<PAGE>


               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C.  20549
                            FORM 10-K

        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended December 31, 1999

                     Registrant;                  I.R.S. Employer
Commission       State of Incorporation;          Identification
File Number     Address; and Telephone Number         Number

 1-267          ALLEGHENY ENERGY, INC.               13-5531602
                (A Maryland Corporation)
                10435 Downsville Pike
                Hagerstown, Maryland 21740-1766
                Telephone (301) 790-3400

 1-5164         MONONGAHELA POWER COMPANY            13-5229392
                (An Ohio Corporation)
                1310 Fairmont Avenue
                Fairmont, West Virginia  26554
                Telephone (304) 366-3000

 1-3376-2       THE POTOMAC EDISON COMPANY           13-5323955
                (A Maryland and Virginia
                 Corporation)
                10435 Downsville Pike
                Hagerstown, Maryland  21740-1766
                Telephone (301) 790-3400

 1-255-2        WEST PENN POWER COMPANY              13-5480882
                (A Pennsylvania Corporation)
                800 Cabin Hill Drive
                Greensburg, Pennsylvania  15601
                Telephone (724) 837-3000

 0-14688        ALLEGHENY GENERATING COMPANY         13-3079675
                (A Virginia Corporation)
                10435 Downsville Pike
                Hagerstown, Maryland 21740-1766
                Telephone (301) 790-3400

Indicate by check mark whether the registrants (1) have filed all
reports  required  to be filed by Section  13  or  15(d)  of  the
Securities  Exchange Act of 1934 during the preceding  12  months
and  (2)  have been subject to such filing requirements  for  the
past 90 days.  Yes  X   No

Indicate  by  check  mark  if  disclosure  of  delinquent  filers
pursuant  to Item 405 of Regulation S-K is not contained  herein,
and will not be contained, to the best of registrants' knowledge,
in  definitive  proxy or information statements  incorporated  by
reference in Part III of this Form 10-K or any amendment to  this
Form 10-K. [X]


<PAGE>


Securities registered pursuant to Section 12(b) of the Act:


Registrant            Title of each class       Name of each exchange
                                                  on which registered

Allegheny Energy,     Common Stock,             New York Stock Exchange
  Inc.                  $1.25 par value         Chicago Stock Exchange
                                                Pacific Stock Exchange
                                                Amsterdam Stock Exchange

Monongahela Power
 Company              Cumulative Preferred
                        Stock,
                        $100 par value;
                        4.40%                   American Stock Exchange
                        4.50%, Series C         American Stock Exchange

                        8% Quarterly Income
                        Debt Securities,
                        Junior Subordinated
                        Deferrable Interest
                        Debentures,
                        Series A                New York Stock Exchange

The Potomac Edison
 Company                8% Quarterly Income
                        Debt Securities,
                        Junior Subordinated
                        Deferrable Interest
                        Debentures,
                        Series A                New York Stock Exchange

West Penn Power         8% Quarterly Income
  Company               Debt Securities,
                        Junior Subordinated
                        Deferrable Interest
                        Debentures,
                        Series A                New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:

Allegheny Generating
 Company                Common Stock
                        $1.00 par value         None


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                      Aggregate market value           Number of shares
                   of voting stock (common stock)      of common stock
                      held by nonaffiliates of         of the registrants
                         the registrants at            outstanding at
                           March 2, 2000               March 2, 2000

Allegheny Energy, Inc.       $2,816,126,084              110,436,317
                                                      ($1.25 par value)


Monongahela Power Company                None. (a)         5,891,000
                                                        ($50 par value)

The Potomac Edison Company               None. (a)        22,385,000
                                                        (no par value)


West Penn Power Company                  None. (a)        24,361,586
                                                        (no par value)


Allegheny Generating
  Company                                None. (b)             1,000
                                                        ($1.00 par value)







(a)  All such common stock is held by Allegheny Energy, Inc., the
     parent company.

(b)  All such common stock is held by its parents, Monongahela Power Company,
     The Potomac Edison Company, and Allegheny Energy Supply Company, LLC.


<PAGE>


                            CONTENTS


PART I:                                                        Page

 ITEM 1.   Business                                              1
           Factors That May Affect Future Results                4
           Electric Energy Competition                           4
              Activities at the Federal Level                    5
              Activities at the State Level                      5
              Allegheny's Competitive Steps                      8
              Telecommunications                                 9
           Proposed Merger with DQE, Inc.                       10
           Sales                                                11
             Regulated Sales                                    11
             Unregulated Sales                                  13
             Regulatory Framework Affecting Power Sales         13
           Electric Facilities                                  15
           Allegheny Map                                        19
           Research and Development                             21
           Capital Requirements and Financing                   21
              Financing Programs                                24
           Fuel Supply                                          26
           Rate Matters                                         27
           Environmental Matters                                31
              Air Standards                                     31
              Water Standards                                   35
              Hazardous and Solid Wastes                        36
              Toxic Release Inventory (TRI)                     36
              Global Climate Change                             37
           Regulation                                           38

 ITEM 2.   Properties                                           39

 ITEM 3.   Legal Proceedings                                    39

 ITEM 4.   Submission of Matters to a Vote of Security
              Holders                                           43

           Executive Officers of the Registrants                44

PART II:

 ITEM 5.   Market for the Registrants' Common Equity
              and Related Shareholder Matters                   46

 ITEM 6.   Selected Financial Data                              47

 ITEM 7.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations               48

 ITEM 7A.  Quantitative and Qualitative Disclosure About
             Market Risk                                        48


<PAGE>


                       CONTENTS (Cont'd)
                                                               Page
PART III:

 ITEM  8.  Financial Statements and Supplementary Data          49

 ITEM  9.  Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure            56


 ITEM 10. Directors and Executive Officers of the
             Registrants                                        56

 ITEM 11. Executive Compensation                                57

 ITEM 12. Security Ownership of Certain Beneficial
             Owners and Management                              65

 ITEM 13. Certain Relationships and Related Transactions        66


PART IV:

 ITEM 14. Exhibits, Financial Statement Schedules, and
             Reports on Form 8-K                                66


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                                 1


THIS COMBINED FORM 10-K IS SEPARATELY FILED BY ALLEGHENY ENERGY,
INC., MONONGAHELA POWER COMPANY, THE POTOMAC EDISON COMPANY, WEST
PENN POWER COMPANY, AND ALLEGHENY GENERATING COMPANY.
INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL
REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF.  EACH
REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO
THE OTHER REGISTRANTS.

                             PART I

ITEM 1.   BUSINESS

      Allegheny  Energy, Inc. (AE), incorporated in  Maryland  in
1925,  is  a  diversified  utility  holding  company  which  owns
directly  and  indirectly  various  regulated  and  non-regulated
subsidiaries (collectively and generically, Allegheny).  In 1999,
AE  derived  substantially all of its income  from  the  electric
utility  operations  of  its direct and  indirect  regulated  and
unregulated subsidiaries Monongahela Power Company (Monongahela),
The  Potomac  Edison Company (Potomac Edison),  West  Penn  Power
Company  (West  Penn--both regulated and  unregulated  in  1999),
Allegheny  Generating  Company  (AGC),  Allegheny  Energy  Supply
Company,  LLC  (Allegheny Energy Supply) and Allegheny  Ventures,
Inc.  (Allegheny  Ventures) (collectively,  Monongahela,  Potomac
Edison and the regulated activities of West Penn will be referred
to  as  the  Operating  Subsidiaries).   The  properties  of  the
Operating  Subsidiaries,  AGC  and Allegheny  Energy  Supply  are
located  in  Maryland,  Ohio, Pennsylvania,  Virginia,  and  West
Virginia;  are interconnected; and are located along transmission
facilities  owned in whole or part by the Operating  Subsidiaries
(System),  which are interconnected with all neighboring  utility
systems.  In 1999, the three regulated electric utility operating
subsidiaries were Monongahela, Potomac Edison, and the  regulated
activities  of West Penn.  The Operating Subsidiaries  are  doing
business under the trade name Allegheny Power.  Allegheny  Energy
Supply  is an unregulated generating subsidiary of AE.  Allegheny
Ventures  is  an unregulated subsidiary of AE that  develops  and
operates   telecommunications   businesses   and   energy-related
businesses.

     In December 1999, for approximately $95 million, Monongahela
acquired the assets of West Virginia Power from UtiliCorp United,
Inc. and entered into a 20-year option agreement with UtiliCorp's
subsidiary, Aquila Energy, for gas supply to Monongahela and
Allegheny Energy Supply.  West Virginia Power has approximately
26,000 electric customers in southern West Virginia and 24,000
gas customers in southern and central West Virginia.  No electric
generation facilities or gas production facilities were part of
the transaction.  All regulatory approvals were secured and this
transaction closed on December 31, 1999.  These gas and electric
distribution properties will be operated under the trade name
Allegheny Power beginning around May 1,2000, for electric, and
around October 1, 2000, for gas.  Allegheny Ventures acquired the
heating, air conditioning and ventilating repair and installation
business of Utilicorp in West Virginia as part of that
transaction.

      On  December 20, 1999, AE announced Monongahela's  plan  to
acquire  Mountaineer  Gas  Company, a  natural  gas  distribution
company   serving  approximately  200,000  retail   natural   gas
customers in West Virginia.  Mountaineer Gas Company is owned  by
Eastern  Systems Corporation, a subsidiary

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                                 2


of Energy  Corporation
of  America.   The acquisition also includes the  acquisition  of
Mountaineer Gas Company's unregulated subsidiary, Mountaineer Gas
Services,  which  operates natural gas producing properties,  gas
gathering  facilities,  and intra-state  transmission  pipelines.
Approval  from  the West Virginia Public Service Commission,  the
Securities and Exchange Commission and the Department of  Justice
are  required.  The transaction is expected to close  during  the
third quarter of 2000.

      Monongahela,  incorporated in Ohio in  1924,  operates  its
electric  distribution system in northern West  Virginia  and  an
adjacent  portion of Ohio.  It also owns generating  capacity  in
Pennsylvania.   With  the  acquisition  of  the  assets  of  West
Virginia   Power,  Monongahela  will  now  serve  about   385,000
customers in a service area of about 13,000 square miles  with  a
population  of  about  815,000.  The  seven  largest  communities
served  have  populations ranging from 10,900  to  33,900.   This
service area has navigable waterways and substantial deposits  of
bituminous  coal, glass sand, natural gas, rock salt,  and  other
natural  resources.   Its  service  area's  principal  industries
produce  coal,  chemicals, iron and steel,  fabricated  products,
wood  products,  and  glass.  There are  two  municipal  electric
distribution   systems   and  two  rural   electric   cooperative
associations  in  its  service  area.   Except  for  one  of  the
cooperatives,  in  1999 they purchased all of  their  power  from
Monongahela.

      Potomac  Edison, incorporated in Maryland in  1923  and  in
Virginia in 1974, operates in portions of Maryland, Virginia, and
West Virginia.  It also owns generating capacity in Pennsylvania.
Potomac  Edison serves about 398,600 customers in a service  area
of  about  7,300 square miles with a population of about 782,000.
On  July 1, 2000, the Maryland jurisdictional retail customers of
Potomac  Edison  will  be  afforded the same  generation  service
supplier  choice opportunities as described for West Penn  below.
The  ability  to  choose is the result of state  legislation  and
regulatory  proceedings  described in ITEM  1.   ELECTRIC  ENERGY
COMPETITION.  The six largest communities served have populations
ranging  from 11,900 to 40,100.  Potomac Edison's service  area's
principal   industries  produce  aluminum,   cement,   fabricated
products,  rubber products, sand, stone, and gravel.   There  are
four municipal electric distribution systems in its service area,
all of which purchased power from Potomac Edison in 1999, and six
rural  electric cooperatives, one of which purchased  power  from
Potomac Edison in 1999.

      West  Penn,  incorporated in Pennsylvania in  1916,  is  an
electricity delivery company in southwestern and north and south-
central Pennsylvania.  In December 1996, Pennsylvania enacted the
Electricity  Generation  Customer  Choice  and  Competition   Act
(Customer  Choice  Act) to restructure the electric  industry  in
Pennsylvania  to  create retail access to a competitive  electric
energy  generation  market.  During 1999,  approximately  226,000
customers,  one-third  of  West  Penn's  retail  load,  were  not
eligible for customer choice.  As of January 2, 2000, all of West
Penn's  retail load was able to choose their electric  generation
supplier.   See ITEM 1. ELECTRIC ENERGY COMPETITION and  ITEM  1.
RATE  MATTERS  for a discussion of the status of  competition  in
Pennsylvania.   As  a  consequence of the  Customer  Choice  Act,
effective January 1, 1999, West Penn reorganized into a  delivery
business   unit   providing  transmission  and  distribution   to
customers in West Penn's service territory, and a supply business
unit  supplying  unregulated  retail generation  in

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                                 3


Pennsylvania
(excluding  by  temporary  regulatory  proscription  those   with
locations  wholly  inside  West Penn's service  area)  and  other
states  in the region implementing customer choice, and wholesale
generation anywhere.  In November 1999, the supply business  unit
became   part  of  a  separate,  unregulated  electricity  supply
subsidiary of AE, known as Allegheny Energy Supply.  In  November
1999,  West  Penn transferred its generation assets to  Allegheny
Energy  Supply.   West Penn's service area contains  about  9,900
square  miles  with  a  population of about  1,399,000.   The  10
largest  communities served by West Penn have populations ranging
from  11,200  to 38,900.  West Penn's service area has  navigable
waterways and substantial deposits of bituminous coal, limestone,
and  other  natural  resources.   Its  service  area's  principal
industries produce steel, coal, fabricated products, and glass.

      Allegheny Energy Supply, incorporated in Delaware in  1999,
owns   and   operates   generating   capacity   in   southwestern
Pennsylvania  and  West  Virginia.  In November  1999,  West Penn
transferred  its  generating assets,  including  its    ownership
interest in  AGC, to  Allegheny  Energy Supply.  AYP  Energy also
transferred its  unregulated generation asset to Allegheny Energy
Supply. Until  January 2, 2000, West  Penn  continued  to  supply
electricity to  one-third of its retail load that was not able to
choose  its generating supplier.  Allegheny  Energy Supply leased
back to West Penn  an amount of generating  assets sufficient for
West Penn  to satisfy that load.  Allegheny  Energy  Supply sells
retail  electric   energy  throughout Pennsylvania (excluding  by
temporary regulatory proscription  those customers with locations
wholly  inside  West Penn's  service area) and   in  other states
throughout the region that have customer  choice,  and  wholesale
electric energy anywhere.

      AGC,  organized  in  1981 under the laws  of  Virginia,  is
jointly owned as follows: Monongahela, 27%; Potomac Edison,  28%;
and  Allegheny Energy Supply, 45%.  AGC has no employees, and its
only  asset  is  a  40% undivided interest  in  the  Bath  County
(Virginia) pumped-storage hydroelectric station, which was placed
in  commercial  operation in December 1985,  and  its  connecting
transmission  facilities.   AGC's  840-megawatt  (MW)  share   of
capacity  of  the  station is sold to  its  three  parents.   The
remaining  60% interest in the Bath County Station  is  owned  by
Virginia Electric and Power Company (Virginia Power).

      Allegheny Ventures, incorporated in Delaware in 1994, is  a
wholly  owned non-regulated subsidiary of AE.  Allegheny Ventures
has  three  wholly  owned  subsidiaries--AYP  Energy,  Inc.  (AYP
Energy),  Allegheny  Communications  Connect,  Inc.  (ACC),   and
Allegheny  Energy  Solutions, Inc. (Allegheny Energy  Solutions),
all  Delaware corporations. Allegheny Ventures is also part owner
of  APS  Cogenex,  a limited liability company  formed  with  EUA
Cogenex.  APS Cogenex ceased its marketing activities in 1996 and
is  concluding  existing  projects.  AYP Energy  transferred  its
interest  in Unit No. 1 of the Ft. Martin Generating  Station  to
Allegheny  Energy Supply in 1999.  (See ITEM 1.  ELECTRIC  ENERGY
COMPETITION  and ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS  OF
FINANCIAL  CONDITION  AND  RESULTS OF  OPERATIONS  -  Significant
Events  in  1999,  1998,  and 1997 for a further  description  of
Allegheny Ventures and its subsidiaries' activities.)


<PAGE>

                                  4



      AE,  Allegheny  Energy Supply, the Operating  Subsidiaries,
AGC,  and  Allegheny  Ventures  and  its  subsidiaries  have   no
employees.   Their  officers  are employed  by  Allegheny  Energy
Service  Corporation  (AESC,  formerly  Allegheny  Power  Service
Corporation),  a  wholly owned subsidiary of AE, incorporated  in
Maryland   in  1963.   AESC's  employees  provide  all  necessary
services   to   AE,  Allegheny  Energy  Supply,   the   Operating
Subsidiaries,  AGC, and Allegheny Ventures and its  subsidiaries.
Those  companies reimburse AESC for services provided  by  AESC's
employees.  On  December 31, 1999, AESC had  approximately  4,923
employees.


             FACTORS THAT MAY AFFECT FUTURE RESULTS

      In addition to the historical information contained herein,
this report contains a number of "forward-looking statements"  as
defined in the Private Securities Litigation Reform Act of  1995.
These  include statements with respect to deregulation activities
and   movements  toward  competition  in  states  served  by  the
Operating  Companies, capital expenditures, earnings  on  assets,
resolution   and   impact  of  litigation,  regulatory   matters,
liquidity  and  capital resources, and accounting  matters.   All
such  forward-looking information is necessarily only  estimated.
There can be no assurance that actual results will not materially
differ  from expectations.  Actual results have varied materially
and unpredictably from past expectations.

     Factors that could cause actual results to differ materially
include,  among  other  matters, electric utility  restructuring,
including  ongoing state and federal activities; developments  in
the  legislative,  regulatory, and  competitive  environments  in
which   Allegheny  operates,  including  regulatory   proceedings
affecting  rates  charged  by  AE's subsidiaries;  environmental,
legislative, and regulatory changes; future economic  conditions;
earnings  retention  and  dividend payout  policies;  Allegheny's
ability  to  compete  in unregulated energy  markets;  and  other
circumstances  that could affect anticipated revenues  and  costs
such  as  significant volatility in the market price of wholesale
power  and  fuel for electric generation, unscheduled maintenance
or  repair  requirements, weather, and compliance with  laws  and
regulations.


                   ELECTRIC ENERGY COMPETITION

     The  electricity  supply  segment of  the  electric  utility
industry   in   the   United  States  is  becoming   increasingly
competitive.  The Energy Policy Act of 1992 began the process  of
deregulating the wholesale exchange of power within the  electric
industry  by permitting the FERC to compel electric utilities  to
allow  third  parties to sell electricity to wholesale  customers
over  their  transmission  systems.  Since  1992,  the  wholesale
electricity market has become more competitive.  In addition,  an
increasing  number  of  states have  taken  active  steps  toward
allowing  retail customers the right to choose their  electricity
supplier.  Allegheny has been an advocate of federal  legislation
to  create competition in the retail electricity markets to avoid
regional dislocations and ensure level playing fields.


<PAGE>

                                  5

     In   the  absence  of  federal  legislation,  state-by-state
implementation  has  begun.  All  of  the  states  the  Operating
Subsidiaries  serve  are at various stages of  implementation  of
programs  allowing customers to choose their electric  generation
service  supplier.   Pennsylvania  is  farthest  along   with   a
competitive retail program fully in place.  Maryland is scheduled
to  afford  retail choice to nearly all residents in July,  2000.
Virginia  and  Ohio passed legislation in 1999 to implement  some
level of retail choice by 2002 and 2001, respectively.  In March,
2000,  the West Virginia Legislature approved a plan to implement
customer  choice,  with  implementation  delayed  pending  future
legislative enactment of certain tax changes.

                 Activities at the Federal Level

     Allegheny continues to seek enactment of federal legislation
to  bring choice to all retail electric customers, deregulate the
generation  and  sale  of electricity on a  national  level,  and
create  a  more  liquid, free market for electric  power.   Fully
meeting  challenges in the emerging competitive environment  will
be  difficult  for  Allegheny unless certain outmoded  and  anti-
competitive laws, specifically the Public Utility Holding Company
Act  of  1935  (PUHCA)  and Section 210  of  the  Public  Utility
Regulatory Policies Act of 1978 (PURPA) regarding mandatory power
purchase  provisions,  are  repealed  or  significantly  revised.
Allegheny continues to advocate the repeal of PUHCA and PURPA  on
the grounds that they are obsolete and anti-competitive, and that
PURPA results in utility customers paying above-market prices for
power.   In  the  U.S.  Congress, a series  of  hearings  on  the
competition issue in both the House and Senate were completed  in
1999.  Also,  the House Energy & Power Subcommittee forwarded  to
the  full  Commerce  Committee a comprehensive competition  bill.
Among  the  most  important  actions, the  Subcommittee  rejected
attempts  to  add market power and environmental restrictions  to
the  legislation,  approved an amendment preventing  federal  law
from  overriding state plans, deleted reciprocity  language  that
would  have  harmed  Allegheny's ability to compete,  adopted  an
amendment  promoting  incentive  pricing  for  transmission,  and
clarified    provisions   relating   to   regional   transmission
organizations and speeding up the merger process. Full  Committee
action  on  this  legislation could occur in  2000.   Significant
hurdles remain in both houses of Congress, however.  While it  is
too  early  to  tell whether initial momentum on the  issue  will
result  in  legislation in the current Congress, the  competition
issue received more attention in 1999 than ever before.

                  Activities at the State Level

                            Maryland

      On  April  8,  1999,  Maryland Governor  Glendening  signed
legislation  that  will bring competition to Maryland's  electric
supply market.  The Maryland Public Service Commission is in  the
process   of   implementing   the  new   law.    Final   Electric
Restructuring  Roundtable reports were filed with the  Commission
on  May  3,  1999.  Legislative style hearings were held  on  the
Roundtable  reports.  All roundtable report decisions  have  been
issued  by the Commission.  Certain outstanding technical  issues
were  referred to the Technical Implementation Working Group  and
are currently under review by the Commission.


<PAGE>

                                  6


      In  Potomac Edison's Maryland restructuring case, the staff
of  the Maryland Public Service Commission (Maryland PSC) advised
the  Commission  that a consensus settlement agreement  had  been
reached  with  no protest by any of the parties participating  in
the  negotiations..  On December 23, 1999, the Commission  issued
an Order approving the settlement, and on March 15, 2000 issued a
Supplemental Order elaborating on the basis for finding that  the
settlement agreement approved in the December 23, 1999  Order  is
consistent with Maryland's restructuring legislation  and  is  in
the public interest.  (See ITEM 1.  RATE MATTERS for a discussion
of  the settlement agreement, which included a decision that full
recovery of the Warrior Run purchase power costs was due  Potomac
Edison  and  that  generation assets could be transferred  to  an
affiliate at book value.)  Potomac Edison filed an application on
December  15, 1999 to transfer its Maryland generation assets  at
book  value to an affiliate in accordance with Section  7-508  of
the  Electric Customer Choice and Competition Act of  1999.   The
Commission  approved  settlement provides  that  all  of  Potomac
Edison's  retail  customers will have  generation  supply  choice
effective  July 1, 2000 and that Potomac Edison may transfer  its
Maryland  jurisdictional generation in a manner similar  to  that
described  for  West Penn in Pennsylvania.  Potomac  Edison  will
become an energy delivery company.  It retains a supplier of last
resort obligation that it will satisfy from the market, including
Allegheny  Energy Supply.  Allegheny Energy Supply  will  acquire
the soon-to-be deregulated generation assets from Potomac Edison,
and  will  market the deregulated generation to  the  retail  and
wholesale markets, with the restriction that it may not market to
retail  customers within Potomac Edison's Maryland territory  for
various time frames, some of which terminate in 2003.

                              Ohio

     On   June  22,  1999,  the  Ohio  General  Assembly   passed
legislation  to  restructure  Ohio's electric  utility  industry.
Governor  Taft  signed  the legislation into  law.   All  of  the
state's  customers  will  be  able to  choose  their  electricity
supplier   starting  January  1,  2001,  beginning  a   five-year
transition  to  market rates.  Pursuant to the  legislation,  the
Ohio  Public Utilities Commission issued its Electric  Transition
Rules  and  Consumer Education Plan on November  30,  1999.    In
compliance  with  those rules, Monongahela filed  its  transition
plan  on  January 3, 2000.  The Public Utilities Commission  must
act  on  the plan within 275 days, but no later than October  31,
2000.   In  January  2000,  the Commission  issued  for  comments
Proposed   Rules  on  Electric  Service  and  Safety   Standards,
Certification  of Providers, Minimum Competitive Retail  Electric
Service   Standards,   Market  Monitoring,  Consumer   Education,
Alternative Dispute Resolution, and Long-Term Forecast Reporting.
The  Commission  also established workshops to  address  customer
enrollment    and    switching,    billing    and    collections,
supplier/utility coordination, and data exchange.


<PAGE>

                                  7


                          Pennsylvania

     The   Customer  Choice  Act  in  Pennsylvania  provides  for
customer   choice  of  electric  supplier  and  deregulation   of
generation in a competitive electric supply market. As of January
2, 2000, all electricity customers in Pennsylvania have the right
to  choose  their electric suppliers. Two-thirds  of  all  retail
customers had a choice throughout 1999, the first year of  retail
choice  following  a pilot program.  Over 100 electric  suppliers
have  been  licensed to sell to retail customers in Pennsylvania.
One result of the Customer Choice Act was the bifurcation of West
Penn's electricity supply and electricity delivery functions into
two  separate  businesses.   The  transmission  and  distribution
business remains under the traditional regulated ratemaking.  The
electric supply business operates in the deregulated marketplace.
The  delivery business in Pennsylvania has responsibility as  the
electricity provider of last resort (for those customers of  West
Penn  who  choose  not to select an alternate supplier  or  whose
alternate  supplier does not deliver) and will  generally  obtain
necessary  electric  supply for this function  from  the  market,
including Allegheny Energy Supply.  The electric supply  business
now under Allegheny Energy Supply is free to sell the deregulated
generation,  previously  owned by West  Penn  and  now  owned  by
Allegheny  Energy  Supply, in the wholesale and  retail  markets,
subject to codes of conduct, and subject to the restriction  that
it  may  not, except under certain conditions, sell at retail  in
West Penn's service territory through the year 2003.

                            Virginia

      The Virginia Electric Utility Restructuring Act (the "Act")
was  enacted  in  March 1999, and provides for  a  transition  to
customer  choice  of  electric suppliers for  Virginia  customers
beginning  January 1, 2002, with all Virginia customers  to  have
choice  by January 1, 2004.  The Act generally provides for  rate
caps  from  January  1, 2001 to July 1, 2007,  with  recovery  of
stranded  costs and transition costs during the rate  cap  period
through  capped  rates and a wires charge mechanism.   Supply  of
electric  energy  is generally deregulated effective  January  1,
2002, except as provided in the Act.  The Act requires functional
separation  of generation, retail transmission, and  distribution
by January 1, 2002.  The Act requires the joining or establishing
of  a  regional transmission entity by January 1, 2002  to  which
management  and  control  of  the transmission  system  shall  be
transferred.   The Act established a Legislative Transition  Task
Force  to  serve  through July 1, 2005 generally to  monitor  the
implementation of electric customer choice and to report annually
to  the Governor and General Assembly, making recommendations  as
appropriate for legislative or administrative consideration.

     The  Virginia  State Corporation Commission  (Virginia  SCC)
instituted a proceeding on May 26, 1999, to investigate  regional
transmission  entities  pursuant  to  Virginia  Electric  Utility
Restructuring   Act.    Potomac  Edison  filed   comments.    The
proceeding is ongoing.

       By   Order  dated  December  3,  1998,  the  Virginia  SCC
established a proceeding to adopt interim rules to govern  issues
common  to  both  the  natural


<PAGE>

                                  8

gas and electricity  restructuring
retail access pilot programs ordered in other cases, specifically
the  issues  of certification, code of conduct, and standards  of
conduct  governing relationships among entities participating  in
pilot  programs.  The Task Force created in connection with  this
proceeding  issued  its final report to the Commission  in  March
1999.   Following hearings in May 1999, a Hearing Examiner issued
a report adopting many of the Task Force recommendations but with
some modifications.  New regulations were issued for comment, and
the proceeding is ongoing.

     In December 1999, the Virginia SCC commenced a proceeding to
adopt  regulations  governing a net energy  metering  program  to
begin  no  later  than  July 1, 2000, pursuant  to  the  Virginia
Electric Restructuring Act.  The proceeding is ongoing.

                          West Virginia

     On  December  20,  1999,  the West Virginia  Commission  (WV
Commission)   issued  an  order  accepting  and  modifying    the
Stipulated Plan for Restructuring that was filed on December  13,
1999, by various parties, including Monongahela. The order was in
response  to  the legislation (WV Code Sec. 24-2-18)  enacted  in
1998  directing  the  Commission  to  solicit  public  input  and
determine if public interest would best be served by opening  the
electric  supply  to  market competition.   In  January,  2000  a
revised  plan  was adopted by the WV Commission and submitted  to
the  Legislature.  The Legislature approved the  plan  in  March,
2000  with  implementation  delayed  pending  future  legislative
enactment  of  tax  changes  to  preserve  state  and  local  tax
revenues.   The  WV Commission is conducting further  proceedings
during  2000 in connection with the implementation of this  plan.
See  also the discussion of the West Virginia plan under Item  1.
RATE MATTERS.

                  Allegheny's Competitive Steps

      Over  the past several years Allegheny has taken  steps  to
better  position  itself to participate in  the  new  competitive
markets.  Its most recent effort to position itself competitively
was the creation of Allegheny Energy Supply, an energy supply and
marketing  company, which began operations on November 18,  1999.
Allegheny Energy Supply owns the generation previously  owned  by
West  Penn and by AYP Energy, Inc.  In 2000, it is expected  that
Allegheny  Energy Supply will add the Maryland and West  Virginia
jurisdictional generation currently owned by Potomac  Edison  and
will  add newly developed generation assets created or purchased.
As  additional states move to competition, Allegheny  intends  to
transfer  all  newly deregulated generating assets  to  Allegheny
Energy Supply.  During 1999, Allegheny Energy Unit No. 1 and Unit
No.  2,  LLC, a subsidiary of AE, installed two 44 MW  combustion
turbines.   These  facilities will be  transferred  to  Allegheny
Energy Supply in mid-to-late-2000.  During 2000, Allegheny Energy
Supply  will  also  install five additional  combustion  turbines
totaling 220 MW.  Also, Allegheny Energy Supply is building a 540
MW  combined-cycle generating plant scheduled for  completion  in
2003. The competitive supply operations were profitable in 1999.

      In 1996, Allegheny Ventures (then operating as AYP Capital)
formed  two  nonutility subsidiaries:  AYP Energy  and  Allegheny
Communications Connect.

<PAGE>

                                  9


In addition, in 1997 Allegheny  Ventures
formed Allegheny Energy Solutions.  In 1996, AYP Energy purchased
a  50%  interest (276 MW) in Unit No. 1 of the Ft.  Martin  power
station.  Until  the  second quarter  of  1999,  AYP  Energy  was
actively  marketing  the  output of  that  Unit.   In  1999,  the
interest  in  the  Ft. Martin unit was transferred  to  Allegheny
Energy Supply.

      Merchant  plants  and power marketing  in  the  deregulated
wholesale  or  retail markets are essentially participants  in  a
commodity market, which create certain risk exposures.  The risks
to  which  Allegheny Energy Supply is exposed include  underlying
price volatility, credit risk, and variation in cash flows, among
others.   To  manage these risks, Allegheny has  risk  management
policies  and  procedures, consistent with industry practice  and
its goals.  (See ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--EARNINGS SUMMARY.)

      During   1999,   Allegheny   Ventures  made  investments in
funds  that were established in 1995.  They include an investment
in  EnviroTech  Investment Fund I, L.P. (EnviroTech),  a  limited
partnership formed to invest in emerging electrotechnologies that
promote  the  efficient  use  of  electricity  and  improve   the
environment.   Allegheny Ventures committed to invest  up  to  $5
million   in  EnviroTech  over  10  years,  beginning  in   1995.
Allegheny Ventures also participates in the Latin American Energy
and  Electricity  Fund I, L.P. (FONDELEC), a limited  partnership
formed to invest in and develop electric energy opportunities  in
Latin  America.  Allegheny Ventures committed to invest up to  $5
million in FONDELEC over eight years, beginning in 1995.  Through
FONDELEC,   Allegheny   Ventures   has   invested   in   electric
distribution  companies  in  Peru, Brazil  and  Argentina.   Both
EnviroTech   and   FONDELEC   may   offer   Allegheny    Ventures
opportunities to identify investments in which Allegheny Ventures
may  coinvest in excess of its capital commitment in each limited
partnership.  Allegheny Ventures is also involved in managing the
unused real estate holdings of the Operating Subsidiaries and  in
marketing distributed generation.

                       Telecommunications

      In  1997, ACC formed a limited liability company, Allegheny
Hyperion  Telecommunications, L.L.C with Hyperion  Communications
of   Pennsylvania,   Inc.  (now  Adelphia  Business   Solutions).
Allegheny  Hyperion Telecommunications began  operations  in  the
Altoona  and State College, Pennsylvania, markets in  October  of
1998.   Allegheny Hyperion Telecommunications offers a full range
of telecommunications services, including high-capacity dedicated
telecommunications  services  between  business  and   commercial
locations;  services  connecting business  locations  with  long-
distance carriers; and local telephone service.

     During 1999, ACC expanded its fiber optic network by 350
miles, giving ACC a total of approximately 600 route miles.  In
2000, ACC expects to expand its network by about 1000 additional
route miles, in part through a partnership with Adelphia Business
Solutions.

     ACC also continues to expand its fiber infrastructure by
interconnecting with other fiber optic providers, such as AEP
Communications LLC, First Energy Telecom Corp. and GPU Telecom
Services, Inc.


<PAGE>

                                  10


     ACC recently acquired approximately 10 percent of Genosys
Technology Management, Inc., a network operation center service
provider.  This new alliance will allow ACC to move into emerging
markets such as e-commerce and the internet.

                 PROPOSED MERGER WITH DQE, INC.

     On April 7, 1997, AE and DQE, Inc. (DQE) announced that they
had  entered into an Agreement and Plan of Merger dated April  5,
1997  (Merger Agreement).  The Merger Agreement provided for  the
business  combination of AE and DQE and was contingent  upon  the
approval  of  each company's shareholders and state  and  federal
regulators.  The shareholders of AE and DQE approved the  merger.
Since  then,  the  merger  received  approval  from  the  Nuclear
Regulatory Commission, the Pennsylvania Public Utility Commission
(Pennsylvania  PUC) and the Federal Energy Regulatory  Commission
(FERC).   The Pennsylvania PUC and FERC approvals are subject  to
certain  conditions  that are acceptable  to  AE.   The  Maryland
Public  Service  Commission (Maryland PSC) and  the  Ohio  Public
Utilities Commission (Ohio PUC) also indicated their approval  of
the merger.

     In a letter to AE dated October 5, 1998, DQE stated that it
had decided to unilaterally terminate the merger.  In response,
on October 5, 1998, AE filed a lawsuit in the United States
District Court for the Western District of Pennsylvania against
DQE for specific performance of the Merger Agreement or, in the
alternative, for damages.  On December 3, 1999, after a non-jury
trial, the District Court found that defendant DQE did not breach
the April 5, 1997 Agreement and Plan of Merger.  Accordingly, the
District Court found in favor of DQE and against AE on all claims
and all requests for injunctive relief.  It granted judgment in
favor of defendant DQE and against plaintiff AE.

     On December 14, 1999, AE filed a Motion of Appeal from the
District Court's judgment to the Third Circuit Court of Appeals.
AE's Motion for Expedited Treatment of the Appeal was granted.
Argument on AE's Motion was held before the Court of Appeals on
March 9, 2000.  AE cannot predict the outcome of this appeal.


<PAGE>

                               11

                              SALES

                         Regulated Sales

      In  1999, consolidated regulated kilowatt-hour (kWh)  sales
delivered  to  regular  customers (retail  and  wholesale  power)
increased  2.8%  from those of 1998 as a result of  increases  of
4.8%,  3.8%  and  .9% in residential, commercial  and  industrial
sales,   respectively.  Consolidated  regulated   revenues   from
residential sales increased 5.6%, while commercial and industrial
sales  decreased .2% and 4.4%, respectively. (See  ITEM  1.  RATE
MATTERS  and  ITEM  7. MANAGEMENT'S DISCUSSION  AND  ANALYSIS  OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.)

      Allegheny's all-time peak Control Area Load was 7,788 MW on
July  6, 1999.(Control Area Load refers to the electricity  sales
to  customers  within  the  Allegheny  Power  delivery  territory
without regard to electric generation supplier.  The Control Area
Load  includes Regulated Load.)  The peak Regulated Load in  1999
was  7,394  MW  on July 6, 1999. (Regulated Load  refers  to  the
electricity sales to customers of Allegheny Power (the  Operating
Subsidiaries)  who  have  not selected  an  alternate  generation
supplier. It does not include sales by Allegheny Energy Supply to
nonaffiliated  customers  within  the  Allegheny  Power   service
territory.)

      Consolidated regulated electric operating revenues for 1999
were  derived  as  follows: Pennsylvania, 41.5%;  West  Virginia,
29.6%;   Maryland,  19.8%;  Virginia,  6.3%;   and   Ohio,   2.8%
(residential, 40.9%; commercial, 22.0%; industrial,  31.7%;  bulk
power transactions, 3.1%; and other, 2.3%).

      During  1999,  Monongahela's kWh sales to retail  customers
increased  3.8%.   Residential, commercial, and industrial  sales
increased  4.6%,  2.2%  and  4.1%,  respectively.  Revenues  from
residential, commercial, and industrial customers increased 4.9%,
2.8%, and 4.4%, respectively, primarily due to increased customer
usage  because  of  weather conditions, primarily  colder  winter
weather  in 1999, growth in number of customers, and an  increase
in the fuel and energy cost component of revenues.  Revenues from
bulk  power transactions and sales to affiliates increased  6.4%.
Monongahela's  revenues represented 25.8%  of  Allegheny's  total
regulated sales revenues to regular customers.  Monongahela's all-
time peak load of 1,899 MW occurred on July 6, 1999.

      Monongahela's electric operating revenues were  derived  as
follows:  West  Virginia,  90.5%, and  Ohio,  9.5%  (residential,
31.3%;   commercial,  19.3%;  industrial,   32.3%;   bulk   power
transactions, 2.8%; and other, 14.3%).

      During 1999, Potomac Edison's kWh sales to retail customers
increased 2.6%.  Residential and commercial sales increased  5.5%
and  6.8%,  respectively, while industrial sales decreased  1.4%.
Revenues  from residential, commercial, and industrial  customers
increased  6.9%, 7.3%, and 2.7%, respectively, primarily  due  to
increased customer usage because of weather conditions, primarily
colder winter weather in 1999, growth in the number of customers,
and  to  a lesser extent an increase in the fuel and energy  cost
component of revenues.  Revenues from bulk power transactions and
sales  to  affiliates increased .3%.  Potomac  Edison's  revenues
represented


<PAGE>

                               12

32.7% of Allegheny's total regulated sales  revenues
to  regular  customers.  Potomac Edison's all-time peak  load  of
2,614 MW occurred on January 17, 1997.  The peak load in 1999 was
2,604 MW on July 6, 1999.

     Potomac Edison's electric operating revenues were derived as
follows:  Maryland,  61.2%; West Virginia  19.9%,  and  Virginia,
18.9%; (residential, 43.9%; commercial, 22.4%; industrial, 28.2%;
bulk  power transactions, 3.3%; and other, 2.2%).  Revenues  from
one  industrial  customer, the Eastalco aluminum reduction  plant
near  Frederick,  Maryland, amounted to $62.7  million  (8.3%  of
total  electric operating revenues).  Minimum annual  charges  to
Eastalco  under  an  electric service agreement  which  continues
through  April  1,  2003,  with automatic  extensions  thereafter
unless  terminated on notice by either party, were $15.9  million
in 1999.

      During 1999, West Penn's regulated kWh sales and deliveries
to  retail  customers decreased 4.6%.  Residential sales and
deliveries increased 4.3% while commercial and industrial sales
and deliveries decreased 3.0% and 12.3%,  respectively.  Regulated
revenues  from residential  customers increased 5.0%, while  regulated
revenues from  commercial  and  industrial customers  decreased  7.4%
and  14.1%,  respectively.   The  increase  in  regulated  residential
revenues was due primarily to colder winter weather which led  to
increased  kWh  sales. Despite the ability to  shop  for  another
energy  supplier,  few  of the residential customers  elected  to
choose  another  energy  supplier.  The  decreases  in  regulated
revenues  for  commercial  and  industrial  customers   was   due
primarily to Pennsylvania deregulation, which gave two-thirds  of
West  Penn's  regulated customers the ability to  choose  another
energy  supplier. Regulated revenues from bulk power transactions
and  sales  to affiliates decreased 45.8%. West Penn's  regulated
revenues  represented 41.5% of Allegheny's total regulated  sales
to regular customers. West Penn's all-time peak Control Area Load
of 3,328 MW occurred on July 6, 1999.  The peak Regulated Load in
1999 was 3,038 MW on January 5, 1999.

      West  Penn's  regulated  electric operating  revenues  were
derived  as  follows:  Pennsylvania,  100%  (residential,  39.8%;
commercial,  20.6%;  industrial, 29.7%; bulk power  transactions,
2.9%; and other, 7.0%).

      In  1999, the Operating Subsidiaries provided approximately
0.6   billion  kWh  of  energy  to  nonaffiliated  companies  and
marketers  from generation facilities operated by  the  Operating
Subsidiaries.  Revenues from those sales of generation  from  the
Operating Subsidiaries were approximately $22.5 million.

      The  Operating  Subsidiaries transmitted approximately  8.5
billion  kWh  to others located outside their service territories
under various forms of transmission service agreements.  Revenues
from those sales were about $48.5 million.

     Sales of generation and transmission services to others vary
with  the  needs of those customers for capacity and/or  economic
replacement power; the availability of generating facilities  and
excess power, fuel, and regional transmission facilities; and the
availability and price of competitive sources of power.  Revenues
from  sales  of  power  generated by the  Operating  Subsidiaries
decreased  in  1999  relative to 1998 due to decreased  sales  to


<PAGE>

                               13

brokers and power marketers due to the two-thirds of West  Penn's
freed  up  generation  being  marketed  as  part  of  unregulated
operations.   As  a  result, the regulated operations  have  less
generation available for sale.  Regulated revenues from sales  of
transmission  services  to others by the  Operating  Subsidiaries
increased in 1999 relative to 1998 due to increased megawatthours
transmitted.  Substantially   all of   the benefits  of  power
and transmission services sales to nonaffiliates by the Operating
Subsidiaries,  except  West  Penn,  were  passed  on  to   retail
customers  and,  as  a result, had little effect  on  Monongahela
Power's and Potomac Edison's net income.  Effective May 1,  1997,
West Penn no longer passes these benefits on to retail customers,
and  effective July 1, 2000, Potomac Edison will also  no  longer
pass these benefits to its Maryland customers.

      Pursuant  to  a  peak diversity exchange  arrangement  with
Virginia  Power,  the  Operating  Subsidiaries  annually   supply
Virginia  Power  with 200 MW during each June, July,  and  August
and,   in   return,   Virginia  Power  supplies   the   Operating
Subsidiaries with 200 MW generally during each December, January,
and  February.   Beyond February 2000, no diversity  exchange  is
planned.

      The Operating Subsidiaries had an exchange arrangement with
Duquesne  Light Company (Duquesne) which terminated  in  February
2000.   In  this exchange arrangement, the Operating Subsidiaries
have,  in  the past, supplied Duquesne with up to 200  MW  for  a
specified  number of weeks, generally during each  March,  April,
May,  September, October, and November.  In return, Duquesne  had
supplied  the Operating Subsidiaries with up to 100 MW, generally
during  each  December, January, and February.   Beyond  February
2000,  there are no exchanges contemplated as Duquesne is in  the
process  of selling its generating assets.  The total  number  of
MWh  to be delivered by each utility to the other over the active
term of the arrangement will have been the same.

                        Unregulated Sales

      Unregulated sales revenues, in total, were $887.4  million,
of  which approximately $352.7 million were the result of  energy
sales  to affiliates.  Excluding the effect of affiliated  sales,
unregulated   revenues  represented  19%  of  Allegheny's   total
operating revenues in 1999.

           Regulatory Framework Affecting Power Sales

      The  Energy  Policy  Act  of  1992  (EPACT)  initiated  the
restructuring  of  the  electric utility industry  by  permitting
competition  in  the wholesale generation market.   In  order  to
facilitate the efficient use of generation facilities,  on  April
24,  1996, the FERC issued Orders 888 and 889. On March 4,  1997,
the  FERC  issued Orders 888A and 889A reaffirming and clarifying
the  legal and policy determinations as originally adopted in the
previous  orders.  The FERC also issued Orders 888B and  889B  on
November  25, 1997 in which the Commission presented explanations
and minor revisions to specific sections of the orders.

      The FERC orders require all transmission providers to offer
service to entities selling generation services in a manner  that
is  comparable to their own use of the transmission system.   The
orders  required each transmission provider to file  standardized
open   access   transmission  service  tariffs;


<PAGE>

                               14

therefore,   the
Operating  Subsidiaries  have on file a  pro  forma  open  access
tariff  under  which  they  sell  transmission  services  to  all
eligible  customers. The Operating Subsidiaries, AYP  Energy  and
Allegheny  Energy  Supply also arrange for transmission  services
for  their own sales pursuant to the rates, terms, and conditions
of the open access tariff.  The tariff was accepted for filing by
the  FERC on November 25, 1998.  The Commission's order specified
a  December  6, 1995, effective date and required refunds  to  be
paid on the time value of money based upon the difference between
the   originally  filed  rates  and  those  authorized   by   the
Commission.   The  Operating  Subsidiaries  issued  the  required
refunds in 1999.

       To   meet   the  objective  of  providing  comparable   or
nondiscriminatory transmission services, the FERC orders  further
require   that   utilities  functionally  unbundle   transmission
operations  and  reliability functions  from  wholesale  merchant
functions   within  the  Operating  Subsidiaries.    Accordingly,
Allegheny  formed discrete business units, including  a  delivery
business  unit (inclusive of transmission) and a supply  business
unit.   The  delivery  business unit includes several  sub-units,
including  the  System  Planning  and  Operations  group,   which
provides   transmission   system   operations   and   reliability
functions.    Each   business  unit  has  its   own   management,
objectives,  and facilities.  The Operating Subsidiaries  conduct
their  business  in  a  manner that  is  consistent  with  FERC's
Standards of Conduct.

      The  orders  require  that  all transmission  requests  for
service be made over the Open Access Same Time Information System
(OASIS).   The  OASIS,  an internet-based  nationwide  electronic
network,  became operational on January 3, 1997.   The  Operating
Subsidiaries,  in conjunction with a consortium  of  transmission
providers,  worked to implement a revised version  of  the  OASIS
Standards and Communications Protocols document issued  by  FERC.
OASIS Phase 1A became operational on March 1, 1999.

      The FERC established its jurisdiction over unbundled retail
as   well  as  wholesale  transmission  services  in  Order  888.
Although  states  retain  the authority to  determine  if  retail
wheeling should be adopted, retail transmission service under the
jurisdiction  of  the FERC is available once  these  historically
franchised customers have access to alternate generation sources.
Pennsylvania  enacted legislation authorizing retail  choice  for
customers  as  of  November 1, 1997 (Customer Choice  Act).   The
Operating  Subsidiaries  added Schedule  10--Retail  Transmission
Service to their open access tariff authorizing the sale of  open
access  transmission  services  to  unbundled  retail  customers.
Initially,  the Operating Subsidiaries will provide  transmission
service   to   Pennsylvania's  unbundled  retail  customers   and
eventually to retail customers with choice in Maryland, Virginia,
West Virginia, and Ohio.

     The Operating Subsidiaries also have on file with the FERC a
Standard  Generation  Service  Rate  Schedule  for  the  sale  of
wholesale  power  at  cost-based rates.   In  October  1997,  the
Operating  Subsidiaries submitted a new wholesale tariff  to  the
FERC,  asking for authority to sell power at market-based  rates.
The  Operating  Subsidiaries began selling power at  market-based
rates  upon acceptance of the filing by the FERC in August  1998.
Separately,  a  market-based  rate tariff  for  Allegheny  Energy
Supply was filed and became


<PAGE>

                               15

effective August 15, 1999.  Allegheny
Energy  Supply  started serving customers under  that  tariff  on
November 19, 1999.

      During  1999,  consideration  of  independent  transmission
organizations  grew  to  include a number  of  possibilities  for
resolution  of  the  issue.  In adopting its Order  No.  2000  on
December 20, 1999, the FERC defined requirements for transmission
facility   owners  to  participate  in  some  form  of   regional
transmission organization (RTO).  FERC stated in that order  that
transmission  owners  are expected to join regional  transmission
organizations  on a voluntary basis.  All public  utilities  that
own,  operate, or control interstate transmission are to file  by
October  15,  2000,  a proposal for an RTO or  a  description  of
efforts  made  to  participate  in  one,  the  reasons  for   not
participating, any obstacles to participation, and any plans  for
further  work toward participation.  RTOs will be operational  by
December 15, 2001.  Additionally, the state jurisdictions  within
which  Allegheny operates have, to varying degrees,  begun  their
transition to a competitive marketplace.  In these deliberations,
transmission  has been identified as a key to electricity  market
efficiency.   Allegheny has actively participated in this  debate
and  continues  to  evaluate available  options  to  provide  its
customers  with the most reliable, cost-effective  service  while
maintaining   a   focus  on  the  financial  interests   of   its
shareholders.

      Under PURPA, certain municipalities, businesses and private
developers  have  installed  generating  facilities  at   various
locations  in or near the Operating Subsidiaries' service  areas.
They   sell   electric  capacity  and  energy  to  the  Operating
Subsidiaries  at  rates  consistent with  PURPA  and  ordered  by
appropriate  state  commissions.   As  a  result  of  PURPA,  the
Operating Subsidiaries are committed to purchasing 299 MW of  on-
line  PURPA capacity.  Payments for PURPA capacity and energy  in
1999 totaled approximately $115.2 million, at an average cost  to
the  Operating Subsidiaries of 4.8 cents/kWh, as compared to  the
Operating  Subsidiaries' cost of  2.9 cents/kWh.   An  additional
180  MW  of  PURPA  capacity  (Warrior Run)  became  commercially
available  in  February  2000.  As a result  of  a  restructuring
settlement in Maryland, Warrior Run costs will be recovered  from
customers  by a surcharge over the life of the purchase contract.
The Warrior Run output will be offered into the wholesale market,
beginning  July  1,  2000, and customers will  receive  a  credit
through  the  surcharge for the net revenue  received  from  such
sales.

                       ELECTRIC FACILITIES

      The  following table shows Allegheny's December  31,  1999,
operational  generating capacity based on the  maximum  operating
capacity  of  each  unit.   The  Operating  Subsidiaries'   owned
capacity  totaled  4,451 MW, of which 3,983 MW  (90%)  are  coal-
fired,   462  MW  (10%)  are  pumped-storage,  and   6   MW   are
hydroelectric.   The  term "pumped-storage" refers  to  the  Bath
County  station  which stores energy for use  principally  during
peak  load  hours  by  pumping water from a  lower  to  an  upper
reservoir,   using  the  most  economic  available   electricity,
generally  during  off-peak hours.  During the generating  cycle,
power  is  produced by water falling from the upper to the  lower
reservoir through turbine generators.


<PAGE>

                               16



     Allegheny Energy Supply's owned capacity totaled 4,054 MW of
which  3,492 MW (86%) are coal-fired, 132 MW (3%) are  oil-fired,
378 MW (9%) are pumped-storage, and 52 MW (1%) are hydroelectric.

      Allegheny Energy Unit No. 1 and Unit No. 2, LLC owns 88  MW
of  gas-fired  capacity. It sells its output to Allegheny  Energy
Supply, and the transfer of ownership of these units to Allegheny
Energy Supply is expected in mid-to-late-2000.


<PAGE>

                               17

                                        Allegheny Stations
                           Maximum Generating Capacity (Megawatts) (a)

<TABLE>
<CAPTION>
                                            Regulated                          Unregulated
                                                                                Dates When
                            Station  Monon-  Potomac  West       AE     AEUnit  Service
Station              Units   Total   gahela  Edison   Penn     Supply Nos. 1& 2 Commenced (c)
  <S>                  <C>  <C>       <C>      <C>              <C>              <C>
Coal-fired (steam):
  Albright             3      292     216       76                               1952-4
  Armstrong            2      356                               356              1958-9
  Fort Martin          2    1,113     250      306              557              1967-8
  Harrison             3    1,950     488      639              823              1972-4
  Hatfield's Ferry     3    1,710     470      342              898              1969-71
  Mitchell             1      288                               288              1963
  Pleasants            2    1,266     316      380              570              1979-80
  Rivesville           2      142     142                                        1944-51
  R. Paul Smith        2      115              115                               1947-58
  Willow Island        2      243     243                                        1949-60
Gas-fired
  AE Nos. 1 & 2        2       88                                         88     1999
Oil-fired (steam): (a)
  Mitchell             2      132                               132              1948-49
Pumped-storage and Hydro:
  Bath County          6      840     227(d)   235(d)           378(d)           1985
  Lake Lynn(e)         4       52                                52              1926
  Potomac Edison (e)  21        6                6               __       __     Various
Total Allegheny-owned
  Capacity            57    8,593   2,352    2,099       0    4,054       88

                                PURPA Generation
                   Maximum Generating Capacity (Megawatts) (f)

                                                                                   Contract
                            Project Monon-   Potomac  West       AE     AE Unit    Commencement
Project                      Total  gahela   Edison   Penn     Supply   Nos.1 & 2     Date
Coal-fired: (steam)
AES Beaver Valley             125                      125                            1987
Grant Town                     80      80                                             1993
West Virginia University       50      50                                             1992


Hydro:
Allegheny Lock and Dam 5        6                        6                            1988
Allegheny Lock and Dam 6        7                        7                            1989
Hannibal Lock and Dam          31      31       ___    ___                            1988
Total Other Capacity          299     161       0(g)   138                 _____
Total Allegheny-owned and
  PURPA Committed Generating
  Capacity (a)              8,892   2,513    2,099     138     4,054        88


</TABLE>

<PAGE>

                               18

      (a)   Winter rating.  On December 31, 1994, 82 MW,  and  on
July  1,  1998,  50 MW of the total MW at Mitchell Power  Station
were reactivated.

      (b)   Allegheny Energy Unit No. 1 and Unit No. 2, LLC  owns
100%  of  Units  No.  1  and  No.  2,  recently  constructed   at
Springdale,  PA.   Output from these units is sold  to  Allegheny
Energy  Supply,  and  transfer of ownership  of  these  units  to
Allegheny Energy Supply is expected in mid-to-late-2000.

      (c)   Where  more than one year is listed as a commencement
date  for  a particular source, the dates refer to the  years  in
which  operations  commenced  for the  different  units  at  that
source.

      (d)   Capacity entitlement through ownership of  AGC,  27%,
28%, and 45% by Monongahela, Potomac Edison, and Allegheny Energy
Supply, respectively.

      (e)  Allegheny Energy Supply has a 30-year license for Lake
Lynn,  effective  December 1994.  Potomac  Edison's  license  for
hydroelectric facilities Dam No. 4 and Dam No. 5 will  expire  in
2003.   Potomac  Edison has received 30-year licenses,  effective
January  1994,  for  the Shenandoah, Warren, Luray,  and  Newport
projects.   The FERC accepted Potomac Edison's surrender  of  the
license  for  the  Harper's Ferry Dam No. 3 and issued  an  order
effective October 1994.

      (f)   Generating capacity available through  state  utility
commission-approved arrangements pursuant to PURPA.

      (g)   The  180-MW Warrior Run project commenced  commercial
operation  on  February 10, 2000.  Potomac  Edison,  as  required
under  the  terms of a Maryland settlement, will offer  the  full
output of the Warrior Run project to the market beginning July 1,
2000.


<PAGE

                               19



                          ALLEGHENY MAP

      The  Allegheny  Map (Map), which has been  filed  with  the
Commission on Form SE, provides a broad illustration of the names
and  approximate  locations of Allegheny's major  generation  and
transmission facilities, both existing and under construction, in
a  five  state region which includes portions of Maryland,  Ohio,
Pennsylvania,  Virginia, and West Virginia.  Additionally,  Extra
High  Voltage substations are displayed.  By use of shading,  the
map  also provides a general representation of the service  areas
of Monongahela (both gas and electric) (portions of West Virginia
and  Ohio),  Potomac Edison (portions of Maryland, Virginia,  and
West Virginia), and West Penn (portions of Pennsylvania).

      Power  Stations  shown on the map which appear  within  the
Monongahela service area are Willow Island, Pleasants,  Harrison,
Rivesville, Albright, and Fort Martin.  The single power  station
appearing  within  the Potomac Edison service  area  is  R.  Paul
Smith.   The  Bath County Power Station appears on the  map  just
south of the westernmost portion of Potomac Edison's service area
formed  by  the  borders of Virginia and  West  Virginia.   Power
stations  appearing  within  the  West  Penn  service  area   are
Armstrong,  Mitchell,  Hatfield's  Ferry,  Springdale,  Allegheny
Energy Unit No. 1 and Unit No. 2 and Lake Lynn.

      The map also depicts transmission facilities, which are (i)
owned  solely  by the Operating Subsidiaries; (ii) owned  by  the
Operating  Subsidiaries in conjunction with other  utilities;  or
(iii)   owned   solely  by  other  utilities.  The   transmission
facilities  portrayed range in voltage from 138  kV  to  765  kV.
Additionally,   interconnections   with   other   utilities   are
displayed.


<PAGE>

                               20

The following table sets forth the existing miles of tower and
pole  transmission and distribution lines and  the  number  of
substations  of  the  Operating Subsidiaries  and  AGC  as  of
December 31, 1999:

             Miles of Above-Ground Transmission and
        Distribution Lines (a) and Number of Substations

                                                          Number of
                                  Portion of Total     Transmission and
                      Total      Miles Representing      Distribution
                      Miles    500-Kilovolt (kV) Lines   Substations

Monongahela         21,035              283                   331
Potomac Edison      18,135              202                   276
West Penn           24,102              273                   709
AGC(b)                  85               85                     1
Total               63,357              843                 1,317


(a)  The Operating Subsidiaries also have a total of 6,412 miles
     of underground distribution lines.

(b)  Total Bath County transmission lines, of which AGC owns an
     undivided 40% interest and Virginia Power owns the remainder.

	The Operating Subsidiaries' transmission network has 12 extra-high-
voltage (EHV - 345kV and above) and 31 lower-voltage interconnections
with neighboring utility systems.  The interregional EHV transmission
system, which includes the Operating Subsidiaries' network, continued in
1999 to operate near reliability limits during periods of heavy power
flows that in the past have had a predominantly west-to-east orientation.
In early 1997, NERC undertook the development of a national transmission
security process. The Operating Subsidiaries serve as one of 22 regional
Security Coordinators.  This security process includes a Transmission
Loading Relief (TLR) procedure that identifies actual flow path
consequences of all power transactions, and can be used to reduce loading
on the congested facilities.  The new security process has provided a
better exchange of operation planning information.  It also has allowed
more accurate evaluation of the transmission system and conditions in the
Midwest that occasionally caused the predominant west-to-east power flow
pattern across the Operating Subsidiaries' network to reverse.  The TLR
procedure has been effective in addressing congestion caused by parallel
path flows.  Careful use of TLR, mainly by others, has resulted in fewer
constraints on the Operating Subsidiaries' transmission facilities.  If
TLR had not been available, many of those transmission congestion events
would have required action in the form of transmission service curtailments.


      Wholesale  generators and other wholesale customers  may
now  seek from owners of bulk power transmission facilities  a
commitment  to  supply transmission services. (See  discussion
under  ITEM  1.  SALES. Regulatory Framework  Affecting  Power
Sales)    Such   demand   on   the   Operating   Subsidiaries'
transmission  facilities may add to heavy power flows  on  the
Operating Subsidiaries' facilities and may eventually  require
construction of additional transmission facilities.

      The  Operating  Subsidiaries have, since the  early  1980s,
provided   managed  contractual  access  to  their   transmission
facilities under various


<PAGE>

                               21

tariffs.  For new agreements starting in
1996,  managed access is also governed by the provisions  of  the
Operating Subsidiaries' Open Access Transmission Tariff  mandated
by and filed with the FERC.

                    RESEARCH AND DEVELOPMENT

     The Operating Subsidiaries spent $7.8 million, $7.9 million,
and  $7.4  million,  in  1999, 1998 and 1997,  respectively,  for
research programs.  Of these amounts, $5.6 million, $5.5  million
and  $5.7  million  were  for Electric Power  Research  Institute
(EPRI)  dues  in 1999, 1998 and 1997 respectively.   EPRI  is  an
industry-sponsored  research  and development  institution.   The
Operating  Subsidiaries plan to spend approximately $7.1  million
for research in 2000, with EPRI dues representing $4.9 million of
that total.

      In addition to EPRI support, in-house research conducted by
Allegheny  concentrated  on  technology  based  issues  that  are
important developments for each of Allegheny's businesses.  These
technology   drivers   include   products   and   services    for
environmental   control,  generating  unit  performance,   future
generation  technologies,  use  of coal  combustion  by-products,
transmission system performance, customer-related research, clean
power technology which includes both power quality technology and
distributed generation technology for customers, delivery systems
equipment and sustainable energy technologies.

     Research is also being directed to help address major issues
for  Allegheny  and the entire electric industry.  These  include
electric and magnetic field (EMF) assessment of employee exposure
within  the work environment, Global Warming from Greenhouse  Gas
emissions, waste disposal and discharges to land, water  and  air
resources,   renewable  resources,  fuel  cells,  new  combustion
turbines,   cogeneration   technologies,   transmission   loading
mitigation using Flexible AC Transmission System (FACTS)  devices
and new product development ventures.

               CAPITAL REQUIREMENTS AND FINANCING

      Construction expenditures by the Operating  Subsidiaries
and  AGC  in  1999  amounted to $266.1 million.   Construction
expenditures  for  2000  and 2001 are  expected  to  aggregate
$213.0 million and $190.0 million, respectively.  Construction
expenditures  by  Allegheny  Ventures  and  Allegheny   Energy
Supply, wholly owned nonutility (unregulated) subsidiaries  of
AE,  in 1999 amounted to $141.4 million and for 2000 and  2001
are  expected to aggregate $205.9 million, and $240.9 million.
The  2000  and  2001 estimated regulated expenditures  include
$40.0  million and $72.0 million, respectively, to  cover  the
costs of compliance with the CAAA.  Expenditures to cover  the
costs  of  compliance  with the CAAA and  other  environmental
requirements  have  been  and are likely  to  continue  to  be
significant.  Additionally, new environmental initiatives (See
ITEM  1.  ENVIRONMENTAL  MATTERS) may  substantially  increase
Allegheny's construction requirements as early as 2000.

       Allegheny   Energy  Supply  is  purchasing   additional
combustion  turbines  that will add 200  MW  in  2000.   Also,
Allegheny  Energy  Supply is building a 540-MW  combined-cycle
generating plant at the Springdale Borough site at a


<PAGE>

                               22

cost  of
$235  million.   The new facility will include  two  gas-fired
combustion turbines and a steam turbine.  All are expected  to
be  operational and providing power for sale into  competitive
markets in 2003.

     On October 27, 1998, the EPA finalized rules for reducing
ground  level ozone.  The EPA is requiring 22 states  and  the
District  of  Columbia  to  submit revisions  to  their  state
implementation   plans  (SIPs)  that  address   the   regional
transport of ozone  The intent of the EPA NOx SIP call rule is
to reduce NOx emissions from power plants, on average, to 0.15
pounds  of  NOx  per million BTU (MBTU). As part  of  the  SIP
submittal  process, all of the states served by Allegheny  are
required   to   develop  regulations  to  obtain   these   NOx
reductions.  Although Allegheny has joined with other  parties
to  contest the EPA's actions in court, it is also formulating
plans to comply by making modifications to existing generating
units.  The  cost  to  comply will be about  $370  million  of
capital  investments, to be spent during the 1999-2003 period.
Of  this  amount, about $12 million was spent in 1999.   Under
the   EPA's  plan,  Allegheny  would  be  required  to  reduce
emissions to the 0.15 pounds per MBTU requirement by May 2003.
On  March  3,  2000 the DC Circuit Court of Appeals  issued  a
decision  in support of the EPA's NOx SIP call rule.  However,
an appeal of that decision is likely.


<PAGE>

                               23


                    Construction Expenditures


                                    1999       2000      2001
                                         Millions of Dollars
                                    (Actual)       (Estimated)
Monongahela
Generation                         $  28.9  $  33.6    $  31.8
Transmission & Distribution           53.5     41.4       40.6
Total*                             $  82.4  $  75.0    $  72.4

Potomac Edison
Generation                         $  36.7  $  36.6    $  16.3
Transmission & Distribution           55.0     51.4       55.7
  Total*                           $  91.7  $  88.0    $  72.0

West Penn
Generation                         $  16.3  $   0.0    $   0.0
Transmission & Distribution           69.9     46.7       43.3
  Total*                           $  86.2  $  46.7    $  43.3


AGC & AESC                         $   5.8  $   3.3    $   2.3

Total Construction Expenditures,
  Regulated                        $ 266.1  $ 213.0    $ 190.0

West Penn, Unregulated Energy
  Supply Division                     28.0      0.0        0.0

Other*                             $ 113.4  $ 205.9    $ 240.9

Total Construction Expenditures
  Unregulated                      $ 141.4  $ 205.9    $ 240.9

Total Construction Expenditures    $ 407.5**$ 418.9    $ 430.9



  *Includes  allowance  for funds used  during  construction
(AFUDC),  or  capitalized  interest  in  the  case  of   the
generation  business  of  West  Penn  and  Allegheny  Energy
Supply,  for  1999,  2000, and 2001 of:   Monongahela  $1.8,
$0.9,  and  $1.2; Potomac Edison $2.0, $1.0, and $1.3;  West
Penn  $2.9,  $0.3,  and  $0.4; and Allegheny  Energy  Supply
$0.2, 5.6, and 6.0.

**Excludes $5.9 million of capital investments made by Allegheny
Ventures.


<PAGE>

                               24

       These  capital  expenditures  include  major  projects  at
existing  generating stations, upgrading distribution  lines  and
substations,  and  the  strengthening  of  the  transmission  and
subtransmission systems.

     Expenditures for 1999, 2000, and 2001 include $79.2 million,
$114.5   million,   and   $135.7   million,   respectively,   for
construction  of environmental control technology.   Outages  for
construction, CAAA compliance, and other environmental  work  is,
and  will continue to be, coordinated with other planned outages,
where possible.

      Allegheny  continues  to  study ways  to  reduce  and  meet
existing regulated customer generation service demand and  future
increases  in  that demand, including new and efficient  electric
technologies;  construction  of  various  types  and   sizes   of
generating  units; increasing the efficiency and availability  of
Allegheny generating facilities; reducing internal electrical use
and  transmission  and distribution losses;  and  acquisition  of
energy  and  capacity from third-party suppliers. The  advent  of
retail choice of generation service supplier is expected to  have
a  significant effect on regulated generation service load growth
and  the  Operating Subsidiaries' obligation to  meet  such  load
growth.

      Current  forecasts, which assume normal weather conditions,
project  average annual winter and summer peak load growth  rates
for   the  regulated  load  of  Allegheny  of  0.47%  and   0.4%,
respectively, in the period 2000-2010.  Equivalent  Control  Area
growth  rates  are 1.3% and 1.5%, respectively.  Competition  for
existing   loads  could  have  a  substantial  effect  on   those
projections.    It   is  anticipated  that  existing   resources,
purchased  power arrangements, reactivation of existing capacity,
the construction or lease of new generating facilities and/or the
acquisition of capacity will be sufficient for Allegheny's future
needs.

     In connection with its construction programs, Allegheny must
make estimates of the availability and cost of capital as well as
the  future demands of its customers that are necessarily subject
to  regional,  national and international developments,  changing
business  conditions,  and other factors.   The  construction  of
facilities  and their cost are affected by laws and  regulations;
lead times in manufacturing; availability of labor, materials and
supplies;   inflation;  interest  rates;  and  licensing,   rate,
environmental,   and   other   proceedings   before    regulatory
authorities.  Decisions regarding construction of facilities must
now  also  take into account retail competition.   As  a  result,
future  plans of Allegheny are subject to continuing  review  and
substantial change.

                       Financing Programs

      In  April  1999, Monongahela, Potomac Edison and West  Penn
issued   $7.7   million,  $9.3  million,   and   $13.8   million,
respectively,  of  30-year  Pollution Control  Revenue  Notes  to
Pleasants  County,  West Virginia.  Pleasants  County,  in  turn,
issued  $30.8 million of 30-year Pollution Control Revenue  Bonds
at 5-1/2% interest due April 1, 2029.


<PAGE>

                               25


      In  June  1999,  West Penn issued an $84 million  Unsecured
Medium-Term Note at 6.375%, due June 1, 2004.  In December  1999,
Monongahela issued a $110 million Unsecured Medium-Term  Note  at
7.36% interest, due January 15, 2010.

      In  July  1999,  West  Penn  redeemed  $39.708  million  of
Cumulative  Preferred  Stock and $40 million  of  Market  Auction
Preferred  Stock.   In  September 1999, Potomac  Edison  redeemed
$16.378  million  of Cumulative Preferred Stock.   These  actions
were  taken to permit the removal of charter restrictions on  the
issuance  of  unsecured debt.  West Penn thereafter  amended  its
charter in its entirety to remove unsecured debt restrictions and
to  modernize its charter.  Potomac Edison will amend its charter
in   its   entirety  in  2000  to  also  remove  unsecured   debt
restrictions and to modernize its charter.

      West  Penn  issued  $600  million of  transition  bonds  in
November 1999, in accordance with its restructuring settlement in
Pennsylvania.  The transition bonds were issued in four  tranches
with  an  average  yield  of  6.887%.   The  proceeds  were  used
primarily  to  retire  all of West Penn's  first  mortgage  bonds
either  through  open market purchases or a par call.   Following
this  retirement,  West Penn cancelled its  First  Mortgage  Bond
Indenture dated March 1, 1916.  The transition bonds were  issued
by  a  special  purpose subsidiary and are non-recourse  to  West
Penn.   The transition bonds do not affect the general credit  of
West  Penn  since  the  transition  bonds  are  secured  by   the
collection  of Intangible Transition Property (ITP) as authorized
by  the  Pennsylvania Customer Choice Act.  The transition  bonds
issued  by  a  subsidiary  of  West  Penn  have  received  a  AAA
equivalent  credit rating, separate from the other debt  of  West
Penn.

      On  October  1,  1999, AYP Energy  made a prepayment  to  a
Credit  Agreement between AYP Energy, Inc. and Mellon Bank,  N.A.
and  the Lending Parties thereto, reducing the amount of  a  term
loan,  a debt obligation, from $160 million to $130 million.   On
December  7,  1999, this reduced debt obligation was  assumed  by
Allegheny  Energy Supply when the related assets were transferred
to Allegheny Energy Supply.

      During  2000,  Monongahela, Potomac Edison, West  Penn  and
Allegheny   Energy  Supply  anticipate  meeting   their   capital
requirements through a combination of internally generated funds,
cash  on  hand,  issuance  of debt, and short-term  borrowing  as
necessary.

     In the future AE will retain more earnings than its historic
norm to fund the costs of sustaining increased income growth.

      The  Operating  Subsidiaries and AGC  have  financed  their
construction  programs through internally generated funds,  first
mortgage bonds, debentures, medium-term notes, subordinated  debt
and  preferred  stock issues, pollution control and  solid  waste
disposal  notes, installment loans, long-term lease arrangements,
equity  investments by AE (or, in the case of AGC, by its  parent
companies, and, where necessary, interim short-term debt).  Their
future  ability to finance their construction programs  by  these
means  depends on many factors, including effects of  competition
and   creditworthiness,   and  adequate   revenues   to   produce
satisfactory internally generated funds and


<PAGE>

                               26

 return on the  common
equity  portion of the Operating Subsidiaries' capital structures
and to support their issuance of senior and other securities.  AE
obtained funds for equity investments in its subsidiaries through
retained  earnings and the issuance and sale of its common  stock
publicly.   Allegheny Energy Supply has financed its construction
program  through  internally generated funds, equity  investments
and loans from AE.

      Beginning  in  the third quarter of 1997, AE  began  buying
shares in the open market for its Dividend Reinvestment and Stock
Purchase Plan and its Employee Stock Ownership and Savings  Plan,
and  in  1998 AE began buying shares in the open market  for  the
Performance  Share Plan.  In addition, in 1999, AE repurchased  a
total of 12 million shares of its common stock in the open market
at  a  cost  of $398.4 million.  The 12 million shares are  being
held as treasury stock.

      At  December 31, 1999, system companies had short-term debt
of $641.1 million outstanding and short-term investments of $44.8
million  for  a net short-term borrowing of $596.3 million.   The
borrowing  positions of the individual companies were: AE  $641.1
million,  AGC  $52.2  million,  Monongahela  $28.7  million,  and
Allegheny  Energy  Supply $21.2 million.  At December  31,  1999,
Potomac Edison had $31.4 million invested and West Penn had $13.4
million invested.

      The Operating Subsidiaries' and AGC's ratios of earnings to
fixed  charges  for  the year ended December 31,  1999,  were  as
follows:   Monongahela, 4.69; Potomac Edison,  4.05;  West  Penn,
3.86; and AGC, 3.37.

       Allegheny's  consolidated  capitalization  ratios  as   of
December  31, 1999, were: common equity, 42.1%; preferred  stock,
1.9%; and long-term debt, 56.0%, including Quarterly Income  Debt
Securities 3.9%.

                           FUEL SUPPLY

     Allegheny stations burned approximately 17.7 million tons of
coal  in 1999.  Of that amount, 52% was used in stations equipped
with  scrubbers  (9.3 million tons).  The use of  desulfurization
equipment  and  the  cleaning and blending of coal  make  burning
local higher-sulfur coal practical.  In 1999, almost 100% of  the
coal  received at Allegheny-operated stations came from mines  in
West  Virginia, Pennsylvania, Maryland, and Ohio.  Allegheny does
not  mine or clean any coal.  All raw, clean, or washed  coal  is
purchased  from  various suppliers as necessary to  meet  station
requirements.

     Long-term arrangements (term of 12 months or greater) are in
effect to provide for approximately 15.9 million tons of coal  in
2000.   The  Operating Subsidiaries and Allegheny  Energy  Supply
will  depend  on short-term arrangements and spot  purchases  for
their  remaining requirements.  Through the year 2005, the  total
coal  requirements  of  present Allegheny-operated  stations  are
expected to be met with coal acquired under existing contracts or
from known suppliers.

      For  each of the years 1995 through 1998, the average  cost
per  ton  of coal burned was $32.68, $32.25, $32.66, and  $32.26,
respectively.  For the year 1999, the cost per ton  decreased  to
$30.18.


<PAGE>

                               27

      Long-term  arrangements, subject to price  change,  are  in
effect and will provide for the lime requirements of scrubbers at
Allegheny's scrubbed stations.

      The  Operating Subsidiaries own coal reserves estimated  to
contain  about 125 million tons of higher sulfur coal recoverable
by  deep  mining.   There  are no present  plans  to  mine  these
reserves  and,  in view of economic conditions now prevailing  in
the  coal  market, the Operating Subsidiaries plan  to  hold  the
reserves as a long-term resource.

