774459--2/28/2007--ALLEGHENY_GENERATING

related topics

{cost, contract, operation}

{financial, litigation, operation}

{cost, regulation, environmental}

{acquisition, growth, future}

{operation, natural, condition}

{debt, indebtedness, cash}

{condition, economic, financial}

{regulation, change, law}

{loss, insurance, financial}

Allegheny is subject to substantial governmental regulation. Compliance with current and future regulatory requirements and procurement of necessary approvals, permits and certificates may result in substantial costs to Allegheny, and failure to obtain necessary regulatory approvals could have an adverse effect on its business. Allegheny s costs to comply with environmental laws are significant. New environmental laws and regulations, or new interpretations of existing laws and regulations, could impose more stringent limitations on Allegheny s generation operations or require it to incur significant additional costs. The cost of compliance with present and future environmental laws could have an adverse effect on Allegheny s business. Shifting state and federal regulatory policies impose risks on Allegheny s operations. Delays, discontinuations or reversals of electricity market restructurings in the markets in which Allegheny operates could have an adverse effect on its business. State rate regulation may delay or deny full recovery of costs and impose risks on Allegheny s operations. Any denial of, or delay in, cost recovery could have an adverse effect on Allegheny s business. The TrAIL Project is subject to permitting and state regulatory approvals. Allegheny is from time to time subject to federal or state tax audits the resolution of which could have an adverse effect on Allegheny s financial condition. Risks Related to Allegheny s Leverage and Financing Needs Covenants contained in certain of Allegheny s financing agreements restrict its operating, financing and investing activities. Allegheny s leverage could adversely affect its ability to operate successfully and meet contractual obligations. Allegheny may be unable to engage in desired financing transactions. Changes in prevailing market conditions or in Allegheny s access to commodities markets may make it difficult for Allegheny to hedge its physical power supply commitments and resource requirements. Allegheny is dependent on its ability to successfully access capital markets. Any inability to access capital may adversely affect Allegheny s business. Risks Relating to Allegheny s Operations Allegheny s generation facilities are subject to unplanned outages and significant maintenance requirements. Allegheny s operating results are subject to seasonal and weather fluctuations. Allegheny s revenues, costs and results of operations are subject to other risks beyond its control, including, but not limited to, accidents, storms, natural catastrophes and terrorism. The terms of AE Supply s power sale agreements with Potomac Edison and West Penn could require AE Supply to sell power below its costs or prevailing market prices or require Potomac Edison and West Penn to purchase power at a price above which they can sell power, and the terms of Potomac Edison s power supply agreement with Monongahela could require Potomac Edison to purchase power at a price above which it can sell power to its West Virginia customers. The supply and price of fuel and emissions credits may impact Allegheny s financial results. Allegheny is currently involved in capital intensive projects that may involve various implementation and financial risks. Allegheny is currently involved in significant litigation that, if not decided favorably to Allegheny, could have a material adverse effect on its results of operations, cash flows and financial condition. The Distribution Companies and other AE subsidiaries are and may become subject to legal claims arising from the presence of asbestos or other regulated substances at some of their facilities. Adverse investment returns and other factors may increase Allegheny s pension liability and pension funding requirements. Changes in PJM market policies and rules may impact Allegheny s financial results. Energy companies are subject to adverse publicity, which may make Allegheny vulnerable to negative regulatory and litigation outcomes. Risks Relating to Operational Enhancements Refocusing its business subjects Allegheny to risks and uncertainties. Allegheny may fail to realize the benefits that it expects from its cost-savings initiatives.

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774459--2/28/2007--ALLEGHENY_GENERATING_CO