Allegheny Energy Provides Pennsylvania PUC Further Input To Move Proposed Merger Forward.

HAGERSTOWN, Md.--(BUSINESS WIRE)--June 12, 1998--In response to an order released May 29 by the Pennsylvania Public Utility Commission (PUC), Allegheny Energy, Inc. (NYSE: AYE) today filed a Petition for Reconsideration to advance its proposed merger.

According to Allegheny Energy Senior Vice President and Chief Financial Officer Michael P. Morrell, "The filing made today by Allegheny Energy presents further clarification of our proposal to consummate this merger and offers additional commitments to help mitigate market power concerns."

In late May, the PUC approved the merger of Allegheny Energy and Pittsburgh-based DQE, Inc., recognizing that it would be good for consumers and the regions served by the new company. However, the PUC conditioned that approval on the merged company joining a "fully functioning" Independent System Operator (ISO) to mitigate market power concerns. An ISO regulates power flow over a regional grid and promotes the elimination of unnecessary transmission charges ("rate pancaking") as power moves to consumers across utility systems.

Since that time, the merging companies have joined the Midwest ISO (MISO). In order to mitigate market power until the MISO is in place, the companies have also offered to relinquish control of the output of the 570-megawatt (MW) Cheswick, Pa., generating station. Additional mitigation measures have also been offered in today's filing, said Morrell.

"Under Allegheny Energy's new proposal, the merged company will not regain control of the Cheswick output until the PUC indicates it is satisfied that other measures, such as our membership in the MISO, have adequately addressed market power concerns. Additionally, if the MISO does not have in effect a transmission rate which eliminates rate pancaking between its members by June 30, 2000, we have offered to divest 2,500 MW of generating capacity," added Morrell.

"We will also work with the Federal Energy Regulatory Commission (FERC) to help make the MISO a reality as soon as possible and will file quarterly reports with the PUC on the progress of this entity's formation. We are confident that the market power mitigation measures proposed are more than adequate to address any remaining concerns."

Morrell added, "We are encouraged that the PUC in its order recognized the significant benefits and savings that the merger will produce and appreciated the support that the merger has received from a variety of stakeholders. We are eager to address any lingering concerns over market power issues so that our merger can move forward and we can begin to deliver the many benefits it will bring to consumers and the region."

Shareholders of both companies overwhelmingly approved the merger last August, and the Maryland Public Service Commission and the Nuclear Regulatory Commission approved it this year. Decisions on the companies' merger applications are expected from the FERC, U.S. Department of Justice/Federal Trade Commission, and the Securities and Exchange Commission.

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: Allegheny Energy

Cynthia A. Shoop, 301/665-2718

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