774459--3/1/2006--ALLEGHENY_GENERATING

related topics

{acquisition, growth, future}

{cost, regulation, environmental}

{cost, contract, operation}

{debt, indebtedness, cash}

{operation, natural, condition}

{condition, economic, financial}

{financial, litigation, operation}

{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. Allegheny s costs to comply with environmental laws are significant, and the cost of compliance with present and future environmental laws could adversely affect its cash flow and profitability. Shifting state and federal regulatory policies impose risks on Allegheny s operations. Risks Related to Allegheny s Substantial Debt Covenants contained in Allegheny s principal financing agreements restrict its operating, financing and investing activities. Allegheny s substantial debt 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. 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. Rate regulation in West Virginia may delay or deny Monongahela s full recovery of costs. Monongahela is required to supply power to serve its former Ohio customers at prices that may be below prevailing market prices. The supply and price of fuel and emissions credits may impact Allegheny s financial results. 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. 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 Operational Enhancements Refocusing its business subjects Allegheny to risks and uncertainties. Allegheny may engage in sales of assets and businesses; however, market conditions and other factors may hinder this strategy. Allegheny may fail to realize the benefits that it expects from its cost-savings initiatives.

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774459--3/1/2006--ALLEGHENY_GENERATING_CO