                          RATE MATTERS

Customer Choice

     All  of  the states the Operating Subsidiaries serve are  at
various stages of implementation of programs that allow customers
to choose their electric supplier.

     Pennsylvania is furthest along with a retail customer-choice
program  in  place.   West  Penn  is  currently  implementing   a
settlement  agreement (approved by the PA  PUC  on  November  19,
1998)   to   create   competition  for  electricity   supply   in
Pennsylvania.   In January 1999, 66% of each customer  class  was
eligible to choose their electric supplier.  In January 2000, all
electric  customers  became eligible to participate  in  Customer
Choice.  The settlement agreement provided for a rate refund from
1998  revenue  (about  $25  million) via  a  2.5%  rate  decrease
throughout  1999,  capped rate provisions  and  authorization  to
issue bonds to securitize up to $670 million in transition costs.
On  November 16, 1999, a special purpose subsidiary of West  Penn
completed  the sale of $600 million in transition  bonds.   After
deducting  issuing costs and other recoverable  costs,  the  bond
proceeds recovered approximately $597 million of West Penn's $670
million  of  authorized transition costs.  The  other  transition
costs either were already collected in 1999, or will be recovered
over a period extending through 2008.  The agreement also allowed
the transfer of West Penn's generation assets at book value to an
unregulated generating company, Allegheny Energy Supply  Company,
LLC, which transfer occurred on November 18, 1999.

     Potomac  Edison filed a settlement agreement  (covering  its
stranded   cost   quantification  mechanism,   price   protection
mechanism,  and  unbundled  rates)  with  the  Maryland  PSC   on
September  23,  1999.   On December 23, 1999,  the  Maryland  PSC
issued an order approving the settlement agreement which includes
the  following provisions:  The ability for nearly  all  Maryland
customers  to have the option of choosing an electric  generation
supplier   starting  July  1,  2000;  authorization  to  transfer
generating  assets to a non-regulated corporate  entity  at  book
value on July 1, 2000; a reduction in base rates of 7 percent for
residential customers from 2002 through 2008 ($10.4 million  each
year, totaling $72.8 million); a reduction in base rates of  one-
half of one percent for the majority of commercial and industrial
customers  from  2002  through  2008  ($1.5  million  each  year,
totaling   $10.5  million);  a  cap  on  generation   rates   for
residential  customers from 2002 through  2008;  a  cap  on  non-
residential  generation rates from 2002 through 2004;  a  cap  on
transmission and distribution rates for all customers  from  2002
through 2004;


<PAGE>

                               28


recovery of all purchased power costs incurred as a
result  of Potomac Edison's contract to buy generation  from  the
AES  Warrior Run PURPA project; and the establishment of  a  fund
for the development and use of energy-efficient technologies.

     In  June  and  July  1999, Monongahela and other  interested
parties filed testimony on issues identified by the West Virginia
PSC   related   to  its  investigation  into  electric   industry
restructuring.   Following  hearings in  August  1999,  the  West
Virginia  PSC  issued an order directing parties to  meet  in  an
effort to develop a consensus plan for electric restructuring  in
West  Virginia.  A Plan for Restructuring was filed  on  December
13,  1999 by various parties, including Monongahela.  On December
20,  1999, the West Virginia PSC issued an order proposing a plan
for  restructuring,  similar to the plan submitted  to  the  West
Virginia  PSC.   The  Commission held hearings  on  the  plan  in
January  2000 to receive input as to whether the plan  should  be
submitted  to  the  Legislature for  consideration  in  the  2000
Legislative session.  On January 28, 2000, the West Virginia  PSC
issued  an  order approving a revised plan, filed by the  parties
that filed the December plan, as well as additional parties.  The
revised  plan was submitted to the West Virginia Legislature  and
was  approved,  with  implementation delayed  until  certain  tax
changes are enacted b the Legislature relating to preservation of
state  and  local  tax revenue and adoption  of  an  implementing
resolution by the Legislature..  Components of the plan include a
10-year transition to customer choice, beginning after January 1,
2001  upon  enactment  of the tax changes  and  adoption  of  the
implementing resolution.  The approved plan would deregulate  the
generation component and includes provisions for unbundled rates,
rate caps in the earlier years with transition to market rates by
year  eleven,  establishment  of a  Rate  Stabilization  Deferral
Account  for  residential and small commercial  customers,  three
percent  rate  reduction  for  large  commercial  and  industrial
customers,  establishment  of  default  service  providers,   and
protections  for  low-income customers.  The approved  plan  also
allows   Potomac   Edison   to   transfer   its   West   Virginia
jurisdictional assets to an affiliate at book value on  or  after
July  1, 2000.  The 2000 session of the Legislature adjourned  on
March   11,  2000  without  consideration  of  the  tax   matters
referenced above.

     On  July  6,  1999,  legislation deregulating  the  electric
utility  industry  in Ohio was signed by the governor.   The  law
permits  all  Ohio  customers to begin shopping  for  electricity
generation  starting  January 1, 2001.  As required,  Monongahela
filed its transition plan with the Public Utilities Commission of
Ohio  on  January  3,  2000, describing the  operational  changes
necessary to comply with the new law and seeking $21.3 million in
transition  costs.  The Commission is required  to  rule  on  the
plans by October 31, 2000.

     The  Virginia Electric Utility Restructuring Act was  signed
on  March 25, 1999, effective July 1, 1999.  Potomac Edison  does
not  plan  to  conduct a pilot in Virginia due to the  experience
gained  in  Pennsylvania.   Potomac Edison  will  begin  offering
Customer Choice to Virginia customers (except those with  special
contracts) in 2002.


<PAGE>

                               29


Fuel Cost Adjustments

     Currently, the states of Maryland, Virginia, West  Virginia,
and  Ohio use fuel clause procedures to recognize changes in fuel
and  other  energy  costs in rates.  In Pennsylvania,  the  risks
associated  with fuel and other generation-related expenses  have
been   transferred   to  Allegheny  Energy  Supply.    As   other
jurisdictions  move  to  competition  and  assets  are  moved  to
Allegheny  Energy  Supply, all generation-related  expenses  will
also  be  borne  by Allegheny Energy Supply.  The  procedures  in
Maryland,  Virginia,  West Virginia and  Ohio  currently  use  an
expedited proceeding which permits energy costs to be adjusted on
a  more  timely  basis  than  other costs.   Differences  between
revenues  received for energy costs and actual energy  costs  are
deferred until the next proceeding when energy rates are adjusted
to  return or recover previous overrecoveries or underrecoveries,
respectively.  This procedure minimizes the effect on net  income
associated with changes in energy costs. Under the terms  of  the
Potomac Edison settlement agreement approved by the Maryland  PSC
on  December  23, 1999, the use of a fuel clause will  cease  for
Potomac  Edison's Maryland jurisdiction effective July  1,  2000.
As  the  remaining  states implement Customer  Choice,  Allegheny
expects  that these fuel clause procedures will no longer  be  in
effect, since the fuel rate will be rolled into the non-regulated
generation  rate.   Consequently, as is  currently  the  case  in
Pennsylvania, risks associated with fuel, other energy costs  and
all  other generation-related expenses will be borne by Allegheny
Energy Supply.

     On  February 26, 1999, the West Virginia PSC issued an order
establishing cases for Potomac Edison and Monongahela for  review
of fuel costs for the purpose of establishing a fuel increment in
rates  to  be effective July 1, 1999 through June 30,  2000.   In
June  1999, the WV PSC approved a joint stipulation and agreement
between  Potomac  Edison  and Monongahela  and  the  intervenors.
Under  the agreement, the parties are to negotiate further in  an
effort to more closely align Potomac Edison and Monongahela  West
Virginia  rate schedules and to petition to reopen this  case  if
they  are  successful.   The  parties  have  agreed  to  continue
negotiations  until  March  15, 2000  in  an  attempt  to  submit
proposed rates to the Commission.

     On  November 8, 1999, Potomac Edison filed with the Maryland
PSC a request to decrease the fuel portion of Maryland customers'
bills by about $6.4 million annually.  The requested decrease  is
primarily  due  to greater efficiencies, lower  fuel  costs,  and
increased  nonaffiliated generation and transmission sales.   The
proposed  rates  became effective, subject to  refund,  with  the
billing  month of December 1999.  A hearing was held on  December
21,  1999.  On February 18, 2000, the hearing examiner issued his
proposed order which approves the fuel rate decrease.  This order
will  become final on March 21, 2000 unless appealed by any party
or modified by the Maryland PSC.

     Fuel  proceedings  before the Ohio PUC  require  a  mid-term
filing,  financial audit, management performance  audit,  and  an
annual  filing.  The Ohio PUC issued an order setting a new  fuel
rate,  representing  a  6%  decrease  for  Monongahela  from  the
previous rate, for the six-month period beginning August 1, 1999.
On  January 20, 2000, the Ohio PUC issued an order setting a


<PAGE>

                               30

new fuel rate, representing a 12.2% decrease for Monongahela from
the previous  rate, for the six-month period beginning February 1,
2000.

     On  January 15, 1999, Potomac Edison filed with the Virginia
SCC  for  a  decrease  in fuel rates of $2.2  million  to  become
effective  March 9, 1999.  The decrease is primarily due  to  the
refunding of a prior overrecovery of fuel costs, coupled  with  a
small  decrease in projected energy costs.  On February 25, 1999,
the Virginia SCC approved the decrease.

Base Rate Adjustments

     Potomac  Edison  and the Virginia Commission  Staff  entered
into  discussions  which  resulted in a settlement  agreement  of
Potomac  Edison's  Annual Informational Filing  (AIF)  which  the
Virginia  SCC  approved May 21, 1999.  Effective  June  1,  1999,
Potomac Edison reduced base rates by $3.0 million annually.   The
return  on equity (ROE) range was maintained at 11-12%  with  the
computed ROE, after adjustments, of 11.18%.

     Effective with bills rendered on or after January  7,  2000,
there  will  be  an  increase in the Maryland base  rates.   This
increase is a result of the phase-in of the rate increase of  $13
million approved by the Maryland PSC on October 27, 1998  and  an
increase of $880,000 due to a state tax law reform passed in 1999
to  facilitate the transition to Customer Choice.   A  settlement
agreement,   which  includes  recognition  and  dollar-for-dollar
recovery  of  costs  to be incurred from the  Warrior  Run  PURPA
project,  was filed with the Maryland PSC on July 30,  1998,  and
approved by that Commission on October 27, 1998.  Rates  to  each
customer class were approved by the Maryland PSC on December  22,
1998.   Under  the  terms of the agreement, Potomac  Edison  will
increase  its rates about 4% ($13 million) in each of  the  years
1999,  2000,  and  2001 (a $79 million total revenue increase
during 1999 through 2001).  The increases are designed to recover
additional  costs  of about $131 million, over the  period  1999-
2001, for capacity purchases from the Warrior Run project net  of
alleged  overearnings of $52 million for the  same  period.   The
agreement also requires that Potomac Edison share 50% of earnings
above an 11.4% return on equity with customers for 1999 and 2000.
Any sharing of earnings required for 1999 will be reflected as  a
credit on customers' bills starting in May 2000.

Other Rate Matters

     On  September  24,  1999, Monongahela and UtiliCorp  United,
Inc.,  through  its  divisions,  West  Virginia  Power  and  West
Virginia  Power  Gas  Service, jointly petitioned  for  the  West
Virginia PSC's permission for Monongahela to buy the assets of WV
Power  and  WV  Power Gas Service for approximately $95  million.
The   transaction  includes  a  20-year  gas  supply   agreement.
Consumers will benefit from a six-year freeze of natural gas base
rates and a three-year freeze on electric rates, with a reduction
in  electric  rates in 2003 to rates now offered by  Monongahela.
The  purchase  was  approved  by the  West  Virginia  PSC,  FERC,
Department   of   Justice/Federal   Trade   Commission,   Federal
Communications  Commission, Iowa Public Service  Commission,  and
the  Securities  and  Exchange Commission.   Monongahela  assumed
ownership of these assets on December 31, 1999.


<PAGE>

                               31


     On  December  20, 1999, Monongahela announced  its  plan  to
acquire   Mountaineer   Gas  Company,  a   natural   gas   sales,
transportation,  and distribution company serving  southern  West
Virginia  and  the  northern  and  eastern  panhandles  of   West
Virginia.   The  acquisition  also includes  the  assets  of  its
subsidiary, Mountaineer Gas Services, which operates natural gas-
producing  properties, gas-gathering facilities,  and  intrastate
transmission  pipelines.  The completion  of  this  $323  million
purchase  is conditioned upon, among other things, the  approvals
of  the  West  Virginia  PSC  and  the  Securities  and  Exchange
Commission.   The  regulatory procedures are  anticipated  to  be
completed in approximately six months.

                      ENVIRONMENTAL MATTERS

      The operations of the Allegheny-owned facilities, including
generating  stations, are subject to regulation  as  to  air  and
water  quality,  hazardous and solid waste  disposal,  and  other
environmental  matters  by  various  federal,  state,  and  local
authorities.  The generating units now owned by Allegheny  Energy
Supply are subject to the same environmental regulations as other
units owned by the Operating Subsidiaries.

      Meeting known environmental standards is estimated to  cost
the Operating Subsidiaries and Allegheny Energy Supply about $358
million  in construction expenditures over the next three  years.
Additional  legislation or regulatory control  requirements  have
been   proposed   and,   if  enacted,  will  require   modifying,
supplementing,  or  replacing equipment at existing  stations  at
substantial additional cost.

                          Air Standards

       Allegheny  currently  meets  applicable  standards  as  to
particulate  and  opacity  at its power  stations  through  high-
efficiency  electrostatic precipitators, cleaned  coal,  flue-gas
conditioning, and, at times, reduction of output.  From  time  to
time,  minor  excursions  of  opacity,  normal  to  fossil   fuel
operations,   are  experienced  and  are  accommodated   by   the
regulatory process.

      Allegheny  meets current emission standards as  to  sulphur
dioxide  (SO2) by the use of scrubbers, the burning of low-sulfur
coal,  the purchase of cleaned coal to lower the sulfur  content,
and the blending of low-sulfur with higher sulfur coal.

      The  CAAA, among other things, requires an annual reduction
in total utility emissions within the United States of 10 million
tons  of  SO2  and  two million tons of NOx  from  1980  emission
levels,  to  be  completed in two phases, Phase I and  Phase  II.
Five  coal-fired Allegheny plants were affected in Phase  I,  and
the  remaining plants are affected in Phase II.  Installation  of
scrubbers  at  the  Harrison  Power  Station  was  the   strategy
undertaken  by  Allegheny  to  meet  the  required  SO2  emission
reductions for Phase I (1995-1999). Allegheny estimates that  its
banked emission allowances will allow it to comply with Phase  II
SO2  limits  through  2005.  Studies to  evaluate  cost-effective
options to comply with Phase II SO2 limits beyond 2005, including
those available in connection with the emission allowance trading
market, are continuing.  It is expected that burner modifications
at  most of the


<PAGE>

                               11

Allegheny-operated stations will satisfy the  NOx
emission  reduction  requirements for the acid  rain  (Title  IV)
provisions  of the CAAA.  Additional NOx reductions,  which  will
require  some  Selective  Catalytic  Reduction  (SCR)  or   post-
combustion control technologies, are being mandated in  Maryland,
Pennsylvania, and West Virginia for ozone nonattainment (Title I)
reasons.   Continuous  emission  monitoring  equipment  has  been
installed on all Phase I and Phase II units.

      In  an  effort  to introduce market forces  into  pollution
control,  the CAAA created SO2 emission allowances.  An allowance
is  defined as an authorization to emit one ton of SO2  into  the
atmosphere.    Subject  to  regulatory  limitations,   allowances
(including bonus and extension allowances) may be sold or  banked
for  future use or sale.  Allegheny received, through an industry
allowance  pooling  agreement, a total of  approximately  554,000
bonus  and extension allowances during Phase I.  These allowances
are in addition to the CAAA Table A allowances that the Operating
Subsidiaries receive of approximately 356,000 per year during the
Phase  I  years.  Ownership of these allowances permits Allegheny
to  operate in compliance with Phase I, and, as noted  above,  is
expected to facilitate compliance during the early years of Phase
II.   As part of its compliance strategy, Allegheny continues  to
study  the  allowance  market  to  determine  whether  sales   or
purchases of allowances or participation in certain derivative or
hedging allowance transactions are appropriate.

      Pursuant to an option in the CAAA, Allegheny chose to treat
seven  Phase  II boilers as Phase-I-affected units  (Substitution
Units)  for  calendar year 1999. The status of  all  substitution
units  is evaluated on an annual basis to ascertain the financial
benefits of retaining these units as Phase I-affected units.   As
a  result of being Phase I-affected, these Substitution Units are
required to comply with the Phase I SO2 limits for each year that
they are accorded substitution status by Allegheny.

      Title  I of the CAAA established an Ozone Transport  Region
(OTR)  consisting of the District of Columbia, the northern  part
of  Virginia,  and 11 northeastern states including Maryland  and
Pennsylvania. Sources within the OTR will be required  to  reduce
NOx  emissions,  a  precursor of ozone, to a level  conducive  to
attainment  of  the one-hour ozone National Ambient  Air  Quality
Standard  (NAAQS).   The  installation  of  Reasonably  Available
Control Technology (RACT) (overfire air equipment and/or low  NOx
burners)  at  all  Pennsylvania and Maryland  stations  has  been
completed.  The installation of RACT satisfies both Title  I  and
Title IV NOx reduction requirements.

      Title  I  of  the CAAA also established an Ozone  Transport
Commission (OTC), which has determined that utilities within  the
OTR  will  be  required to make additional NOx reductions  beyond
RACT  in order for the OTR to meet the ozone NAAQS.  Under  terms
of  a  Memorandum  of Understanding (MOU) among the  OTR  states,
Allegheny-operated stations located in Maryland and  Pennsylvania
were  required to reduce NOx emissions by approximately 55%  from
the  1990 baseline emissions, with a compliance date of May 1999.
RACT  controls installed in Allegheny's Maryland and Pennsylvania
generating plants allowed Allegheny to meet this compliance goal,
and  are  expected  to  maintain the  55%  reduction  requirement
through  the year 2002.  Further reductions of 75% from the  1990
baseline may be required by May 2003 under Phase III of the  MOU.


<PAGE>

                               33

However,  the  MOU Phase III NOx reductions will most  likely  be
superseded  by  the  EPA's  NOx  SIP  call  as  discussed  below.
Pennsylvania promulgated regulations to implement Phase II of the
MOU  in  November  1997.   Maryland  promulgated  regulations  to
implement Phase II of the MOU in May 1998.  However, as a  result
of  litigation, the Maryland regulation was revised  to  postpone
compliance to May 2000.

      During  1995, the Environmental Council of States  and  the
U.S.  Environmental Protection Agency (EPA) established the Ozone
Transport Assessment Group (OTAG) to develop recommendations  for
the regional control of NOx and Volatile Organic Compounds in  37
states  east  of  and bordering the west bank of the  Mississippi
River plus Texas.  OTAG issued its final report in June 1997 that
recommended EPA consider a range of utility NOx controls  between
existing Clean Air Act (Title IV) controls and the less stringent
of  85%  reduction from the 1990 emission rate or 0.15  lb/mmBtu.
According  to  OTAG recommendations, the states  would  have  the
opportunity to conduct additional local and subregional  modeling
in  order to develop and propose appropriate levels and timing of
controls.  The EPA initiated the regulatory process to adopt  the
OTAG recommendations with a SIP call issued October 1998. The EPA
NOx  SIP  call requires the equivalent of a uniform 0.15 lb/mmBtu
emission  rate throughout a 22-state region, including  Maryland,
Pennsylvania, and West Virginia, without the benefit of the  OTAG
recommended    additional   subregional   modeling    evaluation.
Implementation  of  controls will be  required  by  summer  2003.
States   were   required  to  develop  and  submit   implementing
regulations to the EPA by September 1999.  The EPA's NOx SIP call
regulation has been under litigation, but on March 3, 2000 the DC
Circuit  Court  of  Appeals  issued a decision  that  upheld  the
regulation.  However, an appeal of that decision is likely to  be
filed  in  April  2000  by  the  State  and  industry  litigants.
Allegheny's  compliance  with  such  stringent  regulations  will
require  the  installation of expensive  post-combustion  control
technologies on most of its power stations, with a total  capital
cost  of approximately $370 million.  Of that amount, $12 million
was spent in 1999.

      In August 1997, eight northeastern states filed Section 126
petitions with the EPA requesting the immediate imposition of  up
to an 85% NOx reduction from utilities located in the Midwest and
Southeast  (West  Virginia included).  The  petitions  claim  NOx
emissions   from  these  upwind  sources  are  preventing   their
attainment  of  the  ozone  standard.  In  December   1997,   the
petitioning  states and EPA signed a Memorandum of  Agreement  to
address these petitions in conjunction with the OTAG-related  SIP
call  mentioned above.  In May 1999, the EPA issued  a  technical
approval  of  the  petitions and in December 1999  granted  final
approval  of  four  of the petitions.  The Section  126  petition
rulemaking is also under litigation.  Allegheny's compliance plan
for  the Section 126 petition rulemaking would be the same as the
NOx SIP call compliance plan discussed above.

     The EPA is required by law to regularly review the NAAQS for
criteria pollutants.  Previous court orders in litigation by  the
American Lung Association have expedited these reviews.  The  EPA
in  1996  decided  not  to  revise the  SO2  and  NOx  standards.
Revisions   to  particulate  matter  and  ozone  standards   were
promulgated  by  the  EPA  in  July 1997.  However,  the  revised
standards were legally challenged and in May 1999 the DC  Circuit
Court  of Appeals remanded the revised standards back to EPA  for
further consideration.


<PAGE>

                               34

Also, in May 1999, EPA promulgated  final
regional  haze  regulations  to improve  visibility  in  Class  I
federal  areas  (national parks and wilderness areas).   The  EPA
regional haze regulation is also under litigation.  If eventually
upheld  in  court,  subsequent state  regulations  could  require
additional  reduction of SO2 and/or NOx emissions from  Allegheny
facilities. The effect on Allegheny of revision to any  of  these
standards  or regulations is unknown at this time, but  could  be
substantial.

      The  final outcome of the revised ambient standards,  Phase
III  of  the MOU, SIP calls, and Section 126 petitions cannot  be
determined   at   this  time.   All  are  being  challenged   via
rulemaking, petition, and/or litigation.

      In 1989, the West Virginia Air Pollution Control Commission
approved  the construction of a third-party cogeneration facility
in  the  vicinity of Rivesville, West Virginia.  Emissions impact
modeling  for that facility raised concerns about the  compliance
of  Monongahela's Rivesville Station with ambient  standards  for
SO2.   Pursuant to a consent order, Monongahela agreed to collect
on-site  meteorological  data and conduct  additional  dispersion
modeling in order to demonstrate compliance.  The modeling  study
and  a  compliance strategy recommending construction  of  a  new
"good  engineering practices" (GEP) stack were submitted  to  the
West  Virginia Department of Environmental Protection (WVDEP)  in
June 1993.  Costs associated with the GEP stack are approximately
$25 million.  Monongahela is awaiting action by the WVDEP.

      Under an EPA-approved consent order with Pennsylvania, West
Penn completed construction of a GEP stack at the Armstrong Power
Station  in  1982  at a cost of more than $13  million  with  the
expectation  that EPA's reclassification of Armstrong  County  to
"attainment  status"  under NAAQS for SO2  would  follow.   As  a
result  of  the  1985  revision of its stack  height  rules,  EPA
refused   to   reclassify   the  area   to   attainment   status.
Subsequently,  West Penn filed an appeal with the U.S.  Court  of
Appeals for the Third Circuit for review of that decision as well
as  a  petition for reconsideration with EPA.  In 1988, the Court
dismissed  West  Penn's appeal, stating it could not  decide  the
case while West Penn's request for reconsideration before EPA was
pending.    West  Penn  cannot  predict  the  outcome   of   this
proceeding.

      In  March  1998,  the EPA released its Utility  Air  Toxics
Report  to  Congress.   The  report  itself  does  not  recommend
regulatory  controls.  However, the EPA is  expected  to  make  a
recommendation on regulatory controls by December 2000.  The  EPA
has  identified  mercury emissions as requiring further  research
and  monitoring  because  of  the potential  concern  for  public
health.   While  it  appears that EPA wants  to  control  utility
mercury    emissions,   it   currently   lacks   the    technical
justification.  In late November 1998, the EPA issued  a  mercury
data  collection request that required utilities  to  sample  and
analyze coal shipments for mercury and chlorine throughout  1999.
In addition, some plants, not any Allegheny plants, were required
to  conduct  stack  testing  to determine  the  effectiveness  of
existing  particulate and SO2 control equipment in the  reduction
of mercury emissions.


<PAGE>

                               35

                         Water Standards

     Under  the  National Pollutant Discharge Elimination  System
(NPDES),  permits  for all of Allegheny's stations  and  disposal
sites  are  in  place and all facilities are compliant  with  all
permit  terms,  conditions and effluent limitations.  However  as
permits  are renewed more stringent permit limitations are  being
applied.  Thus  far  Allegheny  has  successfully  developed  and
scientifically  justified, to the satisfaction of the  regulatory
agencies, alternate site-specific water quality criteria and thus
avoided incurring the costs of advanced wastewater treatment.

     However, there is significant activity at the Federal  level
on  Clean  Water Act (CWA) issues. There are pending rulemakings,
for  example  regarding  the  Total  Maximum  Daily  Load  (TMDL)
program,  water quality standards, antidegradation review,  human
health and aquatic life water quality criteria, and mixing zones.
In addition, EPA is developing new policies concerning protection
of  endangered species under the CWA and imposition  of  new  CWA
requirements  to address sediment contamination. The  outcome  of
these rulemakings will fundamentally change the traditional water
quality  management program from a chemical specific  control  of
point   sources   to   comprehensive  and  integrated   watershed
management.   This   regulatory  shift  will   result   in   more
restrictions  on  facility discharges as well as nonpoint  source
runoff resulting from land use practices such as agriculture  and
forestry  and  will  ultimately address water quality  impairment
caused by atmospheric deposition.

     Over  the past several years TMDLs have become a significant
issue  because of successful legal challenges to EPA's  treatment
of  TMDLs  under  the  CWA in various states.  Resulting  consent
orders in West Virginia and Pennsylvania require development  and
implementation  of  waste  loads  for  point  sources  and   load
allocations  for  nonpoint  sources on numerous  waterbodies  not
currently  meeting water quality standards within   a  relatively
short  time  frame  (twelve  years). Because  of  the  scientific
complexity  of  the  issue, paucity of water  quality  data,  the
resource  limitations of the state agencies as well as  political
considerations,  it is likely that resulting TMDLs will require a
disproportionate reduction in point source versus nonpoint source
discharges.  The  direct  result of the  TMDLs  will  be  further
reductions in the amount of pollutants permitted to be discharged
by  Allegheny-owned  power  stations  located  on  water  quality
impaired   rivers.   Indirectly,  TMDL's  can  adversely   affect
Allegheny   by  prohibiting  new  or  increased  discharges   and
curtailing the wastewater discharges of its industrial customers.
The full implications of the developing TMDL program will not  be
known  until  EPA  finalizes  the proposed  rule  and  TMDLs  are
developed and implemented in specific watersheds.

     In  anticipation of the potentially adverse  impact  of  the
TMDL  program, Allegheny is proactively working with a number  of
watershed TMDL stakeholder groups to ensure development of  sound
and equitable TMDLs.


<PAGE>

                               36

                   Hazardous and Solid Wastes

      Pursuant to the Resource Conservation and Recovery  Act  of
1976   (RCRA)  and  the  Hazardous  and  Solid  Waste  Management
Amendments  of 1984, the EPA regulates the disposal of  hazardous
and   solid   waste  materials.   Maryland,  Ohio,  Pennsylvania,
Virginia, and West Virginia have also enacted hazardous and solid
waste  management regulations that are as stringent  as  or  more
stringent than the corresponding EPA regulations.

     Allegheny is in a continual process of either permitting new
or  re-permitting  existing  disposal  capacity  to  meet  future
disposal needs.  All disposal areas are currently operated to  be
in compliance with their permits.

      In addition to using coal combustion by-products (CCB's) in
various  power  plant  applications such as  scrubber  by-product
stabilization  at  Harrison  and  Mitchell  Power  Stations,  the
Operating Subsidiaries continue to expand their efforts to market
CCB's  for  beneficial applications and thereby  reduce  landfill
requirements.    In  1999,  the Operating  Subsidiaries  received
approximately $990,000 from the external sale and utilization  of
approximately 410,000 tons of fly ash, 187,000 tons of bottom ash
and  25,000  tons of boiler slag.  These CCB's were  beneficially
used  in  applications  such  as  cement  replacement,  anti-skid
materials,  grit  blasting material, mine subsidence,  structural
fills,  and grouting of mines and oil wells.

      The  Operating  Subsidiaries are  near  completion  on  the
construction  of a processing plant which will convert  the  flue
gas  desulfurization by-product from the Pleasants Power  Station
into  a commercial grade synthetic gypsum material to be used  in
the  manufacture of wallboard.   The processing plant, which  has
produced gypsum on a trial basis, is in commercial production  as
of  the  end  of  February of 2000 and is expected  to  supply  a
minimum  of  600,000  tons  per year of  gypsum  to  a  wallboard
manufacturing  facility.  This process will significantly  reduce
the amount of by-product going to an impoundment.

       Potomac   Edison  received  a  notice  from  the  Maryland
Department   of  the  Environment  (MDE)  in  1990  regarding   a
remediation  ordered under Maryland law at a facility  previously
owned  by Potomac Edison.  The MDE has identified Potomac  Edison
as   a   potentially  responsible  party  under   Maryland   law.
Remediation  is  being implemented by the current  owner  of  the
facility  which  is located in Frederick.  It is not  anticipated
that Potomac Edison's share of remediation costs, if any, will be
substantial.

      The  Operating  Subsidiaries are  also  among  a  group  of
potentially   responsible   parties   under   the   Comprehensive
Environmental Response, Compensation and Liability Act  of  1980,
as   amended  (CERCLA),  for  the  Jack's  Creek/Sitkin  Smelting
Superfund   Site  and  the  Butler  Tunnel  Superfund   Site   in
Pennsylvania.   (See ITEM 3. LEGAL PROCEEDINGS for a  description
of these Superfund cases.)

                  Toxic Release Inventory (TRI)

     On Earth Day 1997, President Clinton announced the expansion
of  Right-to-Know  Toxics Release Inventory  (TRI)  reporting  to
include  electric utilities, limited to facilities  that  combust
coal  and/or  oil  for  the  purpose


<PAGE>

                               37

of  generating  power   for
distribution in commerce.  The purpose of TRI is to provide site-
specific  information on chemical releases to the air, land,  and
water.   On  June  4, 1999, AE joined with other members  of  the
Edison Electric Institute in reporting power station releases  to
the  public.  Packets of information about power station releases
were provided to media in Allegheny's service area and posted  on
the  AE  web  site.   The first TRI report  was  filed  with  the
Environmental  Protection  Agency  prior  to  the  July  1,  1999
deadline date, reporting 18 million pounds of total releases  for
calendar year 1998.

                      Global Climate Change

      Many  uncertainties  remain in the  global  climate  change
debate,  including the relative contributions of human activities
and  natural  processes, the extremely high  potential  costs  of
extensive  mitigation efforts, and the significant  economic  and
social  disruptions which may result from a large-scale reduction
in   the   use   of   fossil  fuels.   Allegheny  is   responding
appropriately   and  will  continue  to  explore   cost-effective
opportunities   to  improve  efficiency  and  performance.    The
scientific   debate   is   continuing,   however   the    Clinton
Administration  has  signed an international  treaty  called  the
Kyoto  Protocol, which will require the U.S. to reduce  emissions
of  GHG by 7% from 1990 levels in the 2008-2012 time period. With
normal economic growth this requirement could mean as much  as  a
40%  reduction of GHG by 2012.  The U.S. Senate must  ratify  the
Kyoto Protocol before it enters into force, as must other nations
subject  to  the  treaty's  provisions.   The  Senate  passed   a
resolution  in 1997 (S.R. 98) by a vote of 95-0 that  placed  two
conditions  on  entering  into any international  climate  change
treaty.  First, any treaty must include all nations, and, second,
any  treaty must not cause serious harm to the U.S. economy.  The
Kyoto  Protocol  does  not  appear to  satisfy  either  of  these
conditions   and,  therefore,  the  Clinton  Administration   has
withheld  it from consideration by the Senate. The U.S.  electric
utility  industry generates about one third of the  GHG  emitted,
with  other Industries, Transportation and Agriculture the  rest,
or  two thirds. Implementation of the Kyoto Protocol would  raise
considerable  uncertainty about the future  viability  of  fossil
fuels as an energy source for new and existing power plants.

      If  and when the need for reducing greenhouse gas emissions
has  been  identified  and  scientifically  supported,  Allegheny
believes  that  a global solution involving all nations  will  be
needed  and  must give credit for actions taken. Precipitous  and
urgent  action under strict limits and timetables will result  in
severe  economic dislocation and is not warranted  based  on  the
ongoing  scientific debate. Appropriate results can  be  achieved
domestically  by  continuing to build upon Allegheny's  corporate
awareness   and  the  notable  progress  of  existing   voluntary
programs.

      For  these  reasons, Allegheny actively participates  in  a
number of groups to address this environmental matter.  Allegheny
supports  research on the climate change issue through  EPRI  and
participates  in  a  number of organizations  to  help  influence
policy   matters  at  the  domestic  and  international   levels.
Allegheny also conducts a program to identify cost-effective  and
voluntary measures that reduce emissions of GHG in all  areas  of


<PAGE>

                               38

our  business and in other areas, such as forestry, international
projects, and emissions trading.

      The  Operating  Subsidiaries maintain  an  active  climate-
related research program and are responsive to the greenhouse gas
guidelines suggested in the national Energy Policy Act  of  1992.
As  a result, the Operating Subsidiaries have voluntarily reduced
their  total annual emissions of GHG by about 1,650,000 tons,  as
described in the latest filing with the Department of Energy.

      The  Operating  Subsidiaries  support  EPRI  whose  climate
research  is  funded  at around $7 to $10 million  per  year  and
Edison  Electric Institute's Climate Challenge Initiative  funded
at  $100,000 per-year; and have committed to invest $3.11 million
in  an  electrotechnology and renewable  energy  venture  capital
fund.

      The  Operating Subsidiaries' in-house research program  has
contributed   to   applications  of  new  technology,   operating
efficiencies,  reduced electrical losses and  pollution  emission
reductions.

      West Penn, as part of its restructuring settlement approved
by the Pennsylvania PUC, agreed to support five important climate
related   initiatives:  1)  Renewable  Energy   Development,   2)
Sustainable Energy Fund ($11,425,721 paid on December 31,  1998),
3) Renewable Energy Pilot Program ($300,000 each year), 4) Energy
Cooperative  Association  of  Pennsylvania  (contribution  of  $4
million) and 5) Universal Service and Energy Conservation Program
($8.082 million per year).

      In response to environmental issues over the past 30 years,
the  Operating  Subsidiaries spent over $1.6 billion  in  capital
expenditures   and   approximately  $200  million   annually   in
operations   and   maintenance.   Allegheny   is   committed   to
environmental  stewardship  and the research  needed  to  provide
answers  to  difficult compliance problems.  These  actions  will
mitigate the impact of the Operating Subsidiaries' operations  on
the   environment  and  ameliorate  any  alleged  climate  change
impacts.

                           REGULATION

      Allegheny is subject to the broad jurisdiction of  the  SEC
under PUHCA.  The Operating Subsidiaries and AGC are regulated as
to   substantially   all  of  their  operations   by   regulatory
commissions   in  the  states  in  which  they  operate.    These
companies, Allegheny Energy Supply's unregulated generation,  and
AYP  Energy  are  also regulated as to various aspects  of  their
business  by the FERC.  In addition, they are subject to numerous
other local, state, and federal laws, regulations, and rules.

     In June 1995, the SEC published its report which recommended
changes  to  PUHCA,  including a recommendation  to  Congress  to
repeal  the  entire  act.   Bills have  been  introduced  in  the
Congress to repeal PUHCA, but have not passed.  Allegheny  cannot
predict  what changes, if any, will be made to PUHCA as a  result
of these activities.


<PAGE>

                               39


      In  1999, the Operating Subsidiaries continued to take part
in  and  fund  various  programs to assist low-income  customers,
customers  with  special  needs,  and/or  customers  experiencing
temporary financial hardship.



ITEM 2.   PROPERTIES

      Substantially  all  of the properties  of  Monongahela  and
Potomac  Edison  are  held  subject to  the  lien  of  indentures
securing  their  first  mortgage  bonds.   In  many  cases,   the
properties  of  Monongahela,  Potomac  Edison,  West   Penn   and
Allegheny  Energy Supply may be subject to certain  reservations,
minor  encumbrances, and title defects which  do  not  materially
interfere  with  their  use.  Some of  the  properties  are  also
subject  to  a second lien securing certain solid waste  disposal
and  pollution  control notes.  The indenture under  which  AGC's
unsecured  debentures and medium-term notes are issued  prohibits
AGC,   with   certain  limited  exceptions,  from  incurring   or
permitting  liens  to  exist on any of its properties  or  assets
unless the debentures and medium-term notes are contemporaneously
secured  equally and ratably with all other indebtedness  secured
by   such   lien.   Transmission  and  distribution   lines,   in
substantial  part, some substations and switching  stations,  and
some  ancillary  facilities at power stations  are  on  lands  of
others,  in  some  cases  by sufferance, but  in  most  instances
pursuant  to leases, easements, rights-of-way, permits  or  other
arrangements, many of which have not been recorded  and  some  of
which  are  not  evidenced by formal grants.  In some  cases,  no
examination  of  titles  has  been made  as  to  lands  on  which
transmission and distribution lines and substations are  located.
Each of the Operating Subsidiaries possesses the power of eminent
domain with respect to its public utility operations.  (See  also
ITEM 1. BUSINESS and ALLEGHENY MAP.)



ITEM 3.   LEGAL PROCEEDINGS

     On April 7, 1997, AE and DQE, Inc. (DQE) announced that they
had  entered into an Agreement and Plan of Merger dated April  5,
1997  (Merger Agreement).  The Merger Agreement provided for  the
business  combination of AE and DQE and was contingent  upon  the
approval  of  each company's shareholders and state  and  federal
regulators.  The shareholders of AE and DQE approved the  merger.
Since  then,  AE  and  DQE  received approval  from  the  Nuclear
Regulatory Commission, the Pennsylvania Public Utility Commission
(Pennsylvania  PUC) and the Federal Energy Regulatory  Commission
(FERC).   The Pennsylvania PUC and FERC approvals are subject  to
certain  conditions  that are acceptable  to  AE.   The  Maryland
Public  Service  Commission (Maryland PSC) and  the  Ohio  Public
Utilities Commission (Ohio PUC) also indicated their approval  of
the merger.

     In a letter to AE dated October 5, 1998, DQE stated that it
had decided to unilaterally terminate the merger.  In response,
on October 5, 1998, AE filed a lawsuit in the United States
District Court for the Western District of Pennsylvania against
DQE for specific performance of the Merger Agreement or, in the
alternative, for damages.  On October 20, 1999, a non-jury trial
began and continued until October 28, 1999.  Proposed findings of
fact and


<PAGE>

                               40

 conclusions of law were submitted by the parties. On
December 3, 1999 the District Court found that defendant DQE did
not breach the April 5, 1997 Agreement and Plan of Merger.
Accordingly, the District Court found in favor of DQE and against
AE on all claims and all requests for injunctive relief.  It
granted judgment in favor of defendant DQE and against plaintiff
AE.

     On December 14, 1999, AE filed a Motion of Appeal from the
District Court's judgment to the Third Circuit Court of Appeals.
AE's Motion for Expedited Treatment of the Appeal was granted.
Argument on AE's Motion was held before the Court of Appeals on
March 9, 2000.  AE cannot predict the outcome of this appeal.

      On September 7, 1995, MidAtlantic Energy (MidAtlantic) sued
Monongahela,  Potomac Edison, and AE in state court  in  Marshall
County,  W.Va., alleging failure to comply with PURPA regulations
in refusing to purchase capacity and energy from a proposed PURPA
project  and  interference with MidAtlantic's contract  with  the
Babcock  and Wilcox Company (B and W), among other things.   This
suit followed an unsuccessful complaint proceeding by MidAtlantic
requesting the West Virginia PSC to order Monongahela and Potomac
Edison  to  purchase capacity and energy from the  project.   The
MidAtlantic  suit also named B and W as a defendant.  MidAtlantic
sought  compensatory and punitive damages.   Monongahela, Potomac
Edison,  and AE filed an answer and B and W filed an  answer  and
counterclaim.  Trial was scheduled for June 7, 1999 but the  case
settled on the first day of trial.  The case was dismissed,  with
prejudice, on July 9, 1999.

      On  August  13,  1996, American Bituminous Partners,  L.P.,
(AmBit), filed a request for arbitration alleging that the energy
rate  payable under its purchase power contract with  Monongahela
had  been improperly calculated.  The arbitration proceeding  was
bifurcated  into a liability phase and, if necessary,  a  damages
phase.   A  hearing  in the liability phase  of  the  arbitration
proceeding has been completed and briefed.  On February 18, 1998,
the  arbitration  panel  made a determination  in  the  liability
phase.   They determined that certain lime handling costs  should
have  been  a  component of the energy rate  and  therefore  were
improperly accounted for in 1995 and 1996.  Ambit and Monongahela
have entered into a Settlement Agreement, subject to the approval
of  the Public Service Commission for the State of West Virginia,
resolving  all  disputes presented in, or which could  have  been
presented  in,  the arbitration.  Monongahela will  petition  the
Public  Service  Commission for the State of  West  Virginia  for
approval of the Settlement Agreement.  Monongahela cannot predict
the outcome of this proceeding.

      On  December  17, 1999, AES/Beaver Valley,  Inc.,  (AES/BV)
filed  a  demand  for  arbitration with the American  Arbitration
Association.   AES/BV requested a declaratory judgment  that  the
Electric  Energy Purchase Agreement (EEPA) approved by the  PaPUC
in 1986 continues to govern the transaction between West Penn and
AES/BV  for  the sale of up to 125 MWH per hour of power  as  set
forth in the EEPA, even if AES/BV's proposed improvements to  the
plant to comply with the more rigorous NOx standards result in an
increase  in  the  amount of energy the plant produces  annually.
AES/BV  also requested an award of its attorneys fees and  costs.
On  February  23, 2000, AES/BV filed an additional claim  against
West  Penn for $2 million.  West Penn cannot predict the  outcome
of this proceeding.


<PAGE>

                               11


      As  of  January 14, 2000, Monongahela has been named  as  a
defendant  along with multiple other defendants  in  a  total  of
7,932  pending  asbestos cases involving one or more  plaintiffs.
Potomac Edison and West Penn have been named as defendants  along
with multiple other defendants in approximately one-half of those
cases.   Because  these  cases are filed in  a  "shotgun"  format
wherein   multiple   plaintiffs  file  claims  against   multiple
defendants  in  the  same  case, it is  presently  impossible  to
determine  the  actual number of cases in which  plaintiffs  make
claims  against the Operating Subsidiaries.  However, based  upon
past  experience  and available data, it may  be  estimated  that
about  one-third  of  the total number of  cases  filed  actually
involve  claims against any or all of the Operating Subsidiaries.
All  complaints allege that the plaintiffs sustained  unspecified
injuries  resulting from claimed exposure to asbestos in  various
generating plants and other industrial facilities operated by the
various defendants, although all plaintiffs do not claim exposure
at   facilities  operated  by  all  defendants.   With  very  few
exceptions, plaintiffs claiming exposure at stations operated  by
the   Operating   Subsidiaries  were  employed   by   third-party
contractors,  not  the Operating Subsidiaries.  Three  plaintiffs
are   known   to  be  either  present  or  former  employees   of
Monongahela.  Each  plaintiff generally  seeks  compensatory  and
punitive  damages against all defendants in amounts of up  to  $1
million  and  $3  million, respectively;  in  those  cases  which
include  a  spousal  claim  for loss of consortium,  damages  are
generally sought against all defendants in an amount of up to  an
additional $1 million.  A total of 878 cases have been previously
settled  and/or  dismissed  against  Monongahela  for  an  amount
substantially  less than the anticipated cost of defense.   While
the  Operating  Subsidiaries believe that all of  the  cases  are
without merit, they cannot predict the outcome nor are they  able
to determine whether additional cases will be filed.

      On January 27, 1995, Allegheny filed a declaratory judgment
action in the Court of Common Pleas of Westmoreland County,  Pa.,
against  its  historic  comprehensive  general  liability   (CGL)
insurers.   This suit seeks a declaration that the  CGL  insurers
have a duty to defend and indemnify the Operating Subsidiaries in
the  asbestos cases, as well as in certain environmental actions.
To  date, two insurers have settled.  However, the final  outcome
of this proceeding cannot be predicted.

     On March 4, 1994, the Operating Subsidiaries received notice
that  the  EPA  had  identified them as  potentially  responsible
parties  (PRPs)  under the Comprehensive Environmental  Response,
Compensation and Liability Act of 1980, as amended, with  respect
to the Jack's Creek/Sitkin Smelting Superfund Site (Site).  There
are   approximately   175  other  PRPs  involved.    A   Remedial
Investigation/Feasibility  Study  (RI/FS)  prepared  by  the  EPA
originally indicated remedial alternatives which ranged  as  high
as  $113 million, to be shared by all responsible parties.  A PRP
Group  consisting of approximately 40 members, and to  which  the
Operating  Subsidiaries belong, has been formed and has submitted
an  addendum  to  the  RI/FS which proposes a substantially  less
expensive cleanup remedy.  In 1999, the PRP Group entered into  a
consent  order  with  the EPA to remediate  the  site.   A  final
determination  has not been made for the Operating  Subsidiaries'
share  of  the remediation costs.  However, at this  time  it  is
estimated that the effect on the Operating Subsidiaries will  not
be material.


<PAGE>

                               42


      Potomac Edison received a questionnaire on October 1, 1996,
from  the  EPA  concerning  a release or  threat  of  release  of
hazardous  substances,  pollutants,  or  contaminants  into   the
environment at the Butler Tunnel Site located in Luzerne  County,
Pa.   Potomac Edison notified the EPA that it has no  records  or
recollection of any business relations with the site  or  any  of
the  companies  identified  in  the  questionnaire.   It  is  not
possible  to  determine at this time what effect,  if  any,  this
matter may have on Potomac Edison.

       After   protracted  litigation  concerning  the  Operating
Subsidiaries'  application  for a license  to  build  a  1,000-MW
energy-storage  facility near Davis, W.Va.,  in  1988,  the  U.S.
District Court reversed the U.S. Army Corps of Engineers' (Corps)
denial  of  a  dredge and fill permit on the grounds that,  among
other   things,  the  Operating  Subsidiaries  were   denied   an
opportunity  to  review  and comment upon written  materials  and
other  communications used by the Corps in reaching its decision.
As  a  result,  the Court remanded the matter to  the  Corps  for
further  proceedings.  This remand order has been appealed.   The
Operating  Subsidiaries  cannot  predict  the  outcome  of   this
proceeding.

      In  1979, National Steel Corporation (National Steel) filed
suit against AE and certain subsidiaries in the Circuit Court  of
Hancock  County,  W.Va., alleging damages of  approximately  $7.9
million  as a result of an order issued by the West Virginia  PSC
requiring  curtailment of National Steel's use of electric  power
during the United Mine Workers' strike of 1977-8.  A jury verdict
in  favor  of AE and the subsidiaries was rendered in June  1991.
National Steel has filed a motion for a new trial, which is still
pending  before the Circuit Court of Hancock County.  AE and  the
subsidiaries  believe the motion is without merit; however,  they
cannot predict the outcome of this case.

      The  Attorney  General of the State of  New  York  and  the
Attorney  General of the State of Connecticut, in  letters  dated
September 15, 1999, and November 3, 1999, respectively,  notified
Allegheny  of  their  intent to commence  civil  actions  against
Allegheny and/or its subsidiaries alleging violations at the Fort
Martin  Power  Station  under the federal Clean  Air  Act,  which
requires  power  plants that make major modifications  to  comply
with  the same emission standards applicable to new power plants.
Similar   actions   may  be  commenced  by   other   governmental
authorities  in  the  future.  Fort Martin  is  located  in  West
Virginia  and  is now jointly owned by Allegheny  Energy  Supply,
Monongahela  Power, and Potomac Edison.  Both  Attorneys  General
stated their intent to seek injunctive relief and penalties.   In
addition, the Attorney General of the State of New York indicated
that  he  may assert claims under the state common law of  public
nuisance seeking to recover, among other things, compensation for
alleged  environmental damage caused in New York by the operation
of  the  Fort Martin Power Station.  At this time, Allegheny  and
its  subsidiaries are not able to determine what effect, if  any,
these actions may have on them.


<PAGE>

                               43

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      AE, Monongahela, Potomac Edison, West Penn and AGC did  not
submit  any  matters to a vote of shareholders during the  fourth
quarter of 1998.


<PAGE>

                               44

              Executive Officers of the Registrants

The  names of the executive officers of each company, their  ages
as  of December 31, 1999, the positions they hold, or held during
1999,  and  their business experience during the past five  years
appears below:

<TABLE>
<CAPTION>

                                   Position  (a)  and  Period  of Service
       Name                Age         AE            MP           PE           WP          AGC

<S>                         <C>   <C>           <C>           <C>           <C>          <C>

Charles S. Ault(b)          61                                            V.P.
                                                                          (1990-7/99)



Paul M. Barbas(c)           43        V.P.
                                     (7-99- )

Eileen   M.  Beck           58    Secretary     Secretary     Secretary     Secretary     Secretary
                                  (1988-    )   (1995-    )   (1996-     )  (1996-    )   (1982-    )
                                  Previously    Previously,   Previously    Previously
                                  Asst.  Treas. Asst. Treas.  Asst. Sec.    Asst. Sec.
                                  (1979-95)     (1981-95)     (1988-95)     (1988-95)
                                                Asst. Sec.
                                                (1988-94)


Regis  F. Binder(d)         47    V.P. & Treas. Treas.        Treas.        Treas.       Treas.
                                  (12/98-   )   (12/98-    )  (12/98-   )   (12/98-    ) (2/99-    )


Richard  J.  Gagliardi      49    V.P.          Asst.   Sec.                             Asst.
                                 (1991-     )   (1990-96)                                Treas.
                                                                                         (1982-96)


James R. Haney(e)           43                  V.P.          V.P.          V.P.
                                                (1998-    )   (1998-    )   (1998-    )


Thomas  K.  Henderson       59    V.P.          V.P.          V.P.          V.P.         Dir.& V.P.
                                  (1997-    )   (1995-    )   (1995-    )   (1985-    )  (1996-    )


Kenneth M. Jones            62    V.P.                                                   Dir.& V.P.
                                  (1991-    )                                            (1991-2/99)
                                  Previously,
                                  Controller
                                  (1991-1998)

Thomas  J.  Kloc            47    V.P. &        Controller    Controller    Controller   Dir.& V.P.
                                  Controller    (1996-    )   (1988-    )   (1995-    )  (2/99-    )
                                  (1998-    )                                            Controller
                                                                                         (1988-    )
____________________________________________________________________________________________________

</TABLE>

(a)  All officers and directors are elected annually.
(b)  Mr. Ault retired effective July 1, 1999.
(c)  Prior to his appointment as Vice President of AE, Mr. Barbas
     was  President,  GE  Capital  Rental  Services  (3/97-2/99);
     President, GE Capital Computer Rental Services (10/93-3/97);
     and  National  Operations Manager,  GE  Rental/Lease  (3/93-
     10/93).
(d)  Prior to his appointment as Vice President and Treasurer  of
     AE and Treasurer of MP, PE, WPP  and AGC, Mr. Binder was
     Executive Director, Regulation and Rates for APSC
     (1997-1998); General Manager, Industrial Marketing for APSC
     (1996-1997); Director, Rates for  APSC (1995-1996); and
     Assisant Director Rates for APSC (1993-1995).
(e)  Prior   to   his  appointment  as  Vice  President  Customer
     Operations,  Mr.  Haney  was Executive  Director,  Operating
     Business  Unit  (8/98-10/98); Director, Operations  Services
     (5/96-8/98);  Director, Transmission Projects  (12/95-5/96);
     Manager,  Construction  (AESC)  (2/95-12/95);  and  Division
     Manager, Monongahela (12/90-2/95).


<PAGE>

                               45


         Executive Officers of the Registrants, cont'd.

The  names of the executive officers of each company, their  ages
as  of December 31, 1999, the positions they hold, or held during
1999,  and  their business experience during the past five  years
appears below:

<TABLE>
<CAPTION>

                                   Position  (a)  and  Period  of Service
       Name                Age         AE            MP           PE           WP          AGC

<S>                         <C>   <C>           <C>           <C>           <C>          <C>

James D. Latimer            61                  V.P.          V.P.          V.P.
                                                (1995-    )   (1995-    )   (1995-    )
                                                              Previously,
                                                              Executive V.P.
                                                              (1994-95)
                                                              V.P.
                                                              1988-94)

Ronald  A.  Magnuson(f)     42                  V.P.          V.P.          V.P.
                                                (7/99-    )   (7/99-    )   (7/99-    )


Michael P. Morrell(g)       51    Sr. V.P.      Dir & V.P.    Dir.& V.P.    Dir. & V.P.  Dir.& V.P.
                                  (1996-    )   (1996-    )   (1996-    )   (1996-    )  (1996-   )


Alan   J.   Noia            52    Chairman      Chairman      Chairman      Chairman     Chairman,
                                  &  CEO        & CEO         & CEO         & CEO        Pres.& CEO
                                  (1996-    )   (1996-    )   (1996-    )   (1996-    )  (1996-    )
                                  Pres.&  Dir.  Dir.          Dir.          Dir.         Dir.& V.P.
                                  (1994-    )   (1994-    )   (1990-    )   (1994-    )  (1994-96)
                                  Previously,                 Previously,
                                  COO                         Pres.
                                  (1994-96)                   (1990-94)


Jay  S.  Pifer              62    Sr. V.P.      Pres.& Dir.   Pres.& Dir.   Pres.
                                  (1996-    )   (1995-   )    (1995-    )   (1990-    )
                                                                            & Dir.
                                                                            (1992-    )


Victoria V. Schaff(h)       55    V.P.
                                  (1997-    )


Peter J. Skrgic             58    Sr. V.P.      V.P.          V.P.& Dir.    V.P.         V.P.& Dir.
                                  (1994-    )   (1996-    )   (1990-    )   (1996-    )  (1989-    )
                                  Previously,   & Dir.        & Dir.
                                  V.P.          (1990-    )                 (1990-    )
                                  (1989-94)


Robert R. Winter            56                  V.P.          V.P.          V.P.
                                                (1987-    )   (1995-    )  (1995-    )


</TABLE>


(f)  Prior  to  his appointment as Vice President of MP,  PE  and
     WPP,  Mr. Magnuson was Executive Director, Customer  Affairs
     (4/99-7/99);  Executive  Director, Human  Resources  (10/98-
     4/99); and Director Human Resources (1/95-10/98).
(g)  Prior to his appointment as Senior Vice President of AE  and
     Vice  President of MP, PE, WPP and AGC, Mr. Morrell was V.P.
     -  Regulatory  and Public Affairs, Jersey  Central  Power  &
     Light  Company  (JCP&L) (8/94-4/96); and  V.P.  -  Materials
     Services and Regulatory Affairs, JCP&L (1/93-8/94).
(h)  Prior to her appointment as Vice President of AE, Ms. Schaff
     was a Vice President of AESC (1/96-1/97) and a Federal
     Affairs Representative with the Union Electric Company (4/88-
     12/95).


<PAGE>

                               46


                             PART II

ITEM 5.   MARKET FOR THE REGISTRANTS' COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS

     AE

      AYE is the trading symbol of the common stock of AE on  the
New York, Chicago, and Pacific Stock Exchanges. The stock is also
traded  on the Amsterdam (Netherlands) and other stock exchanges.
As  of December 31, 1999, there were 44,873 holders of record  of
AE's common stock.

      The  tables below show the dividends paid and the high  and
low sale prices of the common stock for the periods indicated:

<TABLE>
<CAPTION>

                            1999                             1998
                  Dividend  High      Low         Dividend   High      Low
<S>               <C>       <C>       <C>         <C>        <C>       <C>
1st  Quarter      43 cents  $34-1/2   $28-11/16   43 cents   $33-9/16  $30-1/8
2nd  Quarter      43 cents  $35-3/16  $29-1/2     43 cents   $34       $27-5/16
3rd  Quarter      43 cents  $34-7/8   $31         43 cents   $31-15/16 $26-5/8
4th  Quarter      43 cents  $33-1/8   $26-3/16    43 cents   $34-15/16 $29-1/2

</TABLE>

      The high and low prices through March 2, 2000 were $29-9/16
and  $25-3/16.  The last reported sale on that date was  at  $25-
1/2.

     Monongahela, Potomac Edison, and West Penn.  The information
required  by this Item is not applicable as all the common  stock
of the Operating Subsidiaries is held by AE.

       AGC.   The  information  required  by  this  Item  is  not
applicable as all the common stock of AGC is held by Monongahela,
Potomac Edison, and Allegheny Energy Supply Company, LLC.


<PAGE>

                               47

ITEM 6. SELECTED FINANCIAL DATA

                                Page No.

AE                              D-1

Monongahela                     D-7

Potomac Edison                  D-10

West Penn                       D-14

AGC                             D-17



<PAGE>


<PAGE>

                                                        Allegheny Energy, Inc.



<TABLE>
<CAPTION>

CONDENSED FINANCIAL STATEMENTS

                                 Monongahela The Potomac  West Penn       Allegheny Energy   Allegheny
                                 Power       Edison       Power Company        Supply      Energy, Inc. and
Year ended December 31, 1999     Company     Company      and Subsidiaries   Company, LLC    Subsidiaries
-----------------------------------------------------------------------------------------------------------
(Thousands of dollars)

BALANCE SHEETS
Assets
Property, plant, and equipment:
  <S>             <C>             <C>        <C>          <C>               <C>               <C>
  At original cost*               $2,173,603 $2,322,104   $1,597,484        $2,060,040        $ 8,839,719
  Accumulated depreciation          (958,867)  (998,710)    (506,416)         (940,672)        (3,632,568)
-----------------------------------------------------------------------------------------------------------
                                   1,214,736  1,323,394    1,091,068         1,119,368          5,207,151
Excess of cost over
 net assets acquired                  26,325                                                       42,584
Cash and temporary cash investments    3,826     34,509       19,288             1,668             65,984
Other current assets                 228,393    173,171      272,600           245,802            643,326
Regulatory assets                    145,176     46,121      467,982                              663,847
Other                                 75,262     61,656       13,827            83,325            229,549
---------------------------------------------------------------------------------------------------------
Total                             $1,693,718 $1,638,851   $1,864,765        $1,450,163        $ 6,852,441
---------------------------------------------------------------------------------------------------------
                                  $   46,138 $   53,354   $   45,450        $   86,147        $   231,763
*Includes construction work in progress

Capitalization and liabilities
Common stock, other paid-in capital,
 retained earnings, less
 treasury stock (at cost)         $  578,951 $  700,422   $   79,658        $  512,699        $ 1,695,325
Preferred stock                       74,000                                                       74,000
Long-term debt and QUIDS             503,741    510,344      966,026           356,239          2,254,463
Short-term debt                       28,650                                    21,200            641,095
Other current liabilities            216,353    208,327      259,635           224,158            667,440
Unamortized investment credit         14,007     17,720       21,847            18,199            116,971
Deferred income taxes                248,987    159,351      211,369           128,639            920,943
Regulatory liabilities                13,961     25,319       15,126                               78,743
Adverse power purchase commitments                           303,935           185,626            303,935
Other                                 15,068     17,368        7,169             3,403             99,526
---------------------------------------------------------------------------------------------------------
Total                             $1,693,718 $1,638,851   $1,864,765        $1,450,163        $ 6,852,441
---------------------------------------------------------------------------------------------------------

Statements of income
Operating revenues                $  673,335 $  753,257   $1,354,203        $  140,874        $ 2,808,441
Operating expenses                   554,298    617,535    1,160,434           130,408          2,333,794
---------------------------------------------------------------------------------------------------------
Operating income                     119,037    135,722      193,769            10,466            474,647
Other income and deductions            7,178      8,518        9,654             1,159              3,445
---------------------------------------------------------------------------------------------------------
Income before interest charges,
 preferred dividends,
 preferred redemption premiums,
 and extraordinary charge, net       126,215    144,240      203,423            11,625            478,092
Interest charges, preferred dividends,
 and preferred redemption premiums    38,925     44,728       70,680             2,093            192,703
---------------------------------------------------------------------------------------------------------
Balance for common stock
before extraordinary charge, net      87,290     99,512      132,743             9,532            285,389
Extraordinary charge, net                       (16,949)     (10,018)                             (26,968)
---------------------------------------------------------------------------------------------------------
Balance for common stock           $  87,290 $   82,563   $  122,725         $   9,532        $   258,421
---------------------------------------------------------------------------------------------------------


</TABLE>


Note: Allegheny Energy Supply Company, LLC, started operations on November 18,
1999.

                                           D-1

<PAGE>


                                                        Allegheny Energy, Inc.



<TABLE>
<CAPTION>

CONSOLIDATED STATISTICS

Year ended December 31                      1999      1998      1997      1996     1995      1994      1989
-------------------------------------------------------------------------------------------------------------
Summary of operations (Millions of dollars)
<S>                                     <C>       <C>       <C>       <C>        <C>       <C>       <C>
Operating revenues                      $2,808.4  $2,576.4  $2,369.5  $2,327.6   $2,315.2  $2,184.6  $1,790.6
-------------------------------------------------------------------------------------------------------------

Operation expense                        1,498.1   1,286.0   1,065.9   1,013.0    1,024.9   1,017.8     867.0
Maintenance                                223.5     217.5     230.6     243.3      249.5     241.9     185.5
Restructuring charges and asset write-offs                               103.9       23.4       9.2
Depreciation                               257.5     270.4     265.7     263.2      256.3     223.9     172.3
Taxes other than income                    190.3     194.6     187.0     185.4      184.7     183.1     139.5
Taxes on income                            164.4     168.4     168.1     128.0      154.2     125.9      89.0
Allowance for funds
  used during construction                  (6.9)     (5.0)     (8.3)     (5.9)      (8.2)    (19.6)     (7.7)
Interest charges, preferred dividends,
 and preferred redemption premiums         197.7     189.7     197.2     191.1      196.9     184.1     156.0
Other income and deductions                 (1.6)     (8.2)    (18.0)     (4.4)      (6.2)     (1.5)     (5.9)
-------------------------------------------------------------------------------------------------------------
Consolidated income before
 extraordinary charge
 and cumulative effect
 of accounting change                      285.4     263.0     281.3     210.0      239.7     219.8     194.9
Extraordinary charge, net a                (27.0)   (275.4)
Cumulative effect of accounting change, net b                                                   43.4
-------------------------------------------------------------------------------------------------------------
Consolidated net income (loss)         $   258.4  $  (12.4) $  281.3  $  210.0   $  239.7   $ 263.2   $ 194.9
-------------------------------------------------------------------------------------------------------------
Common stock data c
Shares issued (thousands)                122,436   122,436   122,436   121,840    120,701   119,293   105,579
Treasury shares (thousands)              (12,000)
-------------------------------------------------------------------------------------------------------------
Shares outstanding (thousands)           110,436   122,436   122,436   121,840    120,701   119,293   105,579
-------------------------------------------------------------------------------------------------------------
Average shares outstanding (thousands)   116,237   122,436   122,208   121,141    119,864   118,272   104,787
Earnings per average share: d
  Consolidated income before
   extraordinary charge
   and cumulative effect
   of accounting change                 $   2.45  $    2.15  $  2.30  $   1.73   $   2.00  $   1.86  $   1.86
  Extraordinary charge, net a               (.23)     (2.25)
  Cumulative effect of accounting
    change, net b                                                                               .37
Consolidated net income (loss)          $   2.22  $    (.10) $  2.30  $   1.73   $   2.00  $   2.23  $   1.86
Dividends paid per share                $   1.72  $    1.72  $  1.72  $   1.69   $   1.65  $   1.64  $   1.55
Dividend payout ratioe                      64.6%      73.5%    74.7%     97.5%     82.5%     88.3%     83.3%
Shareholders                              44,873     48,869   53,389    58,677    63,280    66,818    68,156
Market price per share:
  High                                  $ 35 3/16 $ 34 15/16 $ 32 19/32 $31 1/8  $ 29 1/4  $ 26 1/2  $21 1/4
  Low                                   $ 26 3/16 $ 26 5/8   $ 25 1/2  $ 28      $21 1/2   $ 19 3/4  $17 13/16
  Close                                 $ 26 15/16$ 34 1/2   $ 32 1/2  $ 30 3/8  $28 5/8   $ 21 3/4  $20 15/16
Book value per share                    $ 15.35   $ 16.61    $ 18.43   $ 17.80   $  17.65  $  17.26  $  14.99
Return on average common equity e         16.16%    13.26%     12.63%     9.69%     11.35%    10.96%    12.41%
--------------------------------------------------------------------------------------------------------------
Capitalization data (Millions of dollars)
Common stock                            $1,695.3  $2,033.9   $2,256.9  $2,169.1  $2,129.9  $2,059.3  $1,582.4
Preferred stock:
  Not subject to mandatory redemption       74.0     170.1      170.1     170.1     170.1     300.1     235.1
  Subject to mandatory redemption                                                              25.2      30.6
Long-term debt and QUIDS                 2,254.5   2,179.3    2,193.1   2,397.1   2,273.2   2,178.5   1,578.4
-------------------------------------------------------------------------------------------------------------
Total capitalization                    $4,023.8  $4,383.3   $4,620.1  $4,736.3  $4,573.2  $4,563.1  $3,426.5
-------------------------------------------------------------------------------------------------------------
Capitalization ratios:
  Common stock                              42.1%     46.4%     48.8%      45.8%    46.6%      45.1%     46.2%

                                           D-2

<PAGE>

  Preferred stock:
    Not subject to mandatory redemption      1.9      3.9        3.7        3.6       3.7        6.6       6.8
    Subject to mandatory redemption                                                               .6        .9
  Long-term debt and QUIDS                  56.0     49.7       47.5       50.6      49.7       47.7      46.1
--------------------------------------------------------------------------------------------------------------
Total assets (Millions of dollars)      $6,852.4  $6,535.2  $6,654.1   $6,618.5  $6,447.3   $6,362.2  $4,433.3
--------------------------------------------------------------------------------------------------------------
Property data (Millions of dollars)
Gross property                          $8,839.7  $8,395.3  $8,451.4   $8,206.2  $7,812.7  $7,586.8  $5,721.5
Accumulated depreciation                (3,632.6) (3,395.6) (3,155.2)  (2,910.0) (2,700.1) (2,529.4) (1,807.1)
--------------------------------------------------------------------------------------------------------------
Net property                            $5,207.1  $4,999.7  $5,296.2   $5,296.2  $5,112.6  $5,057.4  $3,914.4
Gross additions during year-utility     $  266.2  $  229.4  $  284.7   $  289.5  $  319.1  $  508.3  $  302.5
                          -nonutility   $  141.3  $    1.8  $    1.4   $  178.5
Ratio of provisions for
 depreciation to depreciable property       3.23%     3.28%     3.34%      3.47%     3.50%    3.32%     3.26%
-------------------------------------------------------------------------------------------------------------


Revenues (Millions of dollars) f
Residential                             $  930.3  $  880.6  $  892.9   $  932.2  $  927.0  $  863.7  $  626.2
Commercial                                 500.3     501.4     490.5      492.7     493.7     459.3     327.5
Industrial                                 720.5     753.5     748.1      752.9     770.2     728.0     553.5
Wholesale and street lighting               42.4      69.0      65.1       66.6      59.6      58.7      46.2
-------------------------------------------------------------------------------------------------------------
    Revenues from
     regular utility customers           2,193.5   2,204.5   2,196.6    2,244.4   2,250.5   2,109.7   1,553.4
Other non-gWh                                9.2       9.9       6.4        7.7       6.5       7.1       5.0
Bulk power                                  22.5      69.8      39.6       22.4      13.0      29.0     189.7
Transmission and other energy services      48.5      45.2      41.1       52.4      45.2      38.8      42.5
-------------------------------------------------------------------------------------------------------------
    Total utility revenues              $2,273.7  $2,329.4  $2,283.7   $2,326.9  $2,315.2  $2,184.6  $1,790.6
-------------------------------------------------------------------------------------------------------------
Total nonutility revenues               $  887.4  $  247.0  $   85.8   $     .7
-------------------------------------------------------------------------------------------------------------
Sales volumes-gWh
Residential                               13,562    12,939    12,832     13,328    13,003    12,630    11,042
Commercial                                 8,955     8,626     8,176      8,132     7,963     7,607     6,479
Industrial                                19,846    19,675    19,040     18,568    18,457    17,708    16,239
Wholesale and street lighting              1,478     1,409     1,422      1,456     1,304     1,275     1,110
-------------------------------------------------------------------------------------------------------------
    Regular utility transactions          43,841    42,649    41,470     41,484    40,727    39,220    34,870
-------------------------------------------------------------------------------------------------------------
Bulk power                                   571     3,037     1,667        966       507     1,086     7,011
Transmission and other energy services     8,450     7,345g   12,367     17,402    14,586     9,405    17,777
-------------------------------------------------------------------------------------------------------------
    Total utility transactions            52,862    53,031    55,504     59,852    55,820    49,711    59,658
-------------------------------------------------------------------------------------------------------------
Total nonutility transactions             15,854     8,278     3,734        109
-------------------------------------------------------------------------------------------------------------
Output and delivery-gWh
Steam generation                          44,776    44,323    43,463     40,067    39,174    38,959    43,497
Hydro and pumped-storage generation        1,648     1,326     1,171      1,348     1,234     1,390     1,774
Pumped-storage input                      (1,963)   (1,498)   (1,298)    (1,405)   (1,390)   (1,564)   (1,973)
Purchased power                           17,365    11,505     6,485      5,518     5,021     4,136     1,797
Transmission and other energy services     8,450     7,777    12,367     17,402    14,586     9,405    17,777
Combustion turbines                            7
Losses and system uses                    (3,066)   (2,124)   (2,950)    (2,969)   (2,805)   (2,615)   (3,214)
-------------------------------------------------------------------------------------------------------------
    Total transactions as above           67,217h   61,309    59,238     59,961    55,820    49,711    59,658
-------------------------------------------------------------------------------------------------------------
Energy supply
Generating capability-MW
  Utility-owned                            4,451     8,121     8,071      8,070     8,070     8,070     7,906
  Nonutility-owned                         4,142       276       276
  Nonutility contracts i                     299       299       299        299       299       299       160
Maximum hour peak-MW                       7,788j    7,314j    7,423      7,500     7,280     7,153     6,489

                                           D-3

<PAGE>

Load factor                                 70.5%k    69.1%k    68.3%      67.5%     68.3%     66.8%     67.0%
Heat rate-Btus per kWh                     9,963     9,939     9,936      9,910     9,970     9,927     9,967
Fuel costs-cents per million Btus         119.61    128.92    130.05     129.22    130.20    141.50    136.70
-------------------------------------------------------------------------------------------------------------



</TABLE>


a  Write-off in connection with deregulation proceedings in Maryland and
     Pennsylvania and costs associated with the reacquisition of first
     mortgage bonds.
b  To record unbilled revenues, net of income taxes.
c  Reflects a two-for-one common stock split effective November 4, 1993.
d  Basic and diluted earnings per average share.
e  Excludes the cumulative effect of the accounting change in 1994, the
     extraordinary charge, net, and Pennsylvania restructuring activities
     in 1998, and the extraordinary charge and other charges for merger-
     related costs and a long dormant pumped-storage generation project
     in 1999. Includes the effect of internal restructuring in 1995 and
     1996.
f  Eliminations between utility and nonutility are shown on page 32.
g  Excludes 432 gWh delivered to customers participating in the Pennsylvania
     pilot program that are included in regular utility transactions sales
     volumes.
h  Net of 1,499 gWh eliminated between utility and nonutility.
i  Capability available through contractual arrangements with nonutility
     generators.
j  Peak coincident load of all customers provided delivery service within the
     Company's service territory irrespective of the generation service chosen
     by the customers therein.
k  Based on peak coincident load.


<TABLE>
<CAPTION>

UTILITY STATISTICS

Year ended December 31          1999       1998        1997        1996        1995        1994        1989
------------------------------------------------------------------------------------------------------------
Customers (thousands) a
<S>                          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Residential                  1,250.6     1,236.9     1,224.9     1,213.7     1,204.4     1,189.7     1,118.1
Commercial                     158.1       154.7       151.5       148.5       146.0       143.0       128.9
Industrial                      25.9        25.5        25.2        25.0        24.6        24.2        22.4
Other                            1.3         1.3         1.3         1.3         1.3         1.3         1.2
------------------------------------------------------------------------------------------------------------
    Total customers          1,435.9     1,418.4     1,402.9     1,388.5     1,376.3     1,358.2     1,270.6
------------------------------------------------------------------------------------------------------------
Average annual use-kWh per
  customer b
Residential                   10,913      10,486      10,521      11,042      10,865      10,682       9,950
All retail service            28,285      28,174      28,647      29,085      28,908      28,205      26,866
------------------------------------------------------------------------------------------------------------
Average rate-cents per kWh b
Residential                     7.03        6.90        6.96        6.99        7.13        6.84        5.67
All retail service              5.45        5.32        5.36        5.46        5.58        5.43        4.48
------------------------------------------------------------------------------------------------------------



</TABLE>


a   Customers in the Company's service territory receiving delivery service.
b   Use and rate statistics are calculated based on full service customers
   (customers receiving both generation and delivery from the Company).

<PAGE>
                                                        Allegheny Energy, Inc.


INVESTOR INFORMATION

Dividend Declarations  Dividends are normally declared on the first Thursday of
March, June, September, and December. Record dates are normally the second
Monday after the dividend is declared, with payment dates the last business day
of March, June, September, and December.

                                           D-4

<PAGE>


Dividend Reinvestment and Stock Purchase Plan  Our Dividend Reinvestment and
Stock Purchase Plan provides shareholders with a convenient way to purchase
additional shares of the Company's stock. Participants may at the time of each
cash dividend payment on the stock have all or part of their dividends
automatically invested in additional shares or invest any additional amount they
wish between $50 and $10,000 in such shares or do both. The offering of shares
under the Plan is made only by Prospectus. To get the Prospectus and an
Authorization Form to enroll in the Plan, write to Eileen M. Beck, Secretary,
Allegheny Energy, Inc., 10435 Downsville Pike, Hagerstown, MD 21740-1766, or
ebeck@alleghenyenergy.com.

Annual Meeting  The Annual Meeting of Shareholders will be held on the eleventh
floor of the World Headquarters of Chase Manhattan Bank, 270 Park Ave., New
York, NY, on Thursday, May 11, 2000, at 9:30 a.m.

Form 10-K  The Company will provide without charge to each beneficial holder of
its common stock, on the written request of such person, a copy of Allegheny
Energy's combined Annual Report to the Securities and Exchange Commission on
Form 10-K for 1999. Any such request should be directed to Cynthia A. Shoop,
Director, Corporate Communications, Allegheny Energy, Inc., 10435 Downsville
Pike, Hagerstown, MD 21740-1766, or cshoop@alleghenyenergy.com.

