EXHIBIT 4.1


                             ALLEGHENY ENERGY, INC.

                           1999 ANNUAL INCENTIVE PLAN

   I.    PURPOSE OF THE INCENTIVE PLAN
         -----------------------------

             To attract and retain first quality  managers in a competitive  job
             market and to reward for attaining and exceeding  specified  annual
             system, business or service company group/function,  and individual
             performance goals.

  II.    ELIGIBILITY
         -----------

             A  prerequisite   for   participation  in  the  Plan  shall  be  an
             understanding of, and commitment to Allegheny Energy's:

             o  Management Plan and Policies

             o  Mission, Vision, Values, and Strategies


             Eligibility  will be determined by the Management Review  Committee
             upon the  recommendation  of the CEO from  among  executives  whose
             responsibilities  can affect the  performance  of their units,  and
             through unit performance, the performance of Allegheny Energy.


 III.     AWARDS
          ------

             Awards will reflect the importance of the participants to the units
             for which they are responsible.

             Awards  will be paid for the  achievement  of  specific  measurable
             goals set for the  individual  and the units for which he or she is
             responsible.

             The Plan's goals will be:

             o   Determined and communicated annually

             o   A reasonable number for each participant

             The goals  which the Board will set with the help of the Management
             Review  Committee  will  be  consistent  with  Allegheny   Energy's
             Mission,  Vision,  Values,  and  Strategies  and will  include such
             things as:

             o   Financial performance (return on equity, earnings, dividends)

             o   Customer   satisfaction  (cost,  quality,  and  reliability  of
                 service)


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 III.    AWARDS (continued)
         ------

             o   Cost and environmental consciousness (productivity, efficiency,
                 availability  and utilization of equipment) and conservation of
                 resources

             o   Safety

             o   Leadership development

  IV.    OVERALL LIMITATIONS ON AWARDS
         -----------------------------

             The Board of Directors  shall not authorize  any incentive  payment
             if, in the Board's  opinion,  Allegheny's  performance is less than
             satisfactory from the perspective of its stockholders.

   V.    PERFORMANCE MEASURES
         --------------------

             Each year measures to evaluate  participants'  performance  will be
             determined.  They may vary among participants  according to whether
             their principal responsibilities are to:

             o   Allegheny as a whole

             o   A Business or Division within a Business

             o   A Service Company Group or Function

             Each  category  of  performance   measure  will  carry  appropriate
             weightings as shown on the 1999 Participant  Performance  Schedule.
             Examples of possible measures include:

             For Allegheny as a whole:

             o   Quantity  and  quality  of annual earnings;  return on  equity;
                 financial ratings;  capital structure;  dividend payout ratios;
                 and total shareholder return

             o   Development of  appropriate  management  succession,  personnel
                 relations  and  development,  and  programs  to assure fair and
                 non-discriminatory treatment of all employees

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V. PERFORMANCE MEASURES (continued)
   --------------------

             o   Productivity, cost control, efficient use of equipment, natural
                 resources, and other environmental considerations

             o   Quality and reliability of customer service

             o   Safety

             o   Attainment of reasonable  rate and  maintenance  of competitive
                 position

             For Businesses,  Divisions  within  Businesses, and Service Company
             Groups/Functions:

             o   Profitability

             o   Safety

             o   Productivity  and  efficiency,  revenues,  and  administrative,
                 operating, and maintenance expenditures

                      -   Per employee, customer, and kwh

                      -   Measured against previous year and peer companies

             o   Customer satisfaction (quality of service); outage rates,
                 speedy restoration of service, customer complaints, employee
                 courtesy, conservation, and demand-side management programs

             o   Cost of service;  rate per kwh  measured  against  past period,
                 economic indices, and peer companies

             o   Community   relations  and  relations   with  state  and  local
                 governments and their agencies

             o   Completion of construction projects on time and within budget

             o   Adequacy of  management  development  programs  and programs to
                 assure fair and non-discriminatory treatment of all employees

             o   Adequacy of planning and accuracy of forecasts

             o   Completion  of  assignments  and projects on time and
                 within budget

