No. 143 Increase (Decrease)
*(In millions)*	Property, Plant, and Equipment, Net		Non- Current Regulatory Asset		Non-Current Liabilities (AROs)		Pre-Tax Income			After- Tax Income
AE Supply	$	0.3	$	—	$	12.2	$	(11.9	)	$	(7.4	)
Monongahela		3.0		2.3		6.1		(0.8	)		(0.4

POTOMAC EDISON CO 10-Q