Duplicate Mailings/Direct Deposit of Dividends  If you receive duplicate
mailings of the Annual Report or wish to have your dividends deposited directly
to your banking institution, please notify ChaseMellon Shareholder Services,
L.L.C., P.O. Box 3316, South Hackensack, NJ 07606. To speak to a representative
responsible for Allegheny Energy, Inc. shareholder accounts, call 1-800-648-
8389.

Stock Transfer Agent and Registrar  ChaseMellon Shareholder Services, L.L.C.,
Overpeck Centre, 85 Challenger Road, Ridgefield Park, NJ 07660. The internet
address is www.chasemellon.com.


DIVIDENDS PAID-RANGE OF COMMON STOCK PRICES PER SHARE


<TABLE>
<CAPTION>

                                     1999                                                 1998
                      -------------------------------------------   ---------------------------------------------
NYSE Composite
Transactions           Dividend     High     Low       Close          Dividend    High     Low     Close
-----------------------------------------------------------------------------------------------------------------
<S> <C>                  <C>   <C>  <C>  <C> <C>    <C>  <C>            <C>   <C> <C>   <C>  <C>  <C>  <C>
1st Quarter              .43   $ 34 1/2  $28 11/16  $ 29 1/2            .43   $ 33 9/16  $ 30 1/8  $ 33 9/16
2nd Quarter              .43     35 3/16  29 1/2      32 1/16           .43     34         27 5/16   30 1/8
3rd Quarter              .43     34 7/8   31          31 7/8            .43     31 15/16   26 5/8    31 9/16
4th Quarter              .43     33 1/8   26 3/16     26 15/16          .43     34 15/16   29 1/2    34 1/2


</TABLE>


The high and low prices in 2000 were $ 29 and $ 25 9/16 through February 3,
2000. The last reported sale on that date was $ 28 5/8.
------------------------------------------------------------------------------

                                           D-5


<PAGE>

                                                        Allegheny Energy, Inc.


QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


<TABLE>
<CAPTION>
(Millions of dollars)

                                                                          Basic and Diluted Earnings Per Average Share
                                                                           -------------------------------------------
                                   Consolidated                             Consolidated
                                   Income Before               Consolidated Income Before               Consolidated
               Operating Operating Extraordinary Extraordinary Net Income Extraordinary  Extraordinary  Net Income
Quarter Ended  Revenues    Income  Charge, Net   Charge, Net  (Loss)        Charge, Net  Charge, Net      (Loss)
----------------------------------------------------------------------------------------------------------------------
<S>  <C>          <C>        <C>         <C>       <C>         <C>             <C>        <C>               <C>
March 1998       $645.5     $124.7      $78.2                 $  78.2         $.64                       $    .64
June 1998*        627.6      100.1       53.8      $(265.4)    (211.6)         .44        $(2.17)           (1.73)
September 1998    726.6      128.6       82.7                    82.7          .68                            .68
December 1998*    576.7       86.1       48.3        (10.0)      38.3          .39          (.08)             .31
March 1999        690.0      140.2       97.8                    97.8          .80                            .80
June 1999         643.4      111.7       64.5                    64.5          .55                            .55
September 1999    741.4      117.2       71.3                    71.3          .63                            .63
December 1999**   733.7      105.5       51.8        (27.0)      24.8          .46          (.24)             .22
----------------------------------------------------------------------------------------------------------------------


</TABLE>


 *Results for the second and fourth quarters of 1998 reflect Pennsylvania
restructuring activities.
**Results for the fourth quarter of 1999 reflect charges for Maryland
restructuring, retiring debt related to the securitization of Pennsylvania
stranded costs, merger-related costs, and a long dormant pumped-storage
generation project.

                                           D-6


<PAGE>


                                                    Monongahela Power Company


QUARTERLY FINANCIAL INFORMATION
(Thousands of Dollars)

<TABLE>

<CAPTION>


                                                                   Quarter Ended
                                              1999                                           1998
                              Dec.       Sept.       June        March        Dec.       Sept.       June       March
  <S>                      <C>         <C>         <C>         <C>        <C>         <C>          <C>         <C>

Electric operating
  revenues .............   $163,904    $178,330    $160,459    $170,642   $155,712    $177,364     $153,774    $158,272
Operating income........     31,019      32,595      25,102      30,321     28,154      31,887       24,087      27,358
Net income..............     23,890      26,631      18,556      23,250     21,143      25,244       16,611      19,427



</TABLE>





SUMMARY OF OPERATIONS
Year ended December 31
(Thousands of Dollars)

<TABLE>

<CAPTION>

                                            1999        1998        1997        1996       1995        1994
  <S>                                    <C>          <C>         <C>         <C>         <C>         <C>
Electric operating revenues:
  Residential..........................  $210,757     $200,896    $199,931    $206,033    $209,065    $190,861
  Commercial...........................   130,052      126,464     118,825     121,631     124,457     116,201
  Industrial...........................   217,792      208,613     196,716     200,970     212,427     202,181
  Wholesale and street lighting........     7,138        7,656       7,600       7,513      7,255        7,142
     Revenues from regular customers....  565,739      543,629     523,072     536,147     553,204     516,385
  Affiliated...........................    84,747       77,314      83,600      74,825      73,216      79,674
  Other non-kWh........................     4,299        4,426       4,379       4,136       3,722       3,535
  Bulk power...........................     6,567        8,509       7,299       4,772       2,749       7,681
  Transmission and other energy
    services...........................    11,983       11,244       9,961      12,591      10,589       9,172
     Total revenues.....................  673,335      645,122     628,311     632,471     643,480     616,447

Operation expense......................   345,565      313,795     305,487     310,480     330,740     330,909
Maintenance............................    63,993       67,033      70,561      74,735      73,041      69,389
Internal restructuring charges
  and asset write-off..................                                         24,299       5,493
Depreciation...........................    60,905       58,610      56,593      55,490      57,864      57,952
Taxes other than income................    43,395       44,742      38,776      40,418      38,551      40,404
Taxes on income........................    40,440       49,456      47,519      34,496      41,834      30,650
Allowance for funds used
  during construction..................    (1,774)      (1,043)     (1,386)       (672)     (1,393)     (2,946)
Interest charges.......................    34,603       36,153      38,730      38,604      39,872      38,156
Other income, net......................    (6,119)      (6,049)     (8,498)     (6,831)     (9,235)     (8,003)
Income before cumulative effect
  of accounting change.................    92,327       82,425      80,529      61,452      66,713      59,936
Cumulative effect of accounting
  change, net (a)......................                                                                  7,945
Net income.............................  $ 92,327     $ 82,425    $ 80,529    $ 61,452    $ 66,713    $ 67,881

Return on average common equity (b)....    15.29%       13.62%      13.99%      11.00%      11.92%      10.66%

</TABLE>



(a) To record unbilled revenues, net of income taxes.
(b) Excludes the cumulative effect of the accounting change in 1994
    and a charge for a long dormant pumped-storage generation project
    in 1999. Includes the effect of internal restructuring in 1995 and 1996.

                                           D-7



<PAGE>


                                                    Monongahela Power Company



FINANCIAL AND OPERATING STATISTICS

<TABLE>

<CAPTION>

                                               1999       1998         1997       1996         1995         1994

PROPERTY, PLANT, AND EQUIPMENT
  at Dec. 31 (Thousands):
    <S>                                  <C>         <C>          <C>          <C>          <C>          <C>
    Gross..............................  $2,173,603  $2,007,876   $1,950,478   $1,879,622   $1,821,613   $1,763,533
    Accumulated depreciation...........    (958,867)   (883,915)    (840,525)    (790,649)    (747,013)    (701,271)
      Net..............................  $1,214,736  $1,123,961   $1,109,953   $1,088,973   $1,074,600   $1,062,262

GROSS ADDITIONS TO PROPERTY
  (Thousands):.........................  $   82,483  $   72,795   $   78,139   $   72,577   $   75,458   $  103,975

TOTAL ASSETS at Dec. 31
  (Thousands)..........................  $1,693,718  $1,519,764   $1,497,756   $1,486,742   $1,480,591   $1,476,483

CAPITALIZATION at Dec. 31
  (Thousands):
    Common stock.......................  $  578,951  $  570,188   $  540,930   $  512,212   $  505,752   $  495,693
    Preferred stock....................      74,000      74,000       74,000       74,000       74,000      114,000
    Long-term debt and QUIDS...........     503,741     453,917      455,088      474,841      489,995      470,131
                                         $1,156,692  $1,098,105   $1,070,018   $1,061,053   $1,069,747   $1,079,824

  Ratios:
    Common stock.......................       50.0%       51.9%        50.6%        48.3%        47.3%        45.9%
    Preferred stock....................        6.4         6.8          6.9          7.0          6.9         10.6
    Long-term debt and QUIDS...........       43.6        41.3         42.5         44.7         45.8         43.5
                                             100.0%      100.0%       100.0%       100.0%       100.0%       100.0%
GENERATING CAPABILITY--
  kW at Dec. 31:
    Company-owned......................  2,352,250     2,326,300    2,326,300   2,326,300    2,326,300    2,326,300
    Nonutility contracts (a)...........    161,000       161,000      161,000     161,000      161,000      161,000

KILOWATT-HOURS (Thousands):
  Sales Volumes:
    Residential........................  2,884,144     2,757,067    2,764,630   2,815,414    2,807,135    2,674,664
    Commercial.........................  2,148,361     2,102,604    1,987,147   2,007,116    1,967,473    1,846,791
    Industrial.........................  5,736,718     5,510,925    5,224,364   5,024,257    5,114,126    4,942,388
    Wholesale and street lighting......    152,476       142,797      142,827     142,198      138,456      134,351
      Sales to regular customers....... 10,921,699    10,513,393   10,118,968   9,988,985   10,027,190    9,598,194
    Affiliated.........................  2,746,111     1,950,803    2,080,542   1,694,722    1,596,081    1,791,099
    Bulk power.........................    191,784       301,656      249,505     196,843      105,126      285,048
    Transmission and other energy
      services.........................  2,138,247     1,932,160    3,007,439   4,218,150    3,497,216    2,278,111
        Total sales volumes............ 15,997,841    14,698,012   15,456,454  16,098,700   15,225,613   13,952,452
  Output and Delivery:
    Steam generation................... 12,146,537    11,251,721   10,936,469  10,678,491   10,620,003   10,743,934
    Pumped-storage generation..........    372,658       288,266      241,958     263,640      257,284      290,586
    Pumped-storage input...............   (481,872)     (370,822)    (310,565)   (337,451)    (330,915)    (373,116)

                                           D-8

<PAGE>

    Purchased power....................  2,562,752     2,283,055    2,294,059   2,040,136    1,903,644    1,685,938
    Transmission and other energy
      services.........................  2,138,247     1,932,160    3,007,439   4,218,150    3,497,216    2,278,111
    Losses and system uses.............   (740,481)     (686,368)    (712,906)   (764,266)    (721,619)    (673,001)
        Total transactions as above.... 15,997,841    14,698,012   15,456,454  16,098,700   15,225,613   13,952,452

CUSTOMERS at Dec. 31:
  Residential..........................    312,180       309,760      307,920     305,579      303,568      300,465
  Commercial...........................     38,654        37,929       37,168      36,323       35,793       35,268
  Industrial...........................      8,014         7,992        7,996       8,019        8,085        8,029
  Other................................        176           218          199         182          170          171
    Total customers....................    359,024       355,899      353,283     350,103      347,616      343,933

RESIDENTIAL SERVICE:
  Average use-
    kWh per customer...................      9,283         8,938        9,023       9,256        9,306        8,957
  Average revenue-
    dollars per customer...............     678.38        651.29       652.53      677.37       693.11       639.16
  Average rate-
    cents per kWh......................       7.31          7.29         7.23        7.32         7.45         7.14

</TABLE>


(a) Capability available through contractual arrangements with nonutility
    generator.

                                           D-9


<PAGE>


                                                  The Potomac Edison Company


 QUARTERLY FINANCIAL INFORMATION
 (Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                    Quarter Ended
                                                1999                                             1998
                              Dec.*      Sept.     June        March        Dec.       Sept.       June       March
   <S>                     <C>        <C>         <C>         <C>         <C>        <C>         <C>         <C>
 Electric operating
   revenues.............   $186,099   $189,489    $174,691    $202,978    $177,744   $190,533    $177,519    $191,698
 Operating income.......     28,736     34,348      27,543      45,095      34,458     36,680      30,036      37,622
 Income before
   extraordinary charge,
   net..................     19,191     26,492      18,736      36,164      25,757     27,299      20,504      27,922
 Extraordinary charge, net  (16,949)
 Net income.............      2,242     26,492      18,736      36,164      25,757     27,299      20,504      27,922


</TABLE>

 *Results for the fourth quarter of 1999 reflect charges for Maryland
restructuring and a long dormant pumped-storage   generation project.

SUMMARY OF OPERATIONS
Year ended December 31
(Thousands of Dollars)

<TABLE>
<CAPTION>
  <S>                                     <C>         <C>         <C>        <C>         <C>        <C>

                                            1999        1998        1997       1996        1995        1994
Electric operating revenues:
  Residential..........................   $330,299    $309,058    $299,876   $324,120    $316,714    $296,090
  Commercial...........................    168,469     156,973     148,287    146,432     145,096     135,937
  Industrial...........................    212,205     206,638     198,174    196,813     200,890     195,089
  Wholesale and street lighting.......       5,821(a)   27,667      30,443     32,907      27,028      26,109
    Revenues from regular customers....    716,794     700,336     676,780    700,272     689,728     653,225
  Affiliated...........................     11,352       9,401       9,687      2,399       2,525       2,716
  Other non-kWh........................        539       1,358      (1,273)      (405)       (961)     (4,647)
  Bulk power...........................      8,410      11,690      10,035      7,577       4,566       8,932
  Transmission and other
    energy services....................     16,162      14,709      13,552     16,917      14,811      12,675
    Total..............................    753,257     737,494     708,781    726,760     710,669     672,901

Operation expense......................    396,153     369,998     359,350    373,133     374,731     362,167
Maintenance............................     57,257      52,186      56,815     62,248      60,052      58,624
Internal restructuring charges
  and asset write-off..................                                        26,094       6,847
Depreciation...........................     75,917      74,344      71,763     71,254      68,826      59,989
Taxes other than income................     50,924      49,567      47,585     45,809      47,629      46,740
Taxes on income........................     37,284      52,603      44,496     34,132      36,936      33,126
Allowance for funds used
  during construction..................     (1,993)     (1,576)     (2,830)    (2,491)     (1,752)     (5,874)
Interest charges.......................     44,902      48,187      49,823     50,197      51,179      46,456
Other income, net......................     (7,770)     (9,297)    (13,976)   (11,791)    (12,044)    (10,310)

                                           D-10

<PAGE>


Income before extraordinary charge and
  cumulative effect of accounting
  change...............................    100,583     101,482      95,755     78,175      78,265      81,983
Extraordinary charge, net (b) .........    (16,949)
Cumulative effect of accounting
  change, net (c)......................                                                                16,471
Net income.............................   $ 83,634    $101,482    $ 95,755   $ 78,175    $ 78,265    $ 98,454

Return on average common equity (d)....      13.20%      13.90%      13.44%     11.42%      11.34%      11.86%


</TABLE>


(a) Includes reduction of $19,949 related to Maryland settlement.
(b) Write-off in connection with deregulation proceedings in Maryland.
(c) To record unbilled revenues, net of income taxes.
(d) Excludes the cumulative effect of the accounting change in 1994 and
    the extraordinary charge, net and a charge for a long dormant
    pumped-storage generation project in 1999. Includes the effect of
    internal restructuring in 1995 and 1996.

                                           D-11

<PAGE>


                                                  The Potomac Edison Company


 FINANCIAL AND OPERATING STATISTICS

<TABLE>
<CAPTION>

     <S>                                   <C>          <C>          <C>          <C>          <C>          <C>
                                           1999         1998         1997         1996         1995         1994
 PROPERTY, PLANT, AND EQUIPMENT
   at Dec. 31 (Thousands):
     Gross................................ $2,322,104   $2,249,716   $2,196,262  $2,124,956   $2,050,835   $1,978,396
     Accumulated depreciation.............   (998,710)    (926,840)    (859,076)   (791,257)    (729,653)    (673,853)
       Net................................  1,323,394   $1,322,876   $1,337,186  $1,333,699   $1,321,182   $1,304,543

 GROSS ADDITIONS TO PROPERTY
   (Thousands)............................ $   91,622   $   60,525   $   78,298  $   86,256   $   92,240   $  142,826

 TOTAL ASSETS at Dec. 31
  (Thousands)............................  $1,638,851   $1,728,619   $1,688,482  $1,696,904   $1,654,444   $1,629,535

 CAPITALIZATION at Dec. 31:
   (Thousands):
     Common stock......................... $  700,422   $  762,912   $  689,781  $  678,116   $  667,242   $  658,146
     Preferred stock:
       Not subject to mandatory redemption.                 16,378       16,378      16,378       16,378       36,378
       Subject to mandatory redemption....                                                                     25,200
     Long-term debt and QUIDS.............    510,344      578,817      627,012     628,431      628,854      604,749
                                            $1,210,766  $1,358,107   $1,333,171  $1,322,925   $1,312,474   $1,324,473
   Ratios:
     Common stock.........................      57.8%        56.2%        51.8%       51.3%        50.8%        49.7%
     Preferred stock:
       Not subject to mandatory redemption.                    1.2          1.2        1.2          1.3          2.7
       Subject to mandatory redemption....                                                                       1.9
     Long-term debt and QUIDS.............       42.2         42.6         47.0       47.5         47.9         45.7
                                                100.0%       100.0%       100.0%     100.0%       100.0%       100.0%
 GENERATING CAPABILITY--
   kW at Dec. 31                             2,099,120   2,073,292     2,073,292  2,072,292    2,072,292    2,072,292

 KILOWATT-HOURS (Thousands):
   Sales Volumes:
     Residential..........................  4,643,621    4,401,238    4,290,117   4,599,758    4,377,416    4,214,997
     Commercial...........................  2,667,928    2,498,546    2,331,789   2,288,229    2,213,052    2,136,081
     Industrial...........................  5,841,102    5,922,274    5,593,722   5,567,088    5,485,220    5,339,737
     Wholesale and street lighting........    683,691      657,357      666,383     724,011      603,572      591,799
       Sales to regular customers......... 13,836,342   13,479,415   12,882,011  13,179,086   12,679,260   12,282,614
     Affiliated...........................    894,094      498,069      591,876      47,781       52,967       61,815
     Bulk power...........................    233,189      402,635      369,732     315,808      173,110      331,832
     Transmission and other
       energy services....................  2,789,957    2,470,365    4,044,837   5,617,912    4,740,010    3,031,339
       Total sales volumes................ 17,753,582   16,850,484   17,888,456  19,160,587   17,645,347   15,707,600

                                           D-12

<PAGE>


   Output and Delivery:
     Steam generation..................... 11,483,502   11,254,505   11,002,533  10,762,678   10,410,118   10,464,607
     Hydro and pumped-storage generation..    413,206      416,983      370,026     401,998      395,315      426,550
     Pumped-storage input.................   (499,497)    (486,823)    (426,087)   (455,142)    (452,151)    (506,213)
     Purchased power......................  4,493,128    4,190,098    3,934,815   3,639,519    3,318,302    3,033,744
     Transmission and other
       energy services....................  2,789,957    2,470,365    4,044,837   5,617,912    4,740,010    3,031,339
     Losses and system uses...............   (926,714)    (994,644)  (1,037,668)   (806,378)    (766,247)    (742,427)
       Total transactions as above........ 17,753,582   16,850,484   17,888,456  19,160,587   17,645,347   15,707,600

 CUSTOMERS at Dec. 31:
   Residential............................    346,821      339,584      333,224     327,344      321,813      315,309
   Commercial.............................     45,968       44,828       43,794      42,670       41,759       40,927
   Industrial.............................      5,235        5,122        5,010       4,887        4,733        4,595
   Other..................................        620          641          598         571          543          524
     Total customers......................    398,644      390,175      382,626     375,472      368,848      361,355

 RESIDENTIAL SERVICE:
   Average use-
     kWh per customer.....................     13,523       13,093       13,003      14,179       13,729       13,506
   Average revenue-
     dollars per customer.................     961.92       919.42       908.87      999.10       993.35       948.76
   Average rate-
     cents per kWh........................       7.11         7.02         6.99        7.05         7.24         7.02

</TABLE>

                                           D-13


<PAGE>


	                                              West Penn Power Company
	                                              and Subsidiaries


QUARTERLY FINANCIAL INFORMATION
(Thousands of Dollars)

<TABLE>
<CAPTION>



                                                                    Quarter Ended
                                                  1999                                            1998
                                 Dec.       Sept.      June       March       Dec.      Sept.      June       March

      <S>                      <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
    Electric operating
      revenues................ $313,542   $395,662   $327,269   $317,730   $246,729   $288,272   $263,023   $280,703
    Operating income..........   45,711     42,295     47,089     58,674     17,038     56,248     40,627     52,619
    Consolidated net income
      (loss).................. $ 16,927     31,507     33,649     45,499     (5,504)    42,835   (239,138)    39,001


</TABLE>


SUMMARY OF OPERATIONS
Year ended December 31
(Thousands of Dollars)

<TABLE>
<CAPTION>

                                            1999         1998         1997         1996         1995         1994
<S>                                      <C>         <C>          <C>          <C>          <C>          <C>

Operating revenues.....................  $1,354,203  $1,078,727   $1,082,162   $1,089,124   $1,081,093   $1,011,337
Operation expense......................     800,438     552,514      524,051      531,522      523,279      531,059
Maintenance............................      93,436      91,724       98,252      104,211      114,489      111,841
Internal restructuring charges
  and asset write-offs.................                                            53,343       11,099        8,919
Depreciation and amortization..........     114,268     114,709      113,793      119,066      112,334       88,935
Taxes other than income................      80,719      88,722       90,140       90,132       89,694       87,224
Taxes on income........................      71,573      64,526       73,279       47,455       61,745       46,645
Allowance for funds used
  during construction..................      (2,933)     (2,403)      (4,085)      (2,723)      (5,041)     (10,777)
Interest charges.......................      68,723      67,640       69,629       71,072       67,902       60,274
Other income, net......................      (9,621)     (11,325)     (17,562)     (13,439)     (12,287)     (13,798)

Consolidated income before
  extraordinary charge and cumulative
  effect of accounting change..........     137,600      112,620      134,665       88,485      117,879      101,015
Extraordinary charge, net (a)..........     (10,018)    (275,426)
Cumulative effect of accounting
  change, net (b)......................                                                                       19,031
Consolidated net income (loss).........  $  127,582   $ (162,806)  $  134,665   $   88,485   $  117,879   $  120,046

Return on average common equity (c)....       20.97%       13.12%       13.70%        8.72%       11.46%        9.94%

</TABLE>


(a) Write-off in connection with Pennsylvania deregulation proceedings.
(b) To record unbilled revenues, net of income taxes.
(c) Excludes the cumulative effect of the accounting change in 1994, the
    extraordinary charge, net and Pennsylvania restructuring activities
    in 1998, and the extraordinary charge, net and a long dormant pumped-
    storage generation project in 1999.  Includes the effect of internal
    restructuring in 1995 and 1996.

                                        D-14

<PAGE>


FINANCIAL AND OPERATING STATISTICS

<TABLE>
<CAPTION>
                                         1999         1998         1997         1996         1995         1994

PROPERTY DATA
  at Dec. 31 (Thousands):
    <S>                               <C>          <C>          <C>          <C>          <C>          <C>
    Gross property................... $1,597,484   $3,365,784   $3,293,039   $3,182,208   $3,097,522   $3,013,777
    Accumulated depreciation.........   (506,416)  (1,362,413)  (1,254,900)  (1,152,383)  (1,063,399)  (1,009,565)
      Net property................... $1,091,068   $2,003,371   $2,038,139   $2,029,825   $2,034,123   $2,004,212

Gross additions during year:
     Utility......................... $   86,290   $   95,975   $  128,054   $  130,606   $  149,122   $  260,366
     Nonutility...................... $   27,956

TOTAL ASSETS at Dec. 31
  (Thousands)........................ $1,864,765   $2,887,706   $2,777,375   $2,724,367   $2,771,164   $2,731,858


CAPITALIZATION at Dec. 31
  (Thousands):
    Common stock..................... $   79,658   $  732,161   $  997,027   $  962,752   $  973,188   $  955,482
    Preferred stock..................                  79,708       79,708       79,708       79,708      149,708
    Long-term debt and QUIDS.........    966,026      837,725      802,319      905,243      904,669      836,426
                                      $1,045,684   $1,649,594   $1,879,054   $1,947,703   $1,957,565   $1,941,616
  Ratios:
    Common stock.....................        7.6%        44.4%        53.1%        49.4%        49.7%        49.2%
    Preferred stock..................                     4.8          4.2          4.1          4.1          7.7
    Long-term debt and QUIDS.........       92.4%        50.8         42.7         46.5         46.2         43.1
                                           100.0%       100.0%       100.0%       100.0%       100.0%       100.0%
GENERATING CAPABILITY
  kW at Dec. 31:
    Company-owned....................                3,721,408    3,671,408    3,671,408    3,671,408    3,671,408
    Nonutility contracts (a)..........    138,000      138,000      138,000      138,000      138,000      138,000

REVENUES (b)
  Residential........................ $  389,273   $  370,636   $  393,036   $  402,083   $  401,186   $  376,776
  Commercial.........................    201,728      217,954      223,347      224,663      224,144      207,165
  Industrial.........................    290,491      338,254      352,730      355,120      356,937      330,739
  Wholesale and street lighting......     27,425       33,650       27,051       26,194       25,330       25,425
    Revenues from regular utility
      customers......................    908,917      960,494      996,164    1,008,060    1,007,597      940,105
  Affiliated.........................     33,987       45,180       39,031       44,231       44,293       37,915
  Other non-kWh......................      6,468        4,152        6,377        3,903        3,765        3,980
  Bulk power.........................      7,549       49,605       22,188       10,012        5,687       12,339
  Transmission services..............     20,300       19,296       18,402       22,918       19,751       16,998
    Total utility revenues........... $  977,221   $1,078,727   $1,082,162   $1,089,124   $1,081,093   $1,011,337
  Total nonutility revenues.......... $  681,637

</TABLE>

                                            D-15

<PAGE>
<TABLE>
<CAPTION>

FINANCIAL AND OPERATING STATISTICS (continued)
______________________________________________________________________________________________
                                         1999         1998         1997         1996         1995         1994



KILOWATT-HOURS (Thousands):
  Sales Volumes:
    <S>                               <C>          <C>          <C>          <C>          <C>          <C>
    Residential.....................  6,028,420    5,778,155    5,756,594    5,913,412    5,818,838    5,740,028
    Commercial......................  3,903,446    4,023,523    3,833,178    3,835,831    3,782,250    3,624,117
    Industrial......................  7,222,636    8,237,627    8,046,166    7,974,265    7,857,689    7,426,267
    Wholesale and street lighting...    641,605      617,841      611,105      591,122      561,893      548,296
      Regular Utility transactions.. 17,796,107   18,657,146   18,247,043   18,314,630   18,020,670   17,338,708
    Affiliated......................  1,295,975    1,974,497    1,789,476    1,068,712    1,059,852      982,557
    Bulk power......................    145,717    2,332,825    1,046,905      453,028      227,893      471,050
    Transmission services...........  3,522,145    2,942,868(c) 5,392,916    7,567,153    6,348,926    4,093,693
      Total utility transactions.... 22,759,944   25,907,336   26,476,340   27,403,523   25,657,341   22,886,008
    Total nonutility transactions...  9,970,100

  Output and Delivery:
    Steam generation................ 17,593,971   20,053,422   19,523,537   18,578,677   18,143,822   17,750,267
    Hydro and pumped-storage
     generation.....................    774,505      620,496      559,241      682,747      581,353      673,195
    Pumped-storage input............   (878,237)    (640,242)    (561,135)    (612,877)    (606,953)    (684,715)
    Purchased power................. 12,979,203    2,890,986    2,968,258    2,583,166    2,507,196    2,253,701
    Transmission services...........  3,522,145    3,850,394    5,392,916    7,567,153    6,348,926    4,093,693
    Losses and system uses.......... (1,261,543)    (867,720)  (1,406,477)  (1,395,343)  (1,317,003)  (1,200,133)
      Total transactions as above... 32,730,044   25,907,336   26,476,340   27,403,523   25,657,341   22,886,008

CUSTOMERS at Dec. 31(d):
  Residential.......................    591,665      587,503      583,745      580,816      578,983      573,963
  Commercial........................     73,480       71,920       70,559       69,457       68,500       66,842
  Industrial........................     12,615       12,389       12,142       12,051       11,801       11,563
  Other.............................        570          608          629          607          598          586
    Total customers.................    678,330      672,420      667,075      662,931      659,882      652,954

RESIDENTIAL SERVICE (e):
  Average use-
    kWh per customer................     10,239        9,775        9,903       10,223       10,096       10,041
  Average revenue-
    dollars per customer............     698.73       644.98       674.73       695.08       696.06       659.07
  Average rate-
    cents per kWh...................       6.82         6.60         6.81         6.80         6.89         6.56

(a) Capability available through contractual arrangements with
      nonutility generators.
(b) Eliminations between utility and nonutility are shown on page 4.
(c) Excludes 907,526 kWh (in thousands) delivered to customers
      participating in the Pennsylvania pilot program that are
      included in regular customer transactions sales volumes.
(d) Customers in the Company's service territory receiving delivery
      service.
(e) Use, revenue, and rate statistics are calculated based on full
      service customers (customers receiving both generation and
      delivery from the Company).

</TABLE>
                                         D-16



<PAGE>
                                                 Allegheny Generating Company



QUARTERLY FINANCIAL INFORMATION
(Thousands of Dollars)

<TABLE>
<CAPTION>
                                                                    Quarter Ended
                                                    1999                                        1998
      <S>                      <C>       <C>        <C>        <C>          <C>        <C>        <C>        <C>
                                  Dec.     Sept.      June      March         Dec.       Sept.    June       March
    Electric operating
      revenues...............  $16,853   $18,072    $17,810    $17,857      $17,783    $18,303    $19,126    $18,604
    Operating income.........    8,220     8,821      8,586      8,455        8,699      9,297      9,258      9,400
    Net income...............    5,344     5,516      5,302      5,053        5,230      5,625      5,961      5,937

</TABLE>



SUMMARY OF OPERATIONS
Year ended December 31
(Thousands of Dollars)

<TABLE>
<CAPTION>

                                              1999        1998        1997        1996        1995        1994

<S>                                       <C>         <C>         <C>         <C>         <C>         <C>
Electric operating revenues............   $ 70,592    $ 73,816    $ 76,458    $ 83,402    $ 86,970    $ 91,022

Operation and maintenance expense......      5,023       4,592       4,877       5,165       5,740       6,695
Depreciation...........................     16,980      16,949      17,000      17,160      17,018      16,852
Taxes other than income taxes..........      4,510       4,662       4,835       4,801       5,091       5,223
Federal income taxes...................      9,997      10,959      11,213      13,297      13,552      14,737
Interest charges.......................     13,261      13,987      15,391      16,193      18,361      17,809
Other income, net......................       (394)        (86)     (9,126)         (3)        (16)        (11)
  Net Income...........................   $ 21,215    $ 22,753    $ 32,268    $ 26,789    $ 27,224    $ 29,717

Return on average common equity........      13.08%      12.57%      15.98%      12.58%      12.46%      13.14%

FINANCIAL AND OPERATING STATISTICS

PROPERTY, PLANT, AND EQUIPMENT
  at Dec. 31 (Thousands):
    Gross..............................   $828,894    $828,806    $828,658*   $837,050    $836,894*   $824,714
    Accumulated depreciation...........   (227,177)   (210,198)   (193,173)   (176,178)   (159,037)   (143,965)
      Net..............................   $601,717    $618,608    $635,485    $660,872    $677,857    $680,749

GROSS ADDITIONS TO PROPERTY
  (Thousands)..........................   $     85    $     69    $    444    $    178    $ 14,165*   $  1,065

TOTAL ASSETS
  at Dec. 31 (Thousands)...............   $620,883    $639,458    $663,920    $692,408    $710,287    $714,236

CAPITALIZATION AND SHORT-TERM DEBT
  at Dec. 31:
    (Thousands):
      Common stock.....................   $154,491    $165,276    $199,523    $202,955    $214,153    $222,729
      Long-term and short-term debt....    201,081     215,579     208,735     239,234     256,084     268,165


                                           D-17


<PAGE>

                                               Allegheny Generating Company



                                          $355,572    $380,855    $408,258    $442,189    $470,237    $490,894

    Ratios:
      Common stock.....................       43.4%       43.4%       48.9%       45.9%       45.5%       45.4%
      Long-term and short-term debt....       56.6        56.6        51.1        54.1        54.5        54.6
                                             100.0%      100.0%      100.0%      100.0%      100.0%      100.0%

KILOWATT-HOURS (Thousands):
  Pumping energy supplied by Parents...  1,962,534   1,497,887   1,297,787   1,405,470   1,390,019   1,564,044
  Pumped-storage generation............  1,526,824   1,164,325   1,011,366   1,098,278   1,081,112   1,218,446

</TABLE>


*Reflects a balance sheet reclassification in 1995 of $12 million from deferred
 charges to plant for a prior tax payment, and a related settlement of $8.8
 million in 1997 that was recorded as a reduction to plant.


                                           D-18


<PAGE>



                               48



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS


                           Page No.

AE                         M-1

Monongahela                M-28

Potomac Edison             M-44

West Penn                  M-62

AGC                        M-79


          The   information  required  by  this   Item   was
          furnished in the copy of the Form 10-K filed  with
          the Securities and Exchange Commission and is also
          found  in  AE's Annual Report to Stockholders  for
          1999.    You  may  obtain  an  Annual  Report   to
          Stockholders  upon  making a written  or  an  oral
          request  directed  to:   Allegheny  Energy,  Inc.,
          10435   Downsville  Pike,  Hagerstown,  MD  21740,
          Attention:   Eileen M. Beck, Secretary (tel.  301-
          790-3400).



ITEM 7A.  Quantitative and Qualitative Disclosure About
          Market Risk

      Allegheny Energy Supply enters into power purchase and
sales  contracts  to  sell  power generation  and  meet  its
contractual   requirements.   During  1999,  the   Operating
Subsidiaries  also  entered into power  purchase  and  sales
contracts to meet native load requirements and to sell power
generation.  Physical receipt or delivery is expected on all
these  contracts.   Neither the Operating  Subsidiaries  nor
Allegheny Energy Supply use futures contracts or options for
speculative  or  trading purposes.  Costs and  revenues  are
recognized in the month the energy is received or delivered.


<PAGE>


<PAGE>

                                                        Allegheny Energy, Inc.




MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS

Management's discussion and analysis of financial condition and results of
operations contains forecast information items that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
These include statements with respect to deregulation activities and movements
toward competition in states served by Allegheny Energy, Inc. (the Company) and
results of operations. All such forward-looking information is necessarily only
estimated. There can be no assurance that actual results will not materially
differ from expectations. Actual results have varied materially and
unpredictably from past expectations.

Factors that could cause actual results to differ materially include, among
other matters, electric utility restructuring, including ongoing state and
federal activities; developments in the legislative, regulatory, and competitive
environments in which the Company operates, including regulatory proceedings
affecting rates charged by the Company's subsidiaries; environmental,
legislative, and regulatory changes; future economic conditions; earnings
retention and dividend payout policies; the Company's ability to compete in
unregulated energy markets; and other circumstances that could affect
anticipated revenues and costs such as significant volatility in the market
price of wholesale power and fuel for electric generation, unscheduled
maintenance or repair requirements, weather, and compliance with laws and
regulations.

Business Strategy  Generation of electricity will continue to be a core
component of the Company's business. The Company's goal is to grow generation
through building and buying generating facilities. The energy delivery (wires
and pipes) business will also continue to be an important part of the Company's
business which the Company plans to expand. Existing nonutility businesses,
primarily telecommunications, that are closely tied to our core business will
continue to be developed.

The Company's settlement agreement in Pennsylvania permitted West Penn Power
Company (West Penn) to transfer 3,778 megawatts (MW) of generating capacity at
net book value to a new, unregulated, wholly owned subsidiary of the Company.
The recent settlement in Maryland will allow about 1,300 MW of additional
generating capacity to be transferred at net book value in 2000. The Company is
seeking to transfer the remaining generating assets in Ohio, Virginia, and West
Virginia to its unregulated subsidiary at book value in deregulation proceedings
in these jurisdictions. The unregulated electric supply is being sold in both
the wholesale and retail competitive marketplaces, allowing greater earnings
growth potential, subject to market risk, while allowing us to capitalize on the
Company's strengths in the generation business.

                                          M-1

<PAGE>
                                                        Allegheny Energy, Inc.


SIGNIFICANT EVENTS IN 1999, 1998, AND 1997

Maryland Deregulation  On September 23, 1999, a settlement agreement between The
Potomac Edison Company (Potomac Edison), the Staff of the Maryland Public
Service Commission (Maryland PSC), and other parties working to implement
customer choice and deregulation of electric generation for Potomac Edison in
Maryland was filed with the Maryland PSC. On December 23, 1999, the Maryland PSC
approved the settlement agreement, which provides nearly all of Potomac Edison's
211,000 Maryland customers with the ability to choose an electric generation
supplier starting July 1, 2000.

As a result of the Maryland settlement agreement, Potomac Edison discontinued
the application of the Financial Accounting Standards Board's (FASB) Statement
of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation," for the electric generation portion of its
Maryland operations and has adopted SFAS No. 101, "Accounting for the
Discontinuation of Application of FASB Statement No. 71." Accordingly, Potomac
Edison recorded an extraordinary charge of $26.9 million ($17.0 million after
taxes) during the fourth quarter of 1999. This write-off reflects the impairment
of certain electric generation assets as determined by applying SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the write-off of generation-related net regulatory assets.
See Notes B and C to the consolidated financial statements for details of the
settlement agreement and other information about the deregulation process.

See Electric Energy Competition on page 38 for more information regarding
restructuring in Maryland.

Pennsylvania Deregulation  On November 19, 1998, the Pennsylvania Public Utility
Commission (Pennsylvania PUC) approved a settlement agreement between West
Penn-the Company's Pennsylvania electric utility subsidiary-and parties to West
Penn's restructuring proceedings related to legislation in Pennsylvania to
provide customer choice of electric suppliers and deregulate electricity
generation.

As a result of the May 29, 1998, Pennsylvania PUC order and as revised by the
November 19, 1998, settlement agreement, West Penn determined in 1998 that,
under the provisions of SFAS No. 101, an extraordinary charge of $466.9 million
($275.4 million after taxes) was required to reflect a write-off of certain
disallowances. Charges of $40.3 million ($23.7 million after taxes) related to
the West Penn revenue refund and energy program payments were also recorded in
1998.

Under the terms of the Pennsylvania settlement agreement, two-thirds of West
Penn's customers were permitted to choose an alternate generation supplier
beginning in January 1999.

                                         M-2

<PAGE>
                                                        Allegheny Energy, Inc.


All West Penn customers were permitted to do so beginning in January 2000. They
were able to remain as West Penn customers at West Penn's capped generation
rates or to alternate back and forth. Under the law, all electric utilities,
including West Penn, retain the responsibility of electricity provider of last
resort to all customers in their respective franchise territories who do not
choose an alternate supplier. See Notes B and C to the consolidated financial
statements for details of the settlement agreement and other information about
the deregulation process.

See Electric Energy Competition on page 38 for more information regarding the
restructuring in Pennsylvania.

Nonutility Sales of Electricity  Since 1997, the Company has been marketing
electric energy to customers in deregulated markets. During 1999, the Company's
energy supply business sold 2,912,273 megawatt-hours (MWh) of electricity to
customers in deregulated retail markets and 21,374,732 MWh to customers in
deregulated wholesale markets. During 1999, West Penn's former generation
customers purchased 2,522,611 MWh of electricity from alternative energy
suppliers as a result of customer choice in Pennsylvania.

Unregulated Generating Subsidiary  During 1999, the Company obtained the
necessary regulatory approvals to form an unregulated generating subsidiary,
Allegheny Energy Supply Company, LLC (Allegheny Energy Supply). During the
fourth quarter of 1999, West Penn transferred its deregulated generating
capacity, which totaled 3,778 MW, to Allegheny Energy Supply at book value as
allowed by the final settlement in West Penn's Pennsylvania restructuring case.
In addition, Allegheny Energy Supply purchased from AYP Energy, Inc. (AYP
Energy) its 276 MW of merchant capacity at Fort Martin Unit No. 1.

Recapitalization  In 1999, the Company completed the following steps in its
recapitalization process for West Penn concurrent with the implementation of
deregulation of electric generation in Pennsylvania:

* $600 million of transition bonds were issued in November 1999;

* $525 million of first mortgage bonds were called or redeemed during the year;

* $79.7 million of preferred stock was called or redeemed

in July 1999; and

* West Penn revised its Articles of Incorporation to provide greater financial
flexibility.

During 1999, West Penn reacquired all of its outstanding first mortgage bonds.
As a result, the Company incurred an extraordinary charge of $17.0

                                         M-3

<PAGE>
                                                        Allegheny Energy, Inc.


million ($10.0 million after taxes) during the fourth quarter of 1999. The
extraordinary charge was the result of premiums paid to reacquire the first
mortgage bonds as compared to the carrying value of the bonds.

In addition, the Company repurchased 12 million shares of its outstanding common
stock for $398.4 million, and Potomac Edison also called $16.4 million of
preferred stock. Potomac Edison also plans to revise its Articles of
Incorporation to provide greater financial flexibility.

Additional Generation  In 1999, the Company installed two 44-MW simple-cycle gas
combustion turbines in Springdale Borough in Allegheny County, Pennsylvania, at
a cost of approximately $46 million. These units are unregulated merchant plants
and became operational at the end of 1999. Both run on either No. 2 diesel oil
or natural gas. As part of the installation, existing gas lines were upgraded
and 500,000 gallons of oil storage capacity will be built. Transmission
facilities at the site and the nearby interconnections were also upgraded. The
generation output is being sold into the competitive power markets in the
eastern United States. These combustion turbines will be transferred to
Allegheny Energy Supply in the first quarter of 2000 or as soon thereafter that
the necessary regulatory approval can be obtained from the Securities and
Exchange Commission (SEC).

Allegheny Energy Supply is purchasing additional combustion turbines that will
add 220 MW to our fleet in 2000 at a cost of approximately $120 million. Also,
Allegheny Energy Supply is building a 540-MW combined-cycle generating plant at
Springdale, Pennsylvania, at a cost of $235 million. The new facility will
include two gas-fired combustion turbines and a steam turbine. All are expected
to be operational and providing power for sale into competitive markets in 2003.

Another new project is the anticipated development of a 100-MW generation
project in Warren County in northwestern Pennsylvania. A memorandum of
understanding was signed with Foster Wheeler Power Systems, Inc. (Foster
Wheeler) and United Refining Company (United Refining). The project will include
an upgrade by Foster Wheeler to United Refining's facility in the city of
Warren, Pennsylvania, with the installation of a petroleum coker and associated
equipment.

The generation project, if it is developed as planned, will be co-owned by
Allegheny Energy Supply, Foster Wheeler, and United Refining. It will
incorporate circulating fluidized-bed technology and use waste by-products from
the petroleum coking process in the production of electricity for the refinery
and for sale in the open market. Excess capacity from the generation will be
marketed by Allegheny Energy Supply, and steam produced by the project will be
used by the refinery. Construction expenditures for the entire project are
estimated at up to $300 million, of which Allegheny Energy Supply's share is
estimated at up to $100 million based on the participation of all three
potential co-owners or up to $150 million if one of the other potential co-
owners elects not to participate. Construction is anticipated to begin in early
2001. The memorandum of understanding to develop the facility has been signed by
all the parties, but a satisfactory feasibility study,

                                          M-4

<PAGE>
                                                        Allegheny Energy, Inc.



acceptable financing terms and conditions, permitting, and execution of
definitive project agreements are necessary before construction can begin.

Acquisitions  In December 1999, Monongahela Power Company (Monongahela Power),
one of the Company's West Virginia subsidiaries, purchased from UtiliCorp United
Inc. headquartered in Kansas City, Missouri, the assets of West Virginia Power,
an electric and natural gas distribution company located adjacent to Monongahela
Power's service territory in southern West Virginia, for approximately $95
million. As part of the transaction, Monongahela Power signed a 20-year option
agreement with UtiliCorp United's subsidiary, Aquila Energy, for gas supply to
Monongahela Power. Electricity is being supplied under an existing contract with
American Electric Power until December 31, 2001, and thereafter will be supplied
from the existing generation of the Company or from the market. Consumers will
benefit from a six-year freeze of natural gas base rates and a three-year freeze
of electric rates, with a reduction in electric rates in 2003 to rates now
offered by Monongahela Power. The acquisition included 26,000 electric and
24,000 natural gas customers, 1,989 miles of electric distribution lines, 670
miles of gas pipelines, and 1,360 square miles of electric and 500 square miles
of gas service territory. West Virginia Power has approximately 120 employees.

In conjunction with the acquisition of West Virginia Power's assets, the Company
purchased for $2.1 million the assets of a heating, ventilation, and air
conditioning business with approximately 10,000 customers and 52 employees.

In December 1999, Allegheny Communications Connect, Inc., the telecommunications
subsidiary of Allegheny Ventures, Inc., purchased for $3.1 million approximately
10% of Genosys Technology Management Inc., a recently formed network operation
center services company. The new enterprise will enable the Company to provide
value-added services, such as around-the-clock network monitoring and
maintenance services, to customers of its growing fiber optic network.

Monongahela Power also plans to purchase Mountaineer Gas Company, a natural gas
sales, transportation, and distribution company serving southern West Virginia
and the northern and eastern panhandles of West Virginia, from Energy
Corporation of America for $323 million (which includes the assumption of
approximately $100 million in existing debt). The planned acquisition also
includes the assets of Mountaineer Gas Services, which operates natural gas-
producing properties, natural gas-gathering facilities, and intrastate
transmission pipelines. Mountaineer Gas has 490 employees, approximately 200,000
residential, commercial, and industrial gas customers, 3,926 miles of gas
pipeline, and 11.7 billion cubic feet of gas storage. The completion of the
transaction is conditioned upon, among other things, the approvals of the Public
Service Commission of West Virginia (W.Va. PSC) and the SEC. The companies
anticipate that regulatory approval could be received by mid-2000.

                                         M-5

<PAGE>
                                                        Allegheny Energy, Inc.




PURPA Power Project Terminations  On August 26, 1997, and December 3, 1997, West
Penn announced that it had negotiated agreements to buy out and settle disputes
with developers of proposed power plants (the Milesburg and Washington Power
projects) for $15 million and $48 million, respectively, reducing costs over the
proposed 30- and 33-year lives of the projects by an estimated $1.4 billion. The
disputed projects were being developed under the Public Utility Regulatory
Policies Act of 1978 (PURPA) and would have required West Penn to buy 43 MW and
80 MW of capacity and energy, respectively, over the lives of the projects at
prices well above current market price estimates. In 1999, the Company settled
for $5 million litigation by another developer alleging failure by the Company
to comply with PURPA regulations.

Articles of Incorporation  As a result of the passage of Maryland legislation
affecting corporate governance of companies incorporated in the state, the Board
of Directors by resolution in July 1999 amended the Company's Articles of
Incorporation. The Board resolution adopted a provision creating three classes
of directors of nearly even size, with the term of each director continuing for
the full initial term of the class to which he or she is designated; a provision
that directors cannot be removed from the Board except by a two-thirds vote of
all votes entitled to be cast by shareholders in an election of directors; that
vacancies may be filled only by the Board and for the full remainder of the
term; and that the number of directors may be fixed only by the Board.

Proposed Merger with DQE, Inc.  See Note D to the consolidated financial
statements for information about the proposed merger with DQE, Inc.

Electric Industry Restructuring  See Electric Energy Competition on page 38 for
ongoing information regarding electric industry restructuring.


REVIEW OF OPERATIONS
Earnings Summary

<TABLE>
<CAPTION>
                                                               Basic and Diluted
                                                                 Earnings Per
                                          Earnings               Average Share
--------------------------------------------------------------------------------
(Millions of dollars
except per share data)        1999     1998     1997     1999     1998     1997
--------------------------------------------------------------------------------
Operations:
  <S>                        <C>     <C>       <C>       <C>     <C>       <C>
  Utility                    $236.5  $ 283.3   $295.7    $2.03   $ 2.32    $2.42
  Nonutility                   48.9    (20.3)   (14.4)     .42     (.17)   (.12)
--------------------------------------------------------------------------------

Consolidated income           285.4    263.0    281.3     2.45     2.15    2.30
before extraordinary
charges
Extraordinary charges,        (27.0)  (275.4)             (.23)   (2.25)



                                          M-6

<PAGE>
                                                        Allegheny Energy, Inc.



net (Notes B, C, and F to
consolidated financial statements)
-------------------------------------------------------------------------------
Consolidated net income
  (loss)                     $258.4  $ (12.4)  $281.3    $2.22   $ (.10)  $2.30
--------------------------------------------------------------------------------


</TABLE>


The decrease in 1999 earnings from utility operations, before extraordinary
charges, reflects the deregulation of two-thirds of West Penn's electric
generation effective January 1, 1999, as approved by the Pennsylvania PUC's
restructuring order for West Penn. Accordingly, the operating results for these
assets are classified as nonutility in 1999. The 1999 utility operations also
reflect higher operation and maintenance expenses, including the write-off of
$19.7 million of merger-related costs and $16.2 million of costs from a long
dormant pumped-storage generation project. The decrease in 1998 earnings from
utility operations, before extraordinary charges, reflects $23.7 million of
costs, after taxes, related to the Pennsylvania restructuring settlement.

In 1999, earnings from nonutility operations, before extraordinary charges,
increased consolidated net income by $48.9 million, an increase of $69.2 million
over 1998's loss. This increase in nonutility earnings reflects the sale of
generation from two-thirds of West Penn's generation assets into deregulated
markets as discussed under Sales and Revenues and improved results over 1998
performance in such markets. The 1998 increase in the losses from nonutility
operations, before extraordinary charges, resulted from AYP Energy sales
commitments for energy in excess of owned generating capacity which required
settlement by open market purchases during periods of high wholesale prices.
Also contributing to the nonutility losses in 1998 and 1997 were losses of $1.7
million and $1.4 million, respectively, by Allegheny Energy Solutions for its
participation in the Pennsylvania pilot program (see Note B to the consolidated
financial statements for more information about the pilot program).

Extraordinary charges in 1999 and 1998 resulted from the Maryland and
Pennsylvania electric utility restructuring orders as discussed in Notes B and C
to the consolidated financial statements and the redemption of debt by West Penn
in 1999 related to the securitization of stranded costs as discussed in Note F
to the consolidated financial statements.

Earnings per share in 1999 increased $.11 per share due to the Company's common
stock repurchase program.

Sales and Revenues

Total operating revenues for 1999, 1998, and 1997 were as follows:

                                       M-7

<PAGE>

                                                        Allegheny Energy, Inc.





<TABLE>
<CAPTION>


OPERATING REVENUES
(Millions of dollars)                                     1999         1998      1997
---------------------------------------------------------------------------------------
Operating revenues:
  Utility revenues:
    <S>                                                <C>          <C>        <C>
    Regulated                                          $2,168.4     $2,201.2   $2,203.0
    Choice                                                 34.3         14.0        2.5
    Bulk power                                             22.5         69.8       39.6
    Transmission and other energy services                 48.5         45.2       41.1
---------------------------------------------------------------------------------------
      Total utility revenues                            2,273.7      2,330.2    2,286.2
---------------------------------------------------------------------------------------

  Nonutility revenues:
    Retail and other                                      156.0         31.7        4.9
    Bulk power                                            731.4        215.3       80.9
---------------------------------------------------------------------------------------

      Total nonutility revenues                           887.4*       247.0       85.8
---------------------------------------------------------------------------------------

    Elimination between utility and nonutility           (352.7)         (.8)      (2.5)
---------------------------------------------------------------------------------------
      Total operating revenues                         $2,808.4     $2,576.4   $2,369.5
---------------------------------------------------------------------------------------
</TABLE>


*Nonutility operating revenues include $57.1 million in 1999 of allocated
Competitive Transition Charge revenues to compensate for certain transition
costs transferred to nonutility operations.



The decrease in regulated revenues (regulated revenues include revenues from
West Penn customers eligible to choose an alternate energy supplier but electing
not to do so) in 1999 was due primarily to Pennsylvania deregulation, which gave
two-thirds of West Penn's regulated customers the ability to choose another
energy supplier and to a reduction in Potomac Edison's Maryland rates as part of
a settlement agreement. In 1999, 2,522,611 MWh of electric energy was supplied
to West Penn customers by alternative energy suppliers, which represented only
11% of West Penn's total MWh sales. The decrease to regulated revenues was
offset in part by colder winter weather in 1999, which led to increased
residential kilowatt-hour (kWh) sales and revenues. Utility regulated revenues
in 1998 included a $25.1 million rate refund, pursuant to the terms of the
Pennsylvania restructuring settlement agreement. Excluding this rate decrease,
utility regulated revenues increased $23.3 million in 1998, primarily due to
increased kWh sales to commercial and industrial customers. The increase in 1998
was also due to an increase in the number of customers.

Utility choice revenues for 1999 represent transmission and distribution
revenues from West Penn franchised customers (customers in West Penn's
territory) who chose another supplier to provide their energy needs. In 1999,
less than 2% of West Penn's customers chose alternate energy suppliers. The
Company's nonutility supply business had the primary objective of selling the
output from the two-thirds of West Penn's generation that had been freed up

                                         M-8

<PAGE>

                                                        Allegheny Energy, Inc.


by the Electricity Generation Customer Choice and Competition Act (Customer
Choice Act) in Pennsylvania.

In 1998 and 1997, the choice revenues represent the 5% of previously fully
bundled customers (full service customers) who participated in the Pennsylvania
pilot program that began November 1, 1997, and continued through December 31,
1998, and were required to buy energy from an alternate supplier. To assure
participation in the pilot program, pilot participants received an energy credit
from their local utility and a price for energy pursuant to an agreement with an
alternate supplier. The credit established by the Pennsylvania PUC was
artificially high to encourage customer shopping, and, as a result, West Penn
incurred a revenue loss of $8.6 million for the pilot. The Pennsylvania PUC has
approved West Penn's pilot compliance filing and thus has indicated its intent
to treat the revenue loss as a regulatory asset.

On August 7, 1998, the Virginia State Corporation Commission (Virginia SCC)
approved an agreement reached between Potomac Edison and the Staff of the
Virginia SCC which reduced base rates for Virginia customers beginning September
1, 1998, by about $2.5 million annually. The review of rates was required by an
annual information filing in Virginia.

On February 25, 1999, the Virginia SCC approved Potomac Edison's rate reduction
request, which decreased the fuel portion of Virginia customers' bills by
approximately 7.6% (a decrease in annual fuel revenue of about $2.2 million).
The decrease is primarily due to refunding a prior overrecovery of fuel costs,
coupled with a small decrease in projected energy costs. The new rates were
effective with bills rendered on or after March 9, 1999.

On May 21, 1999, the Virginia SCC approved an agreement reached between Potomac
Edison and the staff of the Virginia SCC which reduced base rates for Virginia
customers effective June 1, 1999, by about $3 million annually. The review of
rates is required by an annual information filing in Virginia.

On February 26, 1999, the W.Va. PSC entered an order to initiate a fuel review
proceeding to establish a fuel increment in rates for Potomac Edison and
Monongahela Power to be effective July 1, 1999, through June 30, 2000. The
parties have exchanged proposals which continue to be discussed. If an agreement
is not reached, the proposed fuel rates which would increase Monongahela Power's
fuel rates by $10.9 million and decrease Potomac Edison's fuel rates by $8.0
million will become effective March 15, 2000.

On November 8, 1999, Potomac Edison filed with the Maryland PSC a request to
decrease the fuel portion of Maryland customers' bills by about $6.4 million
annually. The requested decrease is primarily due to greater efficiencies, lower
fuel costs, and increased nonaffiliated generation and transmission sales. The
new fuel rates were effective with bills rendered on or after December 7, 1999,
subject to refund, based on the outcome of proceedings before the Maryland PSC.

On October 27, 1998, the Maryland PSC approved a settlement agreement for
Potomac Edison. Under the terms of that agreement, Potomac Edison increased its
rates $13 million in 1999, will increase its rates an additional $13

                                       M-9

<PAGE>

                                                        Allegheny Energy, Inc.


million in 2000, and an additional increase of $13 million will go into
effect in 2001 (a $79 million total revenue increase during 1999 through
2001). The increases are designed to recover additional costs of about $131
million over the 1999 through 2001 period for capacity purchases from the AES
Warrior Run cogeneration project, net of alleged over-earnings of $52 million
for the same period. The net effect of these changes over the 1999 through 2001
time frame results in a pre-tax income reduction of $12 million in 1999, $21
million in 2000, and $19 million in 2001. Also, Potomac Edison will share, on a
50% customer, 50% shareholder basis, earnings above a return on equity of 11.4%
in Maryland for 1999 and 2000. This sharing will occur through an annual
true-up. Potomac Edison's 1999 revenues reflect an estimated obligation for
shared earnings above an 11.4% return on equity.

Utility-related revenues reflect not only changes in kWh sales and base rate
changes, but also any changes in revenues from fuel and energy cost adjustment
clauses (fuel clauses) which are still applicable in all Company jurisdictions
served, except for Pennsylvania. Effective July 1, 2000, Potomac Edison's
Maryland jurisdiction will also cease to have a fuel clause under the terms of
the September 23, 1999, settlement agreement. Changes in fuel revenues in
jurisdictions for which a fuel clause continues to exist have no effect on
consolidated net income because increases and decreases in fuel and purchased
power costs and sales of transmission services and bulk power are passed on to
customers by adjustment of customers' bills through fuel clauses.

Effective May 1, 1997, as a result of the Customer Choice Act, West Penn
obtained Pennsylvania PUC authorization to set its fuel clause to zero and to
roll its then-applicable fuel clause rates into base rates. Thereafter, West
Penn assumed the risks and benefits of changes in fuel and purchased power
costs and sales of transmission services and bulk power. Effective July 1,
2000, Potomac Edison will assume similar risks and benefits for its Maryland
jurisdiction.

The 1999 decrease in revenues from utility bulk power was due to the movement of
generation available for sale from regulated utility to nonutility. The 1998
increase in revenues from utility bulk power and transmission and other energy
services sales was due to increased sales that occurred primarily in the second
quarter as a result of warm weather which increased the demand and price for
energy. In 1998, revenues from utility transmission and other energy services
were affected by a revenue refund resulting from a reduction in the Company's
standard transmission rate and rates for ancillary services which were approved
by the Federal Energy Regulatory Commission (FERC). A provision for these rate
reductions was recorded in 1998, with the revenues refunded to customers in the
first quarter of 1999.

Revenues from utility operations transmission and other energy services in 1998
increased, despite decreased transmission services activity. The increase in
revenues was due in part to transmission services reservation charges paid to
the Company by others for the right to transmit energy.

In June and July 1999 and June and July 1998, certain events combined to produce
significant volatility in the spot prices for electricity at the wholesale
level. These events included extremely hot weather, generation unit

                                       M-10
<PAGE>

                                                        Allegheny Energy, Inc.


outages, and transmission constraints. Wholesale prices for electricity rose
from a normal range of $25 to $40 per MWh to as high as $3,500 to $7,000 per
MWh. The potential exists for such volatility to significantly affect the
Company's operating results. The effect may be either positive or negative,
depending on whether the Company's subsidiaries are net buyers or sellers of
electricity during such periods, the open commitments which exist at such times,
and whether the effects of such transactions by the Company's utility
subsidiaries are included in fuel or energy cost recovery clauses in their
respective jurisdictions. The effect of such price volatility in June and July
of 1998 differed between the Company's utility and nonutility subsidiaries, but
was insignificant in total. The effect in 1999 was to measurably increase
earnings in total for the Company even though individual subsidiary experiences
were again diverse.

Nonutility revenues have increased primarily because of bulk power sales to
nonaffiliated companies and new sales in Pennsylvania's competitive marketplace.
The Company's supply business officially began supplying unregulated electricity
to retail customers in Pennsylvania and wholesale customers throughout eastern
North America on January 1, 1999. Allegheny Energy Supply also engages in other
transactions in the unregulated marketplace to sell electricity to both
wholesale and retail customers.

The elimination (see page 32) between utility and nonutility revenues is
necessary to remove the effect of affiliated revenues, primarily sales of power.

See Note B to the consolidated financial statements for information regarding
the Competitive Transition Charge.

OPERATING EXPENSES

Fuel expenses for 1999, 1998, and 1997 were as follows:

Fuel expenses

(Millions of dollars)            1999       1998       1997
-------------------------------------------------------------
Utility operations             $ 355.5     $545.4     $535.7
Nonutility operations            180.2       21.1       24.2
-------------------------------------------------------------

  Total fuel expenses          $ 535.7     $566.5     $559.9
-------------------------------------------------------------




Total fuel expenses decreased 5% in 1999 due to a 7% decrease in average fuel
prices offset by a 2% increase related to kWhs generated. The decrease in fuel
expenses for utility operations and the increase in fuel expenses for nonutility
operations in 1999 were due to the fuel expenses associated with the two-thirds
of West Penn's freed up generation being marketed as part of nonutility
operations.

                                        M-11
<PAGE>

                                                        Allegheny Energy, Inc.




Purchased power and exchanges, net, represents power purchases from and
exchanges with other companies and purchases from qualified facilities under
PURPA and consists of the following items:

<TABLE>
<CAPTION>

PURCHASED POWER AND EXCHANGES, NET

(Millions of dollars)                                     1999       1998      1997
------------------------------------------------------------------------------------
Utility operations:
  Purchased power:
    <S>                                                 <C>         <C>       <C>
    From PURPA generation*                              $ 104.1     $129.0    $134.8
    Other                                                 395.8       50.0      41.2
------------------------------------------------------------------------------------

      Total purchased power for utility operations        499.9      179.0     176.0
  Power exchanges, net                                     (2.6)       (.7)       .3
Nonutility operations purchased power                     390.1      210.5      43.5
Elimination                                              (356.0)
------------------------------------------------------------------------------------
  Purchased power and exchanges, net                    $ 531.4     $388.8    $219.8
------------------------------------------------------------------------------------
*PURPA cost (cents per kWh)                                .048       .054      .056

</TABLE>


Utility purchased power from PURPA generation decreased $24.9 million in 1999.
This decrease reflects a $11.1 million reduction related to West Penn's purchase
commitment at costs in excess of the market value of the AES Beaver Valley PURPA
contract. This reduction reflects the amortization of the adverse purchased
power commitment reserve recorded in 1998, which is net of the Competitive
Transition Charge revenue recovery in conjunction with deregulation proceedings
in Pennsylvania. The decrease in purchased power also includes a $12.5 million
reduction in the purchase price for that contract due to a scheduled capacity
rate decrease defined annually in the contract. The decrease in utility
purchased power from PURPA generation in 1998 was due primarily to reduced
generation at hydroelectric plants due to river flow. PURPA purchased power
costs may be reduced by $197 million during the period 1999 through 2016 related
to the AES Beaver Valley contract as a result of the 1998 extraordinary charge.
See Notes B and C to the consolidated financial statements for further
information.

The increase in other utility operations purchased power in 1999 was due
primarily to West Penn's purchase of power from its nonutility affiliate,
Allegheny Energy Supply, in order to provide energy to the two-thirds of its
customers eligible to choose an alternate supplier, but who elected not to do
so. The increase in other utility operations purchased power in 1998 resulted
primarily from increased purchases for sales.

An increase in market prices caused by volatility in the spot prices for
electricity at the wholesale level in the second and third quarters of 1998 also
contributed to the increase.

                                         M-12
<PAGE>

                                                        Allegheny Energy, Inc.




The increase in nonutility purchases in 1999 was due to increased purchases for
sale to its utility affiliate and to take advantage of transaction opportunities
in the market. The increase in nonutility purchases in 1998 was due primarily to
an increase in volume attributable to AYP Energy's increased participation in
the market.

The elimination as shown on page 34 between utility and nonutility purchased
power is necessary to remove the effect of affiliated purchased power expenses.

The AES Warrior Run PURPA cogeneration contract in Potomac Edison's Maryland
service territory will increase the cost of power purchases by about $60 million
annually. Commencement of operation was scheduled for October 1999. Pre-
commencement testing is not completed. Although AES Warrior Run has until
October 1, 2000, to complete pre-commencement testing, it is anticipated that it
will be in commercial operation in the first quarter of 2000. The Maryland PSC
has approved Potomac Edison's full recovery of the AES Warrior Run purchased
power costs as part of the September 23, 1999, settlement agreement. See Sales
and Revenues starting on page 32 for more information on the settlement
agreement.

Other operation expenses for 1999, 1998, and 1997 were as follows:

OTHER OPERATION EXPENSES

(Millions of dollars)                 1999       1998       1997
-----------------------------------------------------------------
Utility operations                   $346.7     $319.2     $292.3
Nonutility operations                  72.4       18.2       16.7
Elimination                           (29.7)
-----------------------------------------------------------------

Total other operation expenses       $389.4     $337.4     $309.0
-----------------------------------------------------------------




The increase in total other operation expenses in 1999 of $52.0 million was due
primarily to recording $19.7 million in merger-related costs previously deferred
and $16.2 million related to a pumped-storage generation project no longer
considered useful, increases in salaries and wages of $8.0 million, $5.0 million
for costs associated with settling litigation concerning a PURPA project, and
increased allowances for uncollectible accounts of $2.1 million. The increase in
utility other operation expenses in 1998 was due primarily to increased expenses
related to competition and the Pennsylvania restructuring order ($24.3 million).
See Note B to the consolidated financial statements for additional information
related to Pennsylvania restructuring. Nonutility other operation expenses
reflect increased business activity.

The elimination between utility and nonutility operation expenses is primarily
to remove the effect of affiliated transmission purchases.

Maintenance expenses for 1999, 1998, and 1997 were as follows:

                                      M-13
<PAGE>

                                                        Allegheny Energy, Inc.




MAINTENANCE EXPENSES

(Millions of dollars)           1999       1998       1997
-----------------------------------------------------------
Utility operations             $182.6     $212.3     $227.1
Nonutility operations            40.9        5.3        3.5
-----------------------------------------------------------
Total maintenance expenses     $223.5     $217.6     $230.6
-----------------------------------------------------------



Total maintenance expenses increased $5.9 million in 1999 due primarily to
increased maintenance and renovations of general plant structures of $5.1
million. The decrease in utility maintenance and the increase in nonutility
maintenance was due to the maintenance associated with the two-thirds of West
Penn generation which is now deregulated and being classified as nonutility
maintenance. The decrease in utility maintenance in 1998 was due primarily to a
management program to postpone such expenses for the year in response to limited
sales growth in the first quarter due to the warm winter weather. The Company
postponed these expenses primarily by extending the time between maintenance
outages and experienced no measurable effect on system performance. The increase
in nonutility maintenance expense in 1998 was primarily related to a 1998
planned outage for maintenance of Unit No. 1 of the Fort Martin Power Station.

Maintenance expenses represent costs incurred to maintain the power stations,
the transmission and distribution (T&D) system and general plant, and to reflect
routine maintenance of equipment and rights-of-way, as well as planned major
repairs and unplanned expenditures, primarily from forced outages at the power
stations and periodic storm damage on the T&D system. Variations in maintenance
expenses result primarily from unplanned events and planned major projects,
which vary in timing and magnitude depending upon the length of time equipment
has been in service without a major overhaul and the amount of work found
necessary when the equipment is dismantled.

Depreciation and amortization expenses for 1999, 1998, and 1997 were as follows:

DEPRECIATION AND AMORTIZATION EXPENSES

(Millions of dollars)                             1999       1998       1997
-----------------------------------------------------------------------------
Utility operations                               $198.0     $264.6     $259.1
Nonutility operations                              59.5        5.8        6.6
-----------------------------------------------------------------------------
Total depreciation and amortization expenses     $257.5     $270.4     $265.7
-----------------------------------------------------------------------------



Total depreciation and amortization expenses in 1999 decreased $12.9 million due
primarily to a $24.6 million reduction related to a 1998 write-down of

                                       M-14
<PAGE>

                                                        Allegheny Energy, Inc.


West Penn's share of costs in excess of the fair value of the Allegheny
Generating Company (AGC) pumped-storage project. Depreciation expense will be
reduced $234 million during the period 1999 through 2016 from the historical
depreciation amounts as a result of the AGC plant impairment charge recorded
as an extraordinary charge in 1998 by West Penn. Absent this decrease,
depreciation expense would have risen due to increased investment.

Higher utility depreciation in 1998 resulted from increased investment.
In 1999, utility and nonutility depreciation expense reflects the movement of
depreciation expense associated with the two-thirds of West Penn's generation
transferred from utility operations to nonutility operations.

Taxes other than income taxes for 1999, 1998, and 1997 were as follows:

TAXES OTHER THAN INCOME TAXES

(Millions of dollars)                    1999       1998       1997
--------------------------------------------------------------------
Utility operations                      $157.9     $187.7     $181.4
Nonutility operations                     32.4        6.9        5.6
--------------------------------------------------------------------
Total taxes other than income taxes     $190.3     $194.6     $187.0
--------------------------------------------------------------------



Total taxes other than income taxes decreased $4.3 million in 1999 primarily
due to an adjustment which increased 1998's West Virginia Business and
Occupation Taxes by $1.4 million related to a previous period, lower capital
stock taxes relating to the 1998 asset write-down as a result of Pennsylvania
restructuring, and decreased gross receipts taxes, partially offset by higher
FICA taxes. The increase in total taxes other than income taxes in 1998 was
due primarily to increased West Virginia Business and Occupation Taxes
resulting from an adjustment for a prior period and increased property taxes.
Utility and nonutility taxes other than income taxes reflect the movement of
taxes other than income taxes associated with the two-thirds of West Penn's
generation transferred from utility operations to nonutility operations.

The 1999 decrease in federal and state income taxes of $4.0 million was
primarily due to tax benefits related to plant removal costs, offset in part
by increased taxable income.

Note G to the consolidated financial statements provides a further analysis
of income tax expenses.

The increase in allowance for borrowed funds used during construction of $1.6
million in 1999 reflects an increase in construction activity financed by
short-term debt. The allowance for borrowed funds used during construction
component of the formula receives greater weighting when short-term debt
increases. The decrease in allowance for other than borrowed funds used during
construction of $2.8 million in 1998 reflects lower-cost short-term debt
financing. The decrease also reflects adjustments of prior periods.

                                        M-15
<PAGE>

                                                        Allegheny Energy, Inc.




The decrease in other income, net, of $6.6 million in 1999, was primarily due to
a $4.3 million insurance settlement received in 1998. The decrease in other
income, net, of $9.8 million in 1998, was primarily due to 1997 increases for an
interest refund on a tax-related contract settlement ($8.3 million after taxes)
and income on the sale of land ($2.8 million after taxes) offset in part by a
$4.3 million insurance settlement received in 1998.

Interest on long-term debt and other interest for 1999, 1998, and 1997 were as
follows:

INTEREST EXPENSE

(Millions of dollars)                    1999       1998       1997
--------------------------------------------------------------------
Interest on long-term debt:
  Utility operations                    $126.0     $151.0     $162.8
  Nonutility operations                   29.2       10.1       10.8
--------------------------------------------------------------------
    Total interest on long-term debt     155.2      161.1      173.6
--------------------------------------------------------------------
Other interest:
  Utility operations                      27.9       19.4       14.4
  Nonutility operations                    3.7
--------------------------------------------------------------------
    Total other interest                  31.6       19.4       14.4
--------------------------------------------------------------------

      Total interest expense            $186.8     $180.5     $188.0
--------------------------------------------------------------------



The decrease in total interest on long-term debt in 1999 of $5.9 million and in
1998 of $12.5 million resulted from reduced average long-term debt outstanding
and, in 1998, also from lower interest rates.

Other interest expense reflects changes in the levels of short-term debt
maintained by the companies throughout the year, as well as the associated
interest rates. The increase in other interest expense of $12.2 million in 1999
resulted primarily from the increase in short-term debt outstanding in
conjunction with the repurchase of the Company's common stock that began in the
first quarter of 1999.

Dividends on the preferred stock of the subsidiaries decreased due to the
redemption by Potomac Edison and West Penn of their cumulative preferred stock
on September 30, 1999, and July 15, 1999, respectively.

The redemption premiums on preferred stock of the subsidiaries represents the
premiums paid by Potomac Edison and West Penn to retire their cumulative
preferred stock.

                                        M-16
<PAGE>

                                                        Allegheny Energy, Inc.




The extraordinary charge in 1999 of $43.9 million ($27.0 million after taxes)
was required to reflect a write-off of $26.9 million ($17.0 million after taxes)
of certain disallowances in the Maryland PSC's December 1999 order and $17.0
million ($10.0 million after taxes) for the difference between the reacquisition
price and the net carrying amount of first mortgage bonds repurchased with
proceeds from the sale of transition bonds as a result of the deregulation
process in Pennsylvania. The extraordinary charge in 1998 of $466.9 million
($275.4 million after taxes) was required to reflect a write-off of certain
disallowances in the Pennsylvania PUC's May and November 1998 orders. See Notes
B, C, and F to the consolidated financial statements for additional information.

FINANCIAL CONDITION, REQUIREMENTS, AND RESOURCES

Liquidity and Capital Requirements  To meet cash needs for operating expenses,
the payment of interest and dividends, retirement of debt and certain preferred
stocks, and for their construction programs, the companies have used internally
generated funds and external financings, such as the sale of common and
preferred stock, debt instruments, installment loans, and lease arrangements.
The timing and amount of external financings depend primarily upon economic and
financial market conditions, the companies' cash needs, and capitalization ratio
objectives. The availability and cost of external financings depend upon the
financial health of the companies seeking those funds and market conditions.

Capital expenditures, primarily construction, of all of the subsidiaries in 1999
were $413 million and, for 2000 and 2001, are estimated at $419 million and $431
million, respectively. In addition, in 1999 Monongahela Power acquired the
assets of West Virginia Power for approximately $95 million, and, in 2000,
Monongahela Power also plans to purchase Mountaineer Gas Company for
approximately $323 million (which includes the assumption of approximately $100
million in existing debt). The 2000 and 2001 estimated expenditures include $115
million and $136 million, respectively, for construction of environmental
control technology. Future nonutility construction expenditures will reflect
additions of generating capacity to sell into deregulated markets. It is the
Company's goal to constrain future utility construction spending to the
approximate level of depreciation currently in rates. As described under
Environmental Issues starting on page 40, the subsidiaries could potentially
face significant mandated increases in construction expenditures and operating
costs related to environmental issues. Whether the regulated utility
subsidiaries can continue to meet the majority of their construction needs with
internally generated cash is largely dependent upon the outcome of these issues.
The subsidiaries also have additional capital requirements for debt maturities
(see Note M to the consolidated financial statements).

Internal Cash Flow

Internal generation of cash, consisting of cash flows from operations reduced by
dividends, was $415 million in 1999, compared with $381 million in 1998. Current
rate levels and reduced levels of construction expenditures permitted

                                         M-17
<PAGE>

                                                        Allegheny Energy, Inc.


the utility subsidiaries to finance all of their construction expenditures
in 1999 and 1998 with internal cash flow.

Dividends paid on common stock in each of the years 1999 and 1998 were $1.72
per share. The dividend payout ratio in 1999 of 64.6%, excluding the
extraordinary and other charges, decreased from the 73.5% ratio in 1998,
excluding the extraordinary charge and the Pennsylvania settlement costs.

