Fitch Affirms Allegheny Energy and Subs; AE Supply Outlook to Positive.

NEW YORK -- Fitch Ratings has affirmed the ratings of Allegheny Energy, Inc. (AYE; Issuer Default Rating [IDR] rated 'BB+') and its subsidiaries. In addition, the Rating Outlook of AYE, Allegheny Energy Supply Company, LLC (Supply; IDR of 'BB') and Allegheny Generating Company (AGC; IDR of 'BB') are revised to Positive from Stable. The Rating Outlook of Monongahela Power Company (Mon Power; IDR of 'BBB-') is revised to Stable from Negative. The Rating Outlook of West Penn Power Company (West Penn; IDR of 'BBB-') remains Stable. Separately, Fitch lowered the rating and maintained the Negative Rating Outlook on AYE subsidiary, Potomac Edison Company (IDR of 'BB+'), on July 23, 2007.

The Positive Rating Outlook for AYE and Supply reflects the improving credit profiles of these issuers and Fitch's expectation that growing cash flow generation at Supply will result in improvements in consolidated credit measures. In addition, AYE's Positive Outlook assumes that Maryland and Pennsylvania regulators will separately approve plans to procure power for the residential load needs of Potomac Edison Maryland and West Penn customers and recover the power purchase costs in rates beginning in January 2009 and January 2011, respectively. Senior unsecured credit ratings could be raised to investment grade levels when the regulatory positions on MD and PA residential power procurement processes and power purchase cost recovery become more definitive. Ratings of AYE and Supply also depend on satisfactory super-critical plant performance and steady progress in the construction of flue gas desulphurization projects (scrubbers).

AYE's ratings are supported by ample liquidity, ownership of increasingly valuable coal-fired generation in PJM, and reasonable residential customer transition plans in place in PA and MD service territories. For the next several years, AYE has limited long-term debt maturities. To supplement internal cash flow, the parent company and Supply have access to $400 million and $200 million revolving credit facilities, respectively, and there is a system money pool. Debt balances are expected to remain relatively flat at approximately $3.5 billion.

Fitch's rating concerns for the AYE group include the risks of: under-recovery or recovery lags in purchased power and other costs at the utilities; cost increases in the scrubber projects; stricter environmental regulations; and prolonged unit outages.

The drivers of growing cash flow at Supply are higher realized prices on power and capacity sales and forecasted improvements in plant availability. In addition, Supply and its utility affiliates will continue to benefit from the utilization of NOLs. The continued tightening of PJM capacity markets bodes well for Supply as an owner of super-critical generation capacity. Challenges for Supply include stricter emission standards, a construction program, and reducing plant outage factors.

The revision in Mon Power's Outlook revised to Stable from Negative reflects the West Virginia Public Service Commission order that the expenditures greater than the $450 million tariff bond securitization may be requested to be recovered in a future base rate proceeding and collected through construction work in progress (CWIP) starting as early as in 2009. In addition, the June 2006 base rate case was settled - while the result was generally unfavorable, the reinstatement of the fuel adjustment mechanism reduces commodity price exposure.

The ratings and Stable Outlook of West Penn reflect Fitch's expectation that West Penn's net revenue margin will improve when power purchase costs come into line with generation rates beginning in January 2009, and also that West Penn will receive approval from the Pennsylvania PUC to begin procuring power in an auction process for 2011 POLR load requirements and to allow full recovery of power costs through customer tariffs.

The Positive Rating Outlook for AGC reflects the improvement in the credit quality of its majority owner, Supply, and its strong individual credit profile.

Fitch affirms the following, with a Positive Outlook:

Allegheny Energy, Inc.

--Issuer Default Rating (IDR) 'BB+' ';

Allegheny Energy Supply, LLC

--Issuer Default Rating (IDR) 'BB';

--Senior secured debt 'BBB-";

--Senior unsecured debt 'BB+'

Allegheny Generating Company:

--Issuer Default Rating (IDR) 'BB'.

--Senior unsecured debt 'BB+'.

Fitch affirms the Following, with a Stable Outlook:

Monongahela Power Company:

--Issuer Default Rating (IDR) 'BBB-';

--First mortgage bonds 'BBB+';

--Senior unsecured debt 'BBB-';

--Preferred securities 'BB+'.

West Penn Power Company:

--Issuer Default Rating (IDR) 'BBB-';

--Senior unsecured 'BBB-';

--First mortgage bonds 'BBB+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.