Allegheny Energy Unsecd Debt Rtd 'A' By Fitch; Rtg Chgs For Subs.

Business Editors

NEW YORK--(BUSINESS WIRE)

July 27, 2000: Fitch has established a new 'A' rating for Allegheny Energy, Inc.'s (AE) initial shelf registration of unsecured debt securities and affirmed the company's 'F1' commercial paper rating. At the same time, Fitch has taken other rating actions on various subsidiaries. (see list below). The Rating Outlook for AE and each of the operating subsidiaries listed below is Stable.

The new long-term rating for AE is based on the collective cash flows of its three regulated utility companies, West Penn Power Company, Monongahela Power Company, and The Potomac Edison Company, and those of its unregulated generation subsidiary, Allegheny Energy Supply Company (AE Supply). The three regulated utilities provide a stable and predictable revenue stream that will remain the bulk of consolidated cash flow over the near future. In addition, the unregulated supply company derives the majority of its revenue and cash flow from fixed price contracts with AE's regulated utility subsidiaries, which lowers business risk. Moreover, over the next two years the regulated utility subsidiaries will become strictly electric distribution companies with little or no supply risk.

Consolidated credit protection measures are expected to be relatively healthy over the next several years, with earnings before interest, taxes, depreciation and amortization (EBITDA) interest coverage of generally over 4.5 times (x) and debt/EBITDA below 3.0x. On a book basis, consolidated leverage is relatively high, but declines over the forecast period. The debt ratio was approximately 64% as of March 31, 2000 but should decline to about 56% by 2004. The primary credit risks are the potential impact of stricter environmental standards, given the company's predominantly coal-fired generating base, and managing the planned growth of its merchant generation business and commodity price exposure.

AE's principal non-regulated business is AE Supply, into which all of AE's regulated utilities will transfer their generating assets as state deregulation policies allow. While only West Penn Power has transferred its assets to date, Potomac Edison is expected to begin transferring its Maryland assets in the next month. The transfer of all currently regulated generation is expected to be completed by the end of the first quarter 2001. AE Supply will also develop and acquire additional merchant generating plants as it expands regionally into new competitive markets and focuses on its long-term strategy of becoming a national energy supplier.

The downgrade of Allegheny Generating Company's (AGC) debt is a direct result of the transfer of the generating company's ownership and counterparty obligations to the lower rated AE Supply (senior unsecured rated 'BBB+') from the higher rated regulated utilities. AGC consists solely of a 40% ownership interest (840 megawatts) in the Bath County pumped-storage hydroelectric station. AGC is owned 27% by Monongahela, 28% by Potomac Edison and 45% by AE Supply and derives its credit strength from capacity payments from the owners. When Potomac Edison completes the transfer of its Maryland generating assets, AE Supply will own over 70% of AGC's capacity.

The upgrade of West Penn's unsecured debt reflects the company's low business risk following the transfer of its generating assets to AE Supply. West Penn also retired all first mortgage bonds and preferred stock with securitization proceeds in 1999. The asset transfer shifted all operating risk and potential environmental exposure to AE Supply and created a pure distribution company. In addition, West Penn has signed an all requirements contract for 'provider of last resort' (PLR) customers with AE Supply. AE Supply therefore assumes the price and volume risk of supply to West Penn's PLR customers. Projected pre- tax interest coverage of over 4.0x and EBITDA to interest coverage of over 6.5x solidly support the new rating category. The common equity position is low but is expected to increase to the 50% range over time as earnings are retained.

The affirmation of the senior secured debt and commercial paper ratings of Monongahela and Potomac Edison reflect the companies' strong cash flows, healthy balance sheets and plans to transfer all generating assets to AE Supply in 2001. Similar to West Penn, the two utilities are expected to enter all requirements contracts with AE Supply, which will insulate them from price and volume risks. Monongahela Power is expected to maintain pre-tax interest and EBITDA interest coverage ratios of approximately 3.5x and 5.0x, respectively, while similar ratios for Potomac Edison are anticipated to reach about 3.9x and 5.5x, respectively. The junior subordinated debt ratings of both companies were lowered to 'A' from 'A+' due to their more junior position. Similar rationale resulted in the downgrade of Monongahela's preferred stock to 'A' from 'A+'.

AE is a registered utility holding company under the Public Utility Holding Co. Act of 1935, which owns three regulated utilities, Monongahela Power, Potomac Edison and West Penn Power and two non-utility subsidiaries. The utilities deliver electric and gas service to 1.4 million customers in parts of Maryland, Ohio, Pennsylvania, Virginia, and West Virginia. AE's non-utility subsidiaries consist of AE Supply which develops, acquires, owns and operates generating plants and is a marketer of electricity and other energy products and Allegheny Ventures which is involved in telecommunications and energy related projects.

The ratings of Allegheny Energy, Inc's subsidiaries are as follows:

West Penn Power Company:

--Medium term notes new rating of 'A+';

--Jr. subordinated debentures* affirmed at 'A';

--Pollution control revenue bonds upgraded to 'A+' from 'A';

--Commercial paper upgraded to 'F1+' from 'F1'.

West Penn Funding LLC:

--Transition bonds affirmed at 'AAA'.

Monongahela Power Company:

--First mortgage bonds affirmed at 'AA-';

--Medium term notes new rating of 'A+';

--Pollution control revenue bonds affirmed at 'A+';

--Jr. subordinated debentures* downgraded to 'A' from 'A+';

--Preferred stock downgraded to 'A' from 'A+';

--Commercial paper affirmed at 'F1+'.

Potomac Edison Company:

--First mortgage bonds affirmed at 'AA-';

--Pollution control revenue bonds affirmed at 'A+';

--Jr. subordinated debentures* downgraded to 'A' from 'A+';

--Commercial paper affirmed at 'F1+'.

Allegheny Generating Company:

--Senior unsecured debentures downgraded to 'BBB+' from 'A+';

--Commercial paper downgraded to 'F2' from 'F1+'.

*Note: quarterly income debt securities.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.