Financing  The Company did not issue any common stock in 1999 or 1998. The
Company began a stock repurchase program in 1999 to repurchase common stock
worth up to $500 million from time to time at price levels the Company deems
attractive. The Company repurchased 12 million shares of its common stock in
1999 at an aggregate cost of $398.4 million (an average cost of $33.20 per
share). The shares for its Dividend Reinvestment and Stock Purchase Plan,
Employee Stock Ownership and Savings Plan, Restricted Stock Plan for Outside
Directors, and Performance Share Plan were purchased on the open market.

Short-term debt is used to meet temporary cash needs and increased $382.3
million to $641.1 million in 1999. At December 31, 1999, unused lines of
credit with banks were $435 million.

The Company and its subsidiaries anticipate meeting their 2000 cash needs
through internal cash generation, cash on hand, short-term borrowings as
necessary, external financings, and by issuing debt to refinance maturing
first mortgage bonds. In 1999, West Penn issued $600 million of transition
bonds with varying average lives ranging from one to eight years with a
weighted average cost of 6.887% to "securitize" transition costs related
to its restructuring settlement described in Note B to the consolidated
financial statements. During 1999, West Penn reacquired all of its outstanding
$525 million of first mortgage bonds.

West Penn called or redeemed all outstanding shares of its cumulative preferred
stock with a combined par value of $79.7 million plus redemption premiums of
$3.3 million on July 15, 1999, with proceeds from new $84-million five-year
unsecured medium-term notes issued in the second quarter at a 6.375% coupon
rate. Potomac Edison called all outstanding shares of its cumulative preferred
stock with a combined par value of $16.4 million plus redemption premiums of $.5
million on September 30, 1999, with funds on hand. The redemption of the
preferred stock allowed West Penn to revise its Articles of Incorporation,
providing greater financial flexibility in restructuring debt. Potomac Edison
also plans to revise its Articles of Incorporation.

In April 1999, Monongahela Power, Potomac Edison, and West Penn issued $7.7
million, $9.3 million, and $13.83 million, respectively, of 5.50% 30-year
pollution control revenue notes to Pleasants County, West Virginia. In December
1999, Monongahela Power issued $110 million of 7.36% unsecured medium-term
notes, due in January 2010, in part to finance the purchase of West Virginia
Power.

                                       M-18
<PAGE>

                                                        Allegheny Energy, Inc.



In October 1999, AYP Energy prepaid $30 million of its bank loan, reducing the
obligation from $160 million to $130 million. In December 1999, the $130 million
debt obligation was assigned to Allegheny Energy Supply.

The Company's and West Penn's aggregate limit of short-term debt financing was
increased in accordance with SEC authorization on May 19, 1999, and October 8,
1999, respectively. The Company's limit increased from $400 million to $750
million through December 31, 2007, to enhance its ability to participate in
evolving energy markets resulting from deregulation and, upon application and
approval, to support acquisition and diversification plans. West Penn's limit
increased from $182 million to $500 million through December 31, 2001, related
to meeting the requirements of restructuring in Pennsylvania.

The long-term debt due within one year at December 31, 1999, of $189.7 million
represents $65 million of Monongahela Power 5-5/8% first mortgage bonds due
April 1, 2000, $75 million of Potomac Edison 5-7/8% first mortgage bonds due
March 1, 2000, and $49.7 million of West Penn Funding, LLC, transition bonds
due on various dates. The transition bonds are supported by an Intangible
Transition Charge (ITC) that replaces a portion of the Competitive Transition
Charge customers pay. The proceeds from the ITC will be used to pay the
principal and interest on these transition bonds, as well as other associated
expenses.

SIGNIFICANT CONTINUING ISSUES

Electric Energy Competition  The electricity supply segment of the electric
utility industry in the United States is becoming increasingly competitive. The
national Energy Policy Act of 1992 deregulated the wholesale exchange of power
within the electric industry by permitting the FERC to compel electric utilities
to allow third parties to sell electricity to wholesale customers over their
transmission systems. Since 1992, the wholesale electricity market has become
more competitive as companies are engaging in nationwide power trading. In
addition, an increasing number of states have taken active steps toward allowing
retail customers the right to choose their electricity supplier. The Company has
been an advocate of federal legislation to create competition in the retail
electricity markets to avoid regional dislocations and ensure level playing
fields. Legislation before the U.S. Congress to restructure the nation's
electric utility industry cleared an important hurdle on October 28, 1999, when
a House Commerce Committee subcommittee gave its approval to a bill. The bill
will now move on to the full Commerce Committee, where it will be considered in
2000.

In the absence of federal legislation, state-by-state implementation of
deregulation of electric generation is under way. The five states in which the
Company's utility operating companies serve customers are at various stages of
implementation or investigation of programs that allow customers to choose their
electric supplier. Pennsylvania is furthest along with a retail program in
place, while Maryland, Ohio, and Virginia passed legislation in 1999 to
implement retail choice. West Virginia continues to actively study

                                       M-19
<PAGE>

                                                        Allegheny Energy, Inc.


this issue.  On December 23, 1999, the Maryland PSC approved a settlement
agreement for Potomac Edison to implement generation competition in Maryland.

Activities at the Federal Level  The Company continues to seek enactment of
federal legislation to bring choice to all retail electric customers, deregulate
the generation and sale of electricity on a national level, and create a more
liquid, free market for electric power. Fully meeting challenges in the emerging
competitive environment will be difficult for the Company unless certain
outmoded and anti-competitive laws, specifically the Public Utility Holding
Company Act of 1935 (PUHCA) and Section 210 (Mandatory Purchase Provisions) of
PURPA, are repealed or significantly revised. The Company continues to advocate
the repeal of PUHCA and Section 210 of PURPA on the grounds that they are
obsolete and anti-competitive and that PURPA results in utility customers paying
above-market prices for power. H.R. 2944, which was sponsored by U.S.
Representative Joe Barton, was favorably reported out of the House Commerce
Subcommittee on Energy and Power. While the bill does not mandate a date certain
for customer choice, several key provisions favored by the Company are included
in the legislation, including an amendment that allows existing state
restructuring plans and agreements to remain in effect. Other provisions address
important Company priorities by repealing PUHCA and the mandatory purchase
provisions of PURPA. Consensus remains elusive, with significant hurdles
remaining in both houses of Congress. It is too early to tell whether momentum
on the issue will result in legislation in 2000.

Maryland Activities  On April 8, 1999, Maryland Governor Glendening signed the
legislation that will bring competition to Maryland's electric generation
market, beginning July 1, 2000. The Maryland PSC is in the process of
implementing the new law. Final Electric Restructuring Roundtable reports were
filed with the Maryland PSC on May 3, 1999, and legislative-style hearings were
held last summer on the reports. The Company filed testimony in Maryland's
investigation into transition costs, price protection, and unbundled rates, and
a consensus settlement agreement was achieved with no protest by any of the
parties participating in the negotiations. The agreement was filed on September
23, 1999, and a hearing before the Commission was held on October 14, 1999. On
December 23, 1999, the Maryland PSC issued an order approving the settlement.
Potomac Edison filed an application on December 15, 1999, to transfer its
Maryland generating assets at book value to an affiliate under Section 7-508 of
the Electric Customer Choice and Competition Act of 1999. A Maryland PSC
decision approving the transfer of the generating assets is due by July 1, 2000.

See Note B to the consolidated financial statements for additional information
related to Maryland restructuring.

Ohio Activities  On June 22, 1999, the Ohio General Assembly passed legislation
to restructure its electric utility industry. Governor Taft added his signature
soon thereafter, and all of the state's customers will be able to choose their

                                        M-20
<PAGE>

                                                        Allegheny Energy, Inc.



electricity supplier starting January 1, 2001, beginning a five-year transition
to market rates. Total electric rates will be frozen over that period, and
residential customers are guaranteed a 5% cut in the generation portion of their
rate. The determination of stranded cost recovery will be handled by the Public
Utilities Commission of Ohio (Ohio PUC). On January 3, 2000, Monongahela Power
filed a transition plan with the Ohio PUC, including its claim for recovery of
stranded costs of $21.3 million. The Ohio PUC is expected to hold hearings on
Monongahela Power's transition plan filing and issue a decision by October 2000.

The Ohio legislation stipulates that an entity independent of the utilities
shall own or control transmission facilities after the start of competitive
retail electric service on January 1, 2001, but not later than December 31,
2003. Customer protections were kept intact with a low-income assistance plan
and a one-time forgiveness of past debts for low-income and handicapped
customers. In regard to renewable energy, the bill requires that electric
generators purchase excess electricity from small businesses and homes using
renewable energy sources.

Pennsylvania Activities  In December 1996, Pennsylvania enacted the Customer
Choice Act to restructure its electric industry to create retail access to a
competitive electric energy supply market. Approximately 45% of the Company's
retail revenues were from its Pennsylvania subsidiary, West Penn. On May 29,
1998 (as amended on November 19, 1998), the Pennsylvania PUC granted final
approval to West Penn's restructuring plan. As of January 2, 2000, all
electricity customers in Pennsylvania had the right to choose their electric
suppliers. Two-thirds of all retail customers had a choice throughout 1999, the
first year of retail choice following a pilot program. The number of customers
who have switched suppliers and the amount of electrical load transferred in
Pennsylvania far exceed that of any other state so far. However, for the
Company, only about 12,700 of its 656,000 Pennsylvania customers eligible to
shop in 1999 have chosen an alternate energy supplier. The Company has retained
about 98% of its Pennsylvania customers through December 31, 1999. More than 100
electric generation suppliers have been licensed to sell to retail customers in
Pennsylvania. See Notes B and C to the consolidated financial statements for
additional information related to Pennsylvania restructuring.

Virginia Activities  On March 25, 1999, Governor Gilmore signed the Virginia
Electric Utility Restructuring Act (Restructuring Act) passed by the Virginia
General Assembly. All utilities must submit a restructuring plan by January 1,
2001, to be effective on January 1, 2002. Customer choice will be phased in
beginning on January 1, 2002, with full customer choice by January 1, 2004. The
Legislative Transition Task Force on Electric Utility Restructuring, which was
established by the Restructuring Act to oversee the implementation of customer
choice, held hearings in the summer and fall of 1999 on a number of issues
concerning the implementation of retail competition in Virginia. Parties have
also been working with the Virginia SCC Staff to develop the

                                         M-21
<PAGE>

                                                        Allegheny Energy, Inc.


rules governing the proposed retail pilot programs of other utilities in
the state.

West Virginia Activities

In March 1998, legislation was passed by the West Virginia Legislature that
directed the W.Va. PSC to meet with all interested parties to develop a
restructuring plan which would meet the dictates and goals of the legislation.
Interested parties formed a Task Force that met during 1998, but the Task
Force was unable to reach a consensus on a model for restructuring.  The W.Va.
PSC held hearings in August 1999 that addressed certification, licensing,
bonding, reliability, universal service, consumer protection, code of conduct,
subsidies, and stranded costs. The W.Va. PSC on December 20, 1999, released
for comment and hearings a modified version of a proposal submitted by members
of the Task Force, including Monongahela Power and Potomac Edison, following
the August 1999 hearings that could open full retail competition as early as
January 1, 2001. The production of power would be deregulated and electricity
rates would be frozen for four years with rates gradually transitioning to
market rates over the six years thereafter. After hearings in January 2000,
the W.Va. PSC submitted a restructuring plan endorsed by members of the Task
Force, including Monongahela Power and Potomac Edison, to the Legislature
for approval.

Accounting for the Effects of Price Deregulation  In July 1997, the Emerging
Issues Task Force (EITF) of the FASB released Issue No. 97-4, "Deregulation of
the Pricing of Electricity-Issues Related to the Application of FASB Statement
Nos. 71 and 101," which concluded that utilities should discontinue application
of SFAS No. 71 for the generation portion of their business when a deregulation
plan is in place and its terms are known. In accordance with guidance of EITF
Issue No. 97-4, the Company has discontinued the application of SFAS No. 71 to
its electric generation business in Pennsylvania and Maryland. The legislation
passed in Ohio and Virginia established definitive processes for transition to
deregulation and market-based pricing for electric generation. However, the
deregulation plans and their terms in Ohio and Virginia will not be known until
relevant regulatory proceedings are complete and final orders are received. The
Company is unable to predict the effect of discontinuing SFAS No. 71 in Ohio and
Virginia, but it may be required to write off unrecoverable regulatory assets,
impaired assets, and uneconomic commitments. Also, the Company is unable to
predict the outcome of the deregulation process in West Virginia until further
actions are taken by the Legislature and the W.Va. PSC.

Environmental Issues  In the normal course of business, the subsidiaries are
subject to various contingencies and uncertainties relating to their operations
and construction programs, including legal actions and regulations and
uncertainties related to environmental matters.

The significant costs of complying with Title IV (acid rain) provisions of Phase
I of the Clean Air Act Amendments of 1990 (CAAA) have been incurred and are
included in the cost of the related generation facilities. The Company

                                        M-22
<PAGE>

                                                        Allegheny Energy, Inc.


estimates that its banked emission allowances will allow it to comply with Phase
II sulfur dioxide (SO2) limits through 2005. Studies to evaluate cost-effective
options to comply with Phase II emission limits beyond 2005, including those
available in connection with the emission allowance trading market,
are continuing.

Title I of the CAAA established an Ozone Transport Commission to ascertain
additional nitrogen oxides (NOx) reductions to allow the Ozone Transport Region
(OTR) to meet the ozone National Ambient Air Quality Standards (NAAQS). Under
terms of a Memorandum of Understanding (MOU) among the OTR states, the
subsidiaries' generating stations located in Maryland and Pennsylvania were
required to reduce NOx emissions by approximately 55% from the 1990 baseline
emissions, with a compliance date of May 1999. Further reductions of 75% from
the 1990 baseline may be required by May 2003 under Phase III of the MOU.
However, this reduction will most likely be superceded by the proposed NOx State
Implementation Plan (SIP) call rule discussed below. If reductions of 75% are
required, installation of post-combustion control technologies would be very
expensive. Pennsylvania and Maryland promulgated regulations to implement Phase
II of the MOU in November 1997 and May 1998, respectively. However, as a result
of litigation, the Maryland regulation was revised to postpone compliance to May
2000.

The Ozone Transport Assessment Group issued its final report in June 1997 and
recommended that the Environmental Protection Agency (EPA) consider a range of
NOx controls between existing CAAA Title IV controls and the less stringent of
an 85% reduction from the 1990 emission rate or 0.15 lb/mmBtu. The EPA initiated
the regulatory process to adopt the recommendations and issued its final NOx SIP
call rule on September 24, 1998. The EPA's SIP call rule finds that 22 eastern
states (including Maryland, Pennsylvania, and West Virginia) and the District of
Columbia are all contributing significantly to ozone nonattainment in downwind
states. The final rule declares that this downwind nonattainment will be
eliminated (or sufficiently mitigated) if the upwind states reduce their NOx
emissions by an amount that is precisely set by the EPA on a state-by-state
basis. The final SIP call rule requires that all state-adopted NOx reduction
measures must be incorporated into SIPs by September 24, 1999, and must be
implemented by May 1, 2003. The Company's compliance with these requirements
would require the installation of post-combustion control technologies on most,
if not all, of the subsidiaries' power stations. The Company continues to work
with other coal-burning utilities and other affected constituencies in coal-
producing states to challenge this EPA action. While the SIP call is being
litigated, the Company is making preliminary plans to comply by applying NOx
reduction facilities to existing units at various power stations.

In August 1997, eight northeastern states filed Section 126 petitions with the
EPA requesting the immediate imposition of up to an 85% NOx reduction from
utilities located in the Midwest and Southeast (West Virginia included). The
petitions claim NOx emissions from these upwind sources are preventing their
attainment with the ozone standard. In December 1997, the petitioning states and
the EPA signed a Memorandum of Agreement to address these petitions in
conjunction with the related SIP call. In May 1999, the EPA issued a technical
approval of the petition and, in December 1999, granted

                                         M-23
<PAGE>

                                                        Allegheny Energy, Inc.


final approval of four of the petitions. The Section 126 petition rulemaking is
also under litigation.

The EPA is required by law to regularly review the NAAQS for criteria
pollutants. Recent court orders in litigation by the American Lung Association
have expedited these reviews. The EPA in 1996 decided not to revise the SO2 and
NOx standards. Revisions to particulate matter and ozone standards were proposed
by the EPA in 1996 and finalized in July 1997. However, the revised standards
were legally challenged, and, in May 1999, the District of Columbia Circuit
Court of Appeals remanded the revised standards back to the EPA for further
consideration. Also, in May 1999, the EPA promulgated final regional haze
regulations to improve visibility in Class I federal areas (national parks and
wilderness areas). If eventually upheld in court, subsequent state regulations
could require additional reduction of SO2 and/or NOx emissions from the
subsidiaries' facilities. The effect on the Company of revision to any of these
standards or regulations is unknown at this time, but could be substantial.

The final outcome of the revised ambient standards, Phase III of the MOU, SIP
call rule, and Section 126 petitions cannot be determined at this time. All are
being challenged by rulemaking, petition, and/or the litigation process.
Implementation dates are also uncertain at this time, but could be as early as
2003, which would require substantial capital expenditures in the 2000 through
2003 period. The Company's construction forecast includes the expenditure of
$358 million of capital costs during the 2000 through 2003 period to comply with
the SIP call. In addition, $12 million was spent in 1999.

Global climate change is alleged to be the result of the atmospheric
accumulation of certain gases collectively referred to as greenhouse gases
(GHG), the most significant of which is carbon dioxide (CO2). Human activities,
particularly combustion of fossil fuels, are alleged to be responsible for this
accumulation of GHG. The Clinton Administration has signed an international
treaty called the Kyoto Protocol, which would require the United States to
reduce emissions of GHG by 7% from 1990 levels in the 2008 through 2012 time
period. The United States Senate must ratify the Kyoto Protocol before it enters
into force. The Senate passed a resolution in 1997 that placed two conditions on
entering into any international climate change treaty. First, any treaty must
include all nations, and, second, any treaty must not cause serious harm to the
United States' economy. The Kyoto Protocol does not appear to satisfy either of
these conditions, and, therefore, the Clinton Administration has withheld it
from consideration by the Senate. Because coal combustion in power plants
produces about 33% of the United States' CO2 emissions, implementation of the
Kyoto Protocol would raise considerable uncertainty about the future viability
of coal as a fuel source for new and existing power plants. The Company has
taken numerous voluntary, precautionary steps to address the issue of global
climate change.

Many uncertainties remain in the global climate change debate, including the
relative contributions of human activities and natural processes, the extremely
high potential costs of extensive mitigation efforts, and the significant
economic and social disruptions which may result from a large-

                                        M-24
<PAGE>

                                                        Allegheny Energy, Inc.


scale reduction in the use of fossil fuels. The Company will continue to explore
cost-effective opportunities to improve efficiency and performance.

The Company actively participates in climate-related research programs and is
responsive to the voluntary guidelines suggested in the national Energy Policy
Act of 1992, under Section 1605(b), directed toward reducing, controlling,
avoiding, and sequestering greenhouse gases. The Company has taken many concrete
steps to reduce greenhouse gases and help stimulate a business climate that
encourages improved efficiency, performance, electrical loss reductions, and
cost-effectiveness.

The EPA had identified Monongahela Power, Potomac Edison, and West Penn as
potentially responsible parties, along with approximately 175 others, in a
Superfund site subject to cleanup. A final determination has not been made for
the Company's share of the remediation costs based on the amount of materials
sent to the site. Monongahela Power, Potomac Edison, and West Penn have also
been named as defendants along with multiple other defendants in pending
asbestos cases involving one or more plaintiffs. The Company believes that
provisions for liability and insurance recoveries are such that final resolution
of these claims will not have a material effect on its financial position (see
Note P to the consolidated financial statements for additional information).

On Earth Day 1997, President Clinton announced the expansion of the federal
Emergency Planning and Community Right-to-Know Act (RTK) reporting to include
electric utilities, limited to facilities that combust coal and/or oil for the
purpose of generating power for distribution in commerce. The purpose of RTK is
to provide site-specific information on chemical releases to the air, land, and
water. On June 4, 1999, the Company joined with other members of the Edison
Electric Institute in reporting power station releases to the public. Packets of
information about the Company's releases were provided to the news media in the
Company's service area and posted on the Company's web site. The Company filed
its first RTK-related report with the EPA in advance of the July 1, 1999,
deadline, reporting 18 million pounds of total releases for calendar year 1998.

The Attorney General of the State of New York and the Attorney General of the
State of Connecticut in their letters dated September 15, 1999, and November 3,
1999, respectively, notified the Company of their intent to commence civil
actions against the Company and/or its subsidiaries alleging violations at the
Fort Martin Power Station under the federal Clean Air Act, which requires
existing power plants that make major modifications to comply with the same
emission standards applicable to new power plants. Similar actions may be
commenced by other governmental authorities in the future. Fort Martin is a
station located in West Virginia and is now jointly owned by Allegheny Energy
Supply, Monongahela Power, and Potomac Edison. Both Attorneys General stated
their intent to seek injunctive relief and penalties. In addition, the Attorney
General of the State of New York in his letter indicated that he may assert
claims under the State common law of public nuisance seeking to recover, among
other things, compensation for alleged environmental damage caused in New York
by the operation of Fort Martin Power Station. At this time, the Company and its
subsidiaries are not able to determine what effect,

                                        M-25
<PAGE>

                                                        Allegheny Energy, Inc.


if any, these actions threatened by the Attorneys General of New York and
Connecticut may have on them.

Regional Transmission Organization  In adopting its Rule 2000, the FERC defined
requirements for transmission facility owners to participate in some form of
Regional Transmission Organization. Additionally, the state jurisdictions within
which the Company operates have, to different degrees, started to define their
transition to a competitive marketplace. As part of this, they have identified
transmission as a key link to making the electricity market efficient. The
nature of this issue is at least regional in scope. As a result, any solution
will need to be one that satisfies a diverse group of stakeholders. The Company
has actively participated in this debate and continues to evaluate the available
options to provide its customers with the most reliable, cost-effective service
while maintaining a clear focus on the financial interests of its shareholders.

Energy Risk Management  The Company is exposed through one of its nonutility
subsidiaries, Allegheny Energy Supply, to a variety of commodity-driven risks
associated with energy trading activities. Market risk arises from the potential
for changes in the value of energy related to price and volatility of the
market. These risks are reduced by using the Company's generation assets to back
positions on physical transactions. Credit risk represents the potential loss
that the Company would incur as a result of non-performance by counterparties in
honoring their contractual commitments. These risks can influence earnings, cash
flows, and the ability to provide value to shareholders.

The Company has a Corporate Energy Risk Control Policy adopted by the Board of
Directors and monitored by an Exposure Management Committee of senior
management. An independent risk management function is responsible for insuring
compliance with the Policy. A value at risk model is used to measure the market
exposure resulting from trading activities. Value at risk is a statistical model
that attempts to predict risk of loss based on historical market price and
volatility data over a given period of time. The credit standing of
counterparties is established through the evaluation of the prospective
counterparty's financial condition, specified collateral requirements where
deemed necessary, and the use of standardized agreements which facilitate the
netting of cash flows associated with a single counterparty. Financial
conditions of existing counterparties are monitored on an ongoing basis. Market
exposure and credit risk have established aggregate and counterparty limits that
are monitored within the guidelines of the Company's Energy Risk Control Policy.

Fort Martin Power Station Unit No. 1, a stand-alone unit owned by an unregulated
subsidiary, AYP Energy, was transferred to Allegheny Energy Supply. Transfer of
this generation asset mitigates the trading risk that exists with a single
generating unit.

                                         M-26
<PAGE>

                                                        Allegheny Energy, Inc.



Derivative Instruments and Hedging Activities  In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Company will be required to recognize derivatives as defined by SFAS No. 133
on the balance sheet at fair value. The Company is evaluating the effect of
adopting SFAS No. 133 on its results of operations and financial position which
will be completed during the year 2000. Accounting for changes in the fair value
of a derivative depends on the intended use of the derivative and whether the
instrument meets the requirements for designation as a hedge. The Company
expects to adopt SFAS No. 133 no later than January 1, 2001.

                                           M-27


<PAGE>


                                                    Monongahela Power Company


MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS

This management's discussion and analysis of financial condition
and results of operations contains forecast information items
that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995.  These include
statements with respect to deregulation activities and movements
toward competition in states served by Monongahela Power Company
(the Company), and results of operations.  All such forward-
looking information is necessarily only estimated.  There can be
no assurance that actual results will not materially differ from
expectations.  Actual results have varied materially and
unpredictably from past expectations.

Factors that could cause actual results to differ materially
include, among other matters, electric utility restructuring,
including ongoing state and federal activities; developments in
the legislative and regulatory environments in which the Company
operates, including regulatory proceedings affecting rates
charged by the Company; environmental, legislative, and
regulatory changes; future economic conditions; and other
circumstances that could affect anticipated revenues and costs
such as significant volatility in the market price of wholesale
power and fuel for electric generation, unscheduled maintenance
or repair requirements, weather, and compliance with laws and
regulations.

Business Strategy

A component of the deregulation plans sponsored by the Company in
West Virginia and Ohio is the authority to transfer electric
generation assets at net book value to an unregulated affiliate.
Subject to the approval of the deregulation plans by the West
Virginia legislature and the Public Utilities Commission of Ohio
(Ohio PUC), the Company plans to transfer its generation assets
to Allegheny Energy Supply Company, LLC (Allegheny Energy
Supply).  Allegheny Energy Supply is a subsidiary of Allegheny
Energy, Inc. (Allegheny Energy), the Company's Parent.

The settlement agreement in Pennsylvania permitted the Company's
affiliate, West Penn Power Company (West Penn), to transfer 3,778
megawatts (MW) of generating capacity at net book value to
Allegheny Energy Supply in 1999.
The recent settlement in Maryland will allow approximately 1,300
MW of additional generating capacity to be transferred at net
book value in 2000.  Allegheny Energy is seeking to transfer the
remaining generating assets in Ohio, Virginia, and West Virginia
to its unregulated subsidiary at book value in deregulation
proceedings in these jurisdictions.  The unregulated electric
supply is being sold in both the wholesale and retail competitive
marketplaces, allowing greater earnings growth potential, subject
to market risk, while allowing Allegheny Energy to capitalize on
its strengths in the generation business.

Following the transfer of generation assets to Allegheny Energy
Supply, the Company will be part of Allegheny Energy's delivery
business (wires and

                                   M-28
<PAGE>


                                                    Monongahela Power Company

pipes).  The delivery business will remain an important part of
Allegheny Energy's business which Allegheny Energy plans to expand.



SIGNIFICANT EVENTS IN 1999, 1998, AND 1997

Acquisitions

In December 1999, the Company purchased from UtiliCorp United
Inc. headquartered in Kansas City, Missouri, the assets of West
Virginia Power, an electric and natural gas distribution company
located adjacent to the Company's service territory in southern
West Virginia, for approximately $95 million.  As part of the
transaction, the Company signed a 20-year option agreement with
UtiliCorp United's subsidiary, Aquila Energy, for gas supply to
the Company.  Electricity is being supplied under an existing
contract with American Electric Power until December 31, 2001,
and thereafter will be supplied from the existing generation of
Allegheny Energy or from the market.  Consumers will benefit from a
six-year freeze of natural gas base rates and a three-year freeze
of electric rates, with a reduction in electric rates in 2003 to
rates now offered by the Company.  The acquisition included
26,000 electric and 24,000 natural gas customers, 1,989 miles of
electric distribution lines, 670 miles of gas pipelines, and
1,360 square miles of electric and 500 square miles of gas
service territory.  West Virginia Power had approximately 120
employees.

In conjunction with the acquisition of West Virginia Power's
assets, Allegheny Energy purchased for $2.1 million the assets of
a heating, ventilation, and air conditioning business with
approximately 10,000 customers and 52 employees.

The Company also plans to purchase Mountaineer Gas Company, a
natural gas sales, transportation, and distribution company
serving southern West Virginia and the northern and eastern
panhandles of West Virginia, from Energy Corporation of America
for $323 million (which includes the assumption of approximately
$100 million in existing debt).  The planned acquisition also
includes the assets of Mountaineer Gas Services, which operates
natural gas-producing properties, natural gas-gathering
facilities, and intrastate transmission pipelines.  Mountaineer
Gas has 490 employees, approximately 200,000 residential,
commercial, and industrial gas customers, 3,926 miles of gas
pipeline, and 11.7 billion cubic feet of gas storage.  The
completion of the transaction is conditioned upon, among other
things, the approvals of the Public Service Commission of West
Virginia (W.VA. PSC) and the Securities and Exchange Commission
(SEC).  The companies anticipate that regulatory approval could
be received by mid-2000.

PURPA Power Project Termination

In 1999, the Company settled for $2.3 million litigation by a
developer alleging failure by the Company to comply with the
Public Utility Regulatory Policies Act of 1978 (PURPA) regulations.

                                  M-29
<PAGE>


                                                    Monongahela Power Company




Electric Industry Restructuring

See Electric Energy Competition on page 8 for ongoing information
regarding electric industry restructuring.





REVIEW OF OPERATIONS

Earnings Summary

(Millions of Dollars)                         1999     1998     1997
Net Income...............................     $92.3    $82.4    $80.5

The increase in 1999 earnings resulted, in part, from increased
retail kilowatt-hour (kWh) sales, including increased sales to
residential customers due to winter weather that was cooler than
the relatively warm winter of 1998, as measured by heating degree
days.  The increase is also due to a 1999
decrease in federal and state income taxes of $9.0 million
primarily due to the Company's share of tax savings in
consolidation related to its parent, Allegheny Energy, and to a
net change in income tax provisions related to prior years.  The
1998 increase in earnings resulted from increased kWh sales to
commercial and industrial customers and from reduced power
station operations and maintenance spending.

Sales and Revenues

Percentage changes in revenues and kWh sales in 1999 and 1998 by
major retail customer classes were:

                                  1999   vs. 1998         1998   vs. 1997
                                 Revenues      kWh       Revenues      kWh

Residential.................     4.9%        4.6%        0.5%       (0.3)%
Commercial..................     2.8         2.2         6.4         5.8
Industrial..................     4.4         4.1         6.0         5.5
  Total.....................     4.2%        3.8%        4.0%        4.0 %

The 1999 increase in residential kWh sales, which are more
weather sensitive than the other classes, was due primarily to
changes in customer usage because of weather conditions, and to a
lesser extent, growth in the number of customers.  Colder winter
weather in 1999 led to the increased residential KWh sales and
revenues.  The growth in the number of residential customers was
 .8% and .6% in 1999 and 1998, respectively.

Commercial kWh sales are also affected by weather, but to a
lesser extent than residential.  The 2.2% and 5.8% increases in
1999 and 1998, respectively, reflect growth in the number of
customers and increased usage.  The increase in industrial kWh
sales in 1999 was due to increased kWh sales to iron and steel
customers and to paper and printing product customers.  The
increase in industrial kWh sales in 1998 was primarily due to
increased sales

                               M-30
<PAGE>


                                                    Monongahela Power Company

to one of the Company's customers who switched an
additional portion of their load requirements to the Company in
September 1997.

On February 26, 1999, the W.Va. PSC entered an order to initiate
a fuel review proceeding to establish a fuel increment in rates
for the Company and its affiliate, The Potomac Edison Company, to
be effective July 1, 1999, through June 30, 2000.   The parties
have exchanged proposals which continue to be discussed.  If an
agreement is not reached, the proposed fuel rates which would
increase the Company's fuel rates by $10.9 million will become
effective March 15, 2000.

Changes in revenues from retail customers resulted from the
following:

                                              Changes from Prior Year
(Millions of Dollars)                      1999 vs. 1998   1998 vs. 1997

Fuel clauses...............................     $ 9.4           $11.8
All other..................................      13.2             8.7
  Net change in retail revenues............     $22.6           $20.5

Revenues reflect not only changes in kWh sales and base rate
changes, but also any changes in revenues from fuel and energy
cost adjustment clauses (fuel clauses) which have little effect
on net income because increases and decreases in fuel and
purchased power costs and sales of transmission services and bulk
power are passed on to customers by adjustment of customers'
bills through fuel clauses.  The Company expects that the fuel
clause rates in Ohio and West Virginia will cease as these states
implement customer choice.  The Company will then assume the
risks and benefits of changes in fuel and purchased power costs
and sales of transmission services and bulk power.

All other is the net effect of kWh sales changes due to changes
in customer usage (primarily weather for residential customers),
growth in the number of customers, and changes in pricing other
than changes in general tariff and fuel clause rates.  The
increases in 1999 and 1998 all other retail revenues were
primarily the result of increased customer usage and growth in
the number of customers.

Wholesale and other revenues were as follows:

(Millions of Dollars)                       1999        1998       1997

Wholesale customers......................  $ 4.6       $ 5.2       $ 4.9
Affiliated companies.....................   84.7        77.3        83.6
Street lighting and other................    6.9         6.9         7.1
  Total wholesale and other revenues.....  $96.2       $89.4       $95.6


Wholesale customers are cooperatives and municipalities that own
their  distribution systems and buy all or part of their bulk
power needs from the Company under Federal Energy Regulatory
Commission (FERC) regulation. Competition in the wholesale market
for electricity was initiated by the National Energy Policy Act
of 1992, which permits wholesale generators, utility-owned and
otherwise, and wholesale customers to request from owners of
bulk power transmission facilities a commitment to supply
transmission

                                  M-31
<PAGE>


                                                    Monongahela Power Company

services.  All of the Company's wholesale customers have signed
contracts to remain as customers until November 30, 2003.

Revenues from affiliated companies represent sales of energy and
intercompany allocations of generating capacity, generation
spinning reserves, and
transmission services pursuant to a power supply agreement among
the Company and the other regulated utility subsidiaries of
Allegheny Energy.  The 1999 increase of $7.4 million in
affiliated revenues was due to increased energy sales to
affiliates.  As a result of increased generation at one of the
Company's power stations in 1999, the Company had more generation
available for sale after meeting the needs of its regular
customers.  Some of this excess generation was sold to affiliates
to meet their needs.  The affiliated

revenue decrease in 1998 resulted primarily from decreased
generating capacity sales.

Bulk power transactions include sales of bulk power and
transmission and other energy services to power marketers and
other utilities.  Bulk power and transmission and other energy
services sales for 1999, 1998, and 1997 were as follows:

                                             1999        1998       1997
KWh Transactions (in billions):
  Bulk power...............................    .2          .3         .3
  Transmission and other energy services
    to nonaffiliated companies.............   2.1         1.9        3.0
      Total................................   2.3         2.2        3.3
Revenues (in millions):
  Bulk power............................... $ 6.6       $ 8.5      $ 7.3
  Transmission and other energy services
    to nonaffiliated companies.............  12.0        11.3       10.0
      Total................................ $18.6       $19.8      $17.3

Revenues from bulk power transactions decreased in 1999 due to
decreased sales to power marketers and other utilities.  The 1998
increase in revenues from bulk power was due to increased sales
that occurred primarily in the second quarter as a result of warm
weather which increased the demand and price for energy.

Revenues from transmission and other energy services in 1999 and
1998 increased $.7 million and $1.3 million, respectively.
Revenues from transmission and other energy services increased in
1999 due primarily to increased megawatt-hours (MWh) transmitted.
The increase in 1998 revenues, despite decreased transmission
services activity, was due to transmission services' reservation
charges paid to the Company by others for the right to transmit
energy.  Transmission services activity was affected as a result
of some of the reservations to transmit energy not being used. In
1998, revenues from transmission and other energy services were
affected by a revenue refund resulting from a reduction in the
Company's standard transmission rate and rates for ancillary
services which were approved by the FERC.  A provision
of $1.7 million for these rate reductions was recorded in 1998,
with revenues refunded to customers in the first quarter of 1999.

In June and July 1999 and June and July 1998, certain events
combined to produce significant volatility in the spot prices for
electricity at the

                                 M-32
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                                                    Monongahela Power Company

wholesale level.  These events included
extremely hot weather, generation unit outages, and transmission
constraints.  Wholesale prices for electricity rose from a normal
range of $25 to $40 per MWh to as high as $3,500 to $7,000 per
MWh.  The costs of purchased power and revenues from sales to
power marketers and other utilities, including transmission
services, are currently recovered from or credited to customers
under fuel and energy cost recovery procedures. The impact to the
fuel and energy cost recovery clauses may be positive or
negative, depending on whether the Company is a net buyer or
seller of electricity during such periods.  The effect of such
price volatility in June and July of 1999 and 1998 was
insignificant to the Company because changes are passed through
to customers through operation of fuel clauses.  The Company
expects that the fuel clause rates in Ohio and West Virginia will
cease as these states implement customer choice.  The company will
then assume the risks and benefits of changes in fuel and purchased
power costs and sales of transmission services and bulk power.

Operating Expenses

Fuel expenses increased .9% in 1999 due to an 8.9% increase
related to kWhs generated, offset in part by an 8% decrease in
average fuel prices.  The increase in kWhs generated was to meet
retail customer requirements and increased sales to affiliates.
The decrease in average fuel prices was due to renegotiated fuel
contracts.  The 1.9% increase in fuel expenses in 1998 was due
primarily to an increase in kWhs generated.

Purchased power and exchanges, net, represents power purchases
from and exchanges with other companies and purchases from
qualified facilities under the PURPA, capacity charges paid to
Allegheny Generating Company (AGC), and other transactions with
affiliates made pursuant to a power supply agreement whereby each
company uses the most economical generation available in the
System at any given time, and consists of the following items:

(Millions of Dollars)                        1999        1998      1997

Nonaffiliated transactions:
  Purchased power:
    From PURPA generation*................   $65.1       $65.5    $69.8
    Other.................................    15.1        11.6      9.6
  Power exchanges, net....................     (.6)        (.2)      .1
Affiliated transactions:
  AGC capacity charges....................    19.1        18.4     18.5
  Energy and spinning reserve charges.....      .1          .3       .3
    Purchased power and exchanges, net....   $98.8       $95.6    $98.3

*PURPA cost (cents per kWh)                     .052        .051     .053

The decrease in purchased power from PURPA generation in 1998 was
due primarily to reduced generation at hydroelectric plants due
to reduced river flow.  The increase in other purchased power in
1999 resulted primarily from increased purchases for sales.  An
increase in price caused by volatility in the spot prices for
electricity at the wholesale level in the second and third quarters
of 1998 contributed to the 1998 increase in other purchased power costs.

                                     M-33
<PAGE>


                                                    Monongahela Power Company


The increase in other operation expenses of $8.0 million in 1999
resulted primarily from a write-off of $4.2 million of costs
related to a pumped-storage generation project no longer
considered useful, $2.3 million of costs associated with settling
litigation concerning a PURPA project, and increases in salaries
and wages costs. The increase in other operations expenses in
1998 resulted primarily from increases in salaries and wages and
employee benefits, increased property insurance expense, and an
increase in expense related to Year 2000 readiness.

Maintenance expenses decreased in 1999 by $3.0 million due to
decreases in transmission and distribution maintenance expenses,
offset in part by increases in general plant maintenance which
includes renovations of office facilities.  The decrease in
maintenance expenses in 1998 was due primarily to a management
program to postpone such expenses for the year in response to
limited sales growth in the first quarter due to the warm winter
weather.  The Company postponed these expenses primarily by
extending the time between maintenance outages and experienced no
measurable effect on system performance.

Maintenance expenses represent costs incurred to maintain the
power stations, the transmission and distribution (T&D) system
and general plant, and to reflect routine maintenance of
equipment and rights-of-way, as well as planned major repairs and
unplanned expenditures, primarily from forced outages at the
power stations and periodic storm damage on the T&D system.
Variations in maintenance expense result primarily from unplanned
events and planned major projects, which vary in timing and
magnitude depending upon the length of time equipment has been in
service without a major overhaul and the amount of work found
necessary when the equipment is dismantled.

Depreciation expense in 1999 and 1998 increased $2.3 million and
$2.0 million, respectively, due to increased investment.

Taxes other than income taxes decreased $1.3 million in 1999 due
primarily to a 1998 adjustment to West Virginia Business and
Occupation Taxes for a prior period.  Taxes other than income
taxes increased $6.0 million in 1998 due primarily to West
Virginia Business and Occupation Taxes.

The decrease in federal and state income taxes of $9.0 million
was primarily due to the Company's share of tax savings in
consolidation related to its parent, Allegheny Energy, and to a
net change in income tax provisions related to prior years.  The
1998 increase in federal and state income taxes was primarily due
to increased taxable income. Note C to the financial statements
provides a further analysis of income tax expenses.

Other Income and Deductions

The decrease in other income, net, of $2.4 million in 1998 was
primarily due to a 1997 interest refund on a tax-related contract
settlement ($2.2 million after taxes) received by AGC, which is
partly owned by the Company.

                                M-34
<PAGE>


                                                   Monongahela Power Company




Interest Charges

The decrease in interest on long-term debt in 1998 of $3.7
million resulted from reduced long-term debt and lower interest
rates.  Other interest expense reflects changes in the levels of
short-term debt maintained by the Company throughout the year, as
well as the associated interest rates.

FINANCIAL CONDITION, REQUIREMENTS, AND RESOURCES

Liquidity and Capital Requirements

To meet cash needs for operating expenses, the payment of
interest and dividends, retirement of debt and certain preferred
stocks, and for its construction program, the Company has used
internally generated funds and external financings, such as the
sale of common and preferred stock, debt instruments, installment
loans, and lease arrangements.  The timing and amount of external
financings depend primarily upon economic and financial market
conditions, the Company's cash needs, and capitalization ratio
objectives.

The availability and cost of external financings depend upon the
financial health of the companies seeking those funds and market
conditions.

Construction expenditures in 1999 were $82 million and, for 2000 and
2001, are estimated at $75 million and $72 million, respectively. In
addition, in 1999 the Company acquired the assets of West
Virginia Power for approximately $95 million, and in 2000 the
Company also plans to purchase Mountaineer Gas
Company for approximately $323 million (which includes the
acquisition of approximately $100 million in existing debt).  The
2000 and 2001 estimated expenditures include $27 million and $34
million, respectively, for construction of environmental control
technology.  It is the Company's goal to constrain future
construction spending to the approximate level of depreciation
currently in rates. As described under Environmental Issues
starting on page 11, the Company could potentially face
significant mandated increases in construction expenditures and
operating costs related to environmental issues. Whether the
Company can continue to meet the majority of its construction
needs with internally generated cash is largely dependent upon
the outcome of these issues.  The Company also has additional
capital requirements for debt maturities (see Note I to the
financial statements).  The Company anticipates issuing new debt
to replace the $65 million of long-term debt maturing in 2000.

Internal Cash Flow

Internal generation of cash, consisting of cash flows from
operations reduced by dividends, was $86 million in 1999,
compared with $108 million in 1998.  The decrease in 1999 cash
flows resulted from an increase in the level of common stock
dividends payable to its Parent, Allegheny Energy.  Current
rate levels and reduced levels of construction expenditures
permitted the Company to finance all of its construction
expenditures in 1999 and 1998 with internal cash flow.

                                   M-35
<PAGE>


                                                   Monongahela Power Company




Financing

Short-term debt is used to meet temporary cash needs.  Short-term
debt, including notes payable to affiliates under the money pool,
decreased $20.3 million to $28.7 million in 1999.  At December
31, 1999, the Company had Securities and Exchange Commission
(SEC) authorization to issue up to $106 million of short-term
debt.  The Company and its regulated affiliates use an Allegheny
Energy internal money pool as a facility to accommodate
intercompany short-term borrowing needs, to the extent that
certain of the companies have funds available.  The Company
anticipates meeting its 2000 cash needs through internal cash
generation, cash on hand, short-term borrowings as necessary,
and by issuing debt to refinance maturing first mortgage bonds.

In April 1999, the Company issued $7.7 million of 5.50% 30-year
pollution control revenue notes to Pleasants County, West
Virginia.  In December 1999, the Company issued $110 million of
7.36% unsecured medium-term notes due in January 2010, in part to
finance the purchase of West Virginia Power.

The Company's long-term debt due within one year at December 31,
1999 was $65 million of 5-5/8% first mortgage bonds due April 1,
2000.

SIGNIFICANT CONTINUING ISSUES

Electric Energy Competition

The electricity supply segment of the electric utility industry
in the United States is becoming increasingly competitive. The
national Energy Policy Act of 1992 deregulated the wholesale
exchange of power within the electric industry by permitting the
FERC to compel electric utilities to allow third parties to
sell electricity to wholesale customers over their transmission
systems. Since 1992, the wholesale electricity market has become more
competitive as companies are engaging in nationwide power trading.
In addition, an increasing number of states have taken active steps toward
allowing retail customers the right to choose their electricity
supplier. The Company and its parent, Allegheny Energy, have been
advocates of federal legislation to create competition in the
retail electricity markets to avoid regional dislocations and
ensure level playing fields. Legislation before the U.S. Congress
to restructure the nation's electric utility industry cleared an
important hurdle on October 28, 1999, when a House Commerce
Committee subcommittee gave its approval to a bill. The bill will
now move on to the full Commerce Committee, where it will be
considered in 2000.

In the absence of federal legislation, state-by-state
implementation of deregulation of electric generation is under
way. The Company has franchised customers in the states of West
Virginia and Ohio.  The five states in which the Company and its
affiliates serve customers are at various stages of
implementation or investigation of programs that allow customers
to choose their electric supplier. Pennsylvania is furthest along
with a retail program in place, while Maryland, Ohio, and
Virginia passed legislation in 1999 to implement retail
choice. West Virginia continues to actively study this issue. On
December 23, 1999, the Maryland PSC approved a settlement agreement
for one of the Company's affiliates, The Potomac Edison Company, to
implement generation competition in Maryland.

                                   M-36
<PAGE>


                                                   Monongahela Power Company



At this time, the Company cannot determine the effect of
deregulation plans that may be approved in West Virginia and
Ohio.  However, the approval of deregulation plans could have a
material impact on the Company regarding potential impairment of
electric generation assets and the Company's ability to recover
generation-related regulatory assets.

Activities at the Federal Level

The Company continues to seek enactment of federal legislation to
bring  choice  to all retail electric customers,  deregulate  the
generation  and  sale  of electricity on a  national  level,  and
create  a  more  liquid,  free market for electric  power.  Fully
meeting  challenges in the emerging competitive environment  will
be  difficult for the Company unless certain outmoded  and  anti-
competitive laws, specifically the Public Utility Holding Company
Act   of   1935  (PUHCA)  and  Section  210  (Mandatory  Purchase
Provisions) of PURPA, are repealed or significantly revised.  The
Company continues to advocate the repeal of PUHCA and Section 210
of  PURPA  on  the  grounds  that they  are  obsolete  and  anti-
competitive  and  that PURPA results in utility customers  paying
above-market prices for power. H.R. 2944, which was sponsored  by
U.S. Representative Joe Barton, was favorably reported out of the
House  Commerce Subcommittee on Energy and Power. While the  bill
does not mandate a date certain for customer choice, several  key
provisions   favored  by  the  Company  are   included   in   the
legislation,  including an amendment that allows  existing  state
restructuring  plans and agreements to remain  in  effect.  Other
provisions address important Company priorities by  repealing the
PUHCA  and  the mandatory purchase provisions of PURPA. Consensus
remains  elusive,  with  significant hurdles  remaining  in  both
houses  of Congress. It is too early to tell whether momentum  on
the issue will result in legislation in 2000.


Ohio Activities

On June 22, 1999, the Ohio General Assembly passed legislation to
restructure the electric utility industry. The Governor of Ohio
added his signature soon thereafter, and all of the state's
customers will be able to choose their
electricity supplier starting January 1, 2001, beginning a five-
year transition to market rates. Total electric rates will be
frozen over that period, and residential customers are guaranteed
a 5% cut in the generation portion of their rate. The
determination of stranded cost recovery will be handled by the
Ohio PUC. On January 3, 2000, the Company filed a transition plan
with the Ohio PUC, including its claim for recovery of stranded
costs of $21.3 million. The Ohio PUC is expected to hold hearings
on the Company's transition plan filing and issue a decision by
October 2000.

The Ohio legislation stipulates that an entity independent of the
utilities shall own or control transmission facilities after the
start of competitive retail electric service on January 1, 2001,
but not later than December 31, 2003. Customer protections were
kept intact with a low-income assistance plan and a one-time
forgiveness of past debts for low-income and handicapped
customers. In regard to renewable energy, the bill requires that
electric generators purchase excess electricity from small
businesses and homes using renewable energy sources.

                                 M-37
<PAGE>


                                                   Monongahela Power Company



West Virginia Activities

In March 1998, legislation was passed by the West Virginia
Legislature that
directed the W.Va. PSC to meet with all interested parties to
develop a restructuring plan which would meet the dictates and
goals of the legislation. Interested parties formed a Task Force
that met during 1998, but the Task Force was unable to reach a
consensus on a model for restructuring. The W.Va. PSC held
hearings in August 1999 that addressed certification, licensing,
bonding, reliability, universal service, consumer protection,
code of conduct, subsidies, and stranded costs. The W.Va. PSC on
December 20, 1999, released for comment and hearings a modified
version of a proposal submitted by members of the Task Force,
including the Company and its affiliate, Potomac Edison,
following the August 1999 hearings that could open full retail
competition as early as January 1, 2001. The production of power
would be deregulated and electricity rates would be frozen for
four years with rates gradually transitioning to market rates
over the six years thereafter. After hearings in January 2000,
the W.Va. PSC submitted a restructuring plan endorsed by members
of the Task Force, including the Company and Potomac Edison, to
the Legislature for approval.

The status of electric energy competition in Virginia, Maryland,
and Pennsylvania in which affiliates of the Company serve are as
follows:

Virginia Activities

On March 25, 1999, Governor Gilmore signed the Virginia Electric
Utility Restructuring Act (Restructuring Act) passed by the
Virginia General Assembly. All utilities must submit a
restructuring plan by January 1, 2001, to be effective on January
1, 2002. Customer choice will be phased in beginning on January
1, 2002, with full customer choice by January 1, 2004. The
Legislative Transition Task Force on Electric Utility
Restructuring, which was established by the Restructuring Act to
oversee the implementation of customer choice, held hearings in
the summer and fall of 1999 on a number of issues concerning the
implementation of retail competition in Virginia. Parties have
also been

working with the Virginia SCC staff to develop the rules
governing the proposed retail pilot programs of other utilities in the state.

Maryland Activities

On April 8, 1999, Maryland Governor Glendening signed the
legislation that will bring competition to Maryland's electric
generation market beginning July 1, 2000. The Maryland PSC is in
the process of implementing the new law. Final Electric
Restructuring Roundtable reports were filed with the Maryland PSC
on May 3, 1999, and legislative-style hearings were held last
summer on the reports. The Company's affiliate, Potomac Edison,
filed testimony in Maryland's investigation into transition
costs, price protection, and unbundled rates, and a consensus
settlement agreement was achieved with no protest by any of the
parties participating in the negotiations. The agreement was
filed on September 23, 1999, and a hearing before the Commission
was held on October 14, 1999. On December 23, 1999, the Maryland
PSC issued an order approving the settlement. Potomac Edison
filed an application on December 15, 1999, to transfer its
Maryland generation assets

                                 M-38
<PAGE>


                                                   Monongahela Power Company



at book value to an affiliate under Section 7-508 of the Electric
Customer Choice and Competition Act of 1999. A Maryland PSC
ecision approving the transfer of the generating assets is due by
July 1, 2000.

Pennsylvania Activities

In December 1996, Pennsylvania enacted the Electricity Generation
Customer Choice and Competition Act to restructure the electric
industry to create retail access to a competitive electric energy
supply market.  On May 29, 1998
(as amended on November 19, 1998), the Pennsylvania Public
Utility Commission granted final approval to West Penn's
restructuring plan. As of January 2, 2000, all electricity
customers in Pennsylvania had the right to choose their electric
suppliers. Two-thirds of all retail customers had a choice
throughout 1999, the first year of retail choice following a
pilot program. The number of customers who have switched
suppliers and the amount of electrical load transferred in
Pennsylvania far exceed that of any other state so far. However,
for West Penn, only 12,700 of its Pennsylvania customers
eligible to shop in 1999 have chosen an alternate energy
supplier. West Penn has retained about 98% of its Pennsylvania
customers through December 31, 1999. More than 100 electric
generation suppliers have been licensed to sell to retail
customers in Pennsylvania.


Environmental Issues

In the normal course of business, the Company is subject to
various contingencies and uncertainties relating to its
operations and construction programs, including legal actions and
regulations and uncertainties related to environmental matters.

The significant costs of complying with Title IV (acid rain)
provisions of Phase I of the Clean Air Act Amendments of 1990
(CAAA) have been incurred and are included in the cost of the
related generation facilities. The Company estimates that its
banked emission allowances will allow it to comply with Phase II
sulfur dioxide (SO2) limits through 2005. Studies to evaluate
cost-effective options to comply with Phase II emission limits
beyond 2005, including those available in connection with the
emission allowance trading market, are continuing.

Title I of the CAAA established an Ozone Transport Commission to
ascertain additional nitrogen oxides (NOx) reductions to allow
the Ozone Transport Region (OTR) to meet the ozone National
Ambient Air Quality Standards (NAAQS). Under terms of a
Memorandum of Understanding (MOU) among the OTR states, the
Company's generating station located in Pennsylvania was required
to reduce NOx emissions by approximately 55% from the 1990
baseline emissions, with a compliance date of May 1999. Further
reductions of 75% from the 1990 baseline may be required by May
2003 under Phase III of the MOU. However, this reduction will
most likely be superceded by the proposed NOx State
Implementation Plan (SIP) call rule discussed below. If
reductions of 75% are required, installation of post-combustion
control technologies would be very expensive. Pennsylvania and
Maryland promulgated regulations to implement Phase II of the MOU
in November 1997 and May 1998, respectively. However, as

                                  M-39
<PAGE>


                                                   Monongahela Power Company


a result of litigation, the Maryland regulation was revised to
postpone compliance to May 2000.

The Ozone Transport Assessment Group issued its final report in
June 1997 and recommended that the Environmental Protection
Agency (EPA) consider a range of NOx controls between existing
CAAA Title IV controls and the less stringent of an 85% reduction
from the 1990 emission rate or 0.15 lb/mmBtu. The EPA initiated
the regulatory process to adopt the recommendations and issued
its final NOx SIP call rule on September 24, 1998. The EPA's SIP
call rule finds that 22 eastern states (including Maryland,
Pennsylvania, and West Virginia) and the District of Columbia are
all contributing significantly to ozone nonattainment in downwind
states. The final rule declares that this downwind nonattainment
will be eliminated (or sufficiently mitigated) if the upwind
states reduce their NOx emissions by an amount that is precisely
set by the EPA on a state-by-state basis. The final SIP call rule
requires that all state-adopted NOx reduction measures must be
incorporated into SIPs by
September 24, 1999, and must be implemented by May 1, 2003. The
Company's compliance with these requirements would require the
installation of post-combustion control technologies on most, if
not all, of its power stations. The Company continues to work
with other coal-burning utilities and other affected
constituencies in coal-producing states to challenge this EPA
action. While the SIP call is being litigated, the Company is
making preliminary plans to comply by applying NOx reduction
facilities to existing units at various power stations.

In August 1997, eight northeastern states filed Section 126
petitions with the EPA requesting the immediate imposition of up
to an 85% NOx reduction from utilities located in the Midwest and
Southeast (West Virginia included). The petitions claim NOx
emissions from these upwind sources are preventing their
attainment with the ozone standard. In December 1997, the
petitioning states and the EPA signed a Memorandum of Agreement
to address these petitions in conjunction with the related SIP
call. In May 1999, the EPA issued a technical approval of the
petition and, in December 1999, granted final approval of four of
the petitions. The Section 126 petition rulemaking is also under
litigation.

The EPA is required by law to regularly review the NAAQS for
criteria pollutants. Recent court orders in litigation by the
American Lung Association have expedited these reviews. The EPA
in 1996 decided not to revise the SO2 and NOx standards.
Revisions to particulate matter and ozone standards were proposed
by the EPA in 1996 and finalized in July 1997. However, the
revised standards were legally challenged, and, in May 1999, the
District of Columbia Circuit Court of Appeals remanded the
revised standards back to EPA for further consideration. Also, in
May 1999, the EPA promulgated final regional haze regulations to
improve visibility in Class I federal areas (national parks and
wilderness areas). If eventually upheld in court, subsequent state
regulations could require additional reduction of SO2 and/or NOx
emissions from Company facilities.  The effect on the Company of
revision to any of these standards or regulations is unknown at
this time, but could be substantial.

The final outcome of the revised ambient standards, Phase III of
the MOU, SIP calls, and Section 126 petitions cannot be
determined at this time. All are being challenged by rulemaking,
petition, and/or the litigation process.

                                 M-40
<PAGE>


                                                   Monongahela Power Company


Implementation dates are also uncertain at this time, but could be as
early as 2003, which would require substantial capital expenditures in
the 2000 through 2003 period. The Company's construction forecast includes
the expenditure of $96 million of capital costs during the 2000 through
2003 period to comply with the SIP call. In addition, $3 million was spent
in 1999.

Global climate change is alleged to be the result of the
atmospheric accumulation of certain gases collectively referred
to as greenhouse gases (GHG), the most significant of which is
carbon dioxide (CO2). Human activities, particularly combustion
of fossil fuels, are alleged to be responsible for this
accumulation of GHG. The Clinton Administration has signed an
international treaty called the Kyoto Protocol, which would
require the United States to reduce emissions of GHG by 7% from
1990 levels in the 2008 through 2012 time period. The United
States Senate must ratify the Kyoto Protocol before it enters
into force. The Senate passed a resolution in 1997 that placed
two conditions on entering into any international climate change
treaty. First, any treaty must include all nations, and, second,
any treaty must not cause serious harm to the United States'
economy. The Kyoto Protocol does not appear to satisfy either of
these conditions, and, therefore, the Clinton Administration has
withheld it from consideration by the Senate. Because coal
combustion in power plants produces about 33% of the United
States' CO2 emissions, implementation of the Kyoto Protocol would
raise considerable uncertainty about the future viability of coal
as a fuel source for new and existing power plants. The Company
has taken numerous voluntary, precautionary steps to address the
issue of global climate change.

Many uncertainties remain in the global climate change debate,
including the relative contributions of human activities and
natural processes, the extremely high potential costs of
extensive mitigation efforts, and the significant economic and
social disruptions which may result from a large-scale reduction
in the use of fossil fuels. The Company will continue to explore
cost-effective opportunities to improve efficiency and
performance.

The Company actively participates in climate-related research
programs and is responsive to the voluntary guidelines suggested
in the national Energy Policy Act of 1992, under Section 1605(b),
directed toward reducing, controlling, avoiding, and sequestering
greenhouse gases. The Company has taken many concrete steps to
reduce greenhouse gases and help stimulate a business climate
that encourages improved efficiency, performance, electrical loss
reductions, and cost effectiveness.

The Company previously reported that the EPA had identified the
Company and its regulated utility affiliates as potentially
responsible parties, along with approximately 175 others, in a
Superfund site subject to cleanup. A final determination has not
been made for the Company's share of the remediation costs based
on the amount of materials sent to the site. The Company and its
regulated affiliates have also been named as defendants along
with multiple other defendants in pending asbestos cases
involving one or more plaintiffs.

The Company believes that provisions for liability and insurance
recoveries are such that final resolution of these claims will
not have a material

                               M-41

<PAGE>


                                                   Monongahela Power Company


effect on its financial position (see Note L to the financial
statements for additional information).

On Earth Day 1997, President Clinton announced the expansion of
the federal Emergency Planning and Community Right-to-Know Act
(RTK) reporting to include electric utilities, limited to
facilities that combust coal and/or oil for the purpose of
generating power for distribution in commerce. The purpose of RTK
is to provide site-specific information on chemical releases to
the air, land, and water. On June 4, 1999, the Allegheny Energy
companies (the System) joined with other members of the Edison
Electric Institute in reporting power station releases to the
public. Packets of information about the System's releases were
provided to the news media in the System's service area and
posted on the Parent Company's web site. The System filed its
first RTK-related report with the EPA in advance of the July 1,
1999, deadline, reporting 18 million pounds of total releases for
calendar year 1998.

The Attorney General of the State of New York and the Attorney
General of the State of Connecticut in their letters dated
September 15, 1999, and November 3, 1999, respectively, notified
Allegheny Energy of their intent to commence civil actions
against Allegheny Energy and/or its subsidiaries alleging
violations at the Fort Martin Power Station under the federal
Clean Air Act, which requires power plants that make major
modifications to comply with the same emission standards
applicable to new power plants. Similar actions may be
commenced by other governmental authorities in the future. Fort
Martin is a station located in West Virginia and is now jointly
owned by the Company and its affiliates, Allegheny Energy Supply
and Potomac Edison. Both Attorneys General stated their intent to
seek injunctive relief and penalties. In addition, the Attorney
General of the State of New York in his letter indicated that he
may assert claims under the State common law of public nuisance
seeking to recover, among other things, compensation for alleged
environmental damage caused in New York by the operation of Fort
Martin Power Station. At this time, Allegheny Energy and its
subsidiaries are not able to determine what effect, if any, these
actions threatened by the Attorneys General of New York and
Connecticut may have on them.

Regional Transmission Organization

In adopting its Rule 2000, the FERC defined requirements for
transmission facility owners to participate in some form of Regional
Transmission Organization. Additionally, the state jurisdictions
within which the Company operates have, to different degrees,
started to define their transition to a competitive marketplace. As
part of this, they have identified transmission as a key link to
making the electricity market efficient. The nature of this issue is
at least regional in scope. As a result, any solution will need to
be one that satisfies a diverse group of stakeholders. The Company
has actively participated in this debate and continues to evaluate
the available options to provide our customers with the most
reliable, cost-effective service while maintaining a clear focus on
the financial interests of our shareholders.

                                    M-42
<PAGE>


                                                   Monongahela Power Company


Derivative Instruments and Hedging Activities

In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."  The Company will be
required to recognize derivatives as defined by SFAS No. 133 on the
balance sheet at fair value.  The Company is evaluating the impact
of adopting SFAS No. 133 on its results of operations and financial
position which will be completed during the year 2000.  Accounting
for changes in the fair value of a derivative depends on the
intended use of the derivative and whether the instrument meets the
requirements for designation as a hedge.  The Company expects to
adopt SFAS No. 133 no later than January 1, 2001.

                                       M-43



<PAGE>


                                                  The Potomac Edison Company


MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS

This management's discussion and analysis of financial condition and
results of operations contains forecast information items that are
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995.  These include statements with
respect to deregulation activities and movements toward competition
in states served by The Potomac Edison Company (the Company), and
results of operations.  All such forward-looking information is
necessarily only estimated.  There can be no assurance that actual
results will not materially differ from expectations.  Actual
results have varied materially and unpredictably from past
expectations.

Factors that could cause actual results to differ materially
include, among other matters, electric utility restructuring,
including ongoing state and federal activities; developments in the
legislative and regulatory environments in which the Company
operates, including regulatory proceedings affecting rates charged
by the Company; environmental, legislative, and regulatory changes;
future economic conditions; and other circumstances that could
affect anticipated revenues and costs such as significant volatility
in the market price of wholesale power and fuel for electric
generation, unscheduled maintenance or repair requirements, weather,
and compliance with laws and regulations.

BUSINESS STRATEGY

In July 2000, the Company plans to transfer the Maryland
jurisdictional portion of its electric generation assets at net book
value to Allegheny Energy Supply Company, LLC (Allegheny Energy
Supply), in accordance with a settlement agreement approved by the
Maryland Public Service Commission (Maryland PSC).  Allegheny Energy
Supply is a subsidiary of Allegheny Energy, Inc. (Allegheny Energy),
the Company's Parent.  See Note B to the financial statements for
additional information regarding the settlement agreement.  The
Company expects to transfer approximately 1,300 megawatts (MW) of
generating capacity as of July 1, 2000.  At December 31, 1999, the
generation assets to be transferred had a net book value of
approximately $282 million.

A component of the deregulation plans sponsored by the Company in
West Virginia and Virginia is the authority to transfer the
Company's remaining electric generation assets to Allegheny Energy
Supply at net book value.  The Company intends to transfer its
remaining generation assets subject to receiving the necessary
approvals of West Virginia and Virginia deregulation plans as well
as other required regulatory approvals.

The settlement agreement in Pennsylvania permitted the Company's
affiliate,  West Penn Power Company (West Penn), to transfer 3,778
megawatts (MW) of generating capacity at net book value to Allegheny
Energy Supply in 1999.  The recent settlement in Maryland will allow
approximately 1,300 MW of additional generating capacity to be
transferred at net book value in 2000. Allegheny Energy is seeking
to transfer the remaining generating assets in

                                  M-44
<PAGE>


                                                  The Potomac Edison Company

Ohio, Virginia, and West Virginia to its unregulated subsidiary at
book value in deregulation proceedings in these jurisdictions.  The
unregulated electric supply is being sold in both the wholesale and
retail competitive marketplaces, allowing greater earnings growth
potential, subject to market risk, while allowing Allegheny Energy
to capitalize on its strengths in the generation business.

Following the transfer of generation assets to Allegheny Energy
Supply, the Company will be part of Allegheny Energy's delivery
business (wires and pipes).  The delivery business will remain an
important part of Allegheny Energy's business which Allegheny Energy
plans to expand.



SIGNIFICANT EVENTS IN 1999, 1998, AND 1997

Maryland Deregulation

On September 23, 1999, a settlement agreement between the Company,
the Staff of the Maryland PSC, and other parties working to
implement customer choice and deregulation of electric generation
for the Company in Maryland was filed with the Maryland PSC.  On
December 23, 1999, the Maryland PSC approved the settlement
agreement, which provides nearly all of the Company's 211,000
Maryland customers with the ability to choose an electric generation
supplier starting July 1, 2000.

As a result of the Maryland settlement agreement, the Company
discontinued the application of the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation,"
for the electric generation portion of its Maryland operations and
has adopted SFAS No. 101, "Accounting for the Discontinuation of
Application of FASB Statement No. 71."  Accordingly, the Company
recorded an extraordinary charge of $26.9 million ($17.0 million
after taxes) during the fourth quarter of 1999.  This write-off
reflects the impairment of certain electric generation assets as
determined by applying SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the write-off of the Maryland portion of generation-related net
regulatory assets. See Notes B and C to the financial statements for
details of the settlement agreement and the effect on the Company.

PURPA Power Project Termination

In 1999, the Company settled for $2.7 million litigation by a
developer alleging failure by the Company to comply with the Public
Utility Regulatory Policies Act of 1978 (PURPA) regulations.

Electric Industry Restructuring
See Electric Energy Competition on page 10 for more information
regarding electric industry restructuring activities.

                                  M-45
<PAGE>


                                                  The Potomac Edison Company


Recapitalization

On September 30, 1999, the Company called $16.4 million of preferred
stock.  The Company also plans to revise its Articles of
Incorporation to provide greater financial flexibility.


REVIEW OF OPERATIONS

Earnings Summary
                                                           Earnings
(Millions of Dollars)                              1999     1998     1997

Operations...................................      $100.6   $101.5  $95.8
Extraordinary charge, net (Notes B and C
  to the financial statements)...............       (17.0)

Net Income...................................      $ 83.6   $101.5  $95.8

The decrease in 1999 earnings from operations, before the
extraordinary charge,  resulted from increased operation and
maintenance (O&M) expenses and lower other income, net.  Included as
part of other operation expenses is a $5.3 million write-off of a
pumped-storage generation project no longer considered useful. The
decrease in earnings was offset in part by increased kilowatt-hour
(kWh) sales to retail customers, tax benefits related to plant
removal costs
and to the Company's share of tax savings in consolidation related
to its parent, Allegheny Energy, and reduced interest expenses. The
extraordinary charge in 1999 resulted from the Maryland electric
utility restructuring order as discussed in Notes B and C to the
financial statements.

The increase in 1998 earnings from operations resulted from
increased  sales to retail customers and from reduced power station
O&M spending.

Sales and Revenues

Percentage changes in revenues and kWh sales in 1999 and 1998 by
major retail customer classes were:
                                    1999 vs. 1998          1998 vs. 1997
                                  Revenues      kWh      Revenues      kWh

Residential...................      6.9%        5.5%       3.1%      2.6%
Commercial....................      7.3         6.8        5.9       7.2
Industrial....................      2.7        (1.4)       4.3       5.9
  Total.......................      5.7%        2.6%       4.1%      5.0%

The changes in residential kWh sales, which are more weather
sensitive than the other classes, were due primarily to changes in
customer usage because of weather conditions and growth in the
number of customers.  The growth in the number of residential
customers was 2.1% and 1.9% in 1999 and 1998, respectively.

                                   M-46
<PAGE>


                                                  The Potomac Edison Company


Commercial kWh sales are also affected by weather, but to a lesser
extent than residential.  The increase in commercial kWh sales of
6.8% and 7.2% in 1999 and 1998, respectively, reflects increased
usage due to weather and commercial activity as well as growth in
the number of customers.  The growth in the number of commercial
customers was 2.5% and 2.4% in 1999 and 1998, respectively.

The decrease in industrial kWh sales in 1999 results primarily from
decreased sales to primary metals industry customers. The increase
in 1998 reflects increased sales to paper and printing customers and
to the Eastalco aluminum reduction plant.

On August 7, 1998, the Virginia State Corporation Commission
(Virginia SCC) approved an agreement reached between the Company and
the staff of the Virginia SCC which reduced base rates for Virginia
customers beginning September 1, 1998,
by about $2.5 million annually.  The review of rates was required by
an annual information filing in Virginia.

On February 25, 1999, the Virginia SCC approved the Company's rate
reduction
request, which decreased the fuel portion of Virginia customers'
bills by approximately 7.6% (a decrease in annual fuel revenue of
about $2.2 million). The decrease is primarily due to refunding a
prior overrecovery of fuel costs, coupled with a small decrease in
projected energy costs.  The new rates were effective with bills
rendered on or after March 9, 1999.

On May 21, 1999, the Virginia SCC approved an agreement between the
Company and the staff of the Virginia SCC which reduced base rates
for Virginia customers effective June 1, 1999, by about $3 million
annually.  The review of rates is required by an annual information
filing in Virginia.

On February 26, 1999, the Public Service Commission of West Virginia
(W.Va. PSC) entered an order to initiate a fuel review proceeding to
establish a fuel increment in rates for the Company and its
affiliate, Monongahela Power Company, to be effective July 1, 1999,
through June 30, 2000.  The parties have exchanged proposals which
continue to be discussed.  If an agreement is not reached, the
proposed fuel rates which would decrease the Company's fuel rates by
$8.0 million will become effective March 15, 2000.

On November 8, 1999, the Company filed with the Maryland PSC a
request to decrease the fuel portion of Maryland customers' bills by
about $6.4 million annually.  The requested decrease is primarily
due to greater efficiencies, lower fuel costs, and increased
nonaffiliated generation and transmission sales.  The new fuel rates
were effective with bills rendered on or after December 7, 1999,
subject to refund, based on the outcome of proceedings before the
Maryland PSC.

On October 27, 1998, the Maryland PSC approved a settlement
agreement for the Company.  Under the terms of that agreement, the
Company increased its rates $13 million in 1999, will increase its
rates an additional $13 million in 2000, and an additional increase
of $13 million will go into effect in 2001 (a $79 million total
revenue increase during 1999 through 2001). The increases are
designed to recover additional costs of about $131 million over the
1999 through 2001 period for capacity purchases from the AES Warrior
Run

                                   M-47
<PAGE>


                                                  The Potomac Edison Company
cogeneration project, net of alleged over-earnings of $52
million for the same period.  The net effect of these changes over
the 1999 through 2001 time frame results in a pre-tax income

reduction of $12 million in 1999, $21 million in 2000, and $19
million in 2001.  Also, the Company will share, on a 50% customer,
50% shareholder basis, earnings above a return on equity of 11.4% in
Maryland for 1999 and 2000.  This sharing will occur through an
annual true-up.  The Company's 1999 revenues reflect an estimated
obligation for shared earnings above an 11.4% return on equity.

Changes in revenues from retail customers resulted from the
following:

                                             Changes from Prior Year
(Millions of Dollars)                    1999 vs. 1998   1998 vs. 1997

Fuel clauses.............................    $ 5.7           $10.9
All other................................     32.6            15.4
  Net change in retail revenues..........    $38.3           $26.3


Revenues reflect not only changes in kWh sales and base rate
changes, but also any changes in revenues from fuel and energy cost
adjustment clauses (fuel clauses) which are still applicable in the
Company's jurisdictions.

Effective July 1, 2000, the Company's Maryland jurisdiction will cease
to have a fuel clause under the terms of the September 23, 1999,
settlement agreement.  Changes in fuel revenues in jurisdictions for which
a fuel clause continues to exist have no effect on net income because
increases and decreases in fuel and purchased power costs and sales of
transmission services and bulk power are passed on to customers by
adjustment of customers' bills through fuel clauses. Effective July 1,
2000, the Company will assume the risks and benefits of changes in fuel
and purchased power costs and sales of transmission services and bulk power
in its Maryland jurisdiction.  The Company expects that the fuel clause
rates in Virginia and West Virginia will cease as these states implement
customer choice.  The Company will then assume the risks and benefits of
changes in fuel and purchased power costs and sales of transmission services
and bulk power.

All other is the net effect of kWh sales changes due to changes in
customer usage (primarily weather for residential customers), growth
in the number of customers, and changes in pricing other than
changes in general tariff and fuel clause rates. The increase in
1999 in all other retail revenues was primarily due to increased kWh
sales as customer usage increased as a result of weather conditions
and to customer growth.  The increase in 1998 all other retail
revenues was primarily the result of increased customer usage and
growth in the number of customers.

Wholesale and other revenues were as follows:

                                  M-48
<PAGE>


                                                  The Potomac Edison Company

(Millions of Dollars)                          1999       1998      1997

Wholesale customers.......................     $21.5      $23.5    $26.6
Affiliated companies......................      11.4        9.4      9.7
Street lighting and other.................       4.7        5.5      2.6
Deferred revenues.........................     (19.9)
  Total wholesale and other revenues......     $17.7      $38.4    $38.9


Wholesale customers are cooperatives and municipalities that own
their distribution systems and buy all or part of their bulk power
needs from the Company under Federal Energy Regulatory Commission
(FERC) regulation.  Competition in the wholesale market for
electricity was initiated by the national Energy Policy Act of 1992,
which permits wholesale generators, utility-owned and otherwise, and
wholesale customers to request from owners of bulk power
transmission facilities a commitment to supply transmission
services. The decrease in wholesale revenues in 1999 was due
primarily to renegotiated contracts with some wholesale customers.
The decrease in wholesale revenues in 1998 was primarily due to the
mild 1998 winter weather.

Revenues from affiliated companies represent sales of energy and
intercompany allocations of generating capacity, generation spinning
reserves, and transmission services pursuant to a power supply
agreement among the Company and the other regulated utility
subsidiaries of Allegheny Energy.  Revenues from affiliated
companies increased $2.0 million in 1999 due primarily to increased
transmission revenues from affiliates.

The increase in street lighting and other revenues in 1998 was
primarily due to the recording in 1998 of additional pole attachment
revenues.

Deferred revenues of $19.9 million in 1999 result from settlement
agreements approved by the Maryland PSC.

