Allegheny Energy Petitions Pennsylvania PUC To Reconsider Inadequate Stranded Cost Recovery.

HAGERSTOWN, Md.--(BUSINESS WIRE)--June 12, 1998--Allegheny Energy, Inc. (NYSE: AYE) today filed a Petition for Reconsideration, Rescission, or Amendment with the Pennsylvania Public Utility Commission (PUC), seeking to protect the Company against the loss of nearly $1 billion in stranded costs, which would adversely affect the Company, its employees, shareholders, and communities. The Company also requested a stay in the PUC's decision to phase in competition over two years instead of three.

The Company's filing is in response to an order handed down by the PUC on May 29 in Allegheny Energy subsidiary West Penn Power's restructuring case. Using PUC figures and assumptions, the order reduced West Penn's collection of prudently incurred generation stranded costs by more than 70 percent--an action which could cause financial harm to the state's lowest-cost electric utility and damage its competitive position in the coming era of customer choice.

According to Allegheny Energy Senior Vice President and Chief Financial Officer Michael P. Morrell, "The result of the PUC's decision is not in keeping with the intent of the state's Electricity Generation Customer Choice and Competition Act. If this order is not reconsidered, West Penn will be placed at a competitive disadvantage during the transition to competition. Resulting losses affect not only our Company, but our employees, our customers, our shareholders, and the communities in which we serve."

Morrell stated that, if the PUC's order is not changed, West Penn will likely be required to write off between $400 and $500 million related to non-utility generation (NUG) contracts, other purchase commitments, and regulatory assets.

"We believe that, by cutting our stranded cost recovery in this manner, the PUC is harming the electricity provider in the state which has consistently delivered the lowest rates to consumers. This was not what was intended by the Competition Act, nor is it in the best interests of western Pennsylvania. This order will result in West Penn recovering a significantly lower portion of its fixed costs than any of its competitors," added Morrell.

Also in the petition, the Company noted that the PUC in its order did not permit West Penn recovery of all costs related to purchasing power from a project mandated under the federal Public Utility Regulatory Policies Act. According to Morrell, dollar-for-dollar recovery of such costs has clearly been upheld in all similar cases. A write-off of about $200 million for the Beaver Valley NUG contract is included in the expected write-off.

"We have been a strong proponent of competition in our industry," added Morrell, "and would regret having to delay bringing its benefits to the state's consumers. However, if this order is not reopened for reconsideration, we will have no choice but to seek judicial review of these and other related issues."

Headquartered near Hagerstown, Md., Allegheny Energy, with operating subsidiaries doing business as Allegheny Power, provides electric service to 1.4 million customers in parts of Maryland, Ohio, Pennsylvania, Virginia, and West Virginia.

CONTACT: Cynthia A. Shoop

Director, Corporate Communications

301/665-2718

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