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V. PERFORMANCE MEASURES (continued)
   --------------------

             o   Availability,  efficiency,  and reliability of generating units
                 and transmission systems

             o   Cost  consciousness  (avoidance of excessive staffing and waste
                 of work space and receptivity to cost saving techniques)

             o   Minimizing adverse effects in the environment

             o   User satisfaction

             o   Adherence   to   Procurement   Policy  and  success  in  buying
                 (including minority vendor participation) material,  equipment,
                 and supplies at the best possible price

             For Individual Performance:

             o   Visionary Leadership

             o   Innovative Results Orientation

             o   Strategic Thinking

             o   Communication

             o   Teamwork

             o   Judgment

VI. CALCULATION OF AWARDS
    ---------------------

             Target Incentive Awards and Total Estimated Cost

             o   No  awards  will  be paid  for any year  unless  the  Board  of
                 Directors finds that overall System performance is satisfactory
                 from the perspective of stockholders.

             o   Incentive  awards will be based on System, Unit, and Individual
                 Performance

             Performance Schedules

             o   The Performance  Schedule  describes ratings and weightings for
                 each performance measure at all levels of performance


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VI. CALCULATION OF AWARDS (continued)
    ---------------------

             o   As soon  as  practicable  each  year,  Participant  Performance
                 Schedules for that year will be issued

             Performance Ratings

             o   Target performance  represents the full and complete attainment
                 of expectations in the performance area; it is rated 1.0

o   Performance that is acceptable but does not fully meet expectations can earn
    a rating but, of course, less than 1.0

o   Exceeding  expectations  can result in a performance  rating as high as 1.50

o   Unacceptable  individual  performance  will result in no award regardless of
    System or Unit Performance

             Weightings

o   Weightings  will be established  each year for System,  Unit, and Individual
    performance measures

             Calculation of Award

o   A  participant's  award,  if any,  will be  determined  by  multiplying  the
    participant's  assigned  Target  Incentive  Award by his/her  rounded  total
    performance rating

             The Management  Review Committee or the Board of Directors,  at its
             discretion, may supplement or decrease any participant's calculated
             award to reflect extraordinary circumstances.

             The maximum funds available for 1999 awards will be an amount equal
             to $2,990,000  (1% of 1999 budgeted net income) plus or minus 5% of
             any amount over or under 1999  budgeted  net income for the System.
             In the event the maximum  would  otherwise be exceeded,  all awards
             will be decreased pro rata.

VII. FORM AND TIMING OF PAYOUT
     -------------------------

             Calculation of awards will be made as soon as practicable after the
             close of books  for the year  measured,  but no award  will be paid
             until it has been approved by the  Management  Review  Committee or
             the Board of Directors, as appropriate.


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VIII. TERMINATION AND TRANSFER PROVISIONS
      -----------------------------------

             Payment  will be in  current  cash  unless  the  Management  Review
             Committee or the Board at its discretion provides for deferral. The
             Management   Review  Committee  or  the  Board  may  also,  at  its
             discretion,  make payment of awards in the form of stock in lieu of
             current cash.

             Termination Provisions

o   Awards may at the discretion of the Management Review Committee or the Board
    be calculated on the basis of a full year's  performance and prorated to the
    number of whole  months  actually  served,  except in the case of  voluntary
    termination  (other than retirement after the second quarter of the year) or
    termination by the Company (with or without  cause),  in which case no award
    is made for year of termination

              Designation of "Unit" in cases of transfer

o   Weighting will be based on the number of months participant was in each unit

IX. PLAN ADMINISTRATION
    -------------------

              Administration of the Plan is the responsibility of the Management
              Review Committee of the Board of Directors.

o   The Committee is responsible for review and administration of all Systemwide
    goals and has final  approval  over these and other  matters  involving  the
    Plan, including eligibility


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