Bulk power transactions include sales of bulk power and transmission
and other energy services to power marketers and other utilities.
Bulk power and transmission and other energy services sales for
1999, 1998, and 1997 were as follows:

<TABLE>
<CAPTION>

                                                 1999        1998        1997
  <S>                                            <C>         <C>         <C>
kWh Transactions (in billions):
  Bulk power................................      .2          .4          .4
  Transmission and other energy services
    to nonaffiliated companies..............     2.8         2.5         4.0
      Total.................................     3.0         2.9         4.4


Revenues (in millions):
  Bulk power................................   $ 8.4       $11.7       $10.0
  Transmission and other energy services
    to nonaffiliated companies..............    16.2        14.7        13.6
      Total.................................   $24.6       $26.4       $23.6

</TABLE>

                                          M-49
<PAGE>


                                                  The Potomac Edison Company

Revenues from bulk power transactions decreased in 1999 due to
decreased sales to power marketers and other utilities.  The 1998
increase in revenues from bulk power was due to increased sales that
occurred primarily in the second quarter as a result of warm weather
which increased the demand and price for energy.

In 1999, revenues from transmission and other energy services
increased primarily due to increased megawatt-hours (MWh)
transmitted.  Revenues from transmission and other energy services
in 1998 increased, despite decreased transmission services activity.
The increase in 1998 revenues was due to transmission services
reservation charges paid to the Company by others for the right to
transmit energy. Transmission services activity was affected as a
result of some of the reservations to transmit energy not being
used.  In 1998, revenues from transmission and other energy services
were affected by a revenue refund resulting from a reduction in the
Company's standard transmission rate and rates for ancillary
services which were approved by the FERC.  A provision of $2.2
million for these rate reductions was recorded in 1998, with
revenues refunded to customers in the first quarter of 1999.

In June and July 1999 and June and July 1998, certain events
combined to produce significant volatility in the spot prices for
electricity at the wholesale level. These events included extremely
hot weather, generation unit outages, and transmission constraints.
Wholesale prices for electricity rose from a normal range of $25 to
$40 per MWh to as high as $3,500 to $7,000 per MWh.  The costs of
purchased power and revenues from sales to power marketers and other
utilities, including transmission services, are currently recovered
from or credited to customers under fuel and energy cost recovery
procedures. The impact to the fuel and energy cost recovery clauses
may be positive or negative depending on whether the Company is a
net buyer or seller of electricity during such periods and the open
commitments which exist at such times. The impact of such price
volatility in 1999 and 1998 was insignificant to the Company because
changes are passed to customers through operation of fuel clauses.
However, effective July 1, 2000, the fuel clause will be
discontinued in Maryland which may cause an increase in the
volatility of earnings for the Company.

The Company expects that the fuel clause rates in Virginia and West
Virginia will cease as these states implement customer choice.  The
Company will then assume the risks and benefits of changes in fuel
and purchased power costs and sales of
transmission services and bulk power.

Operating Expenses

Fuel expenses decreased 3.4% in 1999 due to a 6.0% decrease in
average fuel prices offset in part by a 2.6% increase related to
kWhs generated to meet retail customer requirements and increased
sales to affiliates.  The decrease in average fuel prices was due to
renegotiated fuel contracts.  In 1998 fuel expenses increased 2.1%
due to increased kWhs generated.  The 1998 increase in kWhs
generated was primarily the result of increased bulk power sales to
power marketers and other utilities and also due to increased sales
to retail customers.

                                 M-50
<PAGE>


                                                  The Potomac Edison Company


Purchased power and exchanges, net, represents power purchases from
and exchanges with other companies, capacity charges paid to
Allegheny Generating Company (AGC), purchases from qualified
facilities under the PURPA, and other transactions with affiliates
made pursuant to a power supply agreement whereby each company uses
the most economical generation available in the System at any given
time, and consists of the following items:

(Millions of Dollars)                            1999       1998       1997

Nonaffiliated transactions:
  Purchased power:
    Other..................................     $15.7      $ 15.2    $ 13.2
    From PURPA generation..................       1.5
  Power exchanges, net.....................      (2.6)        (.1)
Affiliated transactions:
  AGC capacity charges.....................      19.8        23.8      25.5
  Other affiliated capacity charges........      39.0        42.9      50.8
  Energy and spinning reserve charges......      53.6        56.5      50.7
    Purchased power and exchanges, net.....    $127.0      $138.3    $140.2


The increases in other purchased power in 1999 and 1998 resulted
primarily from increased kWh purchases to supply retail customers.
An increase in price caused by volatility in the spot prices for
electricity at the wholesale level in the second and third quarters
of 1998 also contributed to the 1998 increase.

The AES Warrior Run PURPA cogeneration project in the Company's
Maryland service territory will increase the cost of power purchases
by about $60 million annually. Commencement of operation was
scheduled for October 1999. Pre-commencement testing is not
completed.  Although AES Warrior Run has until October 1, 2000, to
complete pre-commencement testing, it is anticipated that it will be
in commercial operation in the first quarter of 2000.  The Maryland
PSC has approved the Company's full recovery of the AES Warrior Run
purchased power costs as part of the September 23, 1999, settlement
agreement.  See Sales and Revenues starting on page 3 for more
information on the settlement agreement.

On January 1, 1999, an amendment to the Company and its affiliates'
power supply agreement became effective.  The amendment sets the
generation demand for each owner proportional to its ownership in
AGC.  Previously, demand for each shared owner of AGC fluctuated due
to customer usage.  The decrease in AGC capacity charges in 1999 was
primarily due to this change. Energy and spinning reserve
charges decreased in 1999 due to decreased kWh purchases from
affiliates.

The increase in other operation expenses in 1999 of $13.5 million
resulted primarily from increased expenses due to a write-off of
$5.3 million of costs related to a pumped-storage generation project
no longer considered useful, $2.7 million of costs associated with
settling litigation concerning a PURPA project, increases in salaries
and wages of $1.9 million, and increased provisions for uninsured
claims of $1.4 million.  The increase in other

                                   M-51
<PAGE>


                                                  The Potomac Edison Company

operation expenses of $2.9 million in 1998 resulted primarily from
increased expenses related to competition in Maryland of $1.6 million.

The increase in maintenance expenses in 1999 of $5.1 million was due
to a $2.8 million increase in power station maintenance, a $1.4
million increase in transmission and distribution maintenance, and a
$.9 million increase in general plant maintenance which includes
renovations of office facilities.  The decrease in maintenance
expenses in 1998 was due primarily to a management program to
postpone such expenses for the year in response to limited sales
growth in the first quarter due to the warm winter weather.  The
Company postponed these expenses primarily by extending the time
between maintenance outages and experienced no measurable effect on
system performance.

Maintenance expenses represent costs incurred to maintain the power
stations, the transmission and distribution (T&D) system and general
plant, and to reflect routine maintenance of equipment and rights-of-
way, as well as planned major repairs and unplanned expenditures,
primarily from forced outages at the power stations and periodic
storm damage on the T&D system.  Variations in maintenance expense
result primarily from unplanned events and planned major projects,
which vary in timing and magnitude depending upon the length of time
equipment has been in service without a major overhaul and the
amount of work found necessary when the equipment is dismantled.

Depreciation expense increases resulted from increased investment.

The increase in taxes other than income taxes of $1.4 million in
1999 was due to an increase in the assessment of property in
Maryland.  The increase in taxes other than income taxes of $2
million in 1998 was primarily due to an increase in gross receipts
taxes resulting from greater revenues from retail customers and
increased property taxes.

The 1999 decrease in federal and state income taxes was due
primarily to decreased taxable income, tax benefits related to plant
removal costs for which deferred taxes were not provided, and to the
Company's share of tax savings in consolidation related to its
parent, Allegheny Energy. The 1998 increase in federal and state
income taxes was primarily due to increased taxable income. Note D
to the financial statements provides a further analysis of income
tax expenses.

Other Income and Deductions

The decrease in allowance for other than borrowed funds used during
construction of $1.1 million in 1998 was due to property placed in
service.

The decrease in other income, net of $1.5 million in 1999 was due
primarily to the discontinuance of a demand side management program.
The decrease in other income, net, of $4.7 million in 1998 was
primarily due to a 1997 interest refund on a tax-related contract
settlement ($2.5 million, after taxes) received by AGC, which is
partly owned by the Company.

                                  M-52
<PAGE>


                                                  The Potomac Edison Company
Interest Charges

The decrease in interest on long-term debt in 1999 of $3.1 million
and in 1998 of
$1.6 million resulted from reduced average long-term debt
outstanding and, in 1998, also lower interest rates. Other interest
expense reflects changes in the levels of short-term debt maintained
by the Company throughout the year, as well as the associated interest
rates.

Extraordinary Item

The extraordinary charge in 1999 of $26.9 million ($17.0 million
after taxes) was required to reflect a write-off of certain
disallowances in the Maryland PSC's December 1999 order. See Notes B
and C to the financial statements for additional information.

FINANCIAL CONDITION, REQUIREMENTS, AND RESOURCES

Liquidity and Capital Requirements

To meet cash needs for operating expenses, the payment of interest
and dividends, retirement of debt and certain preferred stocks, and
for its construction program, the Company has used internally
generated funds and external financings, such as the sale of common
and preferred stock, debt instruments, installment loans, and lease
arrangements.  The timing and amount of external financings depend
primarily upon economic and financial market conditions, the
Company's cash needs, and capitalization ratio objectives.  The
availability and cost of external financings depend upon the
financial health of the companies seeking those funds and market
conditions.

Construction expenditures in 1999 were $92 million and, for 2000 and
2001, are estimated at $88 million and $72 million, respectively.
The 2000 and 2001 estimated expenditures include $31 million and $40
million, respectively, for construction of environmental control
technology.  It is the Company's goal to constrain future
construction spending to the approximate level of depreciation
currently in rates.  As described under Environmental Issues
starting on page 13, the Company could potentially face significant
mandated increases in construction expenditures and operating costs
related to environmental issues.  Whether the Company can continue
to meet the majority of its construction needs with internally
generated cash is largely dependent upon the outcome of these
issues.  The Company also has additional capital requirements for
debt maturities (see Note I to the financial statements).  The
Company anticipates issuing new debt to replace the $75 million of
long-term debt maturing in 2000.

Internal Cash Flow

Internal generation of cash, consisting of cash flows from
operations reduced by dividends, was $58 million in 1999, compared
with $187 million in 1998.  The decrease in 1999 cash flows resulted
primarily from an increase in the level of common stock dividends
payable to its Parent, Allegheny Energy, Inc. Current rate levels
permitted the Company to finance 64% of its construction

                                 M-53
<PAGE>


                                                  The Potomac Edison Company


expenditures in 1999 and all of its construction expenditures in
1998 with internal cash flow.


Financing

Short-term debt is used to meet temporary cash needs.  The Company
had no short-term debt outstanding at December 31, 1999 or December 31,
1998.  At December 31, 1999, the Company had Securities and Exchange
Commission (SEC) authorization to issue up to $130 million of short-
term debt.  The Company and its regulated affiliates use an Allegheny Energy
internal money pool as a facility to accommodate intercompany short-
term borrowing needs, to the extent that certain of the companies
have funds available.  The Company anticipates meeting its 2000 cash
needs through internal cash generation, cash on hand,  short-term
borrowings as necessary, and by issuing debt to refinance maturing
first mortgage bonds.

The Company called all outstanding shares of its cumulative
preferred stock with a combined par value of $16.4 million plus
redemption premiums of $.5 million on September 30, 1999, with funds
on hand.  The redemptions of the preferred stock will allow the
Company to revise its Articles of Incorporation, providing greater
financial flexibility in restructuring debt.

In April 1999, the Company issued $9.3 million of 5.5% 30-year
pollution control revenue notes to Pleasants County, West Virginia.

The Company's long-term debt due within one year at December 31,
1999 was $75 million of 5-7/8% first mortgage bonds due March 1,
2000.


SIGNIFICANT CONTINUING ISSUES

Electric Energy Competition

The electricity supply segment of the electric utility industry in
the United States is becoming increasingly competitive.  The
national Energy Policy Act of 1992 deregulated the wholesale
exchange of power within the electric industry by permitting the
FERC to compel electric utilities to allow third parties to sell
electricity to wholesale customers over their transmission systems.
Since 1992, the wholesale electricity market has become more
competitive as companies are engaging in nationwide power trading.
In addition, an increasing number of states have taken active steps
toward allowing retail customers the right to choose their
electricity supplier.  The Company and its parent, Allegheny Energy
have been advocates of federal legislation to create competition in
the retail electricity markets to avoid regional dislocations and
ensure level playing fields.  Legislation before the U.S. Congress
to restructure the nation's electric utility industry cleared an
important hurdle on October 28, 1999, when a House Commerce
Committee subcommittee gave its approval to a bill.  The bill will
now move on to the full Commerce Committee where it will be
considered in 2000.

In the absence of federal legislation, state-by-state implementation
of deregulation of electric generation is under way.  The Company
has franchised

                                 M-54
<PAGE>


                                                  The Potomac Edison Company

 customers in Maryland, Virginia, and West Virginia.
The five states in which the Company and its affiliates serve
customers are at various stages of implementation or investigation
of programs that allow customers to choose their electric supplier.
Pennsylvania is furthest along with a retail program in place, while
Maryland, Ohio, and Virginia passed legislation in 1999 to implement
retail choice.  West Virginia continues to actively study this
issue.  On December 23, 1999, the Maryland PSC approved a settlement
agreement for the Company to implement generation competition in
Maryland.

At this time, the Company cannot determine the effect of
deregulation plans that may be approved in West Virginia and
Virginia.  However, the approval of deregulation plans could have a
material impact on the Company regarding potential impairment of
electric generation assets and the Company's ability to recover
generation-related regulatory assets.

Activities at the Federal Level

The Company continues to seek enactment of federal legislation to
bring choice to all retail electric customers, deregulate the
generation and sale of electricity
on a national level, and create a more liquid, free market for
electric power.  Fully meeting challenges in the emerging
competitive environment will be difficult for the Company unless
certain outmoded and anti-competitive laws, specifically the Public
Utility Holding Company Act of 1935 (PUHCA) and Section 210
(Mandatory Purchase Provisions) of PURPA, are repealed or
significantly revised. The Company continues to advocate the repeal
of PUHCA and Section 210 of PURPA on the grounds that they are
obsolete and anti-competitive and that PURPA results in utility
customers paying above-market prices for power. H.R. 2944, which was
sponsored by U.S. Representative Joe Barton, was favorably reported
out of the House Commerce Subcommittee on Energy and Power.  While
the bill does not mandate a date certain for customer choice,
several key provisions favored by the Company are included in the
legislation, including an amendment that allows existing state
restructuring plans and agreements to remain in effect. Other
provisions address important Company priorities by repealing the
PUHCA and the mandatory purchase provisions of the PURPA.  Consensus
remains elusive with significant hurdles remaining in both houses of
Congress.  It is too early to tell whether momentum on the issue
will result in legislation in 2000.

Maryland Activities

On April 8, 1999, Maryland Governor Glendening signed the
legislation that will bring competition to Maryland's electric
generation market beginning July 1, 2000. The Maryland PSC is in the
process of implementing the new law. Final Electric Restructuring
Roundtable reports were filed with the Maryland PSC on May 3, 1999,
and legislative-style hearings were held last summer on the reports.
The Company filed testimony in Maryland's investigation into
transition costs, price protection, and unbundled rates, and a
consensus settlement agreement was achieved with no protest by any
of the parties participating in the negotiations. The agreement was
filed on September 23, 1999, and a hearing before the Commission was
held on October 14, 1999. On December 23, 1999, the Maryland PSC
issued an order approving the settlement. The Company filed an
application on December 15, 1999, to transfer its

                                  M-55
<PAGE>


                                                  The Potomac Edison Company

Maryland generation assets at book value to an affiliate under
Section 7-508 of the Electric Customer Choice and Competition Act of
1999. A Maryland PSC decision approving the transfer of the generating
assets is due by July 1, 2000.

Virginia Activities

On March 25, 1999, Governor Gilmore signed the Virginia Electric
Utility Restructuring Act (Restructuring Act) passed by the Virginia
General Assembly. All utilities must submit a restructuring plan by
January 1, 2001, to be effective on January 1, 2002.  Customer
choice will be phased in beginning on January 1, 2002, with full
customer choice by January 1, 2004.  The Legislative Transition Task
Force on Electric Utility Restructuring, which was established by
the Restructuring Act to oversee the implementation of customer
choice, held hearings in the summer and fall of 1999 on a number of
issues concerning the implementation of retail competition in
Virginia.  Parties have also been working with the Virginia SCC
Staff to develop the rules governing the proposed retail pilot
programs of other utilities in the state.

West Virginia Activities

In March 1998, legislation was passed by the West Virginia
Legislature that directed the W.Va. PSC to meet with all interested
parties to develop a restructuring plan which would meet the
dictates and goals of the legislation. Interested parties formed a
Task Force that met during 1998, but the Task Force
was unable to reach a consensus on a model for restructuring.  The
W.Va. PSC held hearings in August 1999 that addressed certification,
licensing, bonding, reliability, universal service, consumer
protection, code of conduct,
subsidies, and stranded costs.  The W.Va. PSC on December 20, 1999
released for comment and hearings a modified version of a proposal
submitted by members
of the Task Force, including the Company and its affiliate,
Monongahela Power, following the August 1999 hearings that could
open full retail competition as early as January 1, 2001.  The
production of power would be deregulated and electricity rates would
be frozen for four years with rates gradually transitioning to
market rates over the six years thereafter.  After hearings in
January 2000, the W.Va. PSC submitted a restructuring plan endorsed
by members of the Task Force, including the Company and Monongahela
Power, to the Legislature for approval.

The status of electric energy competition in Ohio and Pennsylvania
in which affiliates of the Company serve are as follows:

Ohio Activities

On June 22, 1999, the Ohio General Assembly passed legislation to
restructure its electric utility industry. The Governor of Ohio
added his signature soon thereafter, and all of the state's
customers will be able to choose their electricity supplier starting
January 1, 2001, beginning a five-year transition to market rates.
Total electric rates will be frozen over that period, and
residential customers are guaranteed a 5% cut in the generation
portion of their rate.  The determination of stranded cost recovery
will be handled by the Public Utilities Commission of Ohio (Ohio
PUC).  On January 3,

                                M-56
<PAGE>


                                                  The Potomac Edison Company

2000, the Company's affiliate, Monongahela Power filed a transition
plan with the Ohio PUC, including its claim for recovery of stranded
costs of $21.3 million.  The Ohio PUC is expected to hold hearings on
Monongahela Power's transition plan filing and issue a decision by
October 2000.

The Ohio legislation stipulates that an entity independent of the
utilities shall own or control transmission facilities after the
start of competitive retail electric service on January 2001, but
not later than December 31, 2003. Customer protections were kept
intact with a low-income assistance plan and a one-time forgiveness
of past debts for low-income and handicapped customers.  In regard
to renewable energy, the bill requires that electric generators
purchase excess electricity from small businesses and homes using
renewable energy sources.

Pennsylvania Activities

In December 1996, Pennsylvania enacted the Electricity Generation
Customer Choice and Competition Act to restructure the electric
industry to create retail access to a competitive electric energy
supply market. On May 29, 1998 (as amended on November 19, 1998),
the Pennsylvania Public Utility Commission granted final approval to
West Penn's restructuring plan.  As of January 2, 2000, all
electricity customers in Pennsylvania had the right to choose their
electric suppliers.  Two-thirds of all retail customers had a choice
throughout 1999, the first year of retail choice following a pilot
program.  The number of customers who have switched suppliers and
the amount of electrical load transferred in Pennsylvania far exceed
that in any other state so far.  However, for West Penn, only about
12,700 of its Pennsylvania customers eligible to shop in 1999 have
chosen an alternate energy supplier.  West Penn has retained about
98% of its Pennsylvania customers through December 31, 1999.  More
than 100 electric generation suppliers have been licensed to sell to
retail customers in Pennsylvania.

Accounting for the Effects of Price Deregulation

In July 1997, the Emerging Issues Task Force (EITF) of the FASB
released Issue No. 97-4, "Deregulation of the Pricing of Electricity
- Issues Related to the Application of FASB Statement Nos. 71 and
101," which concluded that utilities should discontinue application
of SFAS No. 71 for the generation portion of their business when a
deregulation plan is in place and its terms are known. In accordance
with guidance of EITF Issue No. 97-4, the Company has discontinued
the application of SFAS No. 71 to its electric generation business
in Maryland.  See Note C to the financial statements for information
regarding the impact of the Maryland deregulation plan on the 1999
financial statements.  The legislation passed in Virginia
established a definitive process for transition to deregulation and
market-based pricing for electric generation.  However, the
deregulation plans and their terms in Virginia will not be known
until relevant regulatory proceedings are complete and final orders
are received.  The Company is unable to predict the effect of
discontinuing SFAS No. 71 in Virginia, but it may be required to
write off unrecoverable regulatory assets, impaired assets, and
uneconomic commitments.  Also the Company is unable to predict the
outcome of the deregulation process in West Virginia until further
actions are taken by the Legislature and the W.Va PSC.

                                   M-57
<PAGE>


                                                  The Potomac Edison Company


Environmental Issues

In the normal course of business, the Company is subject to various
contingencies and uncertainties relating to its operations and
construction programs, including legal actions and regulations and
uncertainties related to environmental matters.

The significant costs of complying with Title IV (acid rain)
provisions of Phase I of the Clean Air Act Amendments of 1990 (CAAA)
have been incurred and are included in the cost of the related
generation facilities.  The Company estimates that its banked
emission allowances will allow it to comply with Phase II sulfur
dioxide (SO2) limits through 2005.  Studies to evaluate cost-
effective options to comply with Phase II limits beyond 2005,
including those available in connection with the emission allowance
trading market, are continuing.

Title I of the CAAA established an Ozone Transport Commission to
ascertain additional nitrogen oxides (NOx) reductions to allow the
Ozone Transport Region (OTR) to meet the ozone National Ambient Air
Quality Standards (NAAQS). Under terms of a Memorandum of
Understanding (MOU) among the OTR states, the
Company's generating stations located in Maryland and Pennsylvania
were required to reduce NOx emissions by approximately 55% from the
1990 baseline emissions, with a compliance date of May 1999.
Further reductions of 75% from the 1990 baseline may be required by
May 2003 under Phase III of the MOU.  However, this reduction will
most likely be superceded by the proposed NOx State Implementation
Plan (SIP) call rule discussed below.  If reductions of 75% are
required, installation of post-combustion control technologies would
be very expensive. Pennsylvania and Maryland promulgated regulations
to implement Phase II of the MOU in November 1997 and May 1998,
respectively.  However, as a result of litigation, the Maryland
regulation was revised to postpone compliance to May 2000.

The Ozone Transport Assessment Group issued its final report in June
1997 and recommended that the Environmental Protection Agency (EPA)
consider a range of NOx controls between existing CAAA Title IV
controls and the less stringent of 85% reduction from the 1990
emission rate or 0.15 lb/mmBtu.  The EPA initiated
the regulatory process to adopt the recommendations and issued its
final NOx SIP call rule on September 24, 1998.  The EPA's SIP call
rule finds that 22 eastern states (including Maryland, Pennsylvania,
and West Virginia) and the District of Columbia are all contributing
significantly to ozone nonattainment in downwind states.  The final
rule declares that this downwind nonattainment will be eliminated
or sufficiently mitigated) if the upwind states reduce their NOx
emissions by an amount that is precisely set by the EPA on a
tate-by-state basis.  The final SIP call rule requires that all
state-adopted NOx reduction measures must be incorporated into SIPs
by September 24, 1999, and must be implemented by May 1, 2003.  The
ompany's compliance with these requirements would require the
installation of post-combustion control technologies on most, if not
all, of its power stations.  The Company continues to work with other
coal-burning utilities and other affected constituencies in coal-
producing states to challenge this EPA action.  While the SIP call
is being litigated, the Company is making preliminary plans to
comply by applying NOx reduction facilities to existing units at
various power stations.

                                 M-58
<PAGE>


                                                  The Potomac Edison Company


In August 1997, eight northeastern states filed Section 126
petitions with the EPA requesting the immediate imposition of up to
an 85% NOx reduction from utilities located in the Midwest and
Southeast (West Virginia included).  The petitions claim NOx
emissions from these upwind sources are preventing their attainment
with the ozone standard.  In December 1997, the petitioning states
and the EPA signed a Memorandum of Agreement to address these
petitions in conjunction with the related SIP call.  In May 1999,
the EPA issued a technical approval of the petition and in December
1999, granted final approval of four of the petitions.  The Section
126 petition rulemaking is also under litigation.

The EPA is required by law to regularly review the NAAQS for
criteria pollutants. Recent court orders in litigation by the
American Lung Association have expedited these reviews.  The EPA in
1996 decided not to revise the SO2 and NOx standards.  Revisions to
particulate matter and ozone standards were proposed by the EPA in
1996 and finalized in July 1997.  However, the revised standards
were legally challenged, and, in May 1999, the District of Columbia
Circuit Court of Appeals remanded the revised standards back to the
EPA for further consideration.  Also, in May 1999, the EPA
promulgated final regional haze regulations to improve visibility in
Class I federal areas (national parks and wilderness areas).  If
eventually upheld in court, subsequent state regulations could
require additional reduction of SO2 and/or NOx emissions from
Company facilities.  The effect on the Company of revision to any of
these standards or regulations is unknown at this time, but could be
substantial.

The final outcome of the revised ambient standards, Phase III of the
MOU, SIP call rule, and Section 126 petitions cannot be determined
at this time.  All are being challenged by rulemaking, petition,
and/or the litigation process.  Implementation dates are also
uncertain at this time, but could be as early as 2003, which would
require substantial capital expenditures in the 2000 through 2003
period.  The Company's construction forecast includes the
expenditure of $103 million of capital costs during the 2000 through
2003 period to comply with the SIP call.  In addition, $3 million
was spent in 1999.

Global climate change is alleged to be the result of the atmospheric
accumulation of certain gases collectively referred to as greenhouse
gases (GHG), the most significant of which is carbon dioxide (CO2).
Human activities, particularly combustion of fossil fuels, are
alleged to be responsible for this accumulation of GHG.  The Clinton
Administration has signed an international treaty called the Kyoto
Protocol, which will require the United States to reduce emissions
of GHG by 7% from 1990 levels in the 2008 through 2012 time period.
The United States Senate must ratify the Kyoto Protocol before it
enters into force.  The Senate passed a resolution in 1997 that
placed two conditions on entering into any international climate
change treaty.  First, any treaty must include all nations, and,
second, any treaty must not cause serious harm to the United States'
economy. The Kyoto Protocol does not appear to satisfy either of
these conditions, and, therefore, the Clinton Administration has
withheld it from consideration by the Senate.  Because coal
combustion in power plants produces about 33% of the
United States' CO2 emissions, implementation of the Kyoto Protocol
would

                                 M-59
<PAGE>


                                                  The Potomac Edison Company

raise considerable uncertainty about the future viability of
coal as a fuel source for new and existing power plants. The Company
has taken numerous voluntary, precautionary steps to address the
issue of global climate change.

Many uncertainties remain in the global climate change debate,
including the relative contributions of human activities and natural
processes, the
extremely high potential costs of extensive mitigation efforts, and
the significant economic and social disruptions which may result
from a large-
scale reduction in the use of fossil fuels.  The Company will
continue to explore cost-effective opportunities to improve
efficiency and performance.

The Company actively participates in climate-related research
programs and is responsive to the voluntary guidelines suggested in
the national Energy Policy Act of 1992, under Section 1605(b),
directed toward reducing, controlling, avoiding, and sequestering
greenhouse gases.  The Company has taken many concrete steps to
reduce greenhouse gases and help stimulate a business climate that
encourages improved efficiency, performance, electrical loss
reductions, and cost-effectiveness.

The Company previously reported that the EPA had identified the
Company and its regulated utility affiliates as potentially
responsible parties, along with approximately 175 others, in a
Superfund site subject to cleanup.  A final determination has not
been made for the Company's share of the remediation costs based on
the amount of materials sent to the site.  The Company and its
regulated affiliates have also been named as defendants along with
multiple other defendants in pending asbestos cases involving one or
more plaintiffs.  The Company believes that provisions for liability
and insurance recoveries are such that final resolution of these
claims will not have a material effect on its financial position
(See Note L to the financial statements for additional information).

On Earth Day 1997, President Clinton announced the expansion of the
federal Emergency Planning and Community Right-to-Know Act (RTK)
reporting to include electric utilities, limited to facilities that
combust coal and/or oil for the purpose of generating power for
distribution in commerce.  The purpose of RTK is to provide site-
specific information on chemical releases to the air, land, and
water.  On June 4, 1999, the Allegheny Energy companies (the System)
joined with other members of the Edison Electric Institute in
reporting power station releases to the public.  Packets of
information about the System's releases were provided to the news
media in the System's service area and posted on the Parent
Company's web site.  The System filed its first RTK-related report
with the EPA in advance of the July 1, 1999, deadline, reporting 18
million pounds of total releases for calendar year 1998.

The Attorney General of the State of New York and the Attorney
General of the State of Connecticut in their letters dated September
15, 1999, and November 3, 1999, respectively, notified Allegheny
Energy of their intent to commence civil actions against Allegheny
Energy and/or its subsidiaries alleging violations at the Fort
Martin Power Station under the federal Clean Air Act, which requires
existing power plants that make major modifications to comply with
the same emission standards applicable to new power plants.  Similar
actions may be commenced by other governmental authorities in the
future.  Fort Martin is a station located in West Virginia and is now
jointly owned by

                                   M-60
<PAGE>


                                                  The Potomac Edison Company

the Company and its affiliates, Allegheny Energy Supply, and
Monongahela Power.  Both Attorneys General stated their intent to
seek injunctive relief and penalties. In addition, the Attorney General
of the State of New York in his letter indicated that he may assert
claims under the State common law of public nuisance seeking to
recover, among other things, compensation for alleged environmental
damage caused in New York by the operation of Fort Martin Power
Station.  At this time, Allegheny Energy and its subsidiaries are
not able to determine what effect, if any, these actions threatened
by the Attorneys General of New York and Connecticut may have on
them.

Regional Transmission Organization

In adopting its Rule 2000, the FERC defined requirements for
transmission facility owners to participate in some form of Regional
Transmission Organization.  Additionally, the state jurisdictions
within which the Company operates have, to different degrees,
started to define their transition to a competitive marketplace.  As
part of this, they have identified transmission as a key link to
making the electricity market efficient.  The nature of this issue
is at least regional in scope.  As a result, any solution will need
to be one that satisfies a diverse group of stakeholders.  The
Company has actively participated in this debate and continues to
evaluate the available options to provide its customers with the
most reliable, cost-effective service while maintaining a clear
focus on the financial interests of its shareholders.

Derivative Instruments and Hedging Activities

In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."  The Company will be
required to recognize derivatives as defined by SFAS No. 133 on the
balance sheet at fair value.  The Company is evaluating the impact
of adopting SFAS No. 133 on its results of operations and financial
position which will be completed during the year 2000.  Accounting
for changes in the fair value of a derivative depends on the
intended use of the derivative and whether the instrument meets the
requirements for designation as a hedge.  The Company expects to
adopt SFAS No. 133 no later than January 1, 2001.

                                   M-61

<PAGE>



	                                              West Penn Power Company
	                                              and Subsidiaries



MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS

Management's discussion and analysis of financial condition and
results of operations contains forecast information items that are
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995.  These include statements with
respect to deregulation activities in Pennsylvania and results
of operations.  All such forward-looking information is necessarily
only estimated.  There can be no assurance that actual results will
not materially differ from expectations. Actual results have varied
materially and unpredictably from past expectations.

Factors that could cause actual results to differ materially
include, among other matters, electric utility restructuring,
including the ongoing state and federal activities; developments in
the legislative, regulatory, and competitive environments in which
West Penn Power Company (the Company) operates, including regulatory
proceedings affecting rates charged by the Company; environmental,
legislative, and regulatory changes; future economic conditions; the
Company's ability to compete in unregulated energy markets; and
other circumstances that could affect anticipated revenues and costs
such as significant volatility in the market price of wholesale
power, unscheduled maintenance or repair requirements, weather, and
compliance with laws and regulations.

Business Strategy

The energy delivery or wires business will continue to be an
important part of the Company's business.  The settlement agreement
in Pennsylvania permitted the Company to transfer its 3,778
megawatts (MW) of generating capacity at net book value to Allegheny
Energy Supply Company, LLC (Allegheny Energy Supply), a new,
unregulated, wholly owned subsidiary of Allegheny Energy, Inc.
(Allegheny Energy), the Company's Parent.  The recent settlement in
Maryland will allow approximately 1,300 MW of additional generating
capacity to be ransferred from the Company's affiliate, The Potomac
Edison Company (Potomac Edison) to Allegheny Energy Supply at net
book value in 2000.  Allegheny Energy is seeking to transfer the
remaining generating assets in Ohio, Virginia, and West Virginia to
its unregulated subsidiary at book value in deregulation proceedings
in these jurisdictions.  The unregulated electric supply is being
sold in both the wholesale and retail competitive marketplaces,
allowing greater earnings growth potential, subject to market
risk, while allowing Allegheny Energy to capitalize on its strengths in the
generation business.

SIGNIFICANT EVENTS IN 1999, 1998, AND 1997

Pennsylvania Deregulation

On November 19, 1998, the Pennsylvania Public Utility Commission
(Pennsylvania PUC) approved a settlement agreement between the Company
and parties to the Company's restructuring proceedings related to
legislation in

                                  M-62

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

Pennsylvania to provide customer choice of electric suppliers and deregulate
electricity generation.

As a result of the May 29, 1998, Pennsylvania PUC order and as revised by
the November 19, 1998, settlement agreement, the Company determined in 1998
that, under the provisions of the Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards (SFAS) No. 101,
"Accounting for the Discontinuation of Application of FASB Statement
No.71," an extraordinary charge of $466.9 million ($275.4 million after
taxes) was required to reflect a write-off of certain disallowances.
Charges of $40.3 million ($23.7 million after taxes) related to the
Company's revenue refund and energy program payments were also recorded
in 1998.

Under the terms of the Pennsylvania settlement agreement, two-thirds of the
Company's customers were permitted to choose an alternate generation
supplier beginning in January 1999.  All of the Company's customers were
permitted to do so beginning in January 2000.  They were able to remain as
Company customers at the Company's capped generation rates or to alternate
back and forth.  Under the law, all electric utilities, including the
 Company, retain the responsibility of electricity provider of last resort
to all customers in their respective franchise territories who do not choose
an alternate supplier.  See Notes B and C to the consolidated financial
statements for details of the settlement agreement and other information
about the deregulation process.

See Electric Energy Competition on page 11 for more information regarding
the restructuring in Pennsylvania.

Nonutility Sales of Electricity

Prior to transferring its electric generation assets to Allegheny Energy
Supply, the Company participated in unregulated energy markets as a supplier
of electricity.  During 1999, the Company's energy supply business sold
2,234,137 megawatt-hours (MWh) of electricity to customers in deregulated
retail markets and 17,040,799 MWh to customers in deregulated wholesale
markets.  Also during 1999, the Company's former generation customers
purchased 2,522,611 MWh of electricity from alternative energy suppliers as
a result of customer choice in Pennsylvania.

Unregulated Generating Affiliate

During 1999, Allegheny Energy obtained the necessary regulatory approvals to
form an unregulated generating subsidiary, Allegheny Energy Supply.  On
November 18, 1999, the Company transferred its generating capacity, which
totaled 3,778 MW, to Allegheny Energy Supply at book value as allowed by the
final settlement in the Company's Pennsylvania restructuring case.  The
Company continued to be responsible for providing generation to meet the
regulated electric load of its retail customers who did not have the right
to choose their generation supplier until January 2, 2000.  During the
period from November 18, 1999, through January 1, 2000, Allegheny Energy
Supply leased back to the Company one-third of its generating assets,
providing the Company with the unlimited right to use those facilities to
serve its regulated load.
                                  M-63

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

Recapitalization

In 1999, the Company completed the following steps in its recapitalization
process concurrent with the implementation of deregulation of electric
generation in Pennsylvania:

-- $600 million of transition bonds were issued in November 1999;
-- $525 million of first mortgage bonds were called or redeemed during the
    year;
-- $79.7 million of preferred stock was called or redeemed in July 1999; and
   the Company revised its Articles of Incorporation to provide greater
   financial   flexibility.

During 1999, the Company reacquired all of its outstanding first mortgage
bonds.  As a result, the Company incurred an extraordinary charge of $17.0
million ($10.0 million after taxes) during the fourth quarter of 1999.  The
extraordinary charge was the result of premiums paid to reacquire the first
mortgage bonds as compared to the carrying value of the bonds.

PURPA Power Project Terminations

On August 26, 1997, and December 3, 1997, the Company announced that it had
negotiated agreements to buy out and settle disputes with developers of
proposed power plants (the Milesburg and Washington Power projects) for $15
million and $48 million, respectively, reducing costs over the proposed
30- and 33-year lives of the projects by an estimated $1.4 billion.  The
disputed projects were being developed under the Public Utility Regulatory
Policies Act of 1978 (PURPA) and would have required the Company to buy 43
MW and 80 MW of capacity and energy, respectively, over the lives of the
projects at prices well above current market price estimates.

Electric Industry Restructuring

See Electric Energy Competition on page 11 for ongoing information regarding
electric industry restructuring.

REVIEW OF OPERATIONS

Earnings Summary

(Millions of Dollars)                               1999      1998      1997

Operations:
  Utility......................................   $ 98.0   $ 112.6    $134.7
  Nonutility...................................     39.6
Consolidated income before extraordinary
  charges......................................    137.6     112.6     134.7
Extraordinary charges, net (Notes B, C, and D
  to consolidated financial statements)........    (10.0)   (275.4)
Consolidated net income (loss).................   $127.6   $(162.8)   $134.7

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	                                              and Subsidiaries


The decrease in 1999 earnings from utility operations, before extraordinary
charges, reflects the deregulation of two-thirds of the Company's electric
generation effective January 1, 1999, as approved by the Pennsylvania PUC's
restructuring order.  Accordingly, the operating results for these assets
are classified as nonutility in 1999.  The 1999 utility operations also
reflects in operation expense the write-off of $6.6 million of costs from
a long dormant pumped-storage generation project.  The increase in 1999
earnings, before extraordinary charges, was due primarily to increased
kilowatt-hour (kWh) sales, including increased sales to residential customers
due to winter weather that was cooler than the relatively warm winter of 1998
as measured by heating degree days, and nonutility sales.  The decrease in
1998 earnings, before extraordinary charges, reflects $23.7 million of costs,
after taxes, related to the Pennsylvania restructuring settlement.

In 1999, earnings from nonutility operations reflects the sale of generation
from two-thirds of the Company's generation assets as discussed under Sales
and Revenues.


The extraordinary charge in 1999 resulted from the redemption of debt related
to the securitization of stranded costs as discussed in Note D to the
consolidated financial statements.  The 1998 extraordinary charge resulted
from the May 1998 restructuring order and November 1998 settlement agreement
as discussed in Notes B and C to the consolidated financial statements.

Sales and Revenues

Total operating revenues for 1999, 1998, and 1997 were as follows:

OPERATING REVENUES:

(Millions of Dollars)                               1999       1998       1997

Utility revenues:
  Regulated..................................   $  915.1   $  995.8   $1,039.1
  Choice.....................................       34.3       14.0        2.5
  Bulk power.................................        7.5       49.6       22.2
  Transmission and other energy services.....       20.3       19.3       18.4
    Total utility revenues...................      977.2    1,078.7    1,082.2
Nonutility revenues:
  Retail and other...........................      126.6
  Bulk power.................................      555.0
    Total nonutility revenues................      681.6*
Elimination between utility and nonutility...     (304.6)
    Total operating revenues.................   $1,354.2   $1,078.7   $1,082.2

*Nonutility operating revenues include $53.5 million in 1999 of allocated
Competitive Transition Charge revenues to compensate for certain transition
costs transferred to nonutility operations.

The decrease in regulated revenues (regulated revenues include revenues from
customers eligible to choose an alternate energy supplier but electing not to

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	                                              West Penn Power Company
	                                              and Subsidiaries


do so) in 1999 was due primarily to Pennsylvania deregulation, which gave
two-thirds of the Company's regulated customers the ability to choose
another energy supplier.  In 1999, 2,522,611 MWh of electric energy was
supplied to the Company's customers by alternative energy suppliers, which
 represented only 11% of total MWh sales.  The decrease to regulated
revenues was offset in part by colder winter weather in 1999, which led to
increased residential kWh sales and revenues.  Utility regulated revenues
in 1998 included a $25.1 million rate refund, pursuant to the terms of the
Pennsylvania restructuring settlement agreement.  Excluding this rate
decrease, utility regulated revenues decreased $18.2 million in 1998
primarily due to previously fully bundled customers participating in the
Pennsylvania pilot by buying energy from another supplier of their choice.
As a result of the Company's nonutility affiliate, Allegheny Energy
Solutions, being permitted to sell to all Pennsylvania customers
participating in the pilot, Allegheny Energy was able to recover some of the
Company's generation sales lost as a result of customers participating in
the Pennsylvania pilot program.

Utility choice revenues for 1999 represent transmission and distribution
revenues from franchised customers (customers within the Company's
territory) who chose another supplier to provide their energy needs.  In
1999, about 2% of franchised customers chose alternate energy suppliers.
The Company's nonutility supply business had the primary objective of
selling the output from the two-thirds of the Company's generation that
had been freed up by the Electricity Generation Customer Choice and
Competition Act (Customer Choice Act) in Pennsylvania through
November 17, 1999.

In 1998 and 1997, the choice revenues represent the 5% of previously
fully bundled customers (full service customers) who participated in the
Pennsylvania pilot program that began November 1, 1997, and continued
through December 31, 1998, and were required to buy energy from an alternate
supplier.  To assure participation in the pilot program, pilot participants
received an energy credit from their local utility and a price for energy
pursuant to an agreement with an alternate supplier.  The credit established
by the Pennsylvania PUC was artificially high to encourage customer shopping,
and, as a result, the Company incurred a revenue loss of $8.6 million for
the pilot.  The Pennsylvania PUC has approved the Company's pilot compliance
filing and thus has indicated its intent to treat the revenue loss as a
regulatory asset.

Effective May 1, 1997, as a result of the Customer Choice Act, the Company
obtained Pennsylvania PUC authorization to set its fuel clause to zero and
to roll its then-applicable fuel clause rates into base rates.  Thereafter,
the Company assumed the risks and benefits of changes in fuel and purchased
power costs and sales of transmission services and bulk power.

The 1999 decrease in revenues from utility bulk power was due to the
movement of generation available for sale from regulated utility to
nonutility operations. The 1998 increase in revenues from utility bulk
power and transmission and other energy services sales was due to increased
sales that occurred primarily in the second quarter as a result of warm
weather which increased the demand and price for energy.  In 1998, revenues
from utility transmission and other energy services were affected by a
revenue refund resulting from a reduction in the Company's standard
transmission rate and rates for ancillary services which were approved
by the Federal Energy

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	                                              and Subsidiaries

Regulatory Commission (FERC).  A provision of $2.9 million for these rate
reductions was recorded in 1998, with the revenues refunded to customers
in the first quarter of 1999.

Revenues from transmission and other energy services increased in 1999 due
primarily to increased MWh's transmitted.  Revenues from utility
transmission and other energy services to nonaffiliated companies in 1998
increased, despite decreased transmission services activity.  The increase
in revenues was due to transmission services reservation charges paid to
the Company by others for the right to transmit energy.

In June and July 1999 and June and July 1998, certain events combined to
produce significant volatility in the spot prices for electricity at the
wholesale level. These events included extremely hot weather, generation
unit outages, and transmission constraints.  Wholesale prices for
electricity rose from a normal range of $25 to $40 per MWh to as high as
$3,500 to $7,000 per MWh.  The potential exists for such volatility to
significantly affect the Company's future operating results as a buyer of
electricity during such periods.

Nonutility revenues reflect bulk power sales to nonaffiliated companies
and new sales in Pennsylvania's competitive marketplace. The Company's
supply business officially began supplying unregulated electricity to
retail customers in Pennsylvania and wholesale customers throughout
eastern North America on January 1, 1999.

The elimination between utility and nonutility revenues is necessary to
remove the effect of affiliated revenues, primarily sales of power.

See Note B to the consolidated financial statements for information
regarding the Competitive Transition Charge.

Operating Expenses

Fuel expenses for 1999, 1998, and 1997 were as follows:

FUEL EXPENSES:

(Millions of dollars)                                1999      1998      1997

Utility operations...........................      $ 72.0    $258.2    $254.2
Nonutility operations........................       141.6
  Total fuel expenses........................      $213.6    $258.2    $254.2

Total fuel expenses decreased 17% in 1999 due to an 11% decrease related to
kWhs generated and a 6% decrease in average fuel prices.  The decrease in
average fuel prices was due to renegotiated fuel contracts.  In 1999, utility
and nonutility fuel expenses reflect the movement of fuel expenses associated
with the two-thirds of the Company's generation transferred from utility
operations to nonutility operations.  Also, fuel expenses decreased in 1999
due to the November 18, 1999, transfer of the Company's generating capacity
to its unregulated affiliate, Allegheny Energy Supply.

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	                                              and Subsidiaries



Purchased power and exchanges, net, represents power purchases from and
exchanges with other companies and purchases from qualified facilities
under PURPA, capacity charges paid to Allegheny Generating Company (AGC),
and other transactions with affiliates made pursuant to a power supply
agreement whereby each company uses the most economical generation
available in the System at any given time, and consists of the following
items:

PURCHASED POWER AND EXCHANGES, NET

(Millions of Dollars)                                  1999      1998      1997

Utility operations:

    Purchased power:
      From PURPA generation*................        $  37.5    $ 63.5    $ 65.1
      Other.................................          359.8      23.2      18.4
    Power exchanges, net....................             .5       (.3)       .2
    AGC capacity charges....................           11.6      31.5      32.4
    Energy and spinning reserve charges.....            3.5       3.4       3.9
      Total utility operations..............          412.9     121.3     120.0
Nonutility operations purchased power.......          298.4
Elimination.................................         (313.1)
  Purchased power and exchanges, net........        $ 398.2    $121.3    $120.0

*PURPA cost (cents per kWh)                             4.6       5.8       6.0

Utility purchased power from PURPA generation decreased $26 million in 1999.
This decrease reflects an $11.1 million reduction related to the Company's
purchase commitment at costs in excess of the market value of the AES Beaver
Valley PURPA contract.  This reduction reflects the amortization of the adverse
purchased power commitment reserve recorded in 1998, which is net of the
Competitive Transition Charge revenue recovery in conjunction with deregulation
proceedings in Pennsylvania.  The decrease in purchased power also includes a
$12.5 million reduction in the purchase price for that contract due to a
scheduled capacity rate decrease defined annually in the contract.  PURPA
purchased power costs may be reduced by $197 million during the period 1999
through 2016 related to the AES Beaver Valley contract as a result of the 1998
extraordinary charge. See Notes B and C to the consolidated financial
statements for further information.

The increase in other utility operations purchased power in 1999 was due
primarily to the Company's purchase of power from its energy supply business
and its nonutility affiliate, Allegheny Energy Supply, in order to provide
energy to the two-thirds of its customers eligible to choose an alternate
supplier, but who elected not to do so. An increase in market prices caused
by volatility in the spot prices for electricity at the wholesale level in
the second and third quarters of 1998 contributed to the increase in other
utility operations purchased power in 1998.

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	                                              West Penn Power Company
	                                              and Subsidiaries



The decrease in AGC capacity charges was due to a $16.8 million reduction in
purchased power expense related to the Company's purchase commitments at
costs in excess of the market value of the AGC pumped-storage capacity
contract.  As reported previously, the Company, in 1998, recorded an
extraordinary charge to reflect the cost of this and another adverse power
purchase commitment that is not recoverable from customers under the
Pennsylvania PUC's order and settlement agreement.

The nonutility operations purchased power in 1999 was due to the Company's
purchase of power to provide energy to new customers in deregulated markets
who chose the Company as their alternate supplier of electricity.

The elimination between utility and nonutility purchased power is necessary
to remove the effect of affiliated purchased power expenses.

Other operations expenses for 1999, 1998, and 1997 were as follows:

OTHER OPERATION EXPENSES:

(Millions of dollars)                                  1999      1998      1997

Utility operations.............................      $152.5    $173.0    $157.8
Nonutility operations..........................        49.9
Elimination....................................       (13.8)
  Total other operations expenses..............      $188.6    $173.0    $157.8

The increase in total other operation expenses in 1999 of $15.6 million was
primarily due to recording $6.6 million of costs related to a pumped-storage
generation project no longer considered useful, provisions for uninsured
claims of $2.8 million, the reversal of an internal restructuring liability
in the 1998 period of $2.0 million, and increased allowances for uncollectible
accounts of $1.7 million.

The increase in utility other operation expenses in 1998 was due primarily to
increased expenses related to competition and the Pennsylvania restructuring
order ($22.7 million).  See Note B to the consolidated financial statements
for additional information related to Pennsylvania restructuring. In 1999,
utility and nonutility other operations expenses reflects the movement of
other operations expenses associated with the two-thirds of the Company's
generation transferred from utility operations to nonutility operations.
The elimination between utility and nonutility operation expenses is
necessary to remove the effect of affiliated transmission purchases.

Maintenance expenses for 1999, 1998, and 1997 were as follows:

MAINTENANCE EXPENSES:

(Millions of dollars)                                1999      1998      1997

Utility operations.............................    $ 60.2    $ 91.7    $ 98.3
Nonutility operations..........................      33.2
  Total maintenance expenses...................    $ 93.4    $ 91.7    $ 98.3

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Total maintenance expenses increased $1.7 million in 1999 due primarily to
increased maintenance and renovations of general plant structures.  In	1999,
utility and nonutility maintenance expenses reflect the movement of
maintenance expenses associated with the two-thirds of the Company's
generation transferred from utility operations to nonutility operations.
 The decrease in utility maintenance in 1998 was due primarily to a
management program to postpone such expenses for the year in response
to limited sales growth in the first quarter due to the warm winter weather.
The Company postponed these expenses primarily by extending the time between
maintenance outages and experienced no measurable effect on system
performance.

Maintenance expenses represent costs incurred to maintain the power stations,
the transmission and distribution (T&D) system, and general plant, and to
reflect routine maintenance of equipment and rights-of-way, as well as
planned major repairs and unplanned expenditures, primarily from forced
outages at the power stations and periodic storm damage on the T&D system.
Variations in maintenance expense result primarily from unplanned events and
planned major projects, which vary in timing and magnitude depending upon
the length of time equipment has been in service without a major overhaul
and the amount of work found necessary when the equipment is dismantled.

Depreciation and amortization expenses for 1999, 1998, and 1997 were as
follows:

DEPRECIATION AND AMORTIZATION EXPENSES:

(Millions of dollars)                                  1999     1998     1997

Utility operations................................   $ 68.7   $114.7   $113.8
Nonutility operations.............................     45.6
  Total depreciation and amortization expenses....   $114.3   $114.7   $113.8

Total depreciation and amortization expenses in 1999 remained about the same
as 1998.  Depreciation and amortization expenses in 1999 reflect the
amortization of the generation-related regulatory asset related to the
Company's 1998 settlement agreement and reduced depreciation expense due
to the transfer of the Company's generation to Allegheny Energy Supply in
the fourth quarter of 1999.  Absent these changes, depreciation expense
would have risen due to increased investments.

Higher utility depreciation expense in 1998 resulted from increased
investment.  In 1999, utility and nonutility depreciation expense reflects
the movement of depreciation expense associated with the two-thirds of the
Company's generation transferred from utility operations to nonutility
operations.

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	                                              and Subsidiaries


Taxes other than income taxes for 1999, 1998, and 1997 were as follows:

TAXES OTHER THAN INCOME TAXES:

(Millions of dollars)                                 1999     1998     1997

Utility operations...............................    $58.9    $88.7    $90.1
Nonutility operations............................     21.8
  Total taxes other than income taxes............    $80.7    $88.7    $90.1

Total taxes other than income taxes decreased $8.0 million in 1999 primarily
due to reduced West Virginia Business and Occupation Taxes, property tax,
and gross receipts tax related to the transfer of generation assets to
Allegheny Energy Supply on November 18, 1999, and lower capital stock taxes
relating to the 1998 write-down as a result of Pennsylvania
restructuring.  Utility and nonutility taxes other than income taxes reflect
the movement of taxes other than income taxes associated with the two-thirds
of the Company's generation transferred from utility operations to
nonutility operations.

The 1999 increase in federal and state income taxes of $7.0 million was
primarily due to increased taxable income offset in part by tax benefits
related to plant removal costs.  The decrease in federal and state income
taxes in 1998 of $8.8 million resulted primarily from a decrease in taxable
income, primarily because of costs related to restructuring activities
recorded in 1998. Note E to the consolidated financial statements provides
a further analysis of income tax expenses.

Allowance for other than borrowed funds decreased $.5 million in 1999 due
to adoption in July 1998 of SFAS No. 34, "Capitalizing Interest Costs",
which eliminated this accrual for nonutility generation construction
projects. Capitalized interest is reported with allowance for borrowed
funds used during construction in the consolidated statement of income.
1999 also reflects an increase in construction activity financed by
short-term debt.  The allowance for borrowed funds used during
construction component of the formula receives greater weighting when
short-term debt increases.  The decrease in allowance for other than
borrowed funds used during construction of $1.5 million in 1998 reflects
lower-cost short-term debt financing. The decrease also reflects
adjustments of prior periods.

The decrease in other income, net, of $1.7 million in 1999 was primarily
due to a decrease in timber sales.  The decrease in other income, net, in
1998 of $6.2 million was primarily due to 1997 increases for an interest
refund on a tax-related contract settlement ($3.6 million after taxes)
received by the Company's subsidiary, AGC, and income on the sale of land
($2.8 million after taxes) by the Company's subsidiary, West Virginia
Power and Transmission Company.

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	                                              West Penn Power Company
	                                              and Subsidiaries



Interest on long-term debt and other interest for 1999, 1998, and 1997 were
as follows:

INTEREST EXPENSE:
(Millions of dollars)                                  1999      1998      1997

Interest on long-term debt:
  Utility operations..............................    $42.9     $61.7     $65.0
  Nonutility operations...........................     18.8
    Total interest on long-term debt..............     61.7      61.7      65.0
Other interest
  Utility operations..............................      3.4       5.9       4.6
  Nonutility operations...........................      3.6
    Total other interest..........................      7.0       5.9       4.6
      Total interest expense......................    $68.7     $67.6     $69.6

The decrease in utility operations interest on long-term debt in 1998 of $3.3
million resulted from reduced long-term debt and lower interest rates.  Other
interest expense reflects changes in the levels of short-term debt maintained
by the Company throughout the year, as well as the associated interest rates.

EXTRAORDINARY ITEM

The extraordinary charge in 1999 of $17.0 million ($10.0 million after taxes)
was required to reflect the difference between the reacquisition price and the
net carrying amount of first mortgage bonds repurchased with proceeds from the
sale of transition bonds as a result of the deregulation process in
Pennsylvania. The extraordinary charge in 1998 of $466.9 million ($275.4
million after taxes) was required to reflect a write-off of certain
disallowances in the Pennsylvania PUC's May and November 1998 orders.  See
Notes B, C, and D to the consolidated financial statements for additional
information.

FINANCIAL CONDITION, REQUIREMENTS, AND RESOURCES

Liquidity and Capital Requirements

To meet cash needs for operating expenses, the payment of interest and
dividends, retirement of debt and certain preferred stocks, and for its
construction program, the Company has used internally generated funds and
external financings, such as the sale of common and preferred stock, debt
instruments, installment loans, and lease arrangements.  The timing and
amount of external financings depend primarily upon economic and financial
market conditions, the Company's cash needs, and capitalization ratio
objectives.  The availability and cost of external financings depend upon
the financial health of the companies seeking those funds and market
conditions.

Capital expenditures, primarily construction, in 1999 were $114 million and,
for 2000 and 2001, are estimated at $47 million and $43 million,
respectively. It is the Company's goal to constrain future utility
construction spending to the approximate level of depreciation currently in

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	                                              West Penn Power Company
	                                              and Subsidiaries


rates. The Company also has additional capital requirements for debt
maturities (see Note J to the consolidated financial statements).

Internal Cash Flow

Internal generation of cash, consisting of cash flows from operations
reduced by dividends, was $188 million in 1999, compared with $151 million
in 1998. Current rate levels and reduced levels of construction expenditures
permitted the Company to finance all of its construction expenditures in
1999 and 1998 with internal cash flow.

Financing

Short-term debt is used to meet temporary cash needs.  The Company had no
short-term debt outstanding at December 31, 1999. At December 31, 1998,
short-term debt outstanding was $65 million, including notes payable to
affiliates.

The Company anticipates meeting its 2000 cash needs through internal cash
generation, cash on hand, and short-term borrowings as necessary.  In 1999,
the Company issued $600 million of transition bonds with varying average
lives ranging from one to eight years with a weighted average cost of
6.887% to "securitize" transition costs related to its restructuring
settlement described in Note B to the consolidated financial statements.
During 1999, the Company reacquired all of its outstanding $525 million
of first mortgage bonds.

The Company called or redeemed all outstanding shares of its cumulative
preferred stock with a combined par value of $79.7 million plus redemption
premiums of $3.3 million on July 15, 1999, with proceeds from new
$84-million five-year unsecured medium-term notes issued in the second
quarter at a 6.375% coupon rate.  The redemption of the preferred stock
allowed the Company to revise its Articles of Incorporation, providing
greater financial flexibility in restructuring debt.

In April 1999, the Company issued $13.83 million of 5.50% 30-year
pollution control revenue notes to Pleasants County, West Virginia.

In November 1999, the service obligation for $231 million of pollution
control debt was assumed by Allegheny Energy Supply
in conjunction with the transfer of the Company's generating assets to
Allegheny Energy Supply.  However, the pollution control debt remains
an obligation of the Company.  Allegheny Energy Supply will indemnify the
Company for any debt service the Company may incur.

The Company's aggregate limit of short-term debt financing was increased
in accordance with Securities and Exchange Commission authorization on
October 8, 1999, from $182 million to $500 million through December 31,
2001, related to meeting the requirements of restructuring in
Pennsylvania.

The Company's long-term debt due within one year at December 31, 1999
was $49.7 million of West Penn Funding, LLC, transition bonds due on
various

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	                                              West Penn Power Company
	                                              and Subsidiaries

dates. The transition bonds are supported by an Intangible Transition
Charge (ITC) that replaces a portion of the Competitive Transition Charge
customers pay.  The proceeds from the ITC will be used to pay the principal
and interest on these transition bonds, as well as other associated
expenses.

SIGNIFICANT CONTINUING ISSUES

Electric Energy Competition

The electricity supply segment of the electric utility industry in the
United States is becoming increasingly competitive.  The national Energy
Policy Act of 1992 deregulated the wholesale exchange of power within the
electric industry by permitting the FERC to compel electric utilities to
allow third parties to sell electricity to wholesale customers over their
transmission systems.  Since 1992, the wholesale electricity market has
become more competitive as companies are engaging in nationwide power
trading.  In addition, an increasing number of states have taken active
steps toward allowing retail customers the right to choose their
electricity supplier.  The Company and its parent, Allegheny Energy, have
been advocates of federal legislation to create competition in the retail
electricity markets to avoid regional dislocations and ensure level
playing fields.  Legislation before the U.S. Congress to restructure the
nation's electric utility industry cleared an important hurdle on
October 28, 1999, when a House Commerce Committee subcommittee gave its
approval to a bill.  The bill will now move on to the full Commerce
Committee where it will be considered in 2000.

In the absence of federal legislation, state-by-state implementation of
deregulation of electric generation is under way.  The five states in
which the Company and its affiliates serve customers are at various
stages of implementation or investigation of programs that allow
customers to choose their electric supplier.  Pennsylvania is furthest
along with a retail program in place, while Maryland, Ohio, and Virginia
passed legislation in 1999 to implement retail choice.  West Virginia
continues to actively study this issue.  On December 23, 1999, the
Maryland Public Service Commission (Maryland PSC) approved a settlement
agreement for the Company's affiliate, Potomac Edison, to implement
generation competition in Maryland.

Activities at the Federal Level

Allegheny Energy continues to seek enactment of federal legislation to
bring choice to all retail electric customers, deregulate the generation
and sale of electricity on a national level, and create a more liquid,
free market for electric power.  Fully meeting challenges in the emerging
competitive environment will be difficult for Allegheny Energy unless
certain outmoded and anti-competitive laws, specifically the Public
Utility Holding Company Act of 1935 (PUHCA) and Section 210 (Mandatory
Purchase Provisions) of PURPA, are repealed or significantly revised.
Allegheny Energy continues to advocate the repeal of PUHCA and Section
210 of PURPA on the grounds that they are obsolete and anti-competitive
and that PURPA results in utility customers paying above-market prices
for power.  H.R. 2944, which was sponsored by U.S. Representative Joe
Barton, was favorably reported out of the House Commerce Subcommittee
on Energy and Power.  While the bill does not mandate a date certain
for customer choice, several key provisions favored by the Company are
included in the legislation, including an amendment that allows
existing

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	                                              West Penn Power Company
	                                              and Subsidiaries

state restructuring plans and agreements to remain in effect.  Other
provisions address important Allegheny Energy priorities by repealing
PUHCA and the mandatory purchase provisions of PURPA.  Consensus remains
elusive, with significant hurdles remaining in both houses of Congress.
It is too early to tell whether momentum on the issue will result in
legislation in 2000.

Pennsylvania Activities

In December 1996, Pennsylvania enacted the Customer Choice Act to
restructure its electric industry to create retail access to a competitive
electric energy supply market. On May 29, 1998 (as amended on November 19,
1998), the Pennsylvania PUC granted final approval to the Company's
restructuring plan.  As of January 2, 2000, all electricity customers
in Pennsylvania had the right to choose their electric suppliers.
Two-thirds of all retail customers had a choice throughout 1999, the
first year of retail choice following a pilot program.  The number of
customers who have switched suppliers and the amount of electrical load
transferred in Pennsylvania far exceed that in any other state so far.
However, for the Company, only about 12,700 of its customers eligible to
shop in 1999 have chosen an alternate energy supplier.  The Company has
retained about 98% of its customers through December 31, 1999.  More
than 100 electric generation suppliers have been licensed to sell to
retail customers in Pennsylvania.

The status of electric energy competition in Maryland,  Ohio,  Virginia,
and  West Virginia in which affiliates of the Company serve are as follows:

Maryland Activities

On April 8, 1999, Maryland Governor Glendening signed the legislation that
will bring competition to Maryland's electric generation market beginning
July 1, 2000.  The Maryland PSC is in the process of implementing the new
law.  Final Electric Restructuring Roundtable reports were filed with the
Maryland PSC on May 3, 1999, and legislative style hearings were held this
summer on the reports.  Potomac Edison filed testimony in Maryland's
investigation into transition costs, price protection, and unbundled
rates, and a consensus settlement agreement was achieved with no protest
by any of the parties participating in the negotiations. The agreement
was filed on September 23, 1999, and a hearing before the Commission was
held on October 14, 1999.  On December 23, 1999, the Maryland PSC issued
an order approving the settlement. Potomac Edison filed an application on
December 15, 1999, to transfer its Maryland generating assets at book
value to an affiliate under Section 7-508 of the Electric Customer Choice
and Competition Act of 1999.  A Maryland PSC decision approving the
transfer of the generating assets is due by July 1, 2000.

Ohio Activities

On June 22, 1999, the Ohio General Assembly passed legislation to
restructure its electric utility industry.  The Governor of Ohio added
his signature soon thereafter, and all of the state's customers will be
able to choose their electricity supplier starting January 1, 2001,
beginning a five-year transition to market rates.  Total electric rates
will be frozen over that

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	                                              West Penn Power Company
	                                              and Subsidiaries

period, and residential customers are guaranteed a 5% cut in the
generation portion of their rate.  The determination of stranded cost
recovery will be handled by the Public Utilities Commission of Ohio (Ohio
PUC).  On January 3, 2000, the Company's affiliate, Monongahela Power
Company (Monongahela Power) filed a transition plan with the Ohio PUC,
including its claim for recovery of stranded costs of $21.3 million.  The
Ohio PUC is expected to hold hearings on Monongahela Power's transition
plan filing and issue a decision by October 2000.

The Ohio legislation stipulates that an entity independent of the utilities
shall own or control transmission facilities after the start of competitive
retail electric service on January 1, 2001, but not later than December 31,
2003. Customer protections were kept intact with a low-income assistance
plan and a one-time forgiveness of past debts for low-income and
handicapped customers.  In regard to renewable energy, the bill requires
that electric generators purchase excess electricity from small businesses
and homes using renewable energy sources.

Virginia Activities

On March 25, 1999, Governor Gilmore signed the Virginia Electric Utility
Restructuring Act (Restructuring Act) passed by the Virginia General
Assembly.  All utilities must submit a restructuring plan by January 1,
2001, to be effective on January 1, 2002.  Customer choice will be phased
in beginning on January 1, 2002, with full customer choice by January 1,
2004.  The Legislative Transition Task Force on Electric Utility
Restructuring, which was established by the Restructuring Act to oversee
the implementation of customer choice, held hearings in the summer and
fall of 1999 on a number of issues concerning the implementation of retail
competition in Virginia.  Parties have also been working with the Virginia
State Corporation Commission Staff to develop the rules governing the
proposed retail pilot programs of other utilities in the state.

West Virginia Activities

In March 1998, legislation was passed by the West Virginia Legislature
that directed the Public Service Commission of West Virginia (W.Va.PSC)
to meet with all interested parties to develop a restructuring plan which
would meet the dictates and goals of the legislation. Interested parties
formed a Task Force that met during 1998, but the Task Force was unable
to reach a consensus on a model for restructuring.  The W.Va. PSC held
hearings in August 1999 that addressed certification, licensing, bonding,
reliability, universal service, consumer protection, code of conduct,
subsidies, and stranded costs.  The W.Va. PSC on December 20, 1999
released for comment and hearings a modified version of a proposal
submitted by members of the Task Force, including Monongahela Power and
Potomac Edison, following the August 1999 hearings that could open full
retail competition as early as January 1, 2001.  The production of power
would be deregulated and electricity rates would be frozen for four years
with rates gradually transitioning to market rates over the six years
thereafter.  After hearings in January 2000, the W.Va. PSC submitted a
restructuring plan endorsed by members of the Task Force, including
Monongahela Power and Potomac Edison, to the Legislature for approval.

                                  M-76

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



Accounting for the Effects of Price Deregulation

In July 1997, the Emerging Issues Task Force (EITF) of the FASB released
Issue No. 97-4, "Deregulation of the Pricing of Electricity - Issues
Related to the Application of FASB Statement Nos. 71 and 101," which
concluded that utilities should discontinue application of SFAS No. 71
for the generation portion of their business when a deregulation plan is
in place and its terms are known. In accordance with guidance of EITF
Issue No. 97-4, the Company has discontinued the application of SFAS
No. 71 to its electric generation business in 1998.

Environmental Issues

In the normal course of business, the Company is subject to various
contingencies and uncertainties relating to its operations and construction
programs, including legal actions and regulations and uncertainties related
to environmental matters.

The Company previously reported that the Environmental Protection Agency
had identified the Company and its regulated utility affiliates as
potentially responsible parties, along with approximately 175 others, in
a Superfund site subject to cleanup.  A final determination has not been
made for the Company's share of the remediation costs based on the amount
of materials sent to the site. The Company and its regulated affiliates
have also been named as defendants along with multiple other defendants
in pending asbestos cases involving one or more plaintiffs.  The Company
believes that provisions for liability and insurance recoveries are such
that final resolution of these claims will not have a material effect on
its financial position.  A reserve previously recorded by the Company
related to the asbestos cases was transferred to Allegheny Energy Supply
as part of the transfer of the Company's deregulated generating capacity.
(See Note O to the consolidated financial statements for additional
information)

Regional Transmission Organization

In adopting its Rule 2000, the FERC defined requirements for transmission
facility owners to participate in some form of Regional Transmission
Organization.  Additionally, the state jurisdictions within which the
Company and its utility affiliates operate have, to different degrees,
started to define their transition to a  competitive marketplace.  As
part of this, they have identified transmission as a key link to making
the electricity market efficient. The nature of this issue is at least
regional in scope.  As a result, any solution will need to be one that
satisfies a diverse group of stakeholders. Allegheny Energy has actively
participated in this debate and continues to evaluate the available
options to provide its customers with the most reliable, cost-effective
service while maintaining a clear focus on the financial interests of
its shareholders.

                                  M-77

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



Derivative Instruments and Hedging Activities

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."  The Company will be required to
recognize derivatives as defined by SFAS No. 133 on the balance sheet at
fair value.  The Company is evaluating the effect of adopting SFAS No. 133
on its results of operations and financial position which will be completed
during the year 2000.  Accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and whether the
instrument meets the requirements for designation as a hedge.  The Company
expects to adopt SFAS No. 133 no later than January 1, 2001.

                                  M-78


<PAGE>





                                               Allegheny Generating Company


MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS

Management's discussion and analysis of financial condition and results of
operations contains forecast information items that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of
1995.  All such forward-looking information is necessarily only estimated.
There can be no assurance that actual results will not materially differ
from expectations.  Actual results have varied materially and unpredictably
from past expectations.

Factors that could cause actual results to differ materially include,
among other matters, electric utility restructuring, including ongoing state
and federal activities; developments in the legislative, regulatory, and
competitive environments in which Allegheny Generating Company (the Company)
operates, including regulatory proceedings affecting rates charged by the
Company; environmental, legislative, and regulatory changes; future economic
conditions; and other circumstances that could affect anticipate
scheduled maintenance or repair requirements and compliance with laws and
regulations.

SIGNIFICANT EVENTS IN 1999, 1998, AND 1997

On November 19, 1998, the Pennsylvania Public Utility Commission
(Pennsylvania PUC) approved a settlement agreement between West Penn
Power Company (West Penn) and parties to West Penn's restructuring
proceedings related to legislation in Pennsylvania to provide customer
choice of electric suppliers and deregulate electricity generation.
Two-thirds of all retail customers in Pennsylvania had the right to
choose their electric supplier throughout 1999. As of January 2000,
all Pennsylvania customers have a choice.

The terms of the settlement agreement permitted West Penn to transfer
its generating assets to a separate legal entity at book value,
contingent upon other regulatory approvals.  During 1999, Allegheny
Energy obtained the necessary regulatory approvals and formed an
unregulated generating subsidiary, Allegheny Energy Supply Company,
LLC  (Allegheny Energy Supply).  On November 18, 1999, West Penn
transferred its deregulated generating capacity, which included its
45% ownership share in the common stock of the Company, to Allegheny
Energy Supply.

West Penn continued to be responsible for providing generation to meet
the regulated electric load of their retail customers who did not have
the legal right to choose their generation supplier until January 2,
2000. During the period from November 18, 1999 through January 1, 2000,
Allegheny Energy Supply leased back to West Penn one-third of its
generating assets, including one-third of its 45% ownership share in
the Company, providing West Penn with the unlimited right to use those
facilities to serve its regulated load.


                                   M-79


<PAGE>
                                               Allegheny Generating Company



REVIEW OF OPERATIONS

As described under Liquidity and Capital Requirements, revenues are
determined under a cost-of-service formula rate schedule.  Revenues
are expected to decrease each year due to a normal continuing reduction
in the Company's net investment in the Bath County station and its
connecting transmission facilities upon which the return on investment
is determined.  The net investment (primarily net plant less deferred
income taxes) decreases to the extent that provisions for depreciation
and deferred income taxes exceed net plant additions.  Revenues for 1999
and 1998 decreased due to a reduction in net investment.

The decreases in operating expenses in 1999 and 1998 resulted from
decreases in federal income taxes due to decreases in operating income
before taxes, and in 1998 also due to a decrease in operation and
maintenance expense.

Effective June 1, 1995, the Federal Energy Regulatory Commission (FERC)
gave approval for the Company to add a prior tax payment of approximately
$12 million to rate base.  In September 1997, the Company received a
tax-related contract settlement of $8.8 million of taxes related to the $12
million added to rate base in 1995.  The 1997 settlement amount was
recorded as a reduction to plant and was removed from rate base.

The decrease in other income, net in 1998 was due to interest recorded in
1997 on the refund on the tax-related contract settlement (see above).

The decreases in interest on long-term debt in 1999 and 1998 resulted from
reduced average long-term debt outstanding.

The increases in other interest expense in 1999 and 1998 were due to an
increased level of short-term debt maintained by the Company upon retirement
of medium-term debt.

LIQUIDITY AND CAPITAL REQUIREMENTS

The Company's only operating assets are an undivided 40% interest in the Bath
County (Virginia) pumped-storage hydroelectric station and its connecting
transmission facilities.  The Company has no plans for construction of any
other major facilities.

Pursuant to an agreement, Monongahela Power Company, The Potomac Edison
Company (Potomac Edison), and Allegheny Energy Supply (the Parents), buy all
of the Company's capacity in the station priced under a "cost-of-service
formula" wholesale rate schedule approved by the FERC. Under this arrangement,
the Company recovers in revenues all of its operation and maintenance
expenses, depreciation, taxes, and a return on its investment. Effective
November 18, 1999, West Penn transferred its 45% ownership share in the
Company to Allegheny Energy Supply.  On December 29, 1998, the FERC issued
an Order accepting a proposed amendment to the Parent's Power Supply
Agreement for the Company effective January 1, 1999.  This amendment sets
the generation demand for each Parent proportional to its ownership in the
Company.  Previously, demand for each Parent fluctuated due to customer usage.

The Company's rates are set by a formula filed with and previously accepted by
the FERC.  The only component which changes is the return on equity (ROE).


                                   M-80

<PAGE>
                                               Allegheny Generating Company



Pursuant to a settlement agreement filed with and approved by the FERC, the
Company's ROE is set at 11% and will continue at that rate unless any affected
party seeks a change.

As previously reported, the Company has received authority from the Securities
and Exchange Commission (SEC) to pay common dividends from time to time
through December 31, 2001, out of capital to the extent permitted under
applicable corporation law and any applicable financing agreements which
restrict distributions to shareholders.  Due to the nature of being a single
asset company with declining capital needs, the Company systematically reduces
capitalization each year as its asset depreciates.  This has resulted in the
payment of dividends in excess of current earnings out of other paid-in
capital and the reduction of retained earnings to zero.  The Company's goal
is to retire debt and pay dividends in amounts necessary to maintain a common
equity position of about 45%, including short-term debt.  The payment of
dividends out of capital surplus will not be detrimental to the financial
integrity or working capital of either the Company or its Parents, nor will
it adversely affect the protections due debt security holders.

An Allegheny Energy internal money pool accommodates intercompany short-term
borrowing needs to the Company to the extent that Allegheny Energy and the
Company's regulated affiliates have funds available.  To the extent funds are
not available from the money pool, the Company borrows from external sources.

SIGNIFICANT CONTINUING ISSUES

Maryland Deregulation

On September 23, 1999, a settlement agreement between Potomac Edison, the
Staff of the Maryland Public Service Commission (Maryland PSC), and other
parties working to implement customer choice and deregulation of electric
generation for Potomac Edison in Maryland was filed with the Maryland PSC.
 On December 23, 1999, the Maryland PSC issued an order approving the
settlement agreement.  Potomac Edison filed an application on December 15,
1999, to transfer its Maryland generating assets at book value to a
nonutility affiliate under Section 7-508 of the Electric Customer Choice
and Competition Act of 1999.  A Maryland PSC decision approving the
transfer of the generating assets is due by July 1, 2000.

It is anticipated that an allocated portion of each of Potomac Edison's
generating assets, corresponding to deregulated service for Maryland
customers, will be transferred to Allegheny Energy Supply in 2000.  A 62%
portion of each of Potomac Edison's generating assets has been allocated
to the Maryland jurisdiction, including 62% of Potomac Edison's 28%
ownership share in the common stock of the Company.

                                   M-81


<PAGE>
                               49




ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements



                                                   Index

                                           Monon-  Potomac West
                                     AE    gahela  Edison  Penn   AGC

Report of Independent Accountants    F-1   F-30    F-47    F-66   F-92

Statement of Income for
  the three years ended
  December 31, 1999                  F-2   F-31    F-48    F-67   F-93

Statement of Retained Earnings
  for the three years ended
  December 31, 1999                   -    F-31    F-48    F-68   F-93

Statement of Cash Flows for
  the three years ended
  December 31, 1999                  F-3   F-32    F-49    F-69   F-94

Balance Sheet at December 31,
  1999 and 1998                      F-4   F-33    F-50    F-71   F-95

Statement of Capitalization at
  December 31, 1999 and 1998         F-6   F-34    F-51    F-73    -

Statement of Common Equity for
  the three years ended
  December 31, 1999                  F-7    -       -       -      -

Notes to financial statements        F-8   F-34    F-52    F-75   F-96

Financial Statement Schedules -
  Schedules for the three years
  ended December 31, 1999            50     50      50      50     50

Valuation and qualifying
  accounts                          S-1    S-2     S-3     S-4     -


<PAGE>


<PAGE>

                                                        Allegheny Energy, Inc.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and the Shareholders of Allegheny Energy, Inc.

In our opinion, the accompanying consolidated balance sheets, consolidated
statements of capitalization and of common equity and the related consolidated
statements of income and of cash flows present fairly, in all material respects,
the financial position of Allegheny Energy, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania

February 3, 2000

                                        F-1



<PAGE>
<TABLE>

                                                        Allegheny Energy, Inc.


CONSOLIDATED STATEMENT OF INCOME
Allegheny Energy, Inc.

Year ended December 31                                1999           1998            1997
--------------------------------------------------------------------------------------------
(Thousands of dollars except per share data)

Operating revenues:*
<S>                                               <C>            <C>              <C>
Utility                                           $2,273,727     $2,329,450       $2,283,697
Nonutility                                           534,714        246,986           85,794
--------------------------------------------------------------------------------------------
Total operating revenues                           2,808,441      2,576,436        2,369,491
--------------------------------------------------------------------------------------------

Operating expenses:
Operation:
  Fuel                                               535,674        566,453          559,939
  Purchased power and exchanges, net                 531,431        388,758          219,837
  Deferred power costs, net                           41,577         (6,639)         (22,916)
  Other                                              389,406        337,440          308,991
Maintenance                                          223,538        217,559          230,602
Depreciation and amortization                        257,456        270,379          265,750
Taxes other than income taxes                        190,271        194,583          186,978
Federal and state income taxes                       164,441        168,396          168,073
--------------------------------------------------------------------------------------------

  Total operating expenses                         2,333,794      2,136,929        1,917,254
--------------------------------------------------------------------------------------------

  Operating income                                   474,647        439,507          452,237
--------------------------------------------------------------------------------------------

Other income and deductions:
Allowance for other than borrowed
 funds used during construction                        1,840          1,553            4,393
Other income, net                                      1,605          8,180           18,016
--------------------------------------------------------------------------------------------

  Total other income and deductions                    3,445          9,733           22,409
--------------------------------------------------------------------------------------------

  Income before interest charges,
   preferred dividends,
   preferred redemption premiums,
   and extraordinary charge, net                     478,092        449,240          474,646
--------------------------------------------------------------------------------------------

Interest charges, preferred dividends,
  and preferred redemption premiums:
Interest on long-term debt                           155,198        161,057          173,568
Other interest                                        31,612         19,395           14,409
Allowance for borrowed funds used
 during construction and interest capitalized         (5,070)        (3,471)          (3,907)
Dividends on preferred stock of subsidiaries           7,183          9,251            9,280
Redemption premiums on preferred stock of subsidiaries 3,780
--------------------------------------------------------------------------------------------

  Total interest charges, preferred dividends,
   and preferred redemption premiums                 192,703        186,232          193,350
--------------------------------------------------------------------------------------------
Consolidated income before extraordinary charge      285,389        263,008          281,296
Extraordinary charge, net                            (26,968)      (275,426)
--------------------------------------------------------------------------------------------

Consolidated net income (loss)                    $  258,421     $  (12,418)      $  281,296
--------------------------------------------------------------------------------------------


Common stock shares outstanding (average)        116,237,443    122,436,317      122,208,465
Basic and diluted earnings per average share:
  Consolidated income before extraordinary charge     $ 2.45         $ 2.15           $ 2.30
  Extraordinary charge, net                             (.23)         (2.25)
--------------------------------------------------------------------------------------------

Consolidated net income (loss)                        $ 2.22         $ (.10)          $ 2.30
--------------------------------------------------------------------------------------------


</TABLE>

*Excludes intercompany sales between utility and nonutility.
 See accompanying notes to consolidated financial statements.

                                          F-2

<PAGE>


<TABLE>
<CAPTION>


                                                        Allegheny Energy, Inc.



CONSOLIDATED STATEMENT OF CASH FLOWS
Allegheny Energy, Inc.

Year ended December 31                                       1999        1998*        1997*
--------------------------------------------------------------------------------------------

(Thousands of dollars)

Cash flows from operations:
<S>                                                      <C>        <C>            <C>
Consolidated net income (loss)                           $ 258,421  $  (12,418)    $  281,296
Extraordinary charge, net of taxes                          26,968     275,426
--------------------------------------------------------------------------------------------

Consolidated income before extraordinary charge            285,389     263,008        281,296
Depreciation and amortization                              257,456     270,379        265,750
Amortization of adverse purchase power contract            (11,146)
Deferred revenues                                           34,849
Deferred investment credit and income taxes, net            40,035      20,998         66,362
Deferred power costs, net                                   41,577      (6,639)       (22,916)
Allowance for other than
  borrowed funds used during construction                   (1,840)     (1,553)        (4,393)
Internal restructuring liability                                        (5,504)       (50,597)
PURPA project buyout                                                                  (48,000)
Write-off of merger-related and generation project costs    35,862
Changes in certain assets and liabilities:
  Accounts receivable, net                                 (77,679)     15,365         (6,052)
  Materials and supplies                                     2,209     (12,852)        (1,385)
  Accounts payable                                          80,224      23,118        (17,172)
  Taxes accrued                                              7,798      14,312         (3,653)
  Benefit plans' investments                                (6,700)     (7,994)       (16,277)
  Prepayments                                              (19,158)
  Restructuring settlement rate refund                     (25,100)
Other, net                                                 (25,516)     18,544         35,663
---------------------------------------------------------------------------------------------
                                                           618,260     591,182        478,626
---------------------------------------------------------------------------------------------
Cash flows from investing:
Utility construction expenditures
  (less allowance for other than
  borrowed funds used during construction)                (264,365)   (227,809)      (280,255)
Nonutility construction expenditures and investments      (147,160)     (6,205)          (829)
Acquisition of businesses                                  (98,714)
---------------------------------------------------------------------------------------------

                                                          (510,239)   (234,014)      (281,084)
---------------------------------------------------------------------------------------------

Cash flows from financing:
Sale of common stock                                                                   16,706
Repurchase of common stock                                (398,407)
Retirement of preferred stock                              (96,086)
Issuance of long-term debt                                 824,143     211,952
Retirement of long-term debt                              (555,000)   (419,780)       (46,892)
Funds on deposit with trustees and restricted funds        (13,279)
Short-term debt, net                                       382,258      52,436         49,971
Cash dividends paid on common stock                       (203,225)   (210,591)      (210,195)
---------------------------------------------------------------------------------------------

                                                           (59,596)   (365,983)      (190,410)
---------------------------------------------------------------------------------------------

Net change in cash and temporary cash investments           48,425      (8,815)         7,132
Cash and temporary cash investments at January 1            17,559      26,374         19,242
--------------------------------------------------------------------------------------------

Cash and temporary cash investments at December 31       $  65,984  $   17,559     $   26,374
---------------------------------------------------------------------------------------------


Supplemental cash flow information
Cash paid during the year for:
  Interest (net of amount capitalized)                   $ 170,498  $  171,719     $  178,121
  Income taxes                                             124,180     145,053        108,519
---------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.
*Certain amounts have been reclassified for comparative purposes.

                                         F-3


<PAGE>


<TABLE>
<CAPTION>

                                                        Allegheny Energy, Inc.



CONSOLIDATED BALANCE SHEET
Allegheny Energy, Inc.

As of December 31                                                  1999           1998*
--------------------------------------------------------------------------------------------

(Thousands of dollars)

ASSETS

Property, plant, and equipment:
<S>                                                            <C>             <C>
Utility plant                                                  $ 6,547,533     $8,041,628
Nonutility plant                                                 2,060,423        187,309
Construction work in progress                                      231,763        166,330
--------------------------------------------------------------------------------------------

                                                                 8,839,719      8,395,267
Accumulated depreciation                                        (3,632,568)    (3,395,603)
--------------------------------------------------------------------------------------------

                                                                 5,207,151      4,999,664

Investments and other assets:
Excess of cost over net assets acquired                             42,584         15,077
Benefit plans' investments                                          94,168         87,468
Nonutility investments                                              15,252          9,361
Other                                                                1,479          1,566
--------------------------------------------------------------------------------------------

                                                                   153,483        113,472

Current assets:
Cash and temporary cash investments                                 65,984         17,559
Accounts receivable:
  Electric service                                                 383,316        294,877
  Other                                                             12,273         17,712
  Allowance for uncollectible accounts                             (26,975)       (19,560)
Materials and supplies--at average cost:
  Operating and construction                                        92,560         99,439
  Fuel                                                              62,280         57,610
Prepaid taxes                                                       58,190         56,658
Deferred income taxes                                               30,477         21,868
Other, including current portion of regulatory assets               31,205         30,788
--------------------------------------------------------------------------------------------

                                                                   709,310        576,951
Deferred charges:
Regulatory assets                                                  663,847        704,506
Unamortized loss on reacquired debt                                 41,825         48,671
Other                                                               76,825         91,931
--------------------------------------------------------------------------------------------

                                                                   782,497        845,108
--------------------------------------------------------------------------------------------

Total                                                          $ 6,852,441     $6,535,195
--------------------------------------------------------------------------------------------



CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, other paid-in capital,
retained earnings, less treasury stock (at cost)               $ 1,695,325    $ 2,033,889
Preferred stock                                                     74,000        170,086
Long-term debt and QUIDS                                         2,254,463      2,179,288
--------------------------------------------------------------------------------------------

                                                                 4,023,788      4,383,263
Current liabilities:
Short-term debt                                                    641,095        258,837
Long-term debt due within one year                                 189,734
Accounts payable                                                   233,331        153,107
Taxes accrued:
  Federal and state income                                          20,699         17,442
  Other                                                             67,292         62,751
Interest accrued                                                    34,979         35,945
Adverse power purchase commitments                                  24,895         22,622
Other, including current portion of regulatory liabilities          96,510        101,239
--------------------------------------------------------------------------------------------

                                                                 1,308,535        651,943

                                         F-4

<PAGE>

Deferred credits and other liabilities:
Unamortized investment credit                                      116,971        125,396
Deferred income taxes                                              920,943        882,779
Regulatory liabilities                                              78,743         80,354
Adverse power purchase commitments                                 303,935        328,830
Other                                                               99,526         82,630
--------------------------------------------------------------------------------------------

                                                                 1,520,118      1,499,989
Commitments and contingencies (Note P)
Total                                                          $ 6,852,441     $6,535,195
--------------------------------------------------------------------------------------------

</TABLE>


*Certain amounts have been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.

                                         F-5

<PAGE>


<TABLE>
<CAPTION>

                                                        Allegheny Energy, Inc.



CONSOLIDATED STATEMENT OF CAPITALIZATION
Allegheny Energy, Inc.

                                                Thousands of dollars       Capitalization
                                                                               ratios
As of December 31                                  1999      1998           1999    1998
--------------------------------------------------------------------------------------------

Common stock:
  <S>                                          <C>         <C>              <C>     <C>
Common stock of Allegheny Energy, Inc.--
  $1.25 par value per share,
   260,000,000 shares authorized,
   122,436,317 shares issued,
   110,436,317 shares outstanding             $  153,045  $  153,045
Other paid-in capital                          1,044,085   1,044,085
Retained earnings                                896,602     836,759
Treasury stock (at cost)--
12,000,000 shares                               (398,407)
--------------------------------------------------------------------------------------------

  Total                                        1,695,325   2,033,889        42.1%   46.4%
--------------------------------------------------------------------------------------------

</TABLE>

Preferred stock of subsidiaries-cumulative, par value
  $100 per share, authorized 38,878,611 shares:


<TABLE>
<CAPTION>
                  December 31, 1999
            --------------------------------
              Shares    Regular Call Price
 Series     Outstanding     Per Share
---------------------------------------------
 <S>         <C>        <C>        <C>            <C>         <C>
 4.40-4.80%  190,000    $103.50 to $106.50        19,000      65,086
 $5.88-$7.73 550,000    $100.00 to $102.86        55,000      65,000
 Auction                                                      40,000
--------------------------------------------------------------------------------------------

  Total (annual dividend requirements $5,037)     74,000     170,086         1.9%    3.9%
--------------------------------------------------------------------------------------------


</TABLE>

Long-term debt and QUIDS of subsidiaries:

First mortgage bonds:       December 31, 1999
      Maturity               Interest Rate--%
----------------------     ---------------------

<TABLE>
<CAPTION>

  <S>                         <C>       <C>      <C>         <C>
  2000                        5 5/8 - 5 7/8      140,000     140,000
  2002-2004                       7 3/8           25,000     175,000
  2006-2007                   7 1/4 - 8           75,000     120,000
  2021-2025                   7 5/8 - 8 5/8      480,000     810,000

Transition bonds due 2000-2008 6.32 - 6.98       600,000
Debentures due 2003-2023      5 5/8 - 6 7/8      150,000     150,000
Quarterly Income Debt
 Securities due 2025              8.00           155,457     155,457
Secured notes due 2003-2029    4.70 - 6.875      399,130     368,300
Unsecured notes due 2002-2012  4.35 - 5.10        23,695      23,695
Installment purchase
 obligations due 2003             4.50            19,100      19,100
Medium-term debt due 2001-2010 5.56 - 7.36       401,025     237,025
Unamortized debt discount and premium, net       (13,937)    (19,289)
--------------------------------------------------------------------------------------------

  Total (annual interest requirements $165,938) 2,454,470   2,179,288
--------------------------------------------------------------------------------------------

    Less amounts on deposit with trustees        (10,273)
    Less current maturities                     (189,734)
--------------------------------------------------------------------------------------------

  Total                                         2,254,463     2,179,288     56.0%   49.7%
--------------------------------------------------------------------------------------------

Total capitalization                           $4,023,788    $4,383,263    100.0%  100.0%
--------------------------------------------------------------------------------------------


</TABLE>

See accompanying notes to consolidated financial statements.

                                         F-6

<PAGE>



                                                        Allegheny Energy, Inc.



CONSOLIDATED STATEMENT OF COMMON EQUITY
Allegheny Energy, Inc.

<TABLE>
<CAPTION>

                                                                   Thousands of Dollars
                                           -------------------------------------------------

                                                            Other       Retained                   Total
                                Shares         Common      Paid-In      Earnings     Treasury      Common
Year ended December 31        Outstanding       Stock      Capital      (Note H)      Stock        Equity
-----------------------------------------------------------------------------------------------------------
<S>        <C>     <C>        <C>             <C>         <C>          <C>                      <C>
Balance at January 1, 1997    121,840,327     $ 152,300   $1,028,124   $988,667                 $2,169,091
-----------------------------------------------------------------------------------------------------------
Sale of common stock, net of expenses:
Dividend Reinvestment and Stock
  Purchase Plan, Employee Stock
   Ownership and Savings Plan,
   and Performance Share Plan     595,990           745      15,961                                 16,706
Consolidated net income                                                 281,296                    281,296
Dividends on common stock of
 the Company (declared)                                                (210,195)                  (210,195)
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1997   122,436,317    $ 153,045   $1,044,085 $1,059,768                 $2,256,898
-----------------------------------------------------------------------------------------------------------
Consolidated net loss                                                   (12,418)                   (12,418)
Dividends on common stock of the
 Company (declared)                                                    (210,591)                  (210,591)
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998   122,436,317    $ 153,045   $1,044,085   $836,759                 $2,033,889
-----------------------------------------------------------------------------------------------------------
Consolidated net income                                                 258,421                    258,421
Treasury stock                 (12,000,000)                                       $(398,407)      (398,407)
Dividends on common stock
 of the Company (declared)                                             (198,578)                  (198,578)
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1999   110,436,317    $ 153,045   $1,044,085   $896,602   $(398,407)    $1,695,325
-----------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                         F-7

<PAGE>



                                                        Allegheny Energy, Inc.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allegheny Energy, Inc.

(These notes are an integral part of the consolidated financial statements.)

NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Allegheny Energy, Inc. (the Company) is a utility holding company and its
principal business segments are utility and nonutility operations. The utility
subsidiaries, Monongahela Power Company (Monongahela Power), The Potomac Edison
Company (Potomac Edison), and West Penn Power Company (West Penn), collectively
now doing business as Allegheny Power, are engaged in the generation (except
West Penn), purchase, transmission, distribution, and sale of electric energy
and are subject to federal and state regulation including the Public Utility
Holding Company Act of 1935 (PUHCA). The markets for the subsidiaries' regulated
electric retail sales are in Pennsylvania, West Virginia, Maryland, Virginia,
and Ohio. In 1999, revenues from the 50 largest electric utility customers
provided approximately 15% of the consolidated retail revenues. Nonutility
operations consist of the Company's unregulated energy supply business, with the
primary objective of selling electricity into the competitive marketplace, and
Allegheny Ventures, Inc. (Allegheny Ventures), a wholly owned subsidiary which
develops new business opportunities, with an emphasis on telecommunications and
energy-related products and services. Unregulated energy supply includes the
Company's existing generation as deregulation is implemented in the five states
where the Company's traditional utility business has operated and new generating
capacity to be constructed or acquired by the Company. In November 1999, the
Company formed Allegheny Energy Supply Company, LLC (Allegheny Energy Supply), a
wholly owned nonutility generating subsidiary, to consolidate its unregulated
energy supply business.

Allegheny Energy Supply was formed when West Penn transferred its deregulated
generating capacity of 3,778 megawatts (MW) at book value to Allegheny Energy
Supply, as allowed by the final settlement in West Penn's Pennsylvania
restructuring case. Allegheny Energy Supply also purchased from AYP Energy, Inc.
(AYP Energy) its 276 MW of merchant capacity at Fort Martin Unit No. 1.

The Company's nonutility subsidiaries operate primarily in the Mid-Atlantic
region. In 1999, 82% of nonutility revenues were from bulk power sales.
Nonutility operations may be subject to federal regulation, but are not subject
to state regulation of rates.

See Note B for significant changes in the Pennsylvania and Maryland regulatory
environment. Certain amounts in the December 31, 1998, consolidated balance
sheet and in the December 31, 1998, and 1997 consolidated statement of cash
flows have been reclassified for comparative purposes. Significant accounting
policies of the Company and its subsidiaries are summarized below.

Consolidation  The Company owns all of the outstanding common stock of its
subsidiaries. The consolidated financial statements include the accounts of the
Company and all subsidiary companies after elimination of intercompany
transactions.


                                         F-8

<PAGE>
                                                        Allegheny Energy, Inc.



Use of Estimates  The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
that affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reporting period, which in the normal
course of business are subsequently adjusted to actual results.

Revenues  Revenues, including amounts resulting from the application of fuel and
energy cost adjustment clauses, are recognized in the same period in which the
related electric services are provided to customers. Revenues from nonutility
activities are recorded in the period earned.

Deferred Power Costs, Net  The costs of fuel, purchased power, and certain other
costs, and revenues from sales to other utilities and power marketers, including
transmission services, are deferred until they are either recovered from or
credited to customers under fuel and energy cost-recovery procedures in
Maryland, Ohio, Virginia, and West Virginia. West Penn discontinued this
practice in Pennsylvania, effective May 1, 1997, and Potomac Edison will
discontinue this practice in Maryland, effective July 1, 2000.

Property, Plant, and Equipment  Utility property, plant, and equipment are
stated at original cost, less contributions in aid of construction, except for
capital leases, which are recorded at present value. Costs include direct labor
and material; allowance for funds used during construction on utility property
for which construction work in progress is not included in rate base; and
indirect costs such as administration, maintenance, and depreciation of
transportation and construction equipment, postretirement benefits, taxes, and
other benefits related to employees engaged in construction.

The cost of depreciable utility property units retired, plus removal costs less
salvage, are charged to accumulated depreciation by the utility subsidiaries
that apply the Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation."

Nonutility property, plant, and equipment are stated at original cost for self-
constructed assets. Property acquired from others is stated at fair market value
when acquired. West Penn transferred its deregulated generation plant to
Allegheny Energy Supply at book value. Nonutility property is depreciated by the
straight-line method over its estimated useful life.

For the nonutility subsidiaries, the cost and accumulated depreciation of
property, plant, and equipment retired or otherwise disposed of are removed from
related accounts and included in the determination of the gain or loss on
disposition.

The Company capitalizes the cost of software developed for internal use. These
costs are amortized on a straight-line basis over a five-year period beginning
upon a project's completion.

Allowance for Funds Used During Construction (AFUDC) and Capitalized Interest
AFUDC, an item that does not represent current cash income, is defined in


                                         F-9

<PAGE>
                                                        Allegheny Energy, Inc.


applicable regulatory systems of accounts as including "the net cost for the
period of construction of borrowed funds used for construction purposes and a
reasonable rate on other funds when so used." AFUDC is recognized by the utility
subsidiaries as a cost of utility property, plant, and equipment. Rates used by
the utility subsidiaries for computing AFUDC in 1999, 1998, and 1997 averaged
6.83%, 7.78%, and 8.59%, respectively.

For nonutility construction, which began after January 1, 1998, the Company
capitalizes interest costs in accordance with SFAS No. 34, "Capitalizing
Interest Costs." The interest capitalization rates in 1999 and 1998 were 7.14%
and 7.45%, respectively.

Depreciation and Maintenance  Depreciation expense is determined generally on a
straight-line method based on estimated service lives of depreciable properties
and amounted to approximately 3.2% of average depreciable property in 1999 and
3.3% in each of the years 1998 and 1997. The cost of maintenance and of certain
replacements of property, plant, and equipment is charged principally to
operating expenses.

Investments  The Company records the acquisition cost in excess of net assets
acquired as an investment in goodwill. Goodwill recorded prior to 1966 is not
being amortized because, in management's opinion, there has been no reduction in
its value. Goodwill related to the acquisition of West Virginia Power Company in
December 1999 will be amortized over 40 years.

Benefit plans' investments primarily represent the estimated cash surrender
values of purchased life insurance on qualifying management employees under
executive life insurance and supplemental executive retirement plans.

Temporary Cash Investments  For purposes of the consolidated statement of cash
flows, temporary cash investments with original maturities of three months or
less, generally in the form of commercial paper, certificates of deposit, and
repurchase agreements, are considered to be the equivalent of cash.

Regulatory Assets and Liabilities  In accordance with SFAS No. 71, the Company's
consolidated financial statements include certain assets and liabilities
resulting from cost-based ratemaking regulation.

Income Taxes  Financial accounting income before income taxes differs from
taxable income principally because certain income and deductions for tax
purposes are recorded in the financial income statement in another period.
Deferred tax assets and liabilities represent the tax effect of temporary
differences between the financial statement and tax basis of assets and
liabilities computed using the most current tax rates.

The Company has deferred the tax benefit of investment tax credits. Investment
tax credits are amortized over the estimated service lives of the related
properties.

Postretirement Benefits  The Company's subsidiaries have a noncontributory,
defined benefit pension plan covering substantially all employees, including
officers. Benefits are based on the employee's years of service and


                                         F-10

<PAGE>
                                                        Allegheny Energy, Inc.


compensation. The funding policy is to contribute annually at least the minimum
amount required under the Employee Retirement Income Security Act and not more
than can be deducted for federal income tax purposes. Plan assets consist of
equity securities, fixed income securities, short-term investments, and
insurance contracts.

The Company's subsidiaries also provide partially contributory medical and life
insurance plans for eligible retirees and dependents. Medical benefits, which
make up the largest component of the plans, are based upon an age and years-of-
service vesting schedule and other plan provisions. Subsidized medical coverage
is not provided in retirement to employees hired on or after January 1, 1993.
The funding policy is to contribute the maximum amount that can be deducted for
federal income tax purposes. Funding of these benefits is made primarily into
Voluntary Employee Beneficiary Association trust funds. Medical benefits are
self-insured. The life insurance plan is paid through insurance premiums.

Comprehensive Income  SFAS No. 130, "Reporting Comprehensive Income," effective
for 1998, established standards for reporting comprehensive income and its
components (revenues, expenses, gains, and losses) in the financial statements.
The Company does not have any elements of other comprehensive income to report
in accordance with SFAS No. 130.

NOTE B: INDUSTRY RESTRUCTURING

Maryland Deregulation  On September 23, 1999, Potomac Edison filed a settlement
agreement (covering its stranded cost quantification mechanism, price
protection mechanism, and unbundled rates) with the Maryland Public Service
Commission (Maryland PSC). The agreement was signed by all parties active in
the case, except Eastalco, which stated that it would not oppose it. The
settlement agreement, which was approved by the Maryland PSC on December 23,
1999, includes the following provisions:

-- The ability for nearly all of our 211,000 Maryland customers to have the
   option of choosing an electric generation supplier starting July 1, 2000.

-- The transfer of Potomac Edison's Maryland jurisdictional generating assets
   to a nonutility affiliate at book value as of July 1, 2000.

-- A reduction in base rates of 7% ($10.4 million each year totaling $72.8
   million) for residential customers from 2002 through 2008. A reduction in
   base rates of one-half of 1% ($1.5 million each year totaling $10.5 million)
   for the majority of commercial and industrial customers from 2002 through
   2008.

-- Standard Offer Service (provider of last resort) will be provided to
   residential customers during a transition period from July 1, 2000,
   to December 31, 2008, and to all other customers during a transition period
   of July 1, 2000, to December 31, 2004.

-- A cap on generation rates for residential customers from 2002 through 2008.
   Generation rates for non-residential customers are capped from 2002 through
   2004.


                                         F-11

<PAGE>
                                                        Allegheny Energy, Inc.



* A cap on transmission and distribution rates for all customers from 2002
  through 2004.

* Unless Potomac Edison is subject to significant changes that would materially
  affect Potomac Edison's financial condition, the parties agree not to seek a
  reduction in rates which would be effective prior to January 1, 2005.

* The recovery of all purchased power costs incurred as a result of the contract
  to buy generation from the AES Warrior Run cogeneration facility.

* The establishment of a fund (not to exceed $.001 per kilowatt-hour (kWh) for
  residential customers) for the development and use of energy-efficient
  technologies.

The Maryland PSC on December 23, 1999, also approved Potomac Edison's unbundled
rates covering the period 2000 through 2008.

Pennsylvania Deregulation  In December 1996, Pennsylvania enacted the
Electricity Generation Customer Choice and Competition Act (Customer Choice Act)
to restructure the electric industry in Pennsylvania to create retail access to
a competitive electric energy supply market. Approximately 45% of the Company's
retail revenues were from its Pennsylvania subsidiary, West Penn. On August 1,
1997, West Penn filed with the Pennsylvania Public Utility Commission
(Pennsylvania PUC) a comprehensive restructuring plan to implement full customer
choice of electricity suppliers as required by the Customer Choice Act. The
filing included a plan for recovery of transition costs through a Competitive
Transition Charge (CTC).

On May 29, 1998 (as amended on November 19, 1998), the Pennsylvania PUC granted
final approval to West Penn's restructuring plan, which included the following
provisions:

* Established an average shopping credit for West Penn customers who shop for
  the generation portion of electricity services.

* Provided two-thirds of West Penn's customers the option of selecting a
  generation supplier on January 2, 1999, with all customers able to shop on
  January 2, 2000.

* Required a rate refund from 1998 revenue (about $25 million) via a
  2.5% rate decrease throughout 1999, accomplished by an equal percentage
  decrease for each rate class.

* Provided that customers have the option of buying electricity from
  West Penn at capped generation rates through 2008, and that transmission
  and distribution rates are capped through 2005, except that the capped
  rates are subject to certain increases as provided for in the Public
  Utility Code.

* Prohibited complaints challenging West Penn's regulated transmission and
  distribution rates through 2005.


                                         F-12

<PAGE>
                                                        Allegheny Energy, Inc.


* Provided about $15 million of West Penn funding for the development and use of
  renewable energy and clean energy technologies, energy conservation, energy
  efficiency, etc.

* Permitted recovery of $670 million in transition costs plus return over 10
  years beginning in January 1999 for West Penn.

* Allowed for income recognition of transition cost recovery in the earlier
  years of the transition period to reflect the Pennsylvania PUC's projections
  that electricity market prices are lower in the earlier years.

* Granted West Penn's application to issue bonds to securitize up to $670
  million in transition costs and to provide 75% of the associated savings to
  customers, with 25% available to shareholders.

* Authorized the transfer of West Penn's generating assets to a nonutility
  affiliate at book value. Subject to certain time-limited exceptions, the
  nonutility business can compete in the unregulated energy market in
  Pennsylvania.

As a result of the May 29, 1998, Pennsylvania PUC order and the November 19,
1998, settlement agreement, an extraordinary charge of $466.9 million ($275.4
million after taxes) was recorded in 1998 to reflect a write-off of costs
determined to be unrecoverable in connection with the deregulation proceedings
in Pennsylvania. 1998 also reflects additional charges of $40.3 million ($23.7
million after taxes) related to the West Penn revenue refund and energy program
payments. See Note C for additional details.

Starting in 1999, West Penn unbundled its rates to reflect separate prices for
the supply charge, the CTC, and transmission and distribution charges. While
supply is open to competition, West Penn continues to provide regulated
transmission and distribution services to customers in its service area at
rates approved by the Pennsylvania PUC and the Federal Energy Regulatory
Commission (FERC). West Penn is the electricity provider of last resort for
those customers who decide not to choose another electricity supplier.

The Pennsylvania PUC order authorized annual recovery of "transition costs" from
distribution customers as follows:

                 Amount
Year     (Millions of dollars)
-------------------------------
1999            $ 122
2000              121
2001              115
2002              113
2003              112
2004              104
2005               99
2006               98
2007               97
2008               97
-------------------------------


                                         F-13

<PAGE>
                                                        Allegheny Energy, Inc.


These amounts represent the recovery of $670 million in transition costs plus a
return on the unrecovered investment.

Actual transition revenues billed to customers in 1999 totaled $101 million. The
Company has recorded a regulatory asset of $20 million for the difference in the
authorized CTC revenues, adjusted for $1 million securitization savings to be
shared with customers, and the actual transition revenues billed to customers.
The Pennsylvania PUC has approved the recovery of this regulatory asset through
a true-up mechanism currently in process.

The order also authorized recognition of an additional CTC regulatory asset
(Additional CTC Regulatory Asset) as follows:

                 Amount
Year     (Millions of dollars)
-------------------------------
1999            $ 25
2000              45
2001              60
2002              50
-------------------------------

To the extent that West Penn records any or all of the Additional CTC Regulatory
Asset, it will be amortized in 2005 through 2008. This Additional CTC Regulatory
Asset was approved by the Pennsylvania PUC to reduce the adverse effects, if
any, that competition will have on West Penn during the years 1999 to 2002. No
Additional CTC Regulatory Asset was recorded by West Penn as of December 31,
1999.

Prior to 1999, the Pennsylvania Customer Choice Act, required all electric
utilities in Pennsylvania to establish and administer retail access pilot
programs under which customers representing 5% of the load of each rate class
would choose an electricity supplier other than their own local franchise
utility. The pilot programs began on November 1, 1997, and continued through
December 31, 1998. As ordered by the Pennsylvania PUC, pilot participants
received an energy credit to their bills from their local utility and paid an
alternate supplier for energy. To assure participation in the pilot program, the
credit established by the Pennsylvania PUC was artificially high (greater than
West Penn's generation costs), with the result that West Penn suffered a loss of
$8.6 million. West Penn mitigated the loss by competing for sales to pilot
participants of other utilities as an alternate supplier. The Pennsylvania PUC
approved West Penn's pilot compliance filing and thus has indicated its intent
to treat the net revenue loss as a regulatory asset subject to review and
potential rate recovery. Accordingly, West Penn deferred the net revenue loss as
a regulatory asset.

On August 12, 1999, West Penn filed its Competitive Transition Charge
Reconciliation Statement pursuant to the settlement agreement approved by the
Pennsylvania PUC. The reconciliation shows a seven-month under-collection and
its potential effects on the CTC rate effective January 1, 2000. The seven-


                                         F-14

<PAGE>
                                                        Allegheny Energy, Inc.


month transition cost under-collection for the period ended July 31, 1999, was
$15.9 million.

On November 2, 1999, West Penn, the Office of Consumer Advocate, West Penn
Industrial Intervenors, and the Commission's Office of Trial Staff filed a Joint
Petition for Approval of Settlement Agreement. The agreement proposed that West
Penn use the savings from securitization during the remainder of 1999 and during
2000 to recover the existing 1999 CTC underrecovery and the expected increase in
year 2000 CTC underrecovery due to lower than projected energy sales. On
December 16, 1999, the Pennsylvania PUC approved the joint petition for
settlement allowing West Penn to collect the 1999 CTC underrecovery.

NOTE C: ACCOUNTING FOR THE EFFECTS OF PRICE DEREGULATION

In 1997, the Emerging Issues Task Force (EITF) issued EITF No. 97-4,
"Deregulation of the Pricing of Electricity-Issues Related to the Application of
FASB Statement Nos. 71 and 101." The EITF agreed that, when a rate order that
contains sufficient detail for the enterprise to reasonably determine how the
transition plan will affect the separable portion of its business whose pricing
is being deregulated is issued, the entity should cease to apply SFAS No. 71 to
that separable portion of its business.

On December 23, 1999, the Maryland PSC approved a settlement agreement dated
September 23, 1999, setting forth the transition plan to deregulate electric
generation for Potomac Edison's Maryland jurisdiction. As required by EITF 97-4,
Potomac Edison discontinued the application of SFAS No. 71 for its Maryland
jurisdiction electric generation operations in the fourth quarter of 1999. As a
result, Potomac Edison recorded under the provisions of SFAS No. 101,
"Accounting for the Discontinuation of Application of FASB Statement No. 71," an
extraordinary charge of $26.9 million ($17.0 million after taxes), reflecting
the impairment of certain generating assets as determined under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," based on the expected future cash flows and net regulatory
assets associated with generating assets that will not be collected from
customers as shown below:

(Millions of dollars)                        Gross   Net-of-Tax
-------------------------------------------------------------------
Impaired generating assets                   $14.5     $  9.9
Net regulatory assets                         12.4        7.1
-------------------------------------------------------------------
  Total 1999 extraordinary charge            $26.9     $ 17.0
-------------------------------------------------------------------


On May 29, 1998, the Pennsylvania PUC issued an order approving a transition
plan for West Penn. This order was subsequently amended by a settlement
agreement approved by the Pennsylvania PUC on November 19, 1998. Based on the
Pennsylvania PUC order and subsequent settlement agreement, West Penn
discontinued the application of SFAS No. 71 to its generation operations in the
second quarter of 1998.


                                         F-15

<PAGE>
                                                        Allegheny Energy, Inc.


West Penn recorded under the provisions of SFAS No. 101 an extraordinary charge
of $466.9 million ($275.4 million after taxes) in 1998 to reflect the
disallowances of certain costs in the Pennsylvania PUC's May 29, 1998, order, as
revised by the Pennsylvania PUC-approved November 19, 1998, settlement
agreement. The charge reflects adverse power purchase commitments (commitments
to purchase power at prices above market prices for electricity), the impairment
of the investment in the Bath County pumped-storage plant, and net regulatory
assets that will not be collected from customers under the Pennsylvania PUC's
order and settlement agreement as follows:

(Millions of dollars)                        Gross   Net-of-Tax
-------------------------------------------------------------------
AES Beaver Valley nonutility
 generation contract                       $ 197.5    $ 116.5
Impairment of Bath County
 pumped-storage plant                        165.6       97.7
Net regulatory assets                        103.8       61.2
-------------------------------------------------------------------
Total 1998 extraordinary charge            $ 466.9    $ 275.4
-------------------------------------------------------------------


On December 31, 1999, the Company's reserve for adverse power purchase
commitments was $328.8 million based on the Company's forecast of future energy
revenues and other factors. A change in the estimated energy revenues or other
factors could have a material effect on the amount of the reserve for adverse
power purchases.

See Note B for additional information regarding the transition plans approved in
Maryland and Pennsylvania.

In addition to the 1998 extraordinary charge, West Penn recorded an additional
charge against income in 1998 of $40.3 million ($23.7 million after taxes)
associated with a rate refund and development of renewable energy programs as
required by the Pennsylvania settlement agreement.

The Consolidated Balance Sheet includes the amounts listed below for assets,
primarily generation, not subject to SFAS No. 71.

                                                          December     December
(Millions of dollars)                                       1999         1998
--------------------------------------------------------------------------------

Property, plant, and equipment at original cost          $ 2,690.1    $ 1,969.6
Amounts under construction included above                    101.8         39.2
Accumulated depreciation                                  (1,239.0)      (870.8)
--------------------------------------------------------------------------------

                                         F-16

<PAGE>
                                                        Allegheny Energy, Inc.



NOTE D: PROPOSED MERGER

On April 7, 1997, the Company and DQE, Inc. (DQE), parent company of Duquesne
Light Company in Pittsburgh, Pennsylvania, announced that they had agreed to
merge in a tax-free, stock-for-stock transaction (Merger Agreement).

At separate meetings held on August 7, 1997, the shareholders of the Company and
DQE approved the merger. The Company and DQE made all necessary regulatory
filings. Since then, the Company and DQE received approval of the merger from
the Nuclear Regulatory Commission, the Pennsylvania PUC, and the FERC. The
Pennsylvania PUC and the FERC approvals were subject to conditions acceptable to
the Company. In addition, while not required, the Maryland PSC and the Public
Utilities Commission of Ohio have indicated their approval.

On October 5, 1998, DQE notified the Company that it had unilaterally decided to
terminate the merger. In response, the Company filed with the United States
District Court for the Western District of Pennsylvania on October 5, 1998, a
lawsuit for specific performance of the Merger Agreement or, alternatively,
damages. The District Court held a trial on October 20 through 28, 1999, without
a jury, on the issues of whether DQE's termination of the Merger Agreement
breached the agreement and whether the Company is entitled to specific
performance.

On December 3, 1999, the Court handed down a decision which found that DQE did
not breach the April 1997 Merger Agreement. The Court accordingly found in favor
of DQE and granted judgment in favor of DQE on all claims and all requests for
injunctive relief. On December 14, 1999, the Company appealed the District
Court's judgment to the United States Court of Appeals for the Third Circuit,
and, on December 16, 1999, the Company filed a Motion for Expedited Treatment of
the Appeal requesting that briefings be completed by February 25, 2000, and that
arguments be scheduled promptly following the completion of briefings. On
December 29, 1999, the Third Circuit granted the Motion for Expedited Treatment.

As a result of the December 3, 1999, Court decision, the Company recorded a
charge against income of $19.7 million ($11.8 million after taxes) in the fourth
quarter of 1999 for merger-related costs previously deferred.

NOTE E: ACQUISITIONS

In December 1999, Monongahela Power acquired the assets of West Virginia Power
for approximately $95 million. In conjunction with this acquisition, the Company
purchased the assets of a heating, ventilation, and air conditioning business
for $2.1 million. The acquisition increased property, plant, and equipment and
accumulated depreciation by $105.0 million and $35.4 million, respectively.
Also, $27.5 million was recorded as the excess of cost over net assets acquired.

In December 1999, Monongahela Power agreed to acquire Mountaineer Gas Company
for $323 million, which includes the assumption of approximately $100 million of
existing debt. Completion of the transaction is conditioned upon, among other
things, certain regulatory approvals which may be obtained by mid-2000.


                                         F-17

<PAGE>
                                                        Allegheny Energy, Inc.


NOTE F: EXTRAORDINARY CHARGE ON LOSS ON REACQUIRED DEBT

During 1999, West Penn reacquired $525 million of outstanding first mortgage
bonds and recorded a loss of $17.0 million ($10.0 million after taxes)
associated with this transaction. In accordance with Accounting Principles Board
(APB) Opinion

No. 26, "Early Extinguishment of Debt," and SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," this amount is classified as an
extraordinary item in the consolidated statement of income.

NOTE G: INCOME TAXES

Details of federal and state income tax provisions are:


<TABLE>
<CAPTION>

(Thousands of dollars)                                     1999         1998         1997
-------------------------------------------------------------------------------------------
Income taxes-current:
  <S>                                                   <C>          <C>          <C>
  Federal                                               $100,724     $114,319     $ 87,394
  State                                                   26,156       33,385       23,960
-------------------------------------------------------------------------------------------
    Total                                                126,880      147,704      111,354
Income taxes-deferred, net of amortization                48,461       28,920       74,565
Income taxes-deferred, extraordinary charge              (16,885)    (191,480)
Amortization of deferred investment credit                (8,426)      (7,922)      (8,203)
-------------------------------------------------------------------------------------------
    Total income taxes                                   150,030      (22,778)     177,716
Income taxes-charged to other income and deductions       (2,474)        (306)      (9,643)
Income taxes-credited to extraordinary charge             16,885      191,480
-------------------------------------------------------------------------------------------
Income taxes-charged to operating income                $164,441     $168,396     $168,073
-------------------------------------------------------------------------------------------




The total provision for income taxes is different from the amount produced by
applying the federal income statutory tax rate of 35% to financial accounting
income, as set forth below:


                                         F-18

<PAGE>
                                                        Allegheny Energy, Inc.


(Thousands of dollars)                                    1999          1998        1997
--------------------------------------------------------------------------------------------

Income before preferred stock dividends
 and redemption premiums,
 income taxes, and extraordinary charge                 $460,793      $440,655    $458,649
--------------------------------------------------------------------------------------------
Amount so produced                                      $161,278      $154,229    $160,527
Increased (decreased) for:
  Tax deductions for which deferred
   tax was not provided:
     Lower tax depreciation                                6,500        6,700       14,200
     Plant removal costs                                  (9,100)      (2,400)      (1,700)
State income tax, net of federal income tax benefit       14,100       20,200       11,700
Amortization of deferred investment credit                (8,426)      (7,922)      (8,203)
Other, net                                                    89       (2,411)      (8,451)
--------------------------------------------------------------------------------------------

    Total                                               $164,441     $168,396     $168,073
--------------------------------------------------------------------------------------------


</TABLE>


The provision for income taxes for the extraordinary charges is different from
the amount produced by applying the federal income statutory tax rate of 35% to
the gross amount, as set forth below:

(Thousands of dollars)                                   1999           1998
-----------------------------------------------------------------------------
Extraordinary charge before income taxes           $    43,853     $  466,905
-----------------------------------------------------------------------------
Amount so produced                                 $    15,349     $  163,417
Increased for state income tax,
 net of federal income tax benefit                       1,536         28,063
-----------------------------------------------------------------------------
    Total                                          $    16,885     $  191,480
-----------------------------------------------------------------------------

Federal income tax returns through 1995 have been examined and substantially
settled. At December 31, the deferred tax assets and liabilities consisted of
the following:


                                         F-19

<PAGE>
                                                        Allegheny Energy, Inc.




<TABLE>
<CAPTION>

(Thousands of dollars)                                               1999         1998
-----------------------------------------------------------------------------------------
Deferred tax assets:
  <S>                                                           <C>           <C>
  Recovery of transition costs                                  $  141,844    $  154,530
  Unamortized investment tax credit                                 72,845        77,213
  Tax interest capitalized                                          35,760        35,375
  Postretirement benefits other than pensions                       31,662        31,047
  Contributions in aid of construction                              23,387        23,643
  Unbilled revenue                                                  13,105        13,380
  Revenue refund                                                                  10,301
  Deferred power costs, net                                         16,741         8,736
  Reserve for uncollectibles                                        10,044         7,904
  Other                                                             47,472        39,878
-----------------------------------------------------------------------------------------

                                                                   392,860       402,007
----------------------------------------------------------------------------------------

Deferred tax liabilities:
  Book vs. tax plant basis differences, net                      1,207,465     1,174,453
  Other                                                             75,861        88,465
-----------------------------------------------------------------------------------------

                                                                 1,283,326     1,262,918
----------------------------------------------------------------------------------------
Total net deferred tax liabilities                                 890,466       860,911
Portion above included in current assets                            30,477        21,868
----------------------------------------------------------------------------------------
Total long-term net deferred tax liabilities                    $  920,943    $  882,779
----------------------------------------------------------------------------------------

</TABLE>


NOTE H: DIVIDEND RESTRICTION

Supplemental indentures relating to certain outstanding bonds of Monongahela
Power contain dividend restrictions under the most restrictive of which
$68,974,000 of the Company's consolidated retained earnings at December 31,
1999, is not available for cash dividends on Monongahela Power's common stock,
except that a portion thereof may be paid as cash dividends where concurrently
an equivalent amount of cash is received by Monongahela Power as a capital
contribution or as the proceeds of the issue and sale of shares of its common
stock.

NOTE I: PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Net periodic (credit) cost for pension and postretirement benefits other than
pensions (principally health care and life insurance) for employees and covered
dependents, of which approximately 30% was (credited) charged to plant
construction, included the following components:

                                       F-20

<PAGE>
                                                        Allegheny Energy, Inc.


<TABLE>
<CAPTION>

                                                                  Postretirement Benefits
                                         Pension Benefits           Other Than Pensions
--------------------------------------------------------------------------------------------

(Thousands of dollars)               1999      1998     1997      1999      1998    1997
--------------------------------------------------------------------------------------------

Components of net
periodic (credit) cost:
  <S>                              <C>      <C>       <C>      <C>       <C>     <C>
  Service cost                     $15,350  $ 14,316  $12,435  $  2,677  $2,566  $ 2,619
  Interest cost                     47,068    46,743   43,060    13,418  14,346   15,244
  Expected return on plan assets   (65,456)  (61,280) (57,404)   (6,217) (6,163)  (4,705)
  Amortization of unrecognized
   transition (asset) obligation    (3,146)   (3,146)  (3,146)    6,433   6,433    6,433
  Amortization of prior service cost 2,386     2,360    1,441
  Recognized net actuarial gain                                    (119)
--------------------------------------------------------------------------------------------
    Periodic (credit) cost          (3,798)   (1,007)  (3,614)   16,192  17,182   19,591
Reversal of previous deferrals                   760      760
--------------------------------------------------------------------------------------------
Net periodic (credit) cost        $ (3,798) $   (247) $(2,854)  $16,192 $17,182  $19,591
--------------------------------------------------------------------------------------------

The discount rates and rates of compensation increases used in determining the
benefit obligations at September 30, 1999, 1998, and 1997, and the expected long-
term rate of return on assets in each of the years 1999, 1998, and 1997 were as
follows:

                                    1999     1998      1997      1999      1998     1997
------------------------------------------------------------------------------------------
Discount rate                      7.50%     7.00%     7.25%     7.50%     7.00%    7.25%
Expected return on plan assets     9.00%     9.00%     9.00%     8.25%     8.25%    8.25%
Rate of compensation increase      4.50%     4.00%     4.25%     4.50%     4.00%    4.25%
-------------------------------------------------------------------------------------------

</TABLE>


For postretirement benefits other than pensions measurement purposes, a health
care cost trend rate of 6.5% for 2000 and beyond and plan provisions which limit
future medical and life insurance benefits were assumed. Because of the plan
provisions which limit future benefits, the assumed health care cost trend rate
has a limited effect on the amounts reported.

A one-percentage-point change in the assumed health care cost trend rate would
have the following effects:

<TABLE>
<CAPTION>
                                                   1-Percentage-Point    1-Percentage-Point
(Thousands of dollars)                                      Increase            Decrease
--------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
Effect on total of service and interest cost components       $  300          $  (289)
Effect on postretirement benefit obligation                   $2,609          $(2,635)
--------------------------------------------------------------------------------------------

                                         F-21

<PAGE>
                                                        Allegheny Energy, Inc.


</TABLE>
The amounts (prepaid) accrued at December 31, using a measurement date of
September 30, included the following components:


<TABLE>
<CAPTION>

                                                                     Postretirement Benefits
                                                 Pension Benefits      Other Than Pensions
(Thousands of dollars)                          1999         1998        1999       1998
--------------------------------------------------------------------------------------------
Change in benefit obligation:
  <S>                                        <C>         <C>          <C>         <C>
  Benefit obligation at beginning of year    $692,937    $ 664,695    $196,282    $202,274
  Service cost                                 15,350       14,316       2,677       2,566
  Interest cost                                47,068       46,743      13,418      14,346
  Plan amendments                                              360
  Actuarial (gain) loss                       (21,369)       8,573     (20,159)    (14,296)
  Benefits paid                               (42,458)     (41,750)    (10,894)     (8,608)
    Benefit obligation at December 31         691,528      692,937     181,324     196,282
--------------------------------------------------------------------------------------------

Change in plan assets:
  Fair value of plan assets
   at beginning of year                       801,348      786,159      74,773      73,363
  Actual return on plan assets                 50,914       49,091      10,864         965
  Employer contribution                         7,848        7,848       4,406       2,451
  Benefits paid                               (42,458)     (41,750)     (5,766)    (2,006)
    Fair value of plan assets at December 31  817,652      801,348      84,277     74,773
-------------------------------------------------------------------------------------------

Plan assets (in excess of)
less than benefit obligation                 (126,124)    (108,411)     97,047    121,509
Unrecognized transition asset (obligation)      3,152        6,298     (83,627)   (90,060)
Unrecognized net actuarial gain               115,193      108,366      46,140     21,453
Unrecognized prior service
 cost due to plan amendments                  (20,428)     (22,814)
Fourth quarter contributions and benefit payments                       (6,203)    (5,227)
--------------------------------------------------------------------------------------------

 (Prepaid) accrued at December 31           $ (28,207)   $ (16,561)   $ 53,357   $ 47,675
--------------------------------------------------------------------------------------------



</TABLE>

The pension unrecognized transition asset is being amortized over 14 years
beginning January 1, 1987, and the postretirement benefits other than pensions
unrecognized transition obligation is being amortized over 20 years beginning
January 1, 1993.

NOTE J: STOCK-BASED COMPENSATION

Under the Company's Long-term Incentive Plan, options may be granted to officers
and key employees. A total of 10 million shares of the Company's common stock
have been authorized for issuance under the Long-term Incentive Plan. The Long-
term Incentive Plan, which was implemented during 1998, provides vesting periods
of one to seven years, with options remaining exercisable until 10 years from
the date of grant. There were no exercisable options at December 31, 1999. As
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company follows APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for employee stock options. Under APB
No. 25, because the exercise price of stock options awarded under the Company's
Long-term Incentive Plan equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized. Disclosure of
pro-forma information regarding net income and earnings per share is required by
SFAS No. 123. The information presented has been determined as if the stock
options had been accounted for under the fair value method of that statement.
The weighted average fair value of the 1999 options was $5.07 per share. The

                                         F-22

<PAGE>
                                                        Allegheny Energy, Inc.

fair values were estimated at the date of grant using the Black-Scholes option
pricing model, with the following weighted average assumptions: risk-free
interest rate was 6.24%, expected lives of 10 years, expected stock volatility
of 22.83%, and dividend yield of 5.83%.

Under SFAS No. 123, pro-forma consolidated net income for common stock for the
Company would be $258,166,000, or $255,000 less than the amount reported for
1999. On a pro-forma basis, the Company's 1999 basic and diluted earnings per
share would remain at $2.22 per common share. There were no stock options issued
prior to 1999. During 1999, the Company granted 1,119,200 stock options at a
weighted average exercise price of $31.351. There were no stock options
exercised or forfeited during 1999. A summary of the stock options outstanding
at December 31, 1999, is as follows: range of exercise prices was $30.1875 to
$33.8125, weighted average exercise price was $31.351, shares outstanding were
1,119,200, and average remaining contractual life was 10 years.

Under the Company's Long-term Incentive Plan (formerly the Performance Share
Plan), certain officers of the Company and its subsidiaries may receive awards
based on meeting specific shareholder and customer performance rankings. The
Company recognized compensation expense in 1999, 1998, and 1997 of $1.1 million,
$2.0 million, and $1.1 million, respectively.

NOTE K: REGULATORY ASSETS AND LIABILITIES

Certain of the Company's utility operations are subject to the provisions of
SFAS No. 71. Regulatory assets represent probable future revenues associated
with deferred costs that are expected to be recovered from customers through the
ratemaking process. Regulatory liabilities represent probable future reductions
in revenues associated with amounts that are to be credited to customers through
the ratemaking process. Regulatory assets, net of regulatory liabilities,
reflected in the consolidated balance sheet at December 31 relate to:

                                         F-23

<PAGE>
                                                        Allegheny Energy, Inc.



<TABLE>
<CAPTION>

(Thousands of dollars)                                                  1999        1998
--------------------------------------------------------------------------------------------

Long-term assets (liabilities), net:
  <S>                                                                <C>          <C>
  Income taxes, net                                                  $306,247     $317,745
  Pennsylvania stranded cost recovery (CTC)                           251,903      280,388
  Pennsylvania CTC true-up                                             20,004
  Pennsylvania pilot deferred revenue                                   9,040        6,726
  Postretirement benefits                                               6,229        6,229
  Pennsylvania tax increases                                            3,520
  Storm damage                                                            850        2,101
  Demand-side management                                                  184        8,157
  Deferred revenues                                                   (14,900)
  Other, net                                                            2,027        2,806
------------------------------------------------------------------------------------------
    Subtotal                                                          585,104      624,152
  Deferred power costs, net
   reported in other deferred charges/credits)                         (9,990)      (2,455)
-------------------------------------------------------------------------------------------

    Subtotal                                                          575,114      621,697
------------------------------------------------------------------------------------------
Current assets (liabilities), net
 (reported in other current assets/liabilities):
  CTC recovery                                                         23,957       17,372
  Income taxes, net                                                     1,847        1,847
  Deferred power costs, net                                           (12,880)       7,211
  Deferred revenues                                                   (19,949)
------------------------------------------------------------------------------------------
    Subtotal                                                           (7,025)      26,430
------------------------------------------------------------------------------------------
      Net regulatory assets                                          $568,089     $648,127
------------------------------------------------------------------------------------------

</TABLE>


Future deregulation proceedings in Ohio, Virginia, and West Virginia may affect
the ratemaking treatment of the net regulatory assets related to generation in
these jurisdictions. See Notes B and C starting on pages 49 and 51,
respectively, for a discussion of deregulation plans approved in Pennsylvania
and Maryland. At this time, the Company cannot determine the effect of
deregulation plans in Ohio, Virginia, and West Virginia.

NOTE L: FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair value of financial instruments at
December 31 were as follows:


<TABLE>
<CAPTION>

                                                      1999                     1998
                                            ------------------------   --------------------
                                              Carrying      Fair       Carrying      Fair
(Thousands of dollars)                         Amount      Value        Amount       Value
--------------------------------------------------------------------------------------------
Assets:
  <S>                                       <C> <C>     <C> <C>     <C>    <C>    <C>    <C>
  Temporary cash investments                $   44,831  $   44,831  $      882    $      882
  Life insurance contracts                      94,168      94,168      87,468        87,468
Liabilities:
  Short-term debt                              641,095     641,095     258,837       258,837
  Long-term debt and QUIDS                   2,468,407   2,370,723   2,198,577     2,307,081
  Interest rate swap                                                     1,528         3,831
  Option contract for interest rate swap                                 5,717         5,717
--------------------------------------------------------------------------------------------



</TABLE>


The carrying amount of temporary cash investments, as well as short-term debt,
approximates the fair value because of the short maturity of those

                                         F-24

<PAGE>
                                                        Allegheny Energy, Inc.

instruments.  The fair value of the life insurance contracts was estimated
based on cash surrender value. The fair value of long-term debt and QUIDS was
estimated based on actual market prices or market prices of similar issues. The
fair value of the swap and option contract was estimated based on the present
value of future cash flows associated with these instruments. The swap and
option were terminated in June 1999.

The Company had no financial instruments held or issued for trading purposes.

NOTE M: CAPITALIZATION

Common Stock  In March 1999, the Company announced a stock repurchase program
that authorized the repurchase of common stock worth up to $500 million from
time to time at price levels the Company deems attractive. The Company purchased
12 million shares of its common stock in 1999 at an aggregate cost of $398.4
million.

Preferred Stock  West Penn called or redeemed all outstanding shares of its
cumulative preferred stock with a combined par value of $79.7 million plus
redemption premiums of $3.3 million on July 15, 1999, with proceeds from new
$84-million five-year unsecured medium-term notes issued in the second quarter
at a 6.375% coupon rate. Potomac Edison called all outstanding shares of its
cumulative preferred stock with a combined par value of $16.4 million plus
redemption premiums of $.5 million on September 30, 1999, with funds on hand.
Monongahela Power's outstanding preferred stock is entitled on voluntary
liquidation to its then current call price and on involuntary liquidation to
$100 a share.

Long-Term Debt and QUIDS  Maturities for long-term debt in thousands of dollars
for the next five years are: 2000, $189,734; 2001, $187,283; 2002, $134,105;
2003, $250,071; and 2004, $157,714. Substantially all of the properties of
Monongahela Power and Potomac Edison are held subject to the lien securing their
first mortgage bonds. Some properties are also subject to a second lien securing
certain pollution control and solid waste disposal notes. During 1999, West Penn
reacquired all of its outstanding $525 million of first mortgage bonds.

In November 1999, West Penn Funding, LLC, issued $600 million of transition
bonds as authorized by the Pennsylvania PUC (see Note B). The transition bonds
are secured by the collection of transition costs through a nonbypassable charge
to customers in the West Penn service area.

NOTE N: SHORT-TERM DEBT

To provide interim financing and support for outstanding commercial paper, lines
of credit have been established with several banks. The Company and its
regulated subsidiaries have fee arrangements on all of their lines of credit and
no compensating balance requirements. At December 31, 1999, unused lines of
credit with banks were $435 million. In addition to bank lines of credit, an
internal money pool accommodates intercompany short-term borrowing needs, to the
extent that certain of the regulated companies have funds available.

Short-term debt outstanding for 1999 and 1998 consisted of:


                                         F-25

<PAGE>
                                                        Allegheny Energy, Inc.


<TABLE>
<CAPTION>

(Thousands of dollars)                                  1999              1998
------------------------------------------------------------------------------------
Balance and interest rate at end of year:
  <S>                                             <C>      <C><C>   <C>      <C><C>
  Commercial paper                                $641,095 - 5.98%  $208,837 - 5.40%
  Notes payable to banks                                              50,000 - 5.40%
Average amount outstanding and interest rate during the year:
  Commercial paper                                 418,166 - 5.41%   171,393 - 5.60%
  Notes payable to banks                            25,098 - 5.22%    44,789 - 5.62%
------------------------------------------------------------------------------------

</TABLE>

NOTE O: BUSINESS SEGMENTS

The Company's principal business segments are utility and nonutility operations.
The utility subsidiaries, Monongahela Power, Potomac Edison, and West Penn,
collectively now do business as Allegheny Power. Allegheny Power is involved in
the delivery (transmission and distribution) and procurement of electric energy
subject to federal and state traditional utility price regulation. Also,
Allegheny Power is involved in generation of electric energy in jurisdictions
which have not yet implemented deregulation of electric generation. Nonutility
operations consist primarily of the Company's energy supply business, now
Allegheny Energy Supply. Also included in nonutility operations is Allegheny
Ventures, a wholly owned subsidiary of the Company, which develops new business
opportunities, including telecommunications. Since January 1, 1999, the
Company's supply business has the primary objective of selling the output of the
West Penn generation that has been freed up by the Customer Choice Act in
Pennsylvania and is no longer regulated by the Pennsylvania PUC. In November
1999, the Company formed a new nonutility generating company, Allegheny Energy
Supply. West Penn transferred its deregulated generating capacity, which totaled
3,778 MW, at book value as allowed by the final settlement in West Penn's
Pennsylvania restructuring case. Allegheny Energy Supply also purchased from AYP
Energy its 276 MW of merchant capacity at Fort Martin Unit No. 1.

Business segment information for 1999, 1998, and 1997 is summarized below.
Transactions between affiliates are recognized at prices which approximate
market value. Significant transactions between reportable segments are
eliminated to reconcile the segment information to consolidated amounts. The
identifiable assets information does not reflect the elimination of intercompany
balances or transactions which are eliminated in the Company's consolidated
financial statements.

                                         F-26

<PAGE>
                                                        Allegheny Energy, Inc.



<TABLE>
<CAPTION>

(Thousands of dollars)                              1999            1998            1997
--------------------------------------------------------------------------------------------
Operating revenues:
  <S>                                           <C>             <C>               <C>
  Utility                                       $2,273,727      $2,330,261        $2,286,175
  Nonutility                                       887,387         246,986            85,794
  Eliminations                                    (352,673)           (811)           (2,478)
Depreciation and amortization:
  Utility                                          197,955         264,609           259,145
  Nonutility                                        59,501           5,770             6,605
Federal and state income taxes:
  Utility                                          131,225         178,929           177,581
  Nonutility                                        33,216         (10,533)           (9,508)
Operating income:
  Utility                                          395,425         449,762           457,267
  Nonutility                                        79,222         (10,255)           (5,030)
Interest charges, preferred dividends,
 and preferred redemption premiums:
  Utility                                          160,934         176,073           182,564
  Nonutility                                        31,871          10,159            10,786
  Eliminations                                        (102)
Consolidated income before extraordinary charge:
  Utility                                          236,472         283,323           295,653
  Nonutility                                        48,917         (20,315)          (14,357)
Extraordinary charge, net:
  Utility                                           26,968         275,426
Identifiable assets:
  Utility                                        5,293,394       6,321,777         6,442,512
  Nonutility                                     1,559,047         213,418           211,579
Capital expenditures:
  Utility                                          266,205         229,362           284,648
  Utility-acquisition of businesses                 98,714
  Nonutility                                       147,160           6,205               829
--------------------------------------------------------------------------------------------



</TABLE>

See Notes C and F for a discussion of extraordinary charges, net.

NOTE P: COMMITMENTS AND CONTINGENCIES

Construction and Capital Program  The subsidiaries have entered into commitments
for their construction and capital programs for which expenditures are estimated
to be $419 million for 2000 and $431 million for 2001. In addition, in 2000,
Monongahela Power plans to purchase Mountaineer Gas Company for approximately
$323 million (which includes the assumption of approximately $100 million in
existing debt). Construction expenditure levels in 2002 and beyond will depend
upon, among other things, the strategy eventually selected for complying with
Phase II of the Clean Air Act Amendments of 1990 (CAAA) and the extent to which
environmental initiatives currently being considered become mandated. The
Company estimates that its banked emission allowances will allow it to comply
with Phase II sulfur dioxide (SO2) limits through 2005. Studies to evaluate
cost-effective options to comply with Phase II SO2 limits beyond 2005, including
those available in connection with the emission allowance trading market, are
continuing.

Environmental Matters and Litigation  The companies are subject to various laws,
regulations, and uncertainties as to environmental matters. Compliance may
require them to incur substantial additional costs to modify or replace

                                         F-27

<PAGE>
                                                        Allegheny Energy, Inc.


existing and proposed equipment and facilities and may adversely affect the
cost of future operations.

The Environmental Protection Agency (EPA) issued its final regional nitrogen
oxides (NOx) State Implementation Plan (SIP) call rule on September 24, 1998.
The EPA's SIP call rule found that 22 eastern states (including Maryland,
Pennsylvania, and West Virginia) and the District of Columbia are all
contributing significantly to ozone nonattainment in downwind states. The final
rule declares that this downwind nonattainment will be eliminated (or
sufficiently mitigated) if the upwind states reduce their NOx emissions by an
amount that is precisely set by the EPA on a state-by-state basis. The final SIP
call rule requires that all state-adopted NOx reduction measures must be
incorporated into SIPs by September 1999 and must be implemented by May 1, 2003.
However, the EPA's NOx SIP call regulation is currently under litigation in the
District of Columbia Circuit Court of Appeals, and a decision is expected by
spring 2000. The Company's compliance with these requirements would require the
installation of post-combustion control technologies on most, if not all, of its
power stations at a cost of approximately $370 million. The Company continues to
work with other coal-burning utilities and other affected constituencies in
coal-producing states to challenge this EPA action.

On March 4, 1994, Monongahela Power, Potomac Edison, and West Penn received
notice that the EPA had identified them as potentially responsible parties
(PRPs) under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, with respect to a Superfund Site. There are
approximately 175 other PRPs involved. A final determination has not been made
for the Company's share of the remediation costs based on the amount of
materials sent to the site. However, the Company estimates that its share of the
cleanup liability will not exceed $1 million, which has been accrued as a
liability at December 31, 1999.

Monongahela Power, Potomac Edison, and West Penn have also been named as
defendants along with multiple other defendants in pending asbestos cases
involving multiple plaintiffs. While the Company believes that all of the cases
are without merit, the Company cannot predict the outcome of the litigation. The
Company has accrued a reserve of $5.8 million as of December 31, 1999, related
to the asbestos cases as the potential cost to settle the cases to avoid the
anticipated cost of defense.

The Attorney General of the State of New York and the Attorney General of the
State of Connecticut in their letters dated September 15, 1999, and November 3,
1999, respectively, notified the Company of their intent to commence civil
actions against the Company or certain of its subsidiaries alleging violations
at the Fort Martin Power Station under the federal Clean Air Act, which requires
existing power plants that make major modifications to comply with the same
emission standards applicable to new power plants. Similar actions may be
commenced by other governmental authorities in the future. Fort Martin is a
station located in West Virginia and is now jointly owned by Allegheny Energy
Supply, Monongahela Power, and Potomac Edison. Both Attorneys General stated
their intent to seek injunctive relief and penalties. In addition, the Attorney
General of the State of New York in his letter indicated that he may assert
claims under the State common law of


                                         F-28

<PAGE>
                                                        Allegheny Energy, Inc.

public nuisance seeking to recover, among other things, compensation for
alleged environmental damage caused in New York by the operation of Fort Martin
Power Station. At this time, the Company and its subsidiaries are not able to
determine what effect, if any, these actions threatened by the Attorneys General
of New York and Connecticut may have on them.

In the normal course of business, the Company and its subsidiaries become
involved in various legal proceedings. The Company and its subsidiaries do not
believe that the ultimate outcome of these proceedings will have a material
effect on their financial position.

Leases  The Company's lease obligations as of December 31, 1999, and 1998 were
not material.

REPORT OF MANAGEMENT

The management of the Company is responsible for the information and
representations in the Company's financial statements. The Company prepares the
financial statements in accordance with generally accepted accounting principles
based upon available facts and circumstances and management's best estimates and
judgments of known conditions.

The Company maintains an accounting system and related system of internal
controls designed to provide reasonable assurance that the financial records are
accurate and that the Company's assets are protected. The Company's staff of
internal auditors conducts periodic reviews designed to assist management in
maintaining the effectiveness of internal control procedures.
PricewaterhouseCoopers LLP, an independent accounting firm, audits the financial
statements and expresses its opinion on them. The independent accountants
perform their audit in accordance with generally accepted auditing standards.

The Audit Committee of the Board of Directors, which consists of three outside
Directors, meets periodically with management, internal auditors, and
PricewaterhouseCoopers LLP to review the activities of each in discharging their
responsibilities. The internal audit staff and PricewaterhouseCoopers LLP have
free access to all of the Company's records and to the Audit Committee.

Alan J. Noia

Chairman, President, and Chief Executive Officer

Michael P. Morrell

Senior Vice President and Chief Financial Officer


                                         F-29

<PAGE>
                                                    Monongahela Power Company




REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and the Shareholder
of Monongahela Power Company

In our opinion, the accompanying balance sheets, statements of
capitalization and the related statements of income, of retained
earnings and of cash flows present fairly, in all material
respects, the financial position of Monongahela Power Company (a
subsidiary of Allegheny Energy, Inc.) at December 31, 1999 and
1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the
United States.  These financial statements are the responsibility
of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.  We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed
above.



PricewaterhouseCoopers LLP



Pittsburgh, Pennsylvania
February 3, 2000

                                         F-30


<PAGE>
                                                    Monongahela Power Company



STATEMENT OF INCOME

<TABLE>

<CAPTION>

                                                                        YEAR ENDED DECEMBER 31
(Thousands of Dollars)                                               1999        1998        1997

<S>                                                               <C>          <C>         <C>
Electric Operating Revenues:
  Residential.....................................................$210,757     $200,896    $199,931
  Commercial...................................................... 130,052      126,464     118,825
  Industrial...................................................... 217,792      208,613     196,716
  Wholesale and other, including affiliates.......................  96,184       89,396      95,579
  Bulk power transactions, net....................................  18,550       19,753      17,260
    Total Operating Revenues...................................... 673,335      645,122     628,311

Operating Expenses:
  Operation:
    Fuel.......................................................... 145,236      143,993     141,340
    Purchased power and exchanges, net............................  98,774       95,617      98,266
    Deferred power costs, net.....................................  10,930       (8,452)    (10,027)
    Other.........................................................  90,625       82,637      75,908
  Maintenance.....................................................  63,993       67,033      70,561
  Depreciation and amortization...................................  60,905       58,610      56,593
  Taxes other than income taxes...................................  43,395       44,742      38,776
  Federal and state income taxes..................................  40,440       49,456      47,519
    Total Operating Expenses...................................... 554,298      533,636     518,936
    Operating Income.............................................. 119,037      111,486     109,375

Other Income and Deductions:
  Allowance for other than borrowed funds used during
    construction..................................................   1,059          376         570
  Other income, net...............................................   6,119        6,049       8,498
    Total Other Income and Deductions.............................   7,178        6,425       9,068
    Income Before Interest Charges................................ 126,215      117,911     118,443

Interest Charges:
  Interest on long-term debt......................................  31,963       32,363      36,076
  Other interest..................................................   2,640        3,790       2,654
  Allowance for borrowed funds used during construction...........    (715)        (667)       (816)
    Total Interest Charges........................................  33,888       35,486      37,914

Net Income........................................................$ 92,327     $ 82,425    $ 80,529


</TABLE>

STATEMENT OF RETAINED EARNINGS

<TABLE>

<CAPTION>


<S>                                                               <C>          <C>         <C>

Balance at January 1..............................................$273,197     $243,939    $215,221
Add:
  Net income......................................................  92,327       82,425      80,529

                                                                   365,524      326,364     295,750

Deduct:
  Dividends on capital stock:
    Preferred stock...............................................   5,037        5,037       5,037
    Common stock..................................................  78,527       48,130      46,774
      Total Deductions............................................  83,564       53,167      51,811

Balance at December 31............................................$281,960     $273,197    $243,939


</TABLE>
See accompanying notes to financial statements.


                                         F-31



<PAGE>



                                                   Monongahela Power Company



STATEMENT OF CASH FLOWS

<TABLE>

<CAPTION>



                                                                        YEAR ENDED DECEMBER 31
(Thousands of Dollars                                                1999        1998*        1997*

<S>                                                               <C>          <C>         <C>
Cash Flows from Operations:
  Net income...................................................... $ 92,327    $ 82,425    $ 80,529
  Depreciation and amortization...................................   60,905      58,610      56,593
  Deferred investment credit and income taxes, net................    4,701      14,827      18,139
  Deferred power costs, net.......................................   10,930      (8,452)    (10,027)
  Unconsolidated subsidiaries' dividends in excess of earnings....    2,972       9,301         988
  Allowance for other than borrowed funds used during
    construction..................................................   (1,059)       (376)       (570)
  Internal restructuring liability................................      -          (236)    (13,761)
  Write-off of generation project costs...........................    4,213         -           -
  Changes in certain current assets and liabilities:
    Accounts receivable, net......................................  (68,344)     (8,044)     (5,516)
    Materials and supplies........................................      354      (3,929)      1,878
    Accounts payable..............................................   69,751      12,249      (7,260)
    Prepayment....................................................  (10,000)        -           -
  Other, net......................................................    2,724       4,410      (3,857)

                                                                    169,474     160,785     117,136

Cash Flows from Investing:
  Construction expenditures (less allowance for other than
    borrowed funds used during construction)......................  (81,424)    (72,419)    (77,569)
  Acquisition of businesses.......................................  (96,597)        -          -

                                                                   (178,021)    (72,419)    (77,569)
Cash Flows from Financing:
  Issuance of long-term debt......................................  117,013      85,918         -
  Retirement of long-term debt....................................      -      (111,690)    (15,500)
  Funds on deposit with trustees..................................   (2,561)        -           -
  Short-term debt, net............................................  (49,000)     (7,829)     28,590
  Notes payable to affiliate......................................   28,650      (1,450)     (1,450)
  Dividends on capital stock:
    Preferred stock...............................................   (5,037)     (5,037)     (5,037)
    Common stock..................................................  (78,527)    (48,129)    (46,774)

                                                                     10,538     (88,217)    (40,171)


Net Change in Cash ...............................................    1,991         149        (604)
Cash at January 1................................................     1,835       1,686       2,290
Cash at December 31..............................................  $  3,826    $  1,835    $  1,686


Supplemental Cash Flow Information:
  Cash paid during the year for:
    Interest (net of amount capitalized).......................... $ 34,076    $ 33,041    $ 36,776
    Income taxes..................................................   42,315      33,361      28,282


</TABLE>

*Certain amounts have been reclassified for comparative purposes.
 See accompanying notes to financial statements.


                                         F-32



<PAGE>



                                                   Monongahela Power Company

<PAGE>

BALANCE SHEET

<TABLE>

<CAPTION>


(Thousands of Dollars)                                                   DECEMBER 31

                                                                     1999          1998*
ASSETS

<S>                                                               <C>          <C>

Property, Plant, and Equipment:
  Utility plant................................................  $2,126,482     $1,963,473
  Nonutility plant.............................................         983            746
  Construction work in progress................................      46,138         43,657

                                                                  2,173,603      2,007,876
  Accumulated depreciation.....................................    (958,867)      (883,915)
                                                                  1,214,736      1,123,961
Investments and Other Assets:
  Allegheny Generating Company--common stock at equity.........      41,713         44,624
  Excess of cost over net assets acquired......................      26,325

Other..........................................................         170            231
                                                                     68,208         44,855
Current Assets:

  Cash...........................................................     3,826          1,835
  Accounts receivable:
    Electric service...........................................      78,977         70,809
    Affiliated and other.......................................      87,345         25,552
    Allowance for uncollectible accounts.......................      (4,133)        (2,516)
  Materials and supplies--at average cost:
    Operating and construction.................................      22,127         21,942

    Fuel.........................................................    16,049         16,588
  Prepaid taxes................................................      23,320         19,627
  Other, including current portion of regulatory assets........       4,708         10,153

                                                                    232,219        163,990
Deferred Charges:
  Regulatory assets............................................     145,176        154,882
  Unamortized loss on reacquired debt..........................      16,810         17,826

Other..........................................................      16,569         14,250

                                                                    178,555        186,958
Total..........................................................  $1,693,718     $1,519,764


CAPITALIZATION AND LIABILITIES

Capitalization:
  Common stock, other paid-in capital, and retained earnings...  $  578,951     $  570,188
  Preferred stock..............................................      74,000         74,000
  Long-term debt and QUIDS.....................................     503,741        453,917

                                                                  1,156,692      1,098,105
Current Liabilities:
  Short-term debt..............................................                     49,000
  Notes payables to affiliate..................................      28,650
  Long-term debt due within one year...........................      65,000
  Accounts payable.............................................      40,016         12,646
  Accounts payable to affiliates...............................      67,312         24,931
  Taxes accrued:
    Federal and state income...................................       2,260          6,277

    Other......................................................      24,235         23,192
  Interest accrued.............................................       5,883          7,692

  Other........................................................      11,647          9,438

                                                                    245,003        133,176
Deferred Credits and Other Liabilities:
  Unamortized investment credit................................      14,007         16,155
  Deferred income taxes........................................     248,987        247,230
  Regulatory liabilities.......................................      13,961         15,476

  Other........................................................      15,068          9,622

                                                                    292,023        288,483
Commitments and Contingencies (Note L)
Total..........................................................  $1,693,718     $1,519,764

</TABLE>

*Certain amounts have been reclassified for comparative purposes.
 See accompanying notes to financial statements.


                                         F-33



<PAGE>


                                                    Monongahela Power Company


STATEMENT OF CAPITALIZATION

<TABLE>

<CAPTION>

                                                                                 DECEMBER 31
                                                                     1999       1998         1999      1998
                                                                 (Thousands of Dollars)  (Capitalization Ratios)

Common Stock:
  Common stock--par value $50 per share, authorized

<S>                                                             <C>          <C>

    8,000,000 shares, outstanding 5,891,000 shares....          $  294,550   $  294,550
  Other paid-in capital...............................               2,441        2,441
  Retained earnings...................................             281,960      273,197
      Total...........................................             578,951      570,188     50.0%     51.9%

Preferred Stock:
  Cumulative preferred stock--par value $100 per share,
    authorized 1,500,000 shares, outstanding as follows:

                   December 31, 1999
                                Regular
                  Shares      Call Price    Date of
    Series     Outstanding    Per Share      Issue
    4.40% ....    90,000        $106.50       1945                   9,000        9,000
    4.80% B...    40,000         105.25       1947                   4,000        4,000
    4.50% C...    60,000         103.50       1950                   6,000        6,000
    $6.28 D...    50,000         102.86       1967                   5,000        5,000
    $7.73 L...   500,000         100.00       1994                  50,000       50,000
      Total (annual dividend requirements $5,037)                   74,000       74,000       6.4      6.8

Long-Term Debt and QUIDS:
  First mortgage    Date of        Date       Date
  bonds:             Issue      Redeemable    Due
    5-5/8% ...        1993         2000       2000                  65,000       65,000
    7-3/8% ...        1992         2002       2002                  25,000       25,000
    7-1/4% ...        1992         2002       2007                  25,000       25,000
    8-5/8% ...        1991         2001       2021                  50,000       50,000
    8-3/8% ...        1992         2002       2022                  40,000       40,000
    7-5/8% ...        1995         2005       2025                  70,000       70,000

                                   December 31, 1999
                                     Interest Rate
  Quarterly Income Debt Securities
    due 2025......................         8.00%                    40,000       40,000
  Secured notes due 2007-2029.....     4.70%-6.875%                 81,750       74,050
  Unsecured notes due 2002-2012...     4.35%-5.10%                   6,060        6,060
  Installment purchase
    obligations due 2003..........        4.50%                     19,100       19,100
  Medium-term debt due 2003-2010..     5.56%-7.36%                 153,475       43,475
  Unamortized debt discount and premium, net..........              (4,083)      (3,768)
      Total (annual interest requirements $40,018)                 571,302      453,917
  Less amounts on deposit with trustees...............              (2,561)
  Less current maturities.............................             (65,000)
      Total...........................................             503,741      453,917      43.6          41.3

Total Capitalization..................................          $1,156,692   $1,098,105     100.0%        100.0%

</TABLE>


See accompanying notes to financial statements.


                                         F-34



<PAGE>

                                                    Monongahela Power Company


NOTES TO FINANCIAL STATEMENTS
(These notes are an integral part of the financial statements.)


NOTE A:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Monongahela Power Company (the Company) is a wholly owned
subsidiary of Allegheny Energy, Inc. (Allegheny Energy) and is a
part of the Allegheny Energy integrated electric utility system
(the System).  The Company and its utility affiliates, The
Potomac Edison Company and West Penn Power Company, collectively
now doing business as Allegheny Power, are engaged in the
generation (except West Penn), purchase, transmission,
distribution, and sale of electric energy.  The Company operates
as a single utility segment in the states of West Virginia and
Ohio.

Certain amounts in the December 31, 1998, balance sheets and in
the December 31, 1998, and 1997 statement of cash flows have been
reclassified for comparative purposes.

The Company is subject to regulation by the Securities and
Exchange Commission (SEC), the Public Service Commission of West
Virginia (W.Va. PSC), the Public Utilities Commission of Ohio
(Ohio PUC), and by the Federal Energy Regulatory Commission
(FERC).  Significant accounting policies of the Company are
summarized below.


Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates that affect the reported amounts of assets,
liabilities, revenues, expenses, and disclosures of contingencies
during the reporting period, which in the normal course of
business are subsequently adjusted to actual results.

Revenues
Revenues, including amounts resulting from the application of
fuel and energy cost adjustment clauses, are recognized in the
same period in which the related electric services are provided
to customers.

Deferred Power Costs, Net
The costs of fuel, purchased power, and certain other costs, and
revenues from sales to other utilities and power marketers,
including transmission services, are deferred until they are
either recovered from or credited to customers under fuel and
energy cost-recovery procedures in West Virginia and Ohio.

Property, Plant, and Equipment
Property, plant, and equipment, including facilities owned with
affiliates in the System, are stated at original cost, less
contributions in aid of construction, except for capital leases,
which are recorded at present value. Costs include direct labor
and material; allowance for funds used during construction
(AFUDC) on property for which construction work in progress is
not included in rate base; and indirect costs such as
administration, maintenance, and depreciation of transportation
and construction equipment,


                                         F-35

postretirement benefits, taxes, and other benefits related to
employees engaged in construction.

The cost of depreciable property units retired, plus removal
costs less salvage, are charged to accumulated depreciation.

<PAGE>

                                                    Monongahela Power Company


The Company capitalizes the cost of software developed for
internal use.  These costs are amortized on a straight-line basis
over a five-year period beginning upon a project's completion.

Allowance for Funds Used During Construction (AFUDC)
AFUDC, an item that does not represent current cash income, is
defined in applicable regulatory systems of accounts as including
"the net cost for the period of construction of borrowed funds
used for construction purposes and a reasonable rate on other
funds when so used."  AFUDC is recognized as a cost
of property, plant, and equipment.  Rates used for computing
AFUDC in 1999, 1998, and 1997 were 8.26%, 6.56%, and 7.55%,
respectively.  AFUDC is not included in the cost of construction
when the cost of financing the construction is being recovered
through rates.

Depreciation and Maintenance
Depreciation expense is determined generally on a straight-line
method based on estimated service lives of depreciable properties
and amounted to approximately 3.1% of average depreciable
property in each of the years 1999, 1998, and 1997.  The cost of
maintenance and of certain replacements of property, plant, and
equipment is charged principally to operating expense when
incurred.

Investments
The Company records the acquisition cost in excess of net assets
acquired as an investment in goodwill.  Goodwill related to the
acquisition of West Virginia Power Company in December 1999 will
be amortized over 40 years.

Temporary Cash Investments
For purposes of the statement of cash flows, temporary cash
investments with original maturities of three months or less,
generally in the form of commercial paper, certificates of
deposit, and repurchase agreements, are considered to be the
equivalent of cash.

Regulatory Assets and Liabilities
In accordance with the Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation," the
Company's financial statements include certain assets and
liabilities resulting from cost-based ratemaking regulation.

Income Taxes
The Company joins with its parent and affiliates in filing a
consolidated federal income tax return.  The consolidated tax
liability is allocated among the participants generally in
proportion to the taxable income of each participant, except that
no subsidiary pays tax in excess of its separate return tax
liability.

                                         F-36



Financial accounting income before income taxes differs from
taxable income principally because certain income and deductions
for tax purposes are recorded in the financial income statement
in another period.  Deferred tax assets and liabilities represent
the tax effect of temporary differences between the financial
statement and tax basis of assets and liabilities computed using
the most current tax rates.

The Company has deferred the tax benefit of investment tax
credits.  Investment tax credits are amortized over the estimated
service lives of the related properties.


<PAGE>


                                                    Monongahela Power Company


Postretirement Benefits
All of the employees of Allegheny Energy are employed by
Allegheny Energy Service Corporation (AESC), which performs
services at cost for the Company and its affiliates in accordance
with the Public Utility Holding Company Act of 1935 (PUHCA).
Through AESC, the Company is responsible for its proportionate
share of postretirement benefit costs.  AESC provides a
noncontributory, defined benefit pension plan covering
substantially all employees, including officers.  Benefits are
based on the employee's years of service and compensation.  The
funding policy is to contribute annually at least the minimum
amount required under the Employee Retirement Income Security Act
and not more than can be deducted for federal income tax
purposes.  Plan assets consist of equity securities, fixed income
securities, short-term investments, and insurance contracts.

AESC also provides partially contributory medical and life
insurance plans for eligible retirees and dependents.  Medical
benefits, which make up the largest component of the plans, are
based upon an age and years-of-service vesting schedule and other
plan provisions.  Subsidized medical coverage is not provided in
retirement to employees hired on or after January 1, 1993.  The
funding policy is to contribute the maximum amount that can be
deducted for federal income tax purposes.  Funding of these
benefits is made primarily into Voluntary Employee Beneficiary
Association trust funds.  Medical benefits are self-insured.  The
life insurance plan is paid through insurance premiums.

Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," effective for
1998, established standards for reporting comprehensive income
and its components (revenues, expenses, gains, and losses) in the
financial statements.  The Company does not have any elements of
other comprehensive income to report in accordance with SFAS No.
130.


NOTE B:  ACQUISITIONS

In December 1999, the Company acquired the assets of West
Virginia Power for approximately $95 million.  The acquisition
increased property, plant, and equipment and accumulated
depreciation by $105.0 million and $35.4 million, respectively.
Also, $26.3 million was recorded as the excess of cost over net
assets acquired.

                                         F-37


In December 1999, the Company agreed to acquire Mountaineer Gas
Company for $323 million, which includes the assumption of
approximately $100 million of existing debt.  Completion of the
transaction is conditioned upon, among other things, certain
regulatory approvals which may be obtained by mid-2000.


<PAGE>

                                                    Monongahela Power Company



NOTE C:  INCOME TAXES

Details of federal and state income tax provisions are:


(Thousands of Dollars)                       1999         1998         1997

Income taxes--current:
  Federal.............................    $27,391      $26,457       $21,812
  State...............................      8,637        8,135         7,455
    Total.............................     36,028       34,592        29,267
Income taxes--deferred, net of
  amortization........................      6,849       16,971        20,287
Amortization of deferred
  investment credit...................     (2,148)      (2,144)       (2,148)
    Total income taxes................     40,729       49,419        47,406
Income taxes--(charged) credited to
  other income and deductions.........       (289)          37           113
Income taxes--charged to operating
  income..............................    $40,440      $49,456       $47,519



The total provision for income taxes is different from the amount
produced by applying the federal income statutory tax rate to
financial accounting income, as set forth below:

<TABLE>

<CAPTION>

(Thousands of Dollars)                       1999         1998         1997

<S>                                      <C>          <C>           <C>

Income before income taxes............   $132,769     $131,881      $128,048
Amount so produced....................   $ 46,469     $ 46,158      $ 44,817
Increased (decreased) for:
  Tax deductions for which deferred
    tax was not provided:
      Lower tax depreciation..........      1,077        1,800         5,000
      Plant removal costs.............     (2,935)      (2,600)       (2,400)
  State income tax, net of federal
    income tax benefit................      4,968        4,400         3,600
  Amortization of deferred
    investment credit.................     (2,148)      (2,144)       (2,148)
  Equity in earnings of subsidiaries..     (1,984)      (2,100)       (3,000)
  Other, net..........................     (5,007)       3,942         1,650
    Total.............................   $ 40,440     $ 49,456      $ 47,519

</TABLE>


Federal income tax returns through 1995 have been examined and
substantially settled.

                                         F-38


<PAGE>


                                                    Monongahela Power Company


At December 31, the deferred tax assets and liabilities consisted
of the following:

<TABLE>

<CAPTION>



(Thousands of Dollars)                                   1999         1998

Deferred tax assets:
  <S>                                                  <C>         <C>
  Unamortized investment tax credit...............     $ 9,264     $ 10,779
  Tax interest capitalized........................       4,216        4,269
  Contributions in aid of construction............       3,069        2,810
  Advances for construction.......................       2,024        2,097
  Internal restructuring..........................       1,810        1,810
  Deferred power costs, net.......................       2,254
  Other...........................................      16,280       14,358
                                                        38,917       36,123
Deferred tax liabilities:
  Book vs. tax plant basis differences, net.......     248,801      244,432
  Other...........................................      36,842       38,420
                                                       285,643      282,852

Total net deferred tax liabilities................     246,726      246,729
Portion above included in current assets..........       2,261          501
  Total long-term net deferred tax liabilities....    $248,987     $247,230

</TABLE>


NOTE D:  DIVIDEND RESTRICTION

Supplemental indentures relating to certain outstanding bonds of
the Company contain dividend restrictions under the most
restrictive of which $76,384,000 of the Company's retained
earnings at December 31, 1999, is not available for cash
dividends on common stock, except that a portion thereof may be
paid as cash dividends where concurrently an equivalent amount of
cash is received by the Company as a capital contribution or as
the proceeds of the issue and sale of shares of its common stock.

NOTE E:  ALLEGHENY GENERATING COMPANY

The Company owns 27% of the common stock of Allegheny Generating
Company (AGC), and affiliates of the Company own the remainder.
AGC is reported by the Company in its financial statements using
the equity method of accounting. AGC owns an undivided 40%
interest, 840 MW, in the 2,100-MW pumped-storage hydroelectric
station in Bath County, Virginia, operated by the 60% owner,
Virginia Electric and Power Company, a nonaffiliated utility.

AGC recovers from the Company and its affiliates all of its
operation and maintenance expenses, depreciation, taxes, and a
return on its investment under a wholesale rate schedule approved
by the FERC.  AGC's rates are set by a formula filed with and
previously accepted by the FERC.  The only component which
changes is the return on equity (ROE).  Pursuant to a settlement
agreement filed April 4, 1996, with the FERC, AGC's ROE was set
at 11% for 1996 and will continue until the time any affected
party seeks renegotiation of the ROE.


                                         F-39


<PAGE>




                                                    Monongahela Power Company


Following is a summary of financial information for AGC:

<TABLE>

<CAPTION>

                                                         December 31
(Thousands of Dollars)                               1999          1998

Balance sheet information:
  <S>                                              <C>           <C>
  Property, plant, and equipment...............    $601,717      $618,608
  Current assets...............................       7,261         5,857
  Deferred charges.............................      11,905        14,993
    Total assets...............................    $620,883      $639,458

  Total capitalization.........................    $303,422      $314,105
  Current liabilities..........................      65,463        75,849
  Deferred credits.............................     251,998       249,504
    Total capitalization and liabilities.......    $620,883      $639,458

</TABLE>


<TABLE>

<CAPTION>

                                                Year Ended December 31
     (Thousands of Dollars)                1999          1998         1997

Income statement information:
  <S>                                     <C>          <C>          <C>
  Electric operating revenues.........    $70,592      $73,816      $76,458
  Operation and maintenance expense...      5,023        4,592        4,877
  Depreciation........................     16,980       16,949       17,000
  Taxes other than income taxes.......      4,510        4,662        4,835
  Federal income taxes................      9,997       10,959       11,213
  Interest charges....................     13,261       13,987       15,391
  Other income, net...................       (394)         (86)      (9,126)
    Net income........................    $21,215      $22,753      $32,268


</TABLE>


The Company's share of the equity in earnings was $5.7 million,
$6.1 million, and $8.7 million for 1999, 1998, and 1997,
respectively, and is included in other income, net, on the
Company's Statement of Income.

NOTE F:  POSTRETIREMENT BENEFITS

As described in Note A, the Company is responsible for its
proportionate share of the cost of the pension plan and medical
and life insurance plans for eligible employees and dependents
provided by AESC.  The Company's share of the (credits) costs of
these plans, a portion of which (approximately 35%) was credited
or charged to plant construction, is shown below:

<TABLE>

<CAPTION>

(Thousands of Dollars)                       1999        1998       1997

<S>                                        <C>         <C>       <C>
Pension................................    $(1,037)    $  (356)  $(1,754)
Medical and life insurance.............    $ 4,806     $ 5,421   $ 3,706


                                         F-40



</TABLE>




                                                    Monongahela Power Company


NOTE G:  REGULATORY ASSETS AND LIABILITIES

The Company's operations are subject to the provisions of SFAS
No. 71.  Regulatory assets represent probable future revenues
associated with deferred costs that are expected to be recovered
from customers through the ratemaking process.  Regulatory
liabilities represent probable future reductions in revenues
associated with amounts that are to be credited to customers
through the ratemaking process.  Regulatory assets, net of
regulatory liabilities, reflected in the Balance Sheet at
December 31 relate to:

<TABLE>

<CAPTION>

(Thousands of Dollars)                                 1999       1998

Long-term assets (liabilities), net:
  <S>                                                <C>        <C>
  Income taxes, net..............................    $124,028   $130,878
  Postretirement benefits........................       4,937      4,937
  Storm damage...................................                  1,047
  Other, net.....................................       2,250      2,544
    Subtotal.....................................     131,215    139,406
Current assets (liabilities), net (reported in
     other current assets/liabilities):
  Income taxes, net..............................       1,847      1,847
  Deferred power costs, net......................      (5,021)     6,878
    Subtotal.....................................      (3,174)     8,725
      Net Regulatory Asset......................     $128,041   $148,131

</TABLE>


Future deregulation proceedings in West Virginia and Ohio may
affect the ratemaking treatment of the net regulatory assets
related to generation in these jurisdictions.  At this time, the
Company cannot determine the effect of deregulation plans in West
Virginia and Ohio.

NOTE H:  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair value of financial
instruments at December 31 were as follows:

<TABLE>

<CAPTION>

                                    1999                     1998
                            Carrying       Fair       Carrying      Fair
(Thousands of Dollars)       Amount        Value       Amount      Value

Liabilities:
  <S>                       <C>          <C>          <C>        <C>
  Short-term debt.......    $ 28,650     $ 28,650     $ 49,000   $ 49,000
  Long-term debt and
    QUIDS...............     575,385      547,872      457,685    483,695

</TABLE>

The carrying amount of short-term debt approximates the fair
value because of the short maturity of those instruments.  The
fair value of long-term debt and QUIDS was estimated based on
actual market prices or market prices of similar issues.  The
Company had no financial instruments held or issued for trading
purposes.


                                         F-41

<PAGE>


                                                    Monongahela Power Company


NOTE I:  CAPITALIZATION

Preferred Stock
All of the preferred stock is entitled on voluntary liquidation
to its then current call price and on involuntary liquidation to
$100 a share.

Long-Term Debt and QUIDS
Maturities for long-term debt in thousands of dollars for the
next five years are: 2000, $65,000; 2001, none; 2002, $27,060;
2003, $62,575; and 2004, none. Substantially all of the
properties of the Company are held subject to the lien securing
its first mortgage bonds.  Some properties are also subject to a
second lien securing certain pollution control and solid waste
disposal notes. Certain first mortgage bonds series are not
redeemable by certain refunding until dates established in the
respective supplemental indentures.

NOTE J:  SHORT-TERM DEBT

To provide interim financing and support for outstanding
commercial paper, the Company has established lines of
credit with several banks.  The Company has SEC authorization for
total short-term borrowings of $106 million, including money pool
borrowings described below.  The Company has fee arrangements on
all of its lines of credit and no compensating balance
requirements.  In addition to bank lines of credit, an Allegheny
Energy internal money pool accommodates intercompany short-term
borrowing needs, to the extent that certain of the regulated
companies have funds available.  Short-term debt outstanding for
1999 and 1998 consisted of:

<TABLE>

<CAPTION>

(Thousands of Dollars)                          1999            1998

Balance and interest rate
  at end of year:

    <S>                                    <C>              <C>

    Notes Payable to Banks.............                     $49,000-5.40%
    Money Pool.........................    $28,650-4.88%
Average amount outstanding and
  interest rate during the year:
    Commercial Paper...................      1,156-4.79%     12,900-5.66%
    Notes Payable to Banks.............      5,636-5.05%     21,793-5.60%
    Money Pool.........................      2,009-5.05%      3,764-5.46%


</TABLE>


NOTE K:  RELATED PARTY TRANSACTION

All of the employees of Allegheny Energy are employed by AESC,
which performs services at cost for the Company and its
affiliates in accordance with the PUHCA. Through AESC, the
Company is responsible for its proportionate share of services
provided by AESC.  The total billings by AESC (including capital)
to the Company for each of the years of 1999, 1998, and 1997 were
$115.4 million, $95.6 million, and $78.8 million, respectively.  The
Company buys power from and sells power to its affiliates at tariff
rates approvd by the FERC.


                                         F-42

<PAGE>
                                                    Monongahela Power Company


NOTE L:  COMMITMENTS AND CONTINGENCIES

Construction Program
The Company has entered into commitments for its construction
programs, for which expenditures are estimated to be $75 million
for 2000 and $72 million for 2001.  In addition, in 2000, the
Company plans to purchase Mountaineer Gas Company for
approximately $323 million (which includes the assumption of
approximately $100 million in existing debt).  Construction
expenditure levels

<PAGE>
                                                    Monongahela Power Company


in 2002 and beyond will depend upon, among other things, the
strategy eventually selected for complying with Phase II of the
Clean Air Act Amendments of 1990 (CAAA) and the extent to which
environmental initiatives currently being considered become
mandated.  The Company estimates that its banked emission
allowances will allow it to comply with Phase II sulfur dioxide
(SO2) limits through 2005.  Studies to evaluate cost-effective
options to comply with Phase II SO2 limits beyond 2005, including
those available in connection with the emission allowance trading
market, are continuing.

West Virginia and Ohio Restructuring Activities

In March 1998, legislation was passed by the West Virginia
Legislature that directed the W.Va. PSC to meet with all
interested parties to develop a restructuring plan which would
meet the dictates and goals of the legislation. Interested
parties formed a Task Force that met during 1998, but the Task
Force was unable to reach a consensus on a model for
restructuring.  The W.Va. PSC held hearings in August 1999 that
addressed certification, licensing, bonding, reliability,
universal service, consumer protection, code of conduct,
subsidies, and stranded costs.  The W.Va. PSC on December 20,
1999, released for comment and hearings a modified version of a
proposal submitted by members of the Task Force, including the
Company and its affiliate, Potomac Edison, following the August
1999 hearings that could open full retail competition as early as
January 1, 2001.  The production of power would be deregulated
and electricity rates would be frozen for four years with rates
gradually  transitioning to market rates over the six years
thereafter.  After hearings in January 2000, the W.Va. PSC
submitted a restructuring plan endorsed by members of the Task
Force, including the Company and Potomac Edison, to the
Legislature for approval.

On June 22, 1999, the Ohio General Assembly passed legislation to
restructure the electric utility industry.  The Governor of Ohio
added his signature soon thereafter, and all of the state's
customers will be able to choose their electricity supplier
starting January 1, 2001, beginning a five-year transition to
market rates.  Total electric rates will be frozen over that
period, and residential customers are guaranteed a 5% cut in the
generation portion of their rate.  The determination of stranded
cost recovery will be handled by the Ohio PUC.  On January 3,
2000, the Company filed a transition plan with the Ohio PUC,
including its claim for recovery of stranded costs of $21.3
million.  The Ohio PUC is expected to hold hearings on the
Company's transition plan filing and issue a decision by October
2000.

The Ohio legislation stipulates that an entity independent of the
utilities shall own or control transmission facilities after the
start of competitive retail electric service on January 1, 2001,
but not later than December 31, 2003.  Customer protections were
kept intact with a low-income assistance plan and a one-time
forgiveness of past debts for low-income and handicapped


                                         F-43

<PAGE>
                                                    Monongahela Power Company

customers.  In regard to renewable energy, the bill requires that
electric generators purchase excess electricity from small
businesses and homes using renewable energy sources.

In 1997, the Emerging Issues Task Force (EITF) issued EITF No.
97-4, "Deregulation of the Pricing of Electricity-Issues Related
to the Application of FASB Statement Nos. 71 and 101."  The EITF
agreed that, when a rate order that contains sufficient detail
for the enterprise to reasonably determine how the transition
plan will affect the separable portion of its business whose
pricing is being deregulated is issued, the entity should cease
to apply SFAS No. 71 to that separable portion of its business.


<PAGE>

                                                    Monongahela Power Company


At this time, the Company cannot determine the effect of
deregulation plans that may be approved in West Virginia or Ohio.
However, the approval of deregulation plans could have a material
impact on the Company regarding potential impairment of electric
generation assets and the Company's ability to recover generation-
related regulatory assets.

Environmental Matters and Litigation
The Company is subject to various laws, regulations, and
uncertainties as to environmental matters.  Compliance may
require the Company to incur substantial additional costs to
modify or replace existing and proposed equipment and facilities
and may adversely affect the cost of future operations.

The Environmental Protection Agency (EPA) issued its final
regional nitrogen oxides (NOx) State Implementation Plan (SIP)
call rule on September 24, 1998. The EPA's SIP call rule found
that 22 eastern states (including Maryland, Pennsylvania, and
West Virginia) and the District of Columbia are all contributing
significantly to ozone nonattainment in downwind states.  The
final rule declares that this downwind nonattainment will be
eliminated (or sufficiently mitigated) if the upwind states
reduce their NOx emissions by an amount that is precisely set by
the EPA on a state-by-state basis.  The final SIP call rule
requires that all state-adopted NOx reduction measures must be
incorporated into SIPs by September 1999, and must be implemented
by May 1, 2003.  However, the EPA's NOx SIP call regulation is
currently under litigation in the District of Columbia Circuit
Court of Appeals, and a decision is expected by Spring 2000.  The
Company's compliance with these requirements would require the
installation of post-combustion control technologies on most, if
not all, of its power stations at a cost of approximately $99
million.  The Company continues to work with other coal-burning
utilities and other affected constituencies in coal-producing
states to challenge this EPA action.

On March 4, 1994, the Company and its regulated affiliates
received notice that the EPA had identified them as potentially
responsible parties (PRPs) under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended,
with respect to a Superfund Site.  There are approximately 175
other PRPs involved.  A final determination has not been made for
the Company and its regulated affiliates' share of


                                         F-44

<PAGE>
                                                    Monongahela Power Company

the remediation costs based on the amount of materials sent to the
site.  However, the Company and its regulated affiliates estimate
that their combined share of the cleanup liability will not
exceed $1 million, which has been accrued by the Company and its
regulated affiliates as a liability at December 31, 1999.

The Company and its regulated affiliates have also been named as
defendants, along with multiple other defendants, in pending
asbestos cases involving multiple plaintiffs.  While the Company
believes that all of the cases are without merit, the Company
cannot predict the outcome of the litigation.  The Company has
accrued a reserve of $2.2 million as of December 31, 1999,
related to the asbestos cases as the potential cost to settle the
cases to avoid the anticipated cost of defense.

The Attorney General of the State of New York and the Attorney
General of the State of Connecticut in their letters dated
September 15, 1999, and November 3, 1999, respectively, notified
Allegheny Energy of their intent to commence civil actions
against Allegheny Energy or certain of its subsidiaries alleging
violations at the Fort Martin Power Station under the federal
Clean Air Act, which requires existing power plants that make
major modifications to comply


<PAGE>

                                                    Monongahela Power Company


with the same emission standards applicable to new power plants.
Similar actions may be commenced by other governmental
authorities in the future.  Fort Martin is a station located in
West Virginia and is now jointly owned by the Company and its
affiliates, Allegheny Energy Supply Company and Potomac Edison.
Both Attorneys General stated their intent to seek injunctive
relief and penalties.  In addition, the Attorney General of the
State of New York in
his letter indicated that he may assert claims under State common
law of public nuisance seeking to recover, among other things,
compensation for alleged environmental damage caused in New York
by the operation of Fort Martin Power Station.  At this time,
Allegheny Energy and its subsidiaries are not able to determine
what effect, if any, these actions threatened by the Attorneys
General of New York and Connecticut may have on them.

In the normal course of business, the Company becomes involved in
various legal proceedings.  The Company does not believe that the
ultimate outcome of these proceedings will have a material effect
on its financial position.

Leases
The Company's lease obligations as of December 31, 1999, and 1998
were not material.


                                         F-45

<PAGE>
                                                    Monongahela Power Company




REPORT OF MANAGEMENT



The management of the Company is responsible for the information
and representations in the Company's financial statements. The
Company prepares the financial statements in accordance with
generally accepted accounting principles based upon available
facts and circumstances and management's best estimates and
judgments of known conditions.

The Company maintains an accounting system and related system of
internal controls designed to provide reasonable assurance that
the financial records are accurate and that the Company's assets
are protected. The Company's staff of internal auditors conducts
periodic reviews designed to assist management in maintaining the
effectiveness of internal control procedures.
PricewaterhouseCoopers LLP, an independent accounting firm,
audits the financial statements and expresses its opinion on
them. The independent accountants perform their audit in
accordance with generally accepted auditing standards.

The Audit Committee of the Board of Directors, which consists of
three outside Directors, meets periodically with management,
internal auditors, and PricewaterhouseCoopers LLP to review the
activities of each in discharging their responsibilities. The
internal audit staff and PricewaterhouseCoopers LLP have free
access to all of the Company's records and to the Audit
Committee.


Alan J. Noia                                       Michael P.Morrell
Chairman and                                       Vice President and
Chief Executive Officer                            Chief Financial Officer

                                         F-46


<PAGE>

                                                  The Potomac Edison Company



REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and the Shareholder
of The Potomac Edison Company


In our opinion, the accompanying balance sheets, statements of
capitalization and the related statements of income, of retained
earnings and of cash flows present fairly, in all material
respects, the financial position of The Potomac Edison Company (a
subsidiary of Allegheny Energy, Inc.) at December 31, 1999, and
1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.  We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed
above.




PricewaterhouseCoopers LLP


Pittsburgh, Pennsylvania
February 3, 2000

                                         F-47



<PAGE>


                                          The Potomac Edison Company

STATEMENT OF INCOME

<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31
(Thousands of Dollars)
                                                          1999        1998        1997

Electric Operating Revenues:
  <S>                                                   <C>         <C>         <C>
  Residential...........................................$330,299    $309,058    $299,876
  Commercial............................................ 168,469     156,973     148,287
  Industrial............................................ 212,205     206,638     198,174
  Wholesale and other, including affiliates.............. 17,712      38,426      38,857
  Bulk power transactions, net........................... 24,572      26,399      23,587
    Total Operating Revenues.............................753,257     737,494     708,781

Operating Expenses:
  Operation:
    Fuel.................................................138,194     143,124     140,206
    Purchased power and exchanges, net...................127,010     138,277     140,183
    Deferred power costs, net............................ 30,650       1,812      (4,944)
    Other................................................100,299      86,785      83,905
  Maintenance............................................ 57,257      52,186      56,815
  Depreciation and amortization.......................... 75,917      74,344      71,763
  Taxes other than income taxes.......................... 50,924      49,567      47,585
  Federal and state income taxes......................... 37,284      52,603      44,496
    Total Operating Expenses.............................617,535     598,698     580,009
    Operating Income.....................................135,722     138,796     128,772

Other Income and Deductions:
  Allowance for other than borrowed funds used
    during construction..................................    748         597       1,716
  Other income, net......................................  7,770       9,297      13,976
    Total Other Income and Deductions....................  8,518       9,894      15,692
    Income Before Interest Charges and
      Extraordinary Charge.......                        144,240     148,690     144,464

Interest Charges:
  Interest on long-term debt............................. 42,870      46,010      47,659
  Other interest.........................................  2,032       2,177       2,164
  Allowance for borrowed funds used during construction.. (1,245)       (979)     (1,114)
    Total Interest Charges............................... 43,657      47,208      48,709

Income Before Extraordinary
Charge................................................  $100,583    $101,482    $ 95,755

Extraordinary Charge, Net.............................   (16,949)

Net Income............................................  $ 83,634    $101,482    $ 95,755



STATEMENT OF RETAINED EARNINGS

Balance at January 1................................... $312,522    $239,391    $227,726
Add:
  Net income...........................................   83,634     101,482      95,755

                                                         396,156     340,873     323,481
Deduct:
  Dividends on capital stock:
    Preferred stock....................................      545         818         818
    Common stock.......................................  145,055      27,533      83,272
  Cumulative preferred stock redemption premiums.......      524
      Total deductions.................................  146,124      28,351      84,090
Balance at December 31................................. $250,032    $312,522    $239,391

</TABLE>


See accompanying notes to financial statements.


                                         F-48



<PAGE>


                                                  The Potomac Edison Company



STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31
(Thousands of Dollars)
                                                        1999        1998*        1997*

Cash Flows from Operations:
  <S>                                                <C>         <C>          <C>
  Net income.........................................$  83,634   $ 101,482    $ 95,755
  Extraordinary charge, net of taxes.................   16,949         -           -
  Income before extraordinary charge.................  100,583     101,482      95,755
  Depreciation and amortization......................   75,917      74,344      71,763
  Deferred revenues..................................   34,849         -           -
  Deferred investment credit and income taxes, net...  (13,702)      8,682       5,984
  Deferred power costs, net..........................   30,650       1,812      (4,944)
  Unconsolidated subsidiaries'
    dividends in excess of earnings..................    3,080       9,607       1,058
  Allowance for other than borrowed funds used during
    construction.....................................     (748)       (597)     (1,716)
  Internal restructuring liability...................      -        (1,187)    (13,783)
  Write-off of generation project costs..............    5,344         -           -
  Changes in certain current assets and liabilities:
    Accounts receivable, net.........................    5,559       3,185      (1,905)
    Materials and supplies...........................    2,389      (4,462)       (764)
    Accounts payable.................................  (37,429)     14,889       9,826
  Other, net.........................................   (2,629)      8,065      10,020

                                                       203,863     215,820     171,294

Cash Flows from Investing:
  Construction expenditures (less allowance for other
    than borrowed funds used during construction)....  (90,874)    (59,928)    (76,582)

Cash Flows from Financing:
  Retirement of preferred stock......................  (16,902)        -           -
  Issuance of long-term debt.........................    9,300      33,200         -
  Retirement of long-term debt.......................      -       (86,655)       (800)
  Funds on deposit with trustee......................   (3,133)        -
  Short-term debt, net...............................      -           -        (7,497)
  Notes receivable from affiliates...................    9,300      (7,850)     (1,450)
  Notes receivable from subsidiary...................   66,750     (66,750)        -
  Dividends on capital stock:
    Preferred stock..................................     (545)       (818)       (818)
    Common stock..................................... (145,055)    (27,533)    (83,272)

                                                       (80,285)   (156,406)    (93,837)

Net Change in Cash and Temporary Cash Investments....   32,704        (514)        875
Cash at January 1....................................    1,805       2,319       1,444
Cash and temporary cash investments at December 31...$  34,509   $   1,805    $  2,319

Supplemental Cash Flow Information:
  Cash paid during the year for:
    Interest (net of amount capitalized).............$  41,939   $  46,770    $ 47,642
    Income taxes.....................................   54,770      41,132      36,705


</TABLE>


*Certain amounts have been reclassified for comparative purposes.
 See accompanying notes to financial statements.


                                         F-49


<PAGE>


                                                  The Potomac Edison Company

BALANCE SHEET

<TABLE>
<CAPTION>

(Thousands of Dollars)

                                                                     DECEMBER 31
ASSETS
                                                                 1999           1998*
<S>                                                           <C>            <C>
Property, Plant, and Equipment:
  Utility plant...............................................$2,264,783     $2,199,509
  Nonutility plant............................................     3,967          3,854
  Construction work in progress...............................    53,354         46,353
                                                               2,322,104      2,249,716
  Accumulated depreciation....................................  (998,710)      (926,840)

                                                               1,323,394      1,322,876
Investments and Other Assets:
  Allegheny Generating Company--common stock at equity........    43,258         46,277

  Other.........................................................     410            473

                                                                  43,668         46,750
Current Assets:
  Cash and temporary cash investments.........................    34,509          1,805
  Accounts receivable:
    Electric service..........................................    88,789         79,373
    Affiliated and other......................................    27,494         41,138
    Allowance for uncollectible accounts......................    (3,534)        (2,203)
  Notes receivable from affiliate.............................                    9,300
  Notes receivable from subsidiary............................                   66,750
  Materials and supplies--at average cost:
    Operating and construction................................    26,047         29,922
    Fuel......................................................    15,584         14,098
  Prepaid taxes...............................................    15,914         15,727
  Other.......................................................     2,877          1,987

                                                                 207,680        257,897

Deferred Charges:
  Regulatory assets...........................................    46,121         66,792
  Unamortized loss on reacquired debt.........................    14,226         19,012

Other.........................................................     3,762         15,292

                                                                  64,109        101,096
Total.........................................................$1,638,851     $1,728,619


CAPITALIZATION AND LIABILITIES

Capitalization:
  Common stock, other paid-in capital, and retained earnings..$  700,422     $  762,912
  Preferred stock.............................................                   16,378
  Long-term debt and QUIDS....................................   510,344        578,817

                                                              $1,210,766      1,358,107
Current Liabilities:
  Long-term debt due within one year..........................    75,000
  Accounts payable............................................    31,331         35,087
  Accounts payable to affiliates..............................    36,433         70,106
  Taxes accrued:
    Federal and state income..................................     5,861          6,430
    Other.....................................................    19,211         18,922
  Interest accrued............................................     7,321          7,193
  Other.......................................................    33,170          8,770

                                                                 208,327        146,508
Deferred Credits and Other Liabilities:
  Unamortized investment credit...............................    17,720         19,592
  Deferred income taxes.......................................   159,351        182,555
  Regulatory liabilities......................................    25,319         11,233
  Other.......................................................    17,368         10,624

                                                                 219,758        224,004
Commitments and Contingencies (Note L)
Total.........................................................$1,638,851     $1,728,619


</TABLE>

*Certain amounts have been reclassified for comparative purposes.
 See accompanying notes to financial statements.


                                         F-50


<PAGE>


                                                  The Potomac Edison Company


STATEMENT OF CAPITALIZATION

<TABLE>
<CAPTION>

                                                                            DECEMBER 31
                                                               1999     1998              1999     1998
                                                              (Thousands of Dollars)  (Capitalization Ratios)
Common Stock:
    <S>                                                        <C>          <C>           <C>      <C>
  Common stock--no par value, authorized 23,000,000
    shares, outstanding 22,385,000 shares............          $  447,700  $ 447,700
  Other paid-in capital..............................               2,690      2,690
  Retained earnings..................................             250,032    312,522
      Total..........................................             700,422    762,912      57.8%    56.2%

Preferred Stock:
 Cumulative preferred stock-par value $100
    per share, 5,378,611 shares authorized:

</TABLE>


            December 31, 1999

                  Shares       Date of
    Series     Outstanding      Issue
    [S]            [C]          [C]                  [C]              [C]
    3.60% ....     None         1946                 6,378
    $5.88 C...     None         1967                10,000
      Total ........................................16,378            1.2



See Note I for information regarding the redemption
of Cumulative preferred stock.

Long-Term Debt and QUIDS:

<TABLE>
<CAPTION>
  First mortgage    Date of        Date       Date
  bonds:             Issue      Redeemable    Due
    <S>               <C>          <C>        <C>                 <C>         <C>
    5-7/8% ......     1993         2000       2000                75,000      75,000
    8    % ......     1991         2001       2006                50,000      50,000
    8    % ......     1992         2002       2022                55,000      55,000
    7-3/4% ......     1993         2003       2023                45,000      45,000
    8    % ......     1994         2004       2024                75,000      75,000
    7-5/8% ......     1995         2005       2025                80,000      80,000
    7-3/4% ......     1995         2005       2025                65,000      65,000

</TABLE>



                                   December 31, 1999
                                     Interest Rate

<TABLE>
<CAPTION>

  Quarterly Income Debt Securities
    <S>                               <C>                         <C>         <C>         <C>      <C>
    due 2025........................      8.00%                   45,457      45,457
  Secured notes due 2007-2029.......  4.70%-6.875%               101,000      91,700
  Unsecured note due 2002...........      4.35%                    3,200       3,200
  Unamortized debt discount..........................             (6,180)     (6,540)
      Total (annual interest requirements $43,037)...            588,477     578,817
  Less current maturities............................            (75,000)
  Less amounts on deposit with trustee...............             (3,133)
    Total............................................            510,344     578,817      42.2     42.6

Total Capitalization.................................         $1,210,766  $1,358,107     100.0%   100.0%

</TABLE>

See accompanying notes to financial statements.


                                         F-51


<PAGE>


                                                The Potomac Edison Company


NOTES TO FINANCIAL STATEMENTS
(These notes are an integral part of the financial statements.)

NOTE A:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Potomac Edison Company (the Company) is a wholly owned
utility subsidiary of Allegheny Energy, Inc. (Allegheny Energy)
and is a part of the Allegheny Energy integrated electric utility
system (the System).  The Company and its utility affiliates,
Monongahela Power Company (Monongahela Power) and West Penn Power
Company (West Penn), collectively now doing business as Allegheny
Power, are engaged in the generation (except West Penn),
purchase, transmission, distribution, and sale of electric
energy.  The Company operates as a single utility segment in the
states of Maryland, Virginia, and West Virginia.

See Note B for significant changes in the Maryland regulatory
environment.  Certain amounts in the December 31, 1998, balance
sheet and in the December 31, 1998, and 1997 statement of cash
flows have been reclassified for comparative purposes.

The Company is subject to regulation by the Securities and
Exchange Commission (SEC), the Maryland Public Service Commission
(Maryland PSC), the Public Service Commission of West Virginia
(W.Va. PSC) and the Virginia State Corporation Commission
(Virginia SCC), and by the Federal Energy Regulatory Commission
(FERC).  Significant accounting policies of the Company are
summarized below.

Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates that affect the reported amounts of assets,
liabilities, revenues, expenses, and disclosures of contingencies
during the reporting period, which in the normal course of
business are subsequently adjusted to actual results.

Revenues
Revenues, including amounts resulting from the application of
fuel and energy cost adjustment clauses, are recognized in the
same period in which the related electric services are provided
to customers. Revenues of $63 million from one industrial
customer were 8% of total electric operating revenues in 1999.

Deferred Power Costs, Net
The costs of fuel, purchased power, and certain other costs, and
revenues from sales to other utilities and power marketers,
including transmission services, are deferred until they are
either recovered from or credited to customers under fuel and
energy cost-recovery procedures in Maryland, Virginia, and West
Virginia.  The Company will discontinue this practice in
Maryland, effective July 1, 2000.

Property, Plant, and Equipment
Property, plant, and equipment, including facilities owned with
affiliates in the System, are stated at original cost, less
contributions in aid of construction, except for capital leases,
which are recorded at present value.

                                         F-52

<PAGE>
                                                The Potomac Edison Company

Costs include direct labor and material; allowance for funds used
during construction (AFUDC) on property for which construction work
in progress is not included in rate base; and indirect costs such as
administration, maintenance, and depreciation of transportation
and construction equipment, postretirement benefits, taxes, and other
benefits related to employees engaged in construction.

The cost of depreciable property units retired, plus removal
costs less salvage, are charged to accumulated depreciation.

The Company capitalizes the cost of software developed for
internal use. These costs are amortized on a straight-line basis
over a five-year period beginning upon a project's completion.

Allowance for Funds Used During Construction
AFUDC, an item that does not represent current cash income, is
defined in applicable regulatory systems of accounts as including
"the net cost for the period of construction of borrowed funds
used for construction purposes and a reasonable rate on other
funds when so used."  AFUDC is recognized as a cost of property,
plant, and equipment.  Rates used for computing AFUDC in 1999,
1998, and 1997 were 9.68%, 9.83%, and 9.75%, respectively.

AFUDC is not included in the cost of construction when the cost
of financing the construction is being recovered through rates,
which is the treatment in Virginia.

Depreciation and Maintenance
Depreciation expense is determined generally on a straight-line
method based on estimated service lives of depreciable properties
and amounted to approximately 3.5% of average depreciable
property in each of the years 1999, 1998, and 1997.  The cost of
maintenance and of certain replacements of property, plant, and
equipment is charged principally to operating expense when
incurred.

Temporary Cash Investments
For purposes of the statement of cash flows, temporary cash
investments with original maturities of three months or less,
generally in the form of commercial paper, certificates of
deposit, and repurchase agreements, are considered to be the
equivalent of cash.

Regulatory Assets and Liabilities
In accordance with the Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation," the
Company's financial statements include certain assets and
liabilities resulting from cost-based ratemaking regulation.

Income Taxes
The Company joins with its parent and affiliates in filing a
consolidated federal income tax return.  The consolidated tax
liability is allocated among the participants generally in
proportion to the taxable income of each participant, except that
no subsidiary pays tax in excess of its separate return tax
liability.


                                         F-53

<PAGE>
                                                The Potomac Edison Company


Financial accounting income before income taxes differs from
taxable income principally because certain income and deductions
for tax purposes are recorded in the financial income statement
in another period.  Deferred tax assets and liabilities represent
the tax effect of temporary differences
between the financial statement and tax basis of assets and
liabilities computed using the most current tax rates.

The Company has deferred the tax benefit of investment tax
credits.  Investment tax credits are amortized over the estimated
service lives of the related properties.

Postretirement Benefits
All of the employees of Allegheny Energy are employed by
Allegheny Energy Service Corporation (AESC), which performs
services at cost for the Company and its affiliates in accordance
with the Public Utility Holding Company Act of 1935 (PUHCA).
Through AESC, the Company is responsible for its proportionate
share of postretirement benefit costs.  AESC provides a
noncontributory, defined benefit pension plan covering
substantially all employees, including officers.  Benefits are
based on the employee's years of service and compensation.  The
funding policy is to contribute annually at least the minimum
amount required under the Employee Retirement Income Security Act
and not more than can be deducted for federal income tax
purposes.  Plan assets consist of equity securities, fixed income
securities, short-term investments, and insurance contracts.

AESC also provides partially contributory medical and life
insurance plans for eligible retirees and dependents.  Medical
benefits, which make up the largest component of the plans, are
based upon an age and years-of-service vesting schedule and other
plan provisions.  Subsidized medical coverage is not provided in
retirement to employees hired on or after January 1, 1993.  The
funding policy is to contribute the maximum amount that can be
deducted for federal income tax purposes.  Funding of these
benefits is made primarily into Voluntary Employee Beneficiary
Association trust funds.  Medical benefits are self-insured.  The
life insurance plan is paid through insurance premiums.

Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," effective for
1998, established standards for reporting comprehensive income
and its components (revenues, expenses, gains, and losses) in the
financial statements.  The Company does not have any elements of
other comprehensive income to report in accordance with SFAS No.
130.

NOTE B:  INDUSTRY RESTRUCTURING

Maryland Deregulation
On September 23, 1999, the Company filed a settlement agreement
(covering its stranded cost quantification mechanism, price
protection mechanism, and unbundled rates) with the Maryland PSC.
The agreement was signed by all parties active in the case except
Eastalco, which stated that it would not oppose it.  The
settlement agreement, which was approved by the Maryland PSC on
December 23, 1999, includes the following provisions:


                                         F-54

<PAGE>
                                                The Potomac Edison Company


-    The ability for nearly all of our 211,000 Maryland customers
     to have the option of choosing an electric generation supplier
     starting July 1, 2000.

-    The transfer of the Company's Maryland jurisdictional
     generating assets to a nonutility affiliate at book value as of
     July 1, 2000.

-    A reduction in base rates of 7% ($10.4 million each year
     totaling $72.8 million) for residential customers from 2002
     through 2008.  A reduction in base rates of one-half of 1% ($1.5
     million each year totaling $10.5 million) for the majority of
     commercial and industrial customers from 2002 through 2008.

-    Standard Offer Service (provider of last resort) will be
     provided to residential customers during a transition period from
     July 1, 2000, to December 31, 2008, and to all other customers
     during a transition period of July 1, 2000, to December 31, 2004.

-    A cap on generation rates for residential customers from
     2002 through 2008. Generation rates for non-residential customers
     are capped from 2002 through 2004.

-    A cap on transmission and distribution rates for all
     customers from 2002 through 2004.

-    Unless the Company is subject to significant changes that
     would materially affect the Company's financial condition, the
     parties agree not to seek a reduction in rates which would be
     effective prior to January 1, 2005.

-    The recovery of all purchased power costs incurred as a
     result of the contract to buy generation from the AES Warrior Run
     cogeneration facility.

-    The establishment of a fund (not to exceed $.001 per
     Kilowatt-hour (kWh)  for residential customers) for the
     development and use of energy-efficient technologies.

The Maryland PSC on December 23, 1999 also approved the Company's
unbundled rates covering the period 2000 through 2008.

West Virginia Activities
In March 1998, legislation was passed by the West Virginia
Legislature that directed the W.Va. PSC to meet with all
interested parties to develop a restructuring plan which would
meet the dictates and goals of the legislation. Interested
parties formed a Task Force that met during 1998, but the Task
Force was unable to reach a consensus on a model for
restructuring.  The  W.Va. PSC held hearings in August 1999 that
addressed certification, licensing, bonding, reliability,
universal service, consumer protection, code of conduct,
subsidies, and stranded costs.  The W.Va. PSC on December 20,
1999 released for comment and hearings a modified version of a
proposal submitted by members of the Task Force, including the
Company and its affiliate, Monongahela Power, following the
August 1999 hearings that could open full retail competition as
early as January 1, 2001.  The production of power would be
deregulated and electricity rates would be frozen for four


                            F-55

<PAGE>
                                                The Potomac Edison Company

years with rates gradually transitioning to market rates over the
six years thereafter.  After hearings in January 2000, the W.Va.
PSC submitted a restructuring plan endorsed by members of the Task
Force, including the Company and Monongahela Power, to the
Legislature for approval.

Virginia Activities
On March 25, 1999, the Governor of Virginia signed the Virginia
Electric Utility Restructuring Act (Restructuring Act) passed by
the Virginia General Assembly.  All utilities must submit a
restructuring plan by January 1, 2001, to be effective on January
1, 2002.  Customer choice will be phased in beginning on January
1, 2002, with full customer choice by January 1, 2004.  The
Legislative Transition Task Force on Electric Utility
Restructuring, which was established by the Restructuring Act to
oversee the implementation of customer choice, held hearings in
the summer and fall of 1999 on a number of issues concerning the
implementation of retail competition in Virginia.  Parties have
also been working with the Virginia SCC Staff to develop the


<PAGE>



                                                  The Potomac Edison Company


rules governing the proposed retail pilot programs of other
utilities in the state.

NOTE C:  ACCOUNTING FOR THE EFFECTS OF PRICE DEREGULATION

In 1997, the Emerging Issues Task Force (EITF) issued EITF No. 97-
4, "Deregulation of the Pricing of Electricity - Issues Related
to the Application of FASB Statement Nos. 71 and 101."  The EITF
agreed that, when a rate order that contains sufficient detail
for the enterprise to reasonably determine how the transition
plan will affect the separable portion of its business whose
pricing is being deregulated is issued, the entity should cease
to apply SFAS No. 71 to that separable portion of its business.

On December 23, 1999, the Maryland PSC approved a settlement
agreement dated September 23, 1999, setting forth the transition
plan to deregulate electric generation for the Company's Maryland
jurisdiction.  As required by EITF 97-4, the Company discontinued
the application of SFAS No. 71 for its Maryland jurisdiction
electric generation operations in the fourth quarter of 1999.  As
a result, the Company recorded under the provisions of SFAS No.
101, "Accounting for the Discontinuation of Application of FASB
Statement No. 71," an extraordinary charge of $26.9 million
($17.0 million after taxes)
reflecting the impairment of certain generating assets as
determined under SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
based on the expected future cash flows,
and net regulatory assets associated with generating assets that
will not be collected from customers as shown below:


(Millions of Dollars)                        Gross          Net-of-Tax

Impaired generating assets                     $14.5          $9.9
Net regulatory assets                           12.4           7.1
  Total 1999 extraordinary charge              $26.9         $17.0


The Balance Sheet includes the amounts listed below for
generation assets not subject to SFAS No. 71.


                            F-56

<PAGE>
                                                The Potomac Edison Company


                                                   December       December
(Millions of Dollars)                                1999           1998

Property, plant, and equipment at original
  cost                                              $ 563.9       $   -
Amounts under construction included above              17.6           -
Accumulated depreciation                             (298.7)          -

The legislation passed in Virginia established a definitive
process for transition to deregulation and market-based pricing
for electric generation.  However, the deregulation plans and
their terms in Virginia will not be known until relevant
regulatory proceedings are complete and final orders are
received.  The Company is unable to predict the effect of
discontinuing SFAS No. 71 in Virginia, but it may be required to
write off unrecoverable regulatory assets, impaired assets, and
uneconomic commitments.  Also the Company is unable to predict
the outcome of the deregulation process in West Virginia until
further actions are taken by the Legislature and the W.Va. PSC.


                            F-57

<PAGE>
                                                The Potomac Edison Company



NOTE D:  INCOME TAXES

Details of federal and state income tax provisions are:

<TABLE>
<CAPTION>

(Thousands of Dollars)                       1999         1998         1997

Income taxes--current:
  <S>                                      <C>          <C>          <C>
  Federal..............................    $48,024      $40,003      $36,126
  State................................      6,291        5,569        5,264
    Total..............................     54,315       45,572       41,390
Income taxes--deferred, net of
  amortization.........................    (11,830)      10,559        8,136
Income taxes--deferred,
  extraordinary charge.................     (9,949)
Amortization of deferred investment
  credit...............................     (1,872)      (1,877)      (2,152)
    Total income taxes.................     30,664       54,254       47,374
Income taxes--charged to other
  income and deductions................     (3,329)      (1,651)      (2,878)
Income taxes-credited to
  extraordinary charge.................      9,949
Income taxes--charged to operating
  income...............................    $37,284      $52,603      $44,496


</TABLE>

The total provision for income taxes is different from the amount
produced by applying the federal income statutory tax rate of 35%
to financial accounting income, as set forth below:

<TABLE>
<CAPTION>

(Thousands of Dollars)                       1999         1998         1997
<S>                                        <C>          <C>         <C>
Income before income taxes
  and extraordinary charge.............    $137,867     $154,085    $140,251
Amount so produced.....................    $ 48,253     $ 53,930    $ 49,088
Increased (decreased) for:
  Tax deductions for which deferred
    tax was not provided:
      Lower tax depreciation...........       1,065        2,800       2,900
      Plant removal costs..............      (2,596)        (800)       (700)
  State income tax, net of federal
    income tax benefit.................       2,692        5,100       4,400
  Amortization of deferred investment
    credit.............................      (1,872)      (1,878)     (2,152)
  Equity in earnings of subsidiaries...      (2,058)      (2,200)     (3,100)
  Other, net...........................      (8,200)      (4,349)     (5,940)
    Total..............................    $ 37,284     $ 52,603    $ 44,496

</TABLE>

<PAGE>



                                                  The Potomac Edison Company


The provision for income taxes for the extraordinary charge is
different from the amount produced by applying the federal income
statutory tax rate of 35% to the gross amount, as set forth
below:

                            F-58

<PAGE>
                                                The Potomac Edison Company


(Thousands of Dollars)                       1999

Extraordinary charge before
  income taxes.........................    $26,899
Amount so produced.....................    $ 9,415
Increased for state income tax, net
  of federal income tax benefit........        534
    Total..............................    $ 9,949


Federal income tax returns through 1995 have been examined and
substantially settled.  At December 31, the deferred tax assets
and liabilities consisted of the following:

<TABLE>
<CAPTION>

(Thousands of Dollars)                                  1999     1998
  <S>                                                <C>      <C>
Deferred tax assets:
  Contributions in aid of construction............   $ 12,645 $ 13,845
  Tax interest capitalized........................     12,218   12,096
  Unamortized investment tax credit...............     11,578   11,442
  Postretirement benefits other than pensions.....      6,523    5,770
  Unbilled revenue................................      3,492    3,492
  Internal restructuring..........................      2,344    2,344
  Advances for construction.......................        387      914
  Other...........................................     15,598    3,685
                                                       64,785   53,588
Deferred tax liabilities:
  Book vs. tax plant basis differences, net.......    219,388  218,434
  Other...........................................      2,570   16,814
                                                      221,958  235,248
Total net deferred tax liabilities................    157,173  181,660
Portion above included in current assets..........      2,178      895
    Total long-term net deferred tax liabilities..   $159,351 $182,555

</TABLE>

NOTE E:  ALLEGHENY GENERATING COMPANY

The Company owns 28% of the common stock of Allegheny Generating
Company (AGC), and affiliates of the Company own the remainder.
AGC is reported by the Company in its financial statements using
the equity method of accounting. AGC owns an undivided 40%
interest, 840 MW, in the 2,100-MW pumped-storage hydroelectric
station in Bath County, Virginia, operated by the 60% owner,
Virginia Electric and Power Company, a nonaffiliated utility.

AGC recovers from the Company and its affiliates all of its
operation and maintenance expenses, depreciation, taxes, and a
return on its investment under a wholesale rate schedule approved
by the FERC.  AGC's rates are set by
a formula filed with and previously accepted by the FERC.  The
only component which changes is the return on equity (ROE).
Pursuant to a settlement agreement filed April 4, 1996, with the
FERC, AGC's ROE was set at 11% for 1996 and will continue until
the time any affected party seeks renegotiation of the ROE.


                            F-59

<PAGE>
                                                The Potomac Edison Company


Following is a summary of financial information for AGC:

<TABLE>
<CAPTION>
                                                        December 31
(Thousands of Dollars)                                1999        1998

Balance sheet information:
  <S>                                               <C>         <C>
  Property, plant, and equipment...............     $601,717    $618,608
  Current assets...............................        7,261       5,857
  Deferred charges.............................       11,905      14,993
    Total assets...............................     $620,883    $639,458

  Total capitalization.........................     $303,422    $314,105
  Current liabilities..........................       65,463      75,849
  Deferred credits.............................      251,998     249,504
    Total capitalization and liabilities.......     $620,883    $639,458

</TABLE>



<TABLE>
<CAPTION>
                                                 Year Ended December 31
(Thousands of Dollars)                       1999         1998         1997

Income statement information:
  <S>                                      <C>          <C>         <C>
  Electric operating revenues.........     $70,592      $73,816     $76,458
  Operation and maintenance expense...       5,023        4,592       4,877
  Depreciation........................      16,980       16,949      17,000
  Taxes other than income taxes.......       4,510        4,662       4,835
  Federal income taxes................       9,997       10,959      11,213
  Interest charges....................      13,261       13,987      15,391
  Other income, net...................        (394)         (86)     (9,126)
    Net income........................     $21,215      $22,753     $32,268



</TABLE>

The Company's share of the equity in earnings was $5.9 million,
$6.4 million, and $9.0 million for 1999, 1998, and 1997,
respectively, and is included in other income, net, on the
Company's Statement of Income.

NOTE F:  POSTRETIREMENT BENEFITS

As described in Note A, the Company is responsible for its
proportionate share of the cost of the pension plan and medical
and life insurance plans for eligible employees and dependents
provided by AESC.  The Company's share of the (credits) costs of
these plans, a portion of which (approximately 35%) was credited
or charged to plant construction, is shown below:


<TABLE>
<CAPTION>


(Thousands of Dollars)                       1999         1998       1997

<S>                                         <C>          <C>      <C>
Pension................................     $(1,210)     $ (323)  $(1,745)
Medical and life insurance.............     $ 4,756      $4,893   $ 4,007

</TABLE>



NOTE G:  REGULATORY ASSETS AND LIABILITIES

The Company's operations are subject to the provisions of SFAS
No. 71. Regulatory assets represent probable future revenues
associated with deferred


                            F-60

<PAGE>
                                                The Potomac Edison Company

costs that are expected to be recovered from customers through
the ratemaking process.  Regulatory liabilities represent
probable future reductions in revenues associated with amounts
that are to be credited to customers through the ratemaking
process.  Regulatory assets, net of regulatory liabilities,
reflected in the balance sheet at December 31 relate to:

<TABLE>
<CAPTION>

(Thousands of Dollars)                                 1999        1998

Long-term assets (liabilities), net:
<S>                                                  <C>        <C>
  Income taxes, net.............................     $34,451    $45,847
  Postretirement benefits.......................       1,292      1,292
  Demand-side management........................         184      8,157
  Deferred revenues.............................      (14,900)
  Other, net....................................        (225)       263
    Subtotal....................................      20,802     55,559
Deferred power costs, net (reported in other
  deferred credits).............................      (9,900)    (2,455)
     Subtotal...................................      10,902     53,104
Current assets (liabilities), net (reported in
    other current assets/liabilities):
  Deferred power costs, net.....................      (7,859)       333
  Deferred revenues.............................     (19,949)
    Subtotal....................................     (27,808)       333
      Net Regulatory (Liability) Asset..........    ($16,906)   $53,437

</TABLE>

Future deregulation proceedings in Virginia and West Virginia may
affect the ratemaking treatment of the net regulatory assets
related to generation in these jurisdictions.  See Notes B and C
for a discussion of the deregulation plan approved in Maryland.
At this time, the Company cannot determine the effect of
deregulation plans in Virginia and West Virginia.


                            F-61

<PAGE>
                                                The Potomac Edison Company


NOTE H:  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair value of financial
instruments at December 31 were as follows:


<TABLE>
<CAPTION>
                                      1999                     1998
                             Carrying       Fair       Carrying     Fair
(Thousands of Dollars)        Amount        Value       Amount      Value

Assets:
    <S>                      <C>          <C>           <C>        <C>
  Temporary cash
    investments..........    $ 31,350     $ 31,350      $   -      $   -
Liabilities:
  Long-term debt and
    QUIDS................     594,657      556,732      585,357     607,726


</TABLE>

The carrying amount of temporary cash investments approximates
the fair value because of the short maturity of these
instruments.  The fair value of long-term debt and QUIDS was
estimated based on actual market prices or market prices of
similar issues.  The Company had no financial instruments held or
issued for trading purposes.

NOTE I:  CAPITALIZATION

Preferred Stock
The Company called all outstanding shares of its cumulative
preferred stock with a combined par value of $16.4 million plus
redemption premiums of $.5 million on September 30, 1999, with
funds on hand.

Long-Term Debt and QUIDS
Maturities for long-term debt in thousands of dollars for the
next five years are:  2000, $75,000; 2001, none; 2002, $3,200;
2003, none; and 2004, none.  Substantially all of the properties
of the Company are held subject to the lien securing its first
mortgage bonds.  Some properties are also subject to a second
lien securing certain pollution control and solid waste disposal
notes. Certain first mortgage bond series are not redeemable by
certain refunding until dates established in the respective
supplemental indentures.

NOTE J:  SHORT-TERM DEBT

To provide interim financing and support for outstanding
commercial paper, the Company has established lines of credit
with several banks.  The Company has SEC authorization for total
short-term borrowings of $130 million, including money pool
borrowings described below.  The Company has fee arrangements on
all of its lines of credit and no compensating balance
requirements.  In addition to bank lines of credit, an Allegheny
Energy internal money pool accommodates intercompany short-term
borrowing needs, to the extent that certain of the regulated
companies have funds available. The Company had no short-term
debt outstanding at December 31, 1999 or December 31, 1998.


                            F-62

<PAGE>
                                                The Potomac Edison Company


NOTE K:  RELATED PARTY TRANSACTION

All of the employees of Allegheny Energy are employed by AESC,
which performs services at cost for the Company and its
affiliates in accordance with the PUHCA.  Through AESC, the
Company is responsible for its proportionate share of services
provided by AESC.  The total billings by AESC (including capital)
to the Company for each of the years of 1999, 1998, and 1997 were
$114.2 million, $89.7 million, and $80.7 million, respectively.
The Company buys power from and sells power to its affiliates at
tariff rates approved by the FERC.

NOTE L:  COMMITMENTS AND CONTINGENCIES

Construction Program
The Company has entered into commitments for its construction
programs, for which expenditures are estimated to be $88 million
for 2000 and $72 million for 2001.  Construction expenditure
levels in 2002 and beyond will depend upon, among other things,
the strategy eventually selected for complying with
Phase II of the Clean Air Act Amendments of 1990 (CAAA) and the
extent to which environmental initiatives currently being
considered become mandated. The Company estimates that its banked
emission allowances will allow it to comply with Phase II sulfur
dioxide (SO2) limits through 2005.  Studies to evaluate cost-
effective options to comply with Phase II SO2 limits beyond 2005,
including those available in connection with the emission
allowance trading market, are continuing.

Environmental Matters and Litigation
The Company is subject to various laws, regulations, and
uncertainties as to environmental matters.  Compliance may
require the Company to incur substantial additional costs to
modify or replace existing and proposed equipment and facilities
and may adversely affect the cost of future operations.

The Environmental Protection Agency (EPA) issued its final
regional nitrogen oxides (NOx) State Implementation Plan (SIP)
call rule on September 24, 1998. The EPA's SIP call rule found
that 22 eastern states (including Maryland, Pennsylvania, and
West Virginia) and the District of Columbia are all contributing
significantly to ozone nonattainment in downwind states.  The
final rule declares that this downwind nonattainment will be
eliminated (or sufficiently mitigated) if the upwind states
reduce their NOx emissions by an amount that is precisely set by
the EPA on a state-by-state basis.  The final SIP call rule
requires that all state-adopted NOx reduction measures must be
incorporated into SIPs by September 1999 and must be implemented
by May 1, 2003.  However, the EPA's NOx SIP call regulation is
currently under litigation in the District of Columbia Circuit
Court of Appeals, and a decision is expected by spring 2000.  The
Company's compliance with these requirements would require the
installation of post-combustion control technologies on most, if
not all, of its power stations at a cost of approximately $106
million.  The Company continues to work with other coal-burning
utilities and other affected constituencies in coal-producing
states to challenge this EPA action.


                            F-63

<PAGE>
                                                The Potomac Edison Company


On March 4, 1994, the Company and its regulated affiliates
received notice that identified them as potentially responsible
parties (PRPs) under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, with respect
to a Superfund site.  There are approximately 175 other PRPs
involved.  A final determination has not been made for the
Company and its regulated affiliates' share of remediation costs
based on the amount of materials sent to the site. However, the
Company and its regulated affiliates estimate that their combined
share of the cleanup liability will not exceed $1 million, which
has been accrued by the Company and its regulated affiliates as a
liability at December 31, 1999.

The Company and its regulated affiliates have also been named as
defendants along with multiple other defendants in pending
asbestos cases involving
multiple plaintiffs.  While the Company believes that all of the
cases are without merit, the Company cannot predict the outcome
of the litigation.  The Company has accrued a reserve of $1.7
million as of December 31, 1999, related to the asbestos cases as
the potential cost to settle the cases to avoid the anticipated
cost of defense.

The Attorney General of the State of New York and the Attorney
General of the State of Connecticut in their letters dated
September 15, 1999, and November 3, 1999, respectively, notified
Allegheny Energy of their intent to commence
civil actions against Allegheny Energy or certain of its
subsidiaries alleging violations at the Fort Martin Power Station
under the Federal Clean Air Act, which requires existing power
plants that make major modifications to comply
with the same emission standards applicable to new power plants.
Similar actions may be commenced by other governmental
authorities in the future.  Fort Martin is a station located in
West Virginia and is now jointly owned by the Company and its
affiliates, Allegheny Energy Supply Company and Monongahela
Power.  Both Attorneys General stated their intent to seek
injunctive relief and penalties. In addition, the Attorney
General of the State of New York in his letter indicated that he
may assert claims under the State common law of public nuisance
seeking to recover, among other things, compensation for alleged
environmental damage caused in New York by the
operation of Fort Martin Power Station.  At this time, Allegheny
Energy and its subsidiaries are not able to determine what
effect, if any, these actions threatened by the Attorneys General
of New York and Connecticut may have on them.

In the normal course of business, the Company becomes involved in
various legal proceedings.  The Company does not believe that the
ultimate outcome of these proceedings will have a material effect
on its financial position.

Leases
The Company's lease obligations as of December 31, 1999, and 1998
were not material.


                            F-64

<PAGE>
                                                The Potomac Edison Company

REPORT OF MANAGEMENT

The management of the Company is responsible for the information
and representations in the Company's financial statements. The
Company prepares the financial statements in accordance with
generally accepted accounting principles based upon available
facts and circumstances and management's best estimates and
judgements of known conditions.

The Company maintains an accounting system and related system of
internal controls designed to provide reasonable assurance that
the financial records are accurate and that the Company's assets
are protected. The Company's staff of internal auditors conducts
periodic reviews designed to assist management in maintaining the
effectiveness of internal control procedures.
PricewaterhouseCoopers LLP, an independent accounting firm,
audits the financial statements and expresses its opinion on
them. The independent accountants perform their audit in
accordance with generally accepted auditing standards.

The Audit Committee of the Board of Directors, which consists of
three outside Directors, meets periodically with management,
internal auditors, and PricewaterhouseCoopers LLP to review the
activities of each in discharging their responsibilities. The
internal audit staff and PricewaterhouseCoopers LLP have free
access to all of the Company's records and to the Audit
Committee.



Alan J. Noia                                    Michael P. Morrell
Chairman and                                    Vice President and
Chief Executive Officer                         Chief Financial Officer


                            F-65

<PAGE>
	                                              West Penn Power Company
	                                              and Subsidiaries
REPORT OF INDEPENDENT ACCOUNTANTS


To The Board of Directors and the Shareholder
of West Penn Power Company


In our opinion, the accompanying consolidated balance sheets, consolidated
statements of capitalization and the related consolidated statements of
income, of retained earnings and of cash flows present fairly, in all
material respects, the financial position of West Penn Power Company (a
subsidiary of Allegheny Energy, Inc.) and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States.  These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted
in the United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable
basis for the opinion expressed above.



PricewaterhouseCoopers LLP



Pittsburgh, Pennsylvania
February 3, 2000

                                  F-66



<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



* * * CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
(Thousands of Dollars)                                                  1999          1998          1997

  <S>                                                                <C>           <C>           <C>
Electric Operating Revenues: *
  Utility.........................................................   $  977,221    $1,078,727    $1,082,162
  Nonutility......................................................      376,982
      Total Operating Revenues....................................    1,354,203     1,078,727     1,082,162

Operating Expenses:
  Operation:
    Fuel..........................................................      213,626       258,199       254,210
    Purchased power and exchanges, net............................      398,199       121,286       120,005
    Deferred power costs, net.....................................                                   (7,944)
    Other.........................................................      188,613       173,029       157,780
  Maintenance.....................................................       93,436        91,724        98,252
  Depreciation and amortization...................................      114,268       114,709       113,793
  Taxes other than income taxes...................................       80,719        88,722        90,140
  Federal and state income taxes..................................       71,573        64,526        73,279
    Total Operating Expenses......................................    1,160,434       912,195       899,515
    Operating Income..............................................      193,769       166,532       182,647

Other Income and Deductions:
  Allowance for other than borrowed funds used
    during construction...........................................           33           581         2,107
  Other income, net...............................................        9,621        11,325        17,562
    Total Other Income and Deductions.............................        9,654        11,906        19,669
    Income Before Interest Charges................................      203,423       178,438       202,316

Interest Charges:
  Interest on long-term debt......................................       61,727        61,727        64,990
  Other interest..................................................        6,996         5,913         4,639
  Allowance for borrowed funds used during construction
    and interest capitalized......................................       (2,900)       (1,822)       (1,978)
      Total Interest Charges........................................     65,823        65,818        67,651

Consolidated income before extraordinary charge...................      137,600       112,620       134,665
Extraordinary charge, net.........................................      (10,018)     (275,426)

Consolidated Net Income (Loss)....................................   $  127,582    $ (162,806)   $  134,665

</TABLE>

*Excludes intercompany sales between utility and nonutility

                                  F-67

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries


CONSOLIDATED STATEMENT OF RETAINED EARNINGS

<TABLE>
<CAPTION>

<S>                                                                  <C>           <C>           <C>
Balance at January 1..............................................   $  210,692    $  475,558    $  441,283

Add:
  Consolidated net income (loss)..................................      127,582      (162,806)      134,665
                                                                        338,274       312,752       575,948
Deduct:
  Dividends on capital stock of the Company:
    Preferred stock...............................................        1,600         3,396         3,430
    Common stock..................................................       83,804        98,664        96,960
  Cumulative preferred stock redemption premiums..................        3,256
  Decrease in equity related to transfer of assets................      239,977
      Total Deductions............................................      328,637       102,060       100,390

Balance at December 31............................................   $    9,637    $  210,692    $  475,558

</TABLE>


See accompanying notes to consolidated financial statements.

                                  F-68

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31
(Thousands of Dollars)                                                 1999        1998        1997

  <S>                                                              <C>         <C>          <C>
Cash Flows from Operations:
  Consolidated net income (loss).................................. $ 127,582   $(162,806)   $ 134,665
  Extraordinary charge, net of taxes..............................    10,018     275,426
  Consolidated income before extraordinary charge.................   137,600     112,620      134,665
  Depreciation and amortization...................................   114,268     114,709      113,793
  Write-off of generation project costs...........................     6,641
  Deferred investment credit and income taxes, net................    39,177      (1,511)      31,381
  Deferred power costs, net.......................................                             (7,944)
  Unconsolidated subsidiaries' dividends in excess of earnings....     2,549      15,484        1,702
  Allowance for other than borrowed funds used
    during construction...........................................       (33)       (581)      (2,107)
  Internal restructuring liability................................                (4,082)     (23,052)
  PURPA project buyout............................................                            (48,000)
  Amortization of adverse purchase power contracts................   (27,907)
  Pennsylvania CTC True-up regulatory asset.......................   (20,004)
  Changes in certain assets and liabilities:
    Accounts receivable, net......................................     7,736       6,761      (22,000)
    Materials and supplies........................................      (537)     (3,851)      (3,421)
    Accounts payable..............................................    65,008      21,953        7,507
    Interest accrued..............................................    (5,664)       (136)          76
    Regulatory liabilities........................................   (13,199)     (6,001)       1,024
    Restructuring settlement rate refund..........................   (25,100)
    Other, net....................................................    (7,088)     (1,863)      20,050
                                                                     273,447     253,502      203,674


Cash Flows from Investing:
  Utility construction expenditures (less allowance for other
    than borrowed funds used during construction).................   (86,257)    (95,394)    (125,947)
  Nonutility construction expenditures............................   (27,956)
                                                                    (114,213)    (95,394)    (125,947)


</TABLE>

                                  F-69

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

<TABLE>

Cash Flows from Financing:
  <S>                                                               <C>         <C>           <C>
  Retirement of preferred stock...................................   (82,964)
  Issuance of long-term debt......................................   697,771      92,834
  Retirement of long-term debt....................................  (525,000)   (161,435)
  Restricted funds................................................    (3,006)
  Short-term debt, net............................................   (55,766)      3,720       18,659
  Notes payable to affiliate.....................................     (9,300)      9,300
  Notes receivable from affiliate................................    (80,800)                   2,900
  Dividends on capital stock:
    Preferred stock...............................................    (1,600)     (3,396)      (3,430)
    Common stock..................................................   (83,804)    (98,664)     (96,960)
                                                                    (144,469)   (157,641)     (78,831)

Net Change in Cash and Temporary Cash Investments.................    14,765         467       (1,104)
Cash and Temporary Cash Investments at January 1..................     4,523       4,056        5,160
Cash and Temporary Cash Investments at December 31................ $  19,288   $   4,523    $   4,056


Supplemental Cash Flow Information:
  Cash paid during the year for:
    Interest (net of amount capitalized).......................... $  64,793   $  62,711     $ 64,594
    Income taxes..................................................    22,529      73,653       43,297


</TABLE>


See Note N for transfer of net assets to Allegheny Energy Supply Company, LLC.

See accompanying notes to consolidated financial statements.

                                  F-70

<PAGE>
                                                  West Penn Power Company
                                                  and Subsidiaries

CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>

(Thousands of Dollars)                                                             DECEMBER 31
                                                                               1999           1998*
ASSETS

  <S>                                                                       <C>             <C>
Property, Plant, and Equipment:
  Utility plant.........................................................    $1,537,962      $3,284,901
  Nonutility plant......................................................        14,072           5,158
  Construction work in progress.........................................        45,450          75,725
                                                                             1,597,484       3,365,784
  Accumulated depreciation..............................................      (506,416)     (1,362,413)
                                                                             1,091,068       2,003,371
Investments and Other Assets:
  Allegheny Generating Company--common stock at equity .................                        74,374
  Other.................................................................           525             646
                                                                                   525          75,020
Current Assets:
  Cash and temporary cash investments...................................        19,288           4,523
  Accounts receivable:
    Electric service....................................................       132,691         132,386
    Affiliated and other................................................        16,299          64,185
    Allowance for uncollectible accounts................................       (16,077)        (14,760)
  Notes receivable from affiliates......................................        80,800
  Materials and supplies--at average cost:
    Operating and construction..........................................        16,200          43,167
    Fuel................................................................                        24,363
  Deferred income taxes.................................................        15,571          20,472
  Prepaid taxes.........................................................         1,628          14,534
  Regulatory assets.....................................................        23,957          17,372
  Other.................................................................         1,531           2,261
                                                                               291,888         308,503
Deferred Charges:
  Regulatory assets.....................................................       467,982         475,776
  Unamortized loss on reacquired debt...................................         3,621           4,065
  Other.................................................................         9,681          20,971
                                                                               481,284         500,812
Total...................................................................    $1,864,765      $2,887,706


</TABLE>

                                  F-71

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries


CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>

  <S>                                                                       <C>             <C>
Capitalization:
  Common stock, other paid-in capital, and retained earnings............    $   79,658      $  732,161
  Preferred stock.......................................................                        79,708
  Long-term debt and QUIDS..............................................       966,026         837,725
                                                                             1,045,684       1,649,594
Current Liabilities:
  Short-term debt.......................................................                        55,766
  Notes payable to affiliate............................................                         9,300
  Long-term debt due within one year....................................        49,734
  Accounts payable......................................................        55,267          76,852
  Accounts payable to affiliates........................................        97,847          72,378
  Taxes accrued:
    Federal and state income............................................         5,276           1,002
    Other...............................................................        10,674          16,711
  Interest accrued......................................................        10,017          15,681
  Refunds payable.......................................................                        28,151
  Adverse power purchase commitments....................................        24,895          47,173
  Other.................................................................         5,925          11,910
                                                                               259,635         334,924
Deferred Credits and Other Liabilities:
  Unamortized investment credit.........................................        21,847          42,630
  Deferred income taxes.................................................       211,369         284,432
  Regulatory liabilities................................................        15,126          28,325
  Adverse power purchase commitments....................................       303,935         538,745
  Other.................................................................         7,169           9,056
                                                                               559,446         903,188
Commitments and Contingencies (Note O)
Total...................................................................    $1,864,765      $2,887,706

</TABLE>

*Certain amounts have been reclassified for comparative purposes.
 See Note N for transfer of net assets to Allegheny Energy Supply Company, LLC.
 See accompanying notes to consolidated financial statements.

                                  F-72

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



CONSOLIDATED STATEMENT OF CAPITALIZATION

<TABLE>
<CAPTION>

                                                                                      DECEMBER 31
                                                                       1999          1998         1999      1998
                                                                     (Thousands of Dollars)  (Capitalization Ratios)
  <S>                                                               <C>           <C>
Common Stock of the Company:
  Common stock--no par value, authorized 32,000,000
    shares, outstanding 24,361,586 shares.............              $   70,021    $  465,994
  Other paid-in capital...............................                                55,475
  Retained earnings...................................                   9,637       210,692
      Total...........................................                  79,658       732,161       7.6%    44.4%

Preferred Stock of the Company:
  Cumulative preferred stock--par value $100 per share,
    authorized 32,000,000 shares, outstanding as follows:

                     December 31, 1999
                          Shares          Date of
    Series             Outstanding         Issue
    4-1/2%	            none               1939                                       29,708
    4.20% B	            none               1948                                        5,000
    4.10% C	            none               1949                                        5,000
    Auction	            none               1992                                       40,000
      Total...........................................                                79,708                4.8
Long-Term Debt and QUIDS:
  First mortgage
  bonds:            Date of
                     Issue
    6-3/8% KK	    1993                                                            80,000
    7-7/8% GG	    1991                                                            70,000
    7-3/8% HH	    1992                                                            45,000
    8-7/8% FF	    1991                                                           100,000
    7-7/8% II	    1992                                                           135,000
    8-1/8% LL	    1994                                                            65,000
    7-3/4% MM	    1995                                                            30,000


</TABLE>

                                  F-73

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

<TABLE>
<CAPTION>

  <S>                                 <C>                           <C>          <C>              <C>      <C>

                                   December 31, 1999
                                     Interest Rate
  Transition bonds due 2000-2008....  6.32%-6.98%                      600,000
  Quarterly Income Debt Securities
    due 2025........................      8.00%                         70,000       70,000
  Secured notes due 2003-2029.......  4.70%-6.875%                     216,380      202,550
  Unsecured notes due 2007..........      4.75%                         14,435       14,435
  Medium-term debt due 2002-2004....  5.56%-6.375%                     117,550       33,550
  Unamortized debt discount and premium, net..........                  (2,605)      (7,810)
      Total (annual interest requirements $65,965)....               1,015,760      837,725
  Less current maturities.............................                 (49,734)
      Total...........................................                 966,026      837,725       92.4     50.8

Total Capitalization..................................              $1,045,684   $1,649,594      100.0%   100.0%


</TABLE>



See accompanying notes to consolidated financial statements.  Note N
contains information regarding the reduction in the amount of common
stock related to the transfer of net assets to Allegheny Energy Supply
Company, LLC, and Notes D and J contain information regarding the
reacquisition of first mortgage bonds and the redemption of cumulative
preferred stock.

                                  F-74

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(These notes are an integral part of the consolidated financial statements.)


NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

West Penn Power Company (the Company) is a wholly owned subsidiary of
Allegheny Energy, Inc. (Allegheny Energy) and is a part of the Allegheny
Energy integrated electric utility system (the System).  The Company and
its utility affiliates, Monongahela Power Company and The Potomac Edison
Company, collectively now doing business as Allegheny Power, are engaged
in the generation (except the Company), purchase, transmission, distribution,
and sale of electric energy.

The Company is subject to regulation by the Securities and Exchange
Commission (SEC), the Pennsylvania Public Utility Commission (Pennsylvania
PUC), and by the Federal Energy Regulatory Commission (FERC).

In November 1999, Allegheny Energy formed a wholly owned nonutility
generating subsidiary, Allegheny Energy Supply Company, LLC (Allegheny
Energy Supply), to consolidate its unregulated energy supply business.
 Allegheny Energy Supply was formed when the Company transferred its
deregulated generating capacity of 3,778 megawatts (MW) at book value
on November 18, 1999, to Allegheny Energy Supply, as allowed by the final
settlement in the Company's Pennsylvania restructuring case. The Company
continued to be responsible for providing generation to meet the regulated
electric load of its retail customers who did not have the right to choose
their generation supplier until January 2, 2000.  During the period from
November 18, 1999, through January 1, 2000, Allegheny Energy Supply
leased back to the Company one-third of its generating assets, providing
the Company with the unlimited right to use those facilities to serve its
regulated load.

See Note B for significant changes in the Pennsylvania regulatory
environment.  Certain amounts in the December 31, 1998, consolidated
balance sheet and in the December 31, 1998, and 1997 consolidated statement
of cash flows have been reclassified for comparative purposes.  Significant
accounting policies of the Company are summarized below.

Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries (the companies) after elimination of
intercompany transactions.

Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reporting period, which in the
normal course of business are subsequently adjusted to actual results.

                                  F-75

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



Revenues
Revenues are recognized in the same period in which the related electric
services are provided to customers.  Revenues from nonutility activities
were recorded in the period earned.

Deferred Power Costs, Net
Prior to May 1, 1997, the costs of fuel, purchased power, and certain other
costs, and revenues from sales to other companies and power marketers,
including transmission services, were deferred until they were either
recovered from or credited to customers under fuel and energy cost-recovery
procedures.  The Company discontinued this practice effective May 1, 1997.

Property, Plant, and Equipment
Property, plant, and equipment, including facilities owned with regulated
affiliates in the System, are stated at original cost, less contributions
in aid of construction, except for capital leases, which are recorded at
present value. Costs include direct labor and material; allowance for funds
used during construction on regulated utility property for which
construction work in progress is not included in rate base; capitalized
interest on generation projects; and indirect costs such as administration,
maintenance, depreciation of transportation and construction equipment,
postretirement benefits, taxes, and other benefits related to employees
engaged in construction.

The cost of depreciable property units retired, plus removal costs less
salvage, are charged to accumulated depreciation.

The Company transferred its deregulated generation plant to Allegheny
Energy Supply at book value.

The Company capitalizes the cost of software developed for internal use.
These costs are amortized on a straight-line basis over a five-year
period beginning upon a projects completion.

Allowance for Funds Used During Construction (AFUDC) and Capitalized Interest
AFUDC, an item that does not represent current cash income, is defined in
applicable regulatory systems of accounts as including "the net cost for the
period of construction of borrowed funds used for construction purposes and
a reasonable rate on other funds when so used."  AFUDC is recognized as a
cost of property, plant, and equipment.  Rates used for computing AFUDC in
1999, 1998, and 1997 were 5.23%, 7.17%, and 8.30%, respectively.

For nonutility construction, which began after January 1, 1998, the Company
capitalized interest costs in accordance with the Financial Accounting
Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS)
No. 34, "Capitalizing Interest Costs."  The interest capitalization rates
in 1999 and 1998 were 7.14% and 7.45%, respectively.

Depreciation and Maintenance
Depreciation expense is determined generally on a straight-line method based
on estimated service lives of depreciable properties and amounted to
approximately 4.5%, 3.6%, and 3.7%, of average depreciable property in 1999,
1998, and 1997, respectively.  The cost of maintenance and of certain

                                  F-76

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

replacements of property, plant, and equipment is charged principally to
operating expense when incurred.

Temporary Cash Investments
For purposes of the consolidated statement of cash flows, temporary cash
investments with original maturities of three months or less, generally in
the form of commercial paper, certificates of deposit, and repurchase
agreements, are considered to be the equivalent of cash.

Regulatory Assets and Liabilities
In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types
of Regulation," the Company's consolidated financial statements include
certain assets and liabilities resulting from cost-based ratemaking
regulation.

Income Taxes
The companies join with their parent and affiliates in filing a consolidated
federal income tax return.  The consolidated tax liability is allocated
among the participants generally in proportion to the taxable income of each
participant, except that no subsidiary pays tax in excess of its separate
return tax liability.

Financial accounting income before income taxes differs from taxable income
principally because certain income and deductions for tax purposes are
recorded in the financial income statement in another period. Deferred tax
assets and liabilities represent the tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities
computed using the most current tax rates.

The Company has deferred the tax benefit of investment tax credits.
Investment tax credits are amortized over the estimated service lives of
the related properties.

Postretirement Benefits
All of the employees of Allegheny Energy are employed by Allegheny Energy
Service Corporation (AESC), which performs services at cost for the Company
and its affiliates in accordance with the Public Utility Holding Company Act
of 1935 (PUHCA).  Through AESC, the Company is responsible for its
proportionate share of postretirement benefit costs.  AESC provides a
noncontributory, defined benefit pension plan covering substantially all
employees, including officers.  Benefits are based on the employee's years
of service and compensation.  The funding policy is to contribute annually
at least the minimum amount required under the Employee Retirement Income
Security Act and not more than can be deducted for federal income tax
purposes. Plan assets consist of equity securities, fixed income securities,
short-term investments, and insurance contracts.

AESC also provides partially contributory medical and life insurance plans
for eligible retirees and dependents.  Medical benefits, which make up the
largest component of the plans, are based upon an age and years-of-service
vesting schedule and other plan provisions. Subsidized medical coverage is
not provided in retirement to employees hired on or after January 1, 1993.

                                  F-77

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries


The funding policy is to contribute the maximum amount that can be deducted
for federal income tax purposes.  Funding of these benefits is made primarily
into Voluntary Employee Beneficiary Association trust funds.  Medical
benefits are self-insured.  The life insurance plan is paid through insurance
premiums.

Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," effective for 1998,
established standards for reporting comprehensive income and its components
(revenues, expenses, gains, and losses) in the financial statements.  The
Company does not have any elements of other comprehensive income to report
in accordance with SFAS No. 130.

NOTE B:  INDUSTRY RESTRUCTURING

In December 1996, Pennsylvania enacted the Electricity Generation Customer
Choice and Competition Act (Customer Choice Act) to restructure the electric
industry in Pennsylvania to create retail access to a competitive electric
energy supply market.  On August 1, 1997, the Company filed with the
Pennsylvania PUC a comprehensive restructuring plan to implement full
customer choice of electricity suppliers as required by the Customer Choice
Act.  The filing included a plan for recovery of transition costs through a
Competitive Transition Charge (CTC).

On May 29, 1998, (as amended on November 19, 1998) the Pennsylvania PUC
granted final approval to the Company's restructuring plan, which included
the following provisions:

* Established an average shopping credit for Company customers who shop for
  the generation portion of electricity services.

* Provided two-thirds of the Company's customers the option of selecting a
  generation supplier on January 2, 1999, with all customers able to shop on
  January 2, 2000.

* Required a rate refund from 1998 revenues (about $25 million) via a 2.5%
  rate decrease throughout 1999, accomplished by an equal percentage decrease
  for each rate class.

* Provided that customers have the option of buying electricity from the
  Company at capped generation rates through 2008, and that transmission and
  distribution rates are capped through 2005, except that the capped rates are
  subject to certain increases as provided for in the Public Utility Code.

* Prohibited complaints challenging the Company's regulated transmission and
  distribution rates through 2005.

* Provided about $15 million of Company funding for the development and use of
  renewable energy and clean energy technologies, energy conservation, energy
  efficiency, etc.

* Permitted recovery of $670 million in transition costs plus return over 10
  years beginning in January 1999 for the Company.

                                  F-78

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



* Allowed for income recognition of transition cost recovery in the earlier
  years of the transition period to reflect the Pennsylvania PUC's projections
  that electricity market prices are lower in the earlier years.

* Granted the Company's application to issue bonds to securitize up to $670
  million in transition costs and to provide 75% of the associated savings to
  customers, with 25% available to shareholders.

* Authorized the transfer of the Company's generating assets to a nonutility
  affiliate at book value.  Subject to certain time-limited exceptions, the
  nonutility business can compete in the unregulated energy market in
  Pennsylvania.

As a result of the May 29, 1998 Pennsylvania PUC Order and the November 19,
1998, settlement agreement, an extraordinary charge of $466.9 million ($275.4
million after taxes) was recorded in 1998 to reflect a write-off of costs
determined to be unrecoverable in connection with the deregulation proceedings
in Pennsylvania.

1998 also reflects additional charges of $40.3 million ($23.7 million after
taxes) related to the Company's revenue refund and energy program payments.
See Note C for additional details.

Starting in 1999, the Company unbundled its rates to reflect separate prices
for the supply charge, the CTC, and transmission and distribution charges.
While supply is open to competition, the Company continues to provide
regulated transmission and distribution services to customers in its service
area at rates approved by the Pennsylvania PUC and FERC.  The Company is the
electricity provider of last resort for those customers who decide not to
choose another electricity supplier.

The Pennsylvania PUC order authorized annual recovery of "transition costs"
from distribution customers as follows:

                       Year                         Amount
                         (Millions of Dollars)
                        1999........................$122
                        2000.........................121
                        2001.........................115
                        2002.........................113
                        2003.........................112
                        2004.........................104
                        2005..........................99
                        2006..........................98
                        2007..........................97
                        2008..........................97

These amounts represent the recovery of $670 million in transition costs plus
a return on the unrecovered investment.

                                  F-79

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



Actual transition revenues billed to customers in 1999 totaled $101 million.
 The Company has recorded a regulatory asset of $20 million for the difference
in the authorized CTC revenues, adjusted for $1 million securitization savings
to be shared with customers, and the actual transition revenues billed to
customers.  The Pennsylvania PUC has approved the recovery of this regulatory
asset through a true-up mechanism currently in process.

The order also authorized recognition of an additional CTC regulatory asset
(Additional CTC Regulatory Asset) as follows:

                      Year                             Amount
                               (Millions of Dollars)
                      1999........................$25
                      2000........................ 45
                      2001........................ 60
                      2002........................ 50

To the extent that the Company records any or all of the Additional CTC
Regulatory Asset, it will be amortized in 2005 through 2008.  This Additional
CTC Regulatory Asset was approved by the Pennsylvania PUC to reduce the
adverse effects, if any, that competition will have on the Company during
the years 1999 to 2002.  No Additional CTC Regulatory Asset was recorded by
the Company as of December 31, 1999.

Prior to 1999, the Customer Choice Act, required all electric utilities in
Pennsylvania to establish and administer retail access pilot programs under
which customers representing 5% of the load of each rate class would choose an
electricity supplier other than their own local franchise utility.  The pilot
programs began on November 1, 1997, and continued through December 31, 1998.
 As ordered by the Pennsylvania PUC, pilot participants received an energy
credit to their bills from their local utility and paid an alternate supplier
for energy.  To assure participation in the pilot program, the credit
established by the Pennsylvania PUC was artificially high (greater than the
Company's generation costs), with the result that the Company suffered a loss
of $8.6 million.  The Company mitigated the loss by competing for sales to
pilot participants of other utilities as an alternate supplier.  The
Pennsylvania PUC approved the Company's pilot compliance filing and thus has
indicated its intent to treat the net revenue loss as a regulatory asset
subject to review and potential rate recovery. Accordingly, the Company
deferred the net revenue loss as a regulatory asset.

On August 12, 1999, the Company filed its Competitive Transition Charge
Reconciliation Statement pursuant to the settlement agreement approved by
the Pennsylvania PUC.  The reconciliation shows a seven-month under-collection
and its potential effects on the CTC rate effective January 1, 2000.  The
seven-month transition cost under-collection for the period ended July 31,
1999 was $15.9 million.

On November 2, 1999, the Company, the Office of Consumer Advocate, West Penn
Industrial Intervenors, and the Commission's Office of Trial Staff filed a
Joint Petition for Approval of Settlement Agreement.  The agreement proposed
that the Company use the savings from securitization during the remainder of
1999 and during 2000 to recover the existing 1999 CTC underrecovery and the

                                  F-80

<PAGE>


	                                              West Penn Power Company
	                                              and Subsidiaries


expected increase in year 2000 CTC underrecovery due to lower than projected
energy sales.
On December 16, 1999, the Pennsylvania PUC approved the joint petition for
settlement allowing the Company to collect the 1999 CTC underrecovery.

NOTE C:  ACCOUNTING FOR THE EFFECTS OF PRICE DEREGULATION

In 1997, the Emerging Issues Task Force (EITF), issued EITF No. 97-4,
"Deregulation of the Pricing of Electricity - Issues Related to the
Application of FASB Statement Nos. 71 and 101."  The EITF agreed that, when
a rate order that contains sufficient detail for the enterprise to reasonably
determine how the transition plan will affect the separable portion of its
business whose pricing is being deregulated is issued, the entity should
cease to apply SFAS No. 71 to that separable portion of its business.

On May 29, 1998, the Pennsylvania PUC issued an order approving a transition
plan for the Company.  This order was subsequently amended by a settlement
agreement approved by the Pennsylvania PUC on November 19, 1998.  Based on
the Pennsylvania PUC order and subsequent settlement agreement, the Company
discontinued the application of SFAS No. 71 to its generation operations in
the second quarter of 1998.

The Company recorded under the provisions of SFAS No. 101, "Accounting for
the Discontinuation of Application of FASB Statement No. 71," an
extraordinary charge of $466.9 million ($275.4 million after taxes) in 1998
to reflect the disallowances of certain costs in the Pennsylvania PUC's
May 29, 1998, order, as revised by the Pennsylvania PUC-approved November 19,
1998 settlement agreement. The charge reflects adverse power purchase
commitments (commitments to purchase power at prices above market prices for
electricity), the impairment of the investment in the Bath County pumped-
torage plant, and net regulatory assets that will not be collected  from
customers under the Pennsylvania PUC's Order and settlement agreement as
follows:

(Millions of Dollars)                                  Gross      Net-of-Tax

AES Beaver Valley nonutility generation contract.....  $197.5        $116.5
Impairment of Bath County pumped-storage plant.......   165.6          97.7
Net regulatory assets................................   103.8          61.2
  Total 1998 extraordinary charge....................  $466.9        $275.4


On December 31, 1999, the Company's reserve for adverse power purchase
commitments was $328.8 million based on the Company's forecast of future
energy revenues and other factors.  A change in the estimated energy
revenues or other factors could have a material effect on the amount of the
reserve for adverse power purchases.

See Note B for additional information regarding the transition plan approved
in Pennsylvania.

                                  F-81

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



In addition to the 1998 extraordinary charge, the Company recorded an
additional charge against income in 1998 of $40.3 million ($23.7 million
after taxes) associated with a rate refund and development of renewable
energy programs as required by the Pennsylvania settlement agreement.

The consolidated balance sheet includes the amounts listed below for
generation assets not subject to SFAS No. 71 (See Note N regarding the
transfer of net generation assets):

<TABLE>
<CAPTION>
						                                    December      December
(Millions of Dollars)                                                    1999          1998

<S>                                                                          <C>      <C>
Property, plant, and equipment at original cost..............................$ 9.1    $ 1,969.6
Amounts under construction included above....................................              39.2
Accumulated depreciation..................................................... (1.1)      (870.8)

</TABLE>

NOTE D:  EXTRAORDINARY CHARGE ON LOSS ON REACQUIRED DEBT

During 1999, the Company reacquired $525 million of outstanding first
mortgage bonds and recorded a loss of $17.0 million ($10.0 million after
taxes) associated with this transaction.  In accordance with Accounting
Principles Board Opinion No. 26, "Early Extinguishment of Debt," and SFAS
No. 4, "Reporting Gains and Losses from Extinguishment of Debt," this
amount is classified as an extraordinary item in the consolidated
statement of income.

NOTE E:  INCOME TAXES

Details of federal and state income tax provisions are:

(Thousands of Dollars)                             1999       1998      1997

Income taxes--current:
  Federal....................................   $25,258   $ 47,605   $29,426
  State......................................    11,145     18,415    12,357
    Total....................................    36,403     66,020    41,783
Income taxes--deferred, net of
  amortization...............................    41,608      1,069    33,961
Income taxes--deferred, extraordinary
  charge.....................................    (6,936)  (191,480)
Amortization of deferred investment
  credit.....................................    (2,431)    (2,580)   (2,580)
    Total income taxes.......................    68,644   (126,971)   73,164
Income taxes--(charged) credited
  to other income and deductions.............    (4,007)        17       115
Income taxes--credited to
  extraordinary charge.......................     6,936    191,480
Income taxes--charged to
  operating income...........................   $71,573   $ 64,526   $73,279

The total provision for income taxes is different from the amount produced by
applying the federal income statutory tax rate of 35% to financial accounting
income, as set forth below:

                                  F-82

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

<TABLE>
<CAPTION>



(Thousands of Dollars)                            1999         1998        1997

  <S>                                         <C>          <C>         <C>
Income before income taxes
  and extraordinary charge................    $209,173     $177,146    $207,944

Amount so produced........................    $ 73,211     $ 62,001    $ 72,780
Increased (decreased) for:
  Tax deductions for which deferred
    tax was not provided:
      Lower tax depreciation..............       3,639        1,500       5,700
      Plant removal costs.................      (3,548)       1,000       1,400
  State income tax, net of federal
    income tax benefit....................       5,571       10,000       4,900
  Amortization of deferred
    investment credit.....................      (2,431)      (2,580)     (2,580)
  Equity in earnings of subsidiaries......      (3,831)      (3,900)     (6,300)
  Other, net..............................      (1,038)      (3,495)     (2,621)
    Total.................................    $ 71,573     $ 64,526    $ 73,279

</TABLE>


The provision for income taxes for the extraordinary charge is different from
the amount produced by applying the federal income statutory tax rate of 35%
to the gross amount, as set forth below:

(Thousands of Dollars)                                        1999         1998

Extraordinary charge before income taxes..............    $ 16,954     $466,905

Amount so produced....................................    $  5,934     $163,417
Increased for state income tax, net of federal
  income tax benefit..................................       1,002       28,063
    Total.............................................    $  6,936     $191,480

Federal income tax returns through 1995 have been examined and substantially
settled.  At December 31, the deferred tax assets and liabilities consisted
of the following:

                                  F-83
<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries


(Thousands of Dollars)                                     1999         1998

Deferred tax assets:
  Recovery of transition costs....................     $ 49,854     $154,530
  Unamortized investment tax credit...............       27,665       29,674
  Postretirement benefits other than pensions.....       16,602       15,610
  Unbilled revenue................................        8,911        9,068
  Tax interest capitalized........................        8,386       19,010
  Contributions in aid of construction............        7,673        6,988
  Internal restructuring..........................        2,954        2,954
  Revenue refund..................................                    10,301
  Other...........................................       25,260       24,724
                                                        147,305      272,859
Deferred tax liabilities:
  Book vs. tax plant basis differences, net.......      307,072      503,605
  Other...........................................       36,031       33,214
                                                        343,103      536,819
Total net deferred tax liabilities................      195,798      263,960
Portion above included in current
  assets..........................................       15,571       20,472
    Total long-term net deferred tax liabilities..     $211,369     $284,432


NOTE F:  ALLEGHENY GENERATING COMPANY

The Company owned 45% of the common stock of Allegheny Generating Company
(AGC) in 1997, 1998, and through November 17, 1999.  On November 18, 1999,
the Company transferred its 45% ownership in AGC to Allegheny Energy Supply
at book value as allowed by the final settlement in the Pennsylvania
restructuring case. Affiliates of the Company (Monongahela Power Company
and The Potomac Edison Company) own the remainder.  AGC is reported by the
Company in its financial statements using the equity method of accounting.
AGC owns an undivided 40% interest, 840 MW, in the 2,100-MW pumped-storage
hydroelectric station in Bath County, Virginia, operated by the 60% owner,
Virginia Electric and Power Company, a nonaffiliated utility.

AGC recovers from the Company and its affiliates all of its operation and
maintenance expenses, depreciation, taxes, and a return on its investment
under a wholesale rate schedule approved by the FERC.  AGC's rates are set
by a formula filed with and previously accepted by the FERC.  The only
component which changes is the return on equity (ROE).  Pursuant to a
settlement agreement filed April 4, 1996, with the FERC, AGC's ROE was
set at 11% for 1996 and will continue until the time any affected party
seeks renegotiation of the ROE.

                                  F-84
<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



Following is a summary of financial information for AGC:

                                                           December 31
(Thousands of Dollars)                                 1999           1998

Balance sheet information:
  Property, plant, and equipment.................    $601,717      $618,608
  Current assets.................................       7,261         5,857
  Deferred charges...............................      11,905        14,993
    Total assets.................................    $620,883      $639,458

  Total capitalization...........................    $303,422      $314,105
  Current liabilities............................      65,463        75,849
  Deferred credits...............................     251,998       249,504
    Total capitalization and liabilities.........    $620,883      $639,458


                                                 Year Ended December 31
     (Thousands of Dollars)                 1999         1998         1997

Income statement information:
  Electric operating revenues..........    $70,592      $73,816      $76,458
  Operation and maintenance expense....      5,023        4,592        4,877
  Depreciation.........................     16,980       16,949       17,000
  Taxes other than income taxes........      4,510        4,662        4,835
  Federal income taxes.................      9,997       10,959       11,213
  Interest charges.....................     13,261       13,987       15,391
  Other income, net....................       (394)         (86)      (9,126)
    Net income.........................    $21,215      $22,753      $32,268


The Company's share of the equity in earnings in 1999 through November 17,
1999, was $8.4 million, and was $10.2 million and $14.5 million for 1998 and
1997, respectively, and is included in other income, net, on the Company's
consolidated statement of income.


NOTE G:  POSTRETIREMENT BENEFITS

As described in Note A, the Company is responsible for its proportionate
share of the cost of the pension plan and medical and life insurance plans
for eligible employees and dependents provided by AESC. The Company's share
of the (credits) costs of these plans, a portion of which (approximately
35%) was (credited) or charged to plant construction, is as follows:

                                  F-85
<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



(Thousands of Dollars)                        1999         1998         1997

Pension................................    $(1,541)      $  919      $(3,037)
Medical and life insurance.............      6,326       $6,708      $ 4,551



NOTE  H:  REGULATORY ASSETS AND LIABILITIES

The Company's operations are subject to the provisions of SFAS No. 71.
Regulatory assets represent probable future revenues associated with deferred
costs that are expected to be recovered from customers through the ratemaking
process.  Regulatory liabilities represent probable future reductions in
revenues associated with amounts that are to be credited to customers through
the ratemaking process.  Regulatory assets, net of regulatory liabilities,
reflected in the consolidated balance sheet at December 31 relate to:

(Thousands of Dollars)                                  1999         1998

Long-Term Assets (Liabilities), Net:
  Income taxes, net............................      167,539     $159,282
  Pennsylvania stranded cost recovery (CTC)....      251,903      280,388
  Pensylvania CTC true-up......................       20,004
  Pennsylvania pilot deferred revenue..........        9,040        6,727
  Pennsylvania tax increases...................        3,520
  Storm damage.................................          850        1,054
    Subtotal...................................      452,856      447,451
Current Assets:
  CTC recovery.................................       23,957       17,372
    Subtotal...................................       23,957       17,372
      Net Regulatory Assets....................     $476,813     $464,823

See Notes B and C for a discussion of the deregulation plan approved in
Pennsylvania.

NOTE I:  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair value of financial instruments at
December 31 were as follows:

                                          1999                  1998
                                   Carrying      Fair    Carrying      Fair
(Thousands of Dollars)               Amount     Value      Amount     Value

Assets:
  Temporary cash investments....   $ 13,381  $ 13,381    $    882  $    882
Liabilities:
  Short-term debt...............                           65,066    65,066
  Long-term debt and QUIDS......  1,018,365   989,368     845,535   902,037


The carrying amount of temporary cash investments, as well as short-term
debt, approximates the fair value because of the short maturity of those
instruments.  The fair value of long-term debt and QUIDS was estimated based

                                  F-86

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries

on actual market prices or market prices of similar issues.  The
Company had no financial instruments held or issued for trading purposes.

NOTE J:  CAPITALIZATION

Preferred Stock
The Company called or redeemed all outstanding shares of its cumulative
preferred stock with a combined par value of $79.7 million plus redemption
premiums of $3.3 million on July 15, 1999, with proceeds from new $84-million
five-year unsecured medium-term notes issued in the second quarter at a
6.375% coupon rate.

Long-Term Debt and QUIDS
Maturities for long-term debt in thousands of dollars for the next five years
are: 2000, $49,734; 2001, $57,283; 2002, $103,845; 2003, $137,496; and 2004,
$157,714.  Some of the properties of the Company are held subject to the lien
securing certain pollution control and solid waste disposal notes. During
1999, the Company reacquired all of its outstanding $525 million in first
mortgage bonds.

In November 1999, the Company issued $600 million of transition
bonds through a wholly-owned subsidiary, West Penn Funding, LLC, as
authorized by the Pennsylvania PUC (see Note B).  The transition
bonds are secured by the collection of transition costs through a
nonbypassable charge to customers in the Company's service area.


NOTE K:  SHORT-TERM DEBT

To provide interim financing and support for outstanding commercial paper,
the System companies have established lines of credit with several banks.
 The Company has SEC authorization for total short-term borrowings of $500
million, including money pool borrowings described below.  The Company has
fee arrangements on all of its lines of credit and no compensating balance
requirements.  In addition to bank lines of credit, an Allegheny Energy
internal money pool accommodates intercompany short-term borrowing needs,
to the extent that certain of the regulated companies have funds available.

The Company had no short-term debt outstanding at December 31, 1999.
Short-term debt outstanding for 1999 and 1998 consisted of:

(Thousands of Dollars)                             1999                1998

Balance and interest rate
  at end of year:
    Commercial Paper.......................                        $55,766-5.45%
    Money Pool.............................                          9,300-4.80%
Average amount outstanding and
  interest rate during the year:
    Commercial Paper.......................    $21,746-5.19%       $32,824-5.60%
    Notes Payable to Banks.................     15,549-5.20%        16,885-5.60%
    Money Pool.............................     51,605-4.97%        10,942-5.38%

                                  F-87
<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



NOTE L:  BUSINESS SEGMENTS

The Company's principal business segments were utility and nonutility
operations. The utility operation now does business as Allegheny Power
collectively with its affiliates Monongahela Power and Potomac Edison.
 Allegheny Power is involved in the delivery (transmission and
distribution) and procurement of electric energy subject to federal and
state traditional utility price regulation.  Nonutility operations during
1999 consisted primarily of costs and revenues associated with the
two-thirds of generating capacity that has been freed up by the Customer
Choice Act in Pennsylvania and is no longer regulated by the Pennsylvania
PUC.  In November 1999, Allegheny Energy formed a new nonutility
generating company, Allegheny Energy Supply.  The Company transferred
its generating capacity, which totaled 3,778 MW, at book value as allowed
by the final settlement in the Company's Pennsylvania restructuring case.

Business segment information for 1999, 1998, and 1997 is summarized below.
Significant transactions between reportable segments are eliminated to
reconcile the segment information to consolidated amounts.  The identifiable
assets information does not reflect the elimination of intercompany balances
or transactions which are eliminated in the Company's consolidated financial
statements.

<TABLE>
<CAPTION>

(Thousands of Dollars)             1999             1998             1997

Operating Revenues:
    <s                          <C>            <C>               <C>
    Utility	                    $977,221       $1,078,727        1,082,162
    Nonutility	               681,637
    Eliminations	              (304,655)
Depreciation and Amoritization:
    Utility	                      68,709          114,709          113,793
    Nonutility                    45,559
Federal and State Income Taxes:
    Utility	                      40,867           64,526           73,279
    Nonutility	                30,706
Operating Income:
    Utility	                     133,321          166,532          182,647
    Nonutility	                60,448
Interest Charges:
    Utility 	                44,341           65,818           67,651
    Nonutility	                21,482
Consolidated Income Before
  Extraordinary Charge:
    Utility	                      98,011          112,620          134,665
    Nonutility	                39,589
Extraordinary Charge, Net:
    Utility	                     (10,018)        (275,426)
 Identifiable Assets:
    Utility	                   1,864,746        2,887,706        2,777,375
    Nonutility	                    19
Capital Expenditures:
    Utility	                      86,290           95,975          128,054
    Nonutility	                27,956

</TABLE>

                                  F-88

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries




See Notes C and D for a discussion of extraordinary charges, net.

NOTE M:  RELATED PARTY TRANSACTION

All of the employees of Allegheny Energy are employed by AESC, which performs
services at cost for the Company and its affiliates in accordance with the
PUHCA. Through AESC, the Company is responsible for its proportionate share
of services provided by AESC.  The total billings by AESC (including capital)
to the Company for each of the years of 1999, 1998, and 1997 were $198.7
million, $177.9 million, and $168.8 million, respectively.

NOTE N: TRANSFER OF ASSETS

On November 18, 1999, the Company transferred its generating capacity to
Allegheny Energy Supply at book value as allowed by the final settlement
in the Company's Pennsylvania restructuring case.  The net assets
transferred to Allegheny Energy Supply are shown below:

                                              (Millions of Dollars)

Property, plant, and equipment, net
  of accumulated depreciation	                        $920.3
Investment in Allegheny Generating Company	        71.5
Other assets	                                     120.7
Liabilities	                                           421.1

The Company made a liquidating dividend up to Allegheny Energy for its
ownership interest in Allegheny Energy Supply.  The Company no longer has
any ownership interest in generating assets or contractual rights to
generating capacity other than those arising under the Public Utility
egulatory Policies Act of 1978.  The effect of this liquidating dividend
was to reduce the Company's common equity by $691.4 million.

NOTE O:  COMMITMENTS AND CONTINGENCIES

Construction Program
The Company has entered into commitments for its construction program,
for which expenditures are estimated to be $47 million for 2000 and $43
million for 2001.

Environmental Matters and Litigation
The Company is subject to various laws, regulations, and uncertainties as to
environmental matters.  Compliance may require the Company to incur
substantial additional costs to modify or replace existing and proposed
equipment and facilities and may adversely affect the cost of future
operations.

On March 4, 1994, the Company and its regulated affiliates received notice
that the EPA had identified them as potentially responsible parties (PRPs)
under the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, with respect to a Superfund Site.  There are
approximately 175 other PRPs involved.  A final determination has not been
made for the Company and its regulated affiliates share of the remediation

                                  F-89

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries


costs based on the amount of materials sent to the site.  However, the
Company and its regulated affiliates estimate that their share of the cleanup
liability will not exceed $1 million.

The Company and its regulated affiliates have also been named as defendants
along with multiple other defendants in pending asbestos cases involving
multiple plaintiffs.  While the Company believes that all of the cases are
without merit, the Company cannot predict the outcome of the litigation.  A
reserve of $1.9 million accrued by the Company related to the asbestos cases
as the potential cost to settle the cases to avoid the anticipated cost of
defense was transferred to Allegheny Energy Supply as part of the transfer
of the Company's deregulated generating capacity.

In the normal course of business, the Company and its subsidiaries become
involved in various legal proceedings.  The Company and its subsidiaries do
not believe that the ultimate outcome of these proceedings will have a
material effect on their financial position.

Leases
The Company's lease obligations as of December 31, 1999, and 1998 were not
material effect on their financial position.

                                  F-90

<PAGE>

	                                              West Penn Power Company
	                                              and Subsidiaries



REPORT OF MANAGEMENT


The management of the Company is responsible for the information and
representations in the Company's financial statements. The Company prepares
the financial statements in accordance with generally accepted accounting
principles based upon available facts and circumstances and management's best
estimates and judgments of known conditions.

The Company maintains an accounting system and related system of internal
controls designed to provide reasonable assurance that the financial records
are accurate and that the Company's assets are protected. The Company's staff
of internal auditors conducts periodic reviews designed to assist management
in maintaining the effectiveness of internal control procedures.

PricewaterhouseCoopers LLP, an independent accounting firm, audits the
financial statements and expresses its opinion on them. The independent
accountants perform their audit in accordance with generally accepted
auditing standards.

The Audit Committee of the Board of Directors, which consists of three
outside Directors, meets periodically with management, internal auditors,
and PricewaterhouseCoopers LLP to review the activities of each in
discharging their responsibilities. The internal audit staff and
PricewaterhouseCoopers LLP have free access to all of the Company's records
and to the Audit Committee.



Alan J. Noia                                          Michael P. Morrell
Chairman and                                          Vice President and
Chief Executive Officer                               Chief Financial Officer

                                  F-91

<PAGE>


                                              Allegheny Generating Company



REPORT OF INDEPENDENT ACCOUNTANTS


To The Board of Directors and the Shareholders
of Allegheny Generating Company


In our opinion, the accompanying balance sheets and the related statements of
income, of retained earnings and of cash flows present fairly, in all material
respects, the financial position of Allegheny Generating Company (a subsidiary
of Allegheny Energy, Inc.) at December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.  These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits.  We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.



PricewaterhouseCoopers LLP


Pittsburgh, Pennsylvania
February 3, 2000

                                       F-92


<PAGE>

STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31
(Thousands of Dollars)                                                 1999       1998       1997

<S>                                                                  <C>        <C>        <C>
Electric Operating Revenues..........................................$70,592    $73,816    $76,458

Operating Expenses:
  Operation and maintenance expense...............................     5,023      4,592      4,877
  Depreciation....................................................    16,980     16,949     17,000
  Taxes other than income taxes...................................     4,510      4,662      4,835
  Federal income taxes............................................     9,997     10,959     11,213
    Total Operating Expenses......................................    36,510     37,162     37,925
    Operating Income..............................................    34,082     36,654     38,533

Other Income, net.................................................       394         86      9,126
  Income Before Interest Charges..................................    34,476     36,740     47,659

Interest Charges:
  Interest on long-term debt......................................     9,760     10,848     14,431
  Other interest..................................................     3,501      3,139        960
    Total Interest Charges........................................    13,261     13,987     15,391

Net Income........................................................   $21,215    $22,753    $32,268






STATEMENT OF RETAINED EARNINGS

Balance at January 1..............................................   $     0    $     0    $     0
Add:
  Net income......................................................    21,215     22,753     32,268
                                                                      21,215     22,753     32,268
Deduct:
  Dividends on common stock (declared)............................    21,215*    22,753*    32,268*

Balance at December 31............................................   $     0    $     0    $     0


</TABLE>



*Excludes cash dividends paid from other paid-in capital.


 See accompanying notes to financial statements.


                                       F-93


<PAGE>
                                               Allegheny Generating Company


STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                          YEAR ENDED DECEMBER 31
(Thousands of Dollars)                                                 1999        1998        1997


  <S>                                                                 <C>        <C>         <C>
Cash Flows from Operations:
  Net income......................................................    $21,215    $22,753     $32,268
  Depreciation....................................................     16,980     16,949      17,000
  Tax-related contract settlement.................................                             8,835
  Deferred investment credit and income taxes, net................      4,981      5,305       6,329
  Changes in certain current assets and liabilities:
    Accounts receivable...........................................         (2)         6       1,331
    Materials and supplies........................................        (25)      (261)        260
    Accounts payable..............................................      2,804       (340)      5,913
  Other, net......................................................        718        578          28
                                                                       46,671     44,990      71,964

Cash Flows from Investing:
  Construction expenditures.......................................        (85)       (69)       (444)


Cash Flows from Financing:
  Retirement of long-term debt....................................               (60,000)    (30,592)
  Notes payable to parent.........................................    (66,750)    66,750
  Notes payable to affiliate......................................     52,150
  Cash dividends paid on common stock.............................    (32,000)   (57,000)    (35,700)
                                                                      (46,600)   (50,250)    (66,292)

Net Change in Cash and Temporary Cash Investments.......................  (14)    (5,329)      5,228
Cash and Temporary Cash Investments at January 1..................         30      5,359         131
Cash and Temporary Cash Investments at December 31................    $    16    $    30     $ 5,359


Supplemental Cash Flow Information
  Cash paid during the year for:
    Interest......................................................    $12,465    $14,490     $14,770
    Income taxes..................................................    $ 4,649    $ 4,828     $10,313

</TABLE>



See accompanying notes to financial statements.


                                       F-94


<PAGE>
                                               Allegheny Generating Company


BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31
(Thousands of Dollars)                                                            1999         1998

ASSETS

  <S>                                                                      <C>          <C>
Property, Plant, and Equipment:
  At original cost, including $673 and $595 under construction......       $828,894     $828,806
  Accumulated depreciation..........................................       (227,177)    (210,198)
                                                                            601,717      618,608

Current Assets:
  Cash..............................................................             16           30
  Accounts receivable from parents..................................              2
  Materials and supplies--at average cost...........................          2,118        2,093
  Prepaid taxes.....................................................          4,318        3,569
  Income tax refund receivable......................................            600
  Other.............................................................            207          165
                                                                              7,261        5,857

Deferred Charges:
  Regulatory assets.................................................          4,568        7,056
  Unamortized loss on reacquired debt...............................          7,168        7,768
  Other.............................................................            169          169
                                                                             11,905       14,993
Total...............................................................       $620,883     $639,458


CAPITALIZATION AND LIABILITIES

Capitalization:
  Common stock - $1.00 par value per share, authorized
    5,000 shares, outstanding 1,000 shares. ........................       $      1     $      1
  Other paid-in capital.............................................        154,490      165,275
                                                                            154,491      165,276
  Long-term debt....................................................        148,931      148,829
                                                                            303,422      314,105

Current Liabilities:
  Notes payable to parent...........................................                      66,750
  Notes payable to affiliate........................................         52,150
  Accounts payable..................................................            376
  Accounts payable to parents.......................................          4,360        5,755
  Accounts payable to affiliates....................................          3,863           40
  Interest accrued..................................................          3,229        3,229
  Other.............................................................          1,485           75
                                                                             65,463       75,849

Deferred Credits:
  Unamortized investment credit.....................................         45,199       47,020
  Deferred income taxes.............................................        182,461      177,166
  Regulatory liabilities............................................         24,338       25,318
                                                                            251,998      249,504

Total...............................................................       $620,883     $639,458

</TABLE>



See accompanying notes to financial statements.


                                       F-95


<PAGE>
                                               Allegheny Generating Company


NOTES TO FINANCIAL STATEMENTS
(These notes are an integral part of the financial statements.)


NOTE A:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Allegheny Generating Company (the Company) was incorporated in Virginia in
1981.  Its common stock is owned by Monongahela Power Company - 27%, The
Potomac Edison Company - 28%, and Allegheny Energy Supply Company, LLC -
45% (the Parents). The Parents are wholly-owned subsidiaries of Allegheny
Energy, Inc. (Allegheny Energy) and are a part of the Allegheny Energy
integrated electric utility system.  The Company operates as a single
business segment selling its entire capacity to its Parents priced under
a cost-of-service wholesale rate schedule.  The Company is subject to
regulation by the Securities and Exchange Commission (SEC) and by the
Federal Energy Regulatory Commission (FERC).  Significant accounting
policies of the Company are summarized below.

Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
that affect the reported amounts of assets, liabilities, revenues,
expenses, and disclosures of contingencies during the reporting period,
which in the normal course of business are subsequently adjusted to
actual results.

Revenues
Revenues are determined under a cost-of-service formula rate schedule
approved by the FERC.  Under this arrangement, the Company recovers in
revenues all of its operation and maintenance expense, depreciation,
taxes, and a return on its investment.  All sales are made to the
Company's Parents.

Property, Plant, and Equipment
Property, plant, and equipment are stated at original cost, and consist
of a 40% undivided interest in the Bath County pumped-storage
hydroelectric station and its connecting transmission facilities.
The cost of depreciable property units retired, plus removal costs
less salvage, are charged to accumulated depreciation.

Depreciation and Maintenance
Provisions for depreciation are determined on a straight-line method
based on estimated service lives of depreciable properties and amounted
to approximately 2.1% of average depreciable property in each of the years
1999, 1998, and 1997. The cost of maintenance and of certain replacements
of property, plant, and equipment is charged to operating expenses.

Temporary Cash Investments
For purposes of the statement of cash flows, temporary cash investments
with original maturities of three months or less, generally in the form
of commercial paper, certificates of deposit, and repurchase agreements,
are considered to be the equivalent of cash.

Regulatory Assets and Liabilities
In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects
of Certain Types of Regulation," the Company's financial statements include
certain assets and liabilities resulting from cost-based ratemaking
regulation.


                                       F-96


<PAGE>
                                               Allegheny Generating Company


Income Taxes
The Company joins with its Parents and affiliates in filing a consolidated
federal income tax return.  The consolidated tax liability is allocated
among the participants generally in proportion to the taxable income of
each participant, except that no subsidiary pays tax in excess of its
separate return tax liability.

Financial accounting income before income taxes differs from taxable income
principally because certain income and deductions for tax purposes are
recorded in the financial income statement in another period. Deferred tax
assets and liabilities represent the tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities
computed using the most current tax rates.

The Company has deferred the tax benefit of investment tax credits.
Investment tax credits are amortized over the estimated service lives of
the related properties.

Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," effective for 1998,
established standards for reporting comprehensive income and its components
(revenues, expenses, gains, and losses) in the financial statements.  The
Company does not have any elements of other comprehensive income to report
in accordance with SFAS No. 130.

NOTE B:  INCOME TAXES

Details of federal income tax provisions are:

(Thousands of Dollars)                      1999         1998         1997

Current income taxes payable..........    $ 5,231      $ 5,700      $ 9,799
Deferred income taxes--
  accelerated depreciation............      6,803        6,628        7,652
Amortization of deferred
  investment credit...................     (1,822)      (1,323)      (1,323)
    Total income taxes................     10,212       11,005       16,128
Income taxes--charged to other
  income, net.........................       (215)         (46)      (4,915)
Income taxes--charged to operating
  income..............................    $ 9,997      $10,959      $11,213

The total provision for income taxes was less than the amount produced by
applying the federal income statutory tax rate of 35% to financial accounting
income before income taxes in 1999 and 1998 primarily due to amortization of
deferred investment credit, and in 1997 primarily due to income taxes charged
to other income, net related to interest earned on a tax-related contract
settlement.


                                       F-97


<PAGE>
                                               Allegheny Generating Company


Federal income tax returns through 1995 have been examined and substantially
settled.  At December 31, the deferred tax liabilities, net consisted of the
following:

(Thousands of Dollars)                                  1999           1998

Deferred tax liabilities, net:
  Unamortized investment tax credit...............   $(24,338)      $(25,318)
  Book vs. tax plant basis differences, net.......    206,799        202,484
    Total long-term net deferred tax liabilities..   $182,461       $177,166

NOTE C:  REGULATORY ASSETS AND LIABILITIES

The Company's operations are subject to the provisions of SFAS No. 71.
Regulatory assets represent probable future revenues associated with
deferred costs that are expected to be recovered from customers through
the ratemaking process.  Regulatory liabilities represent probable future
reductions in revenues associated with amounts that are to be credited to
customers through the ratemaking process.  Regulatory liabilities, net of
regulatory assets, in thousands of dollars of $19,770 in 1999 and $18,262
in 1998 relate to income taxes.

NOTE D:  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair value of financial instruments at
December 31 were as follows:

                                      1999                      1998
                             Carrying       Fair       Carrying       Fair
(Thousands of Dollars)        Amount        Value       Amount        Value

Liabilities:
  Short-term debt........     $ 52,150    $ 52,150     $ 66,750     $ 66,750
  Long-term debt-
    Debentures...........      150,000     147,700      150,000      155,568

The carrying amount of short-term debt approximates the fair value because of
the short maturity of these instruments.  The fair value of debentures was
estimated based on actual market prices or market prices of similar issues.
 The Company has no financial instruments held or issued for trading purposes.

NOTE E:  CAPITALIZATION

The Company systematically reduces capitalization each year as its asset
depreciates, resulting in the payment of dividends in excess of current
earnings.  The SEC has approved the Company's request to pay common dividends
out of capital.  Common dividends were paid from retained earnings, reducing
the account balance to zero, and from other paid-in capital as follows:

(Thousands of Dollars)                  1999           1998           1997

Retained earnings..................   $21,215        $22,753        $32,268
Other paid-in capital..............    10,785         34,247          3,432
  Total............................   $32,000        $57,000        $35,700


                                       F-98


<PAGE>
                                               Allegheny Generating Company

NOTE F:  LONG-TERM DEBT

The Company had long-term debt outstanding as follows:

                                        12-31-99
                                        Interest            December 31
(Thousands of Dollars)                    Rate           1999         1998

Debentures due:
  September 1, 2003.................     5.625%        $ 50,000     $ 50,000
  September 1, 2023.................     6.875%         100,000      100,000
Unamortized debt discount...........                     (1,069)      (1,171)
    Total...........................                   $148,931     $148,829


NOTE G:  SHORT-TERM DEBT

To provide interim financing and support for outstanding commercial paper, the
Allegheny Energy companies have established lines of credit with several banks.
The Company has SEC authorization for total short-term borrowings of $100
million, including money pool borrowings described below.  The Company has
fee arrangements on all of its lines of credit and no compensating balance
requirements.  In addition to bank lines of credit, an Allegheny Energy
internal money pool accommodates intercompany short-term borrowing needs to
the Company, to the extent that Allegheny Energy and its regulated
subsidiaries have funds available. The Company had borrowings from the
Allegheny Energy money pool of $52.2 million at December 31, 1999 which was
funded by West Penn Power Company and $66.8 million at December 31, 1998
which was funded by The Potomac Edison Company.  Short-term debt outstanding
for 1999 and 1998 consisted of:

(Thousands of Dollars)		   1999               1998

Balance and interest rate at end of year:
  Money pool................................   $52,150-4.88%     $66,750-4.80%
Average amount outstanding and interest
  rate during the year:
    Money pool..............................    59,904-4.90%     $43,415-5.23%
    Commercial paper........................                       1,725-5.46%
    Notes payable to banks..................                         406-5.63%

NOTE H:  RELATED PARTY TRANSACTION

All of the employees of Allegheny Energy are employed by Allegheny Energy
Service Corporation (AESC), which performs services at cost for the Company
and its affiliates in accordance with the Public Utility Holding Company Act
of 1935. Through AESC, the Company is responsible for its proportionate share
of services provided by AESC.  The total billings by AESC (including capital)
to the Company was $.3 million for each of the years 1999 and 1998, and was
$.2 million for 1997.

                                       F-99


<PAGE>
                                               Allegheny Generating Company



REPORT OF MANAGEMENT

The management of the Company is responsible for the information and
representations in the Company's financial statements. The Company prepares
the financial statements in accordance with generally accepted accounting
principles based upon available facts and circumstances and management's best
estimates and judgements of known conditions.

The Company maintains an accounting system and related system of internal
controls designed to provide reasonable assurance that the financial records
are accurate and that the Company's assets are protected. The Company's staff
of internal auditors conducts periodic reviews designed to assist management
in maintaining the effectiveness of internal control procedures.
PricewaterhouseCoopers LLP, an independent accounting firm, audits the
financial statements and expresses its opinion on them. The independent
accountants perform their audit in accordance with generally accepted
auditing standards.

Management meets periodically with internal auditors and PricewaterhouseCoopers
LLP to review the activities of each in discharging their responsibilities. The
internal audit staff and PricewaterhouseCoopers LLP have free access to all of
the Company's records and to the Audit Committee.



Alan J. Noia                                    Michael P. Morrell
Chairman and                                    Vice President and
Chief Executive Officer                         Chief Financial Officer


                                       F-100


<PAGE>




                               S-1

                           SCHEDULE II

         ALLEGHENY ENERGY, INC. AND SUBSIDIARY COMPANIES


                Valuation and Qualifying Accounts
        For Years Ended December 31, 1999, 1998, and 1997


Allowance for
uncollectible accounts:

<TABLE>
<CAPTION>



Column A              Column B             Column C            Column D        Column E

                                          Additions
                      Balance at   Charged  to    Charged to                  Balance at
                      beginning    costs and        other                       end of
                      of period    expenses        accounts                     period
Description                                                    Deductions
                                                     (A)          (B)

Allowance for
uncollectible accounts:

<S>                   <C>          <C>           <C>           <C>            <C>
Year Ended 12/31/99   $19,560,137  $17,847,219   $6,486,429    $16,918,736    $26,975,049

Year Ended 12/31/98   $17,191,310  $15,371,602   $4,953,941    $17,956,716    $19,560,137

Year Ended 12/31/97   $15,052,494  $16,306,082   $3,869,153    $18,036,419    $17,191,310

</TABLE>


(A)  Recoveries.
(B)  Uncollectible accounts charged off.


<PAGE>


                               S-2
                           SCHEDULE II

                    MONONGAHELA POWER COMPANY

                Valuation and Qualifying Accounts
        For Years Ended December 31, 1999, 1998, and 1997


<TABLE>
<CAPTION>



Column A              Column B             Column C            Column D        Column E

                                          Additions
                      Balance at   Charged  to    Charged to                  Balance at
                      beginning    costs and        other                       end of
                      of period    expenses        accounts                     period
Description                                                    Deductions
                                                     (A)          (B)

Allowance for
uncollectible accounts:

<S>                   <C>          <C>           <C>           <C>            <C>
Year Ended 12/31/99   $ 2,515,749  $ 3,887,703   $1,796,318    $ 4,066,724    $ 4,133,046

Year Ended 12/31/98   $ 2,176.006  $ 3,951,000   $1,383,021    $ 4,994,278    $ 2,515,749

Year Ended 12/31/97   $ 1,949,219  $ 3,699,997   $1,005,246    $ 4,478,456    $ 2,176,006

</TABLE>


(A)  Recoveries.
(B)  Uncollectible accounts charged off.


<PAGE>



                               S-3
                           SCHEDULE II

                     POTOMAC EDISON COMPANY

                Valuation and Qualifying Accounts
        For Years Ended December 31, 1999, 1998, and 1997


<TABLE>
<CAPTION>



Column A              Column B             Column C            Column D        Column E

                                          Additions
                      Balance at   Charged  to    Charged to                  Balance at
                      beginning    costs and        other                       end of
                      of period    expenses        accounts                     period
Description                                                    Deductions
                                                     (A)          (B)

Allowance for
uncollectible accounts:

<S>                   <C>          <C>           <C>           <C>            <C>
Year Ended 12/31/99   $ 2,202,672  $ 4,235,040   $ 1,803,617   $ 4,706,854    $ 3,534,475

Year Ended 12/31/98   $ 1,683,485  $ 3,731,000   $ 1,456,097   $ 4,667,910    $ 2,202,672

Year Ended 12/31/97   $ 1,579,503  $ 3,700,000   $ 1,312,074   $ 4,908,092    $ 1,683,485

</TABLE>


(A)  Recoveries.
(B)  Uncollectible accounts charged off.


<PAGE>

                               S-4
                           SCHEDULE II

        WEST PENN POWER COMPANY AND SUBSIDIARY COMPANIES

                Valuation and Qualifying Accounts
        For Years Ended December 31, 1999, 1998, and 1997

<TABLE>
<CAPTION>



Column A              Column B             Column C            Column D        Column E

                                          Additions
                      Balance at   Charged  to    Charged to                  Balance at
                      beginning    costs and        other                       end of
                      of period    expenses        accounts                     period
Description                                                    Deductions
                                                     (A)          (B)

Allowance for
uncollectible accounts:

<S>                   <C>          <C>           <C>           <C>            <C>
Year Ended 12/31/99   $14,759,968  $ 6,575,517   $ 2,886,494   $ 8,145,158    $16,076,821

Year Ended 12/31/98   $13,325,739  $ 7,613,934   $ 2,114,823   $ 8,294,528    $14,759,968

Year Ended 12/31/97   $11,523,772  $ 8,900,005   $ 1,551,833   $ 8,649,871    $13,325,739

</TABLE>


(A)  Recoveries.
(B)  Uncollectible accounts charged off.


<PAGE>

                               50
Supplementary Data
Quarterly Financial Data (Unaudited)
(Dollar Amounts in Thousands Except for Per Share Data)

                  Electric
                  Operating    Operating     Net        Earnings
                  Revenues      Income      Income*     Per Share*
Quarter ended

AE
March 1999        $689 987     $140 246     $97 775     $ .80
June 1999          643 404      111 745      64 514       .55
September 1999     741 359      117 176      71 332       .63
December 1999      733 691      105 480      51 768       .46

March 1998         645 472      124,707      78 237       .64
June 1998          627 650      100 065      53 891       .44
September 1998     726 607      128 604      82 736       .68
December 1998      576 707       86 131      48 144       .39

Monongahela
March 1999         170 642       30 321      23 250
June 1999          160 459       25 102      18 556
September 1999     178 330       32 595      26 631
December 1999      163 904       31 019      23 890

March 1998         158 272       27 358      19 427
June 1998          153 774       24 087      16 611
September 1998     177 364       31 887      25 244
December 1998      155 712       28 154      21 143

Potomac Edison
March 1999         202 978       45 095      36 164
June 1999          174 691       27 543      18 736
September 1999     189 489       34 348      26 492
December 1999      186 099       28 736      19 191

March 1998         191 698       37 622      27 922
June 1998          177 519       30 036      20 504
September 1998     190 533       36 680      27 299
December 1998      177 744       34 458      25 757

West Penn
March 1999         317 730       58 674      45 499
June 1999          327 269       47 089      33 649
September 1999     395 662       42 295      31 507
December 1999      313 542       45 711      26 945

March 1998         280 703       52 619      39 001
June 1998          263 023       40 627      26 308
September 1998     288 272       56 248      42 835
December 1998      246 729       17 038       4 476

AGC
March 1999          17 857        8 455       5 053
June 1999           17 810        8 586       5 302
September 1999      18 072        8 821       5 516
December 1999       16 853        8 220       5 344

March 1998          18 604        9 450       5 937
June 1998           19 126        9 258       5 961
September 1998      18 303        9 297       5 625
December 1998       17 783        8 649       5 230

  *For AE and West Penn - 1998 results exclude the effect of
  extraordinary charges in June 1998 ($265,446, net of taxes, or
  $2.17 per share) and December 1998 ($9,980, net of taxes, or
  $.08 per share).

  *For AE, Potomac Edison and West Penn - 1999 results exclude
  the effect of extraordinary charges in December 1999 ($27, net
  of taxes, or $.24 per share).


<PAGE>

                               51


                REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and the Shareholders of
Allegheny Energy, Inc.


        In  our  opinion,  the consolidated financial  statements
listed  in the accompanying index present fairly, in all material
respects,  the financial position of Allegheny Energy,  Inc.  and
its  subsidiaries at December 31, 1999 and 1998, and the  results
of  their  operations and their cash flows for each of the  three
years  in the period ended December 31, 1999, in conformity  with
accounting  principles generally accepted in the  United  States.
In  addition,  in  our opinion, the financial statement  schedule
listed in the accompanying index presents fairly, in all material
respects,  the  information  set  forth  therein  when  read   in
conjunction  with the related consolidated financial  statements.
These  financial statements and financial statement schedule  are
the    responsibility   of   the   Company's   management;    our
responsibility  is  to  express an  opinion  on  these  financial
statements and financial statement schedule based on our  audits.
We  conducted  our audits of these statements in accordance  with
auditing standards generally accepted in the United States  which
require  that we plan and perform the audit to obtain  reasonable
assurance  about  whether the financial statements  are  free  of
material  misstatement.  An audit includes examining, on  a  test
basis,  evidence  supporting the amounts and disclosures  in  the
financial  statements, assessing the accounting  principles  used
and  significant estimates made by management, and evaluating the
overall  financial statement presentation.  We believe  that  our
audits  provide  a  reasonable basis for  the  opinion  expressed
above.





PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
February 3, 2000


<PAGE>

                               52




                REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
Monongahela Power Company


        In  our opinion, the financial statements listed  in  the
accompanying index present fairly, in all material respects,  the
financial position of Monongahela Power Company (a subsidiary  of
Allegheny  Energy, Inc.) at December 31, 1999 and 1998,  and  the
results  of  its operations and its cash flows for  each  of  the
three  years in the period ended December 31, 1999, in conformity
with  accounting  principles generally  accepted  in  the  United
States.   In  addition,  in our opinion the  financial  statement
schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in
conjunction   with  the  related  financial  statements.    These
financial  statements and financial statement  schedule  are  the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.  We conducted our  audits
of   these  statements  in  accordance  with  auditing  standards
generally  accepted in the United States, which  require that  we
plan  and perform the audit to obtain reasonable assurance  about
whether   the   financial  statements  are   free   of   material
misstatement.   An  audit includes examining, on  a  test  basis,
evidence  supporting the amounts and disclosures in the financial
statements,   assessing  the  accounting  principles   used   and
significant  estimates  made by management,  and  evaluating  the
overall  financial statement presentation.  We believe  that  our
audits  provide  a  reasonable basis for  the  opinion  expressed
above.






PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
February 3, 2000


<PAGE>

                               53




                REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
The Potomac Edison Company


        In  our opinion, the financial statements listed  in  the
accompanying index present fairly, in all material respects,  the
financial position of The Potomac Edison Company (a subsidiary of
Allegheny Energy, Inc. and its subsidiaries) at December 31, 1999
and  1998,  and  the results of their operations and  their  cash
flows  for  each of the three years in the period ended  December
31,  1999,  in  conformity with accounting  principles  generally
accepted in the United States.  In addition, in our opinion,  the
financial  statement  schedule listed in the  accompanying  index
presents  fairly, in all material respects, the  information  set
forth therein when read in conjunction with the related financial
statements.  These  financial statements and financial  statement
schedule are the responsibility of the Company's management;  our
responsibility  is  to  express an  opinion  on  these  financial
statements and financial statement schedule based on our  audits.
We  conducted  our audits of these statements in accordance  with
auditing standards generally accepted in the United States  which
require  that we plan and perform the audit to obtain  reasonable
assurance  about  whether the financial statements  are  free  of
material  misstatement.  An audit includes examining, on  a  test
basis,  evidence  supporting the amounts and disclosures  in  the
financial  statements, assessing the accounting  principles  used
and  significant estimates made by management, and evaluating the
overall  financial statement presentation.  We believe  that  our
audits  provide  a  reasonable basis for  the  opinion  expressed
above.





PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
February 3, 2000


<PAGE>

                               54




                REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
West Penn Power Company


        In  our  opinion,  the consolidated financial  statements
listed  in the accompanying index present fairly, in all material
respects,  the financial position of West Penn Power  Company  (a
subsidiary  of  Allegheny Energy, Inc.) and its  subsidiaries  at
December  31, 1999 and 1998, and the results of their  operations
and  their  cash flows for each of the three years in the  period
ended December 31, 1999, in conformity with accounting principles
generally  accepted in the United States.  In  addition,  in  our
opinion,   the  financial  statement  schedule  listed   in   the
accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction  with  the
related  financial  statements.  These financial  statements  and
financial  statement  schedule  are  the  responsibility  of  the
Company's management; our responsibility is to express an opinion
on  these  financial statements and financial statement  schedule
based on our audits.  We conducted our audits of these statements
in  accordance with auditing standards generally accepted in  the
United States, which require that we plan and perform the audit to
obtain   reasonable   assurance  about  whether   the   financial
statements are free of material misstatement.  An audit  includes
examining,  on a test basis, evidence supporting the amounts  and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating  the  overall  financial statement  presentation.   We
believe  that  our  audits  provide a reasonable  basis  for  the
opinion expressed above.





PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
February 3, 2000


<PAGE>

                               55




                REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
Allegheny Generating Company


        In  our opinion, the financial statements listed  in  the
accompanying index present fairly, in all material respects,  the
financial  position of Allegheny Generating Company (an  indirect
subsidiary  of Allegheny Energy, Inc.) at December 31,  1999  and
1998,  and  the results of its operations and its cash flows  for
each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted  in  the
United States.  These financial statements are the responsibility
of  the Company's management; our responsibility is to express an
opinion  on  these financial statements based on our audits.   We
conducted  our  audits  of these statements  in  accordance  with
auditing standards generally accepted in the United States  which
require  that we plan and perform the audit to obtain  reasonable
assurance  about  whether the financial statements  are  free  of
material  misstatement.  An audit includes examining, on  a  test
basis,  evidence  supporting the amounts and disclosures  in  the
financial  statements, assessing the accounting  principles  used
and  significant estimates made by management, and evaluating the
overall  financial statement presentation.  We believe  that  our
audits  provide  a  reasonable basis for  the  opinion  expressed
above.




PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
February 3, 2000


<PAGE>

                               56

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

   For AE and its subsidiaries, none.


                          PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

   AE, Monongahela, Potomac Edison, West Penn, and AGC. Reference
is made to the Executive Officers of the Registrants in Part I of
this  report.   The  names, ages as of  December  31,  1999,  the
business  experience during the past five years of the  directors
of the System companies and term of office are set forth below:

<TABLE>
<CAPTION>

                        Term of Office            Director since date shown of
    Name                  Expires(h)        Age     AE     MP     PE     WP     AGC

<S>                      <C>                 <C>   <C>    <C>    <C>    <C>    <C>
Eleanor Baum(a)          2001                59    1988   1988   1988   1988
William L. Bennett(b)    2001                50    1991   1991   1991   1991
Thomas K. Henderson(1)   Elected Annually    59                                1996
Wendell F. Holland(c)    2000                48    1994   1994   1994   1994
Phillip E. Lint(d)       2001                70    1989   1989   1989   1989
Frank A. Metz, Jr.(e)    2002                65    1984   1984   1984   1984
Michael P. Morrell(1)    Elected Annually    51           1996   1996   1996   1996
Alan J. Noia(1)          2002                52    1994   1994   1987   1994   1994
Jay S. Pifer(1)          Elected Annually    62           1995   1995   1992
Steven H. Rice(f)        2002                56    1986   1986   1986   1986
Gunnar E. Sarsten(g)     2000                62    1992   1992   1992   1992
Peter J. Skrgic  (1)     Elected Annually    58           1990   1990   1990   1989

</TABLE>


  (1)Employee of the company.  For further information on the
  business experience of these employees, See Executive Officers
  of the Registrants in Part I of this report for further
  details.

      (a) Eleanor Baum.  Dean of The Albert Nerken School  of
          Engineering   of   The  Cooper   Union   for   the
          Advancement  of  Science  and  Art.   Director  of
          Avnet, Inc. and United States Trust Company, Chair
          of  the Engineering Workforce Commission, a fellow
          of  the  Institute  of Electrical  and  Electronic
          Engineers,  Past Chairman of Board  of  Governors,
          New York Academy of Sciences.  Formerly, President
          of   Accreditation  Board  for   Engineering   and
          Technology  and  President, American  Society  for
          Engineering Education.

      (b) William L. Bennett.  Vice-Chairman and Director  of
          HealthPlan  Services Corporation, and Director  of
          Sylvan,  Inc.  Formerly,  Chairman,  Director  and
          Chief Executive Officer of Noel Group, Inc.

      (c) Wendell   F.   Holland.   Of  counsel,   Obermayer,
          Rebmann, Maxwell & Hippel LLP and Director of Bryn
          Mawr  Bank Corporation.  Formerly, Vice President,
          American International Water Services Company,  of
          Counsel,  Law Firm of Reed, Smith, Shaw &  McClay,
          Partner,  Law  Firm  of LeBoeuf,  Lamb,  Greene  &
          MacRae,   and  Commissioner  of  the  Pennsylvania
          Public Utility Commission.

      (d) Phillip  E.  Lint.   Retired.   Formerly,  Partner,
          Price Waterhouse.

      (e) Frank  A. Metz, Jr.  Retired.  Director of Solutia,
          Inc. Formerly, Senior Vice President, Finance  and
          Planning,  and Director of International  Business
          Machines  Corporation  and  Director  of  Monsanto
          Company.

      (f) Steven   H.   Rice.  Attorney  and  Consultant   to
          financial institutions.  Director of LaJolla Bank,
          a  Federal Savings Bank, and LaJolla Bancorp, Inc.
          Formerly,   President,  LaJolla  Bank,   Northeast
          Region,  President and Chief Executive Officer  of
          Stamford  Federal Savings Bank, President  of  the
          Seamen's  Bank  for Savings, and Director  of  the
          Royal Insurance Group, Inc.


<PAGE>

                               57

      (g) Gunnar  E.  Sarsten.  Chairman and Chief  Executive
          Officer of MK International.  Formerly, President  and
          Chief    Operating   Officer   of   Morrison   Knudsen
          Corporation, President and Chief Executive Officer  of
          United  Engineers  & Constructors International,  Inc.
          (now  Raytheon Engineers & Constructors),  and  Deputy
          Chairman  of  the Third District Federal Reserve  Bank
          in Philadelphia.

      (h) As  a result of the passage of Maryland legislation
          affecting    corporate   governance    of    companies
          incorporated  in  the state, on  July  15,  1999  AE's
          Board   of   Directors  by  resolution  amended   AE's
          Articles  of Incorporation, which amendment was  filed
          with the Maryland State Department of Assessments  and
          Taxation  on July 20, 1999, (See Exhibit 3.1a  of  AE)
          adding  a  provision that among other things,  divided
          the  Board of Directors into three classes, with  each
          class  serving a three-year term and one  class  being
          elected  each  year.  The current AE  Board  of  eight
          members  now consists of Class I with two members  and
          Classes  II and III with three members each. The  term
          of  office of the Class I directors expires this year.
          Therefore  they  are the only directors  standing  for
          election  this year.  The term of Class  II  directors
          ends  in 2001 and of Class III directors in 2002.   At
          future  annual  meetings  of  the  stockholders,   the
          successors  to  the  class  of  directors  whose  term
          expires  that  year will be elected for  a  three-year
          term.   The  above  note  applies  only  to  AE.   All
          Directors  of Monongahela, Potomac Edison,  West  Penn
          and AGC are elected annually for a one-year term.


ITEM 11.   EXECUTIVE COMPENSATION

         During   1999,  and  for  1998  and  1997,  the   annual
compensation paid by AE, Monongahela, Potomac Edison,  West  Penn
and  AGC  directly or indirectly to their Chief Executive Officer
and  each of the four most highly paid executive officers of  the
System whose cash compensation exceeded $100,000 for services  in
all capacities to such companies was as follows:


                 Summary Compensation Tables (a)
       AE, Monongahela, Potomac Edison, West Penn and AGC
                       Annual Compensation

<TABLE>
<CAPTION>

                                                                               All
Name                                                              Long-Term    Other
and                                          Annual     No. of    Performance  Compen-
Principal                                    Incentive  Options   Plan Payout  sation
Position(b)                  Year  Salary($) ($)(c)       (d)     ($)(d)       ($)(e)

<S>                          <C>   <C>       <C>        <C>       <C>          <C>
Alan J. Noia,                1999  575,000   312,500    190,000   260,183      112,350
Chief Executive Officer      1998  525,000   180,500       -      286,655      184,788
                             1997  460,000   253,000       -      250,657      124,495

Peter J. Skrgic,             1999  290,000   196,800     80,000   158,372        6,925
Senior Vice President        1998  280,008   123,000       -      204,753       50,757
Supply                       1997  265,000   155,400       -      150,394       91,409

Michael P. Morrell (f)       1999  260,000   156,000     66,000    96,154       27,592
Senior Vice President &      1998  255,000   117,000       -      114,870       28,599
Chief Financial Officer      1997  240,000    95,200       -        (f)         26,068


Jay S. Pifer,                1999  255,000   146,400     66,000    96,154        7,073
Senior Vice President        1998  250,008    66,500       -      131,042       41,542
Delivery                     1997  240,000    95,200       -      150,394       67,810

Richard J. Gagliardi         1999  210,000   113,400     52,000    79,186       14,713
Vice President               1998  200,016    60,400       -      114,662       25,345
Administration               1997  190,000    75,600       -      100,263       25,340

</TABLE>

     (a)  The  individuals appearing in this  chart  perform
          policy-making   functions   for   each   of    the
          Registrants.  The compensation shown  is  for  all
          services   in  all  capacities  to  AE   and   its
          subsidiaries.  All salaries and bonuses  of  these
          executives  are  paid by AESC.   AE,  Monongahela,
          Potomac  Edison, West Penn and AGC  have  no  paid
          employees.


<PAGE>

                               58


     (b)  See  Executive Officers of the Registrants for all
          positions held.

     (c)  Incentive awards (primarily Annual Incentive  Plan
          awards) are based upon performance in the year  in
          which  the  figure appears but  are  paid  in  the
          following year.  The Annual Incentive Plan will be
          continued for 2000.

     (d)  In  1994,  the Board of Directors of  the  Company
          implemented a Performance Share Plan (the  "Plan")
          for   senior  officers  of  the  Company  and  its
          subsidiaries   which   was   approved    by    the
          shareholders  of AE at the annual meeting  in  May
          1994.  The  first Plan cycle began on  January  1,
          1994  and  ended on December 31, 1996.   A  second
          cycle  began  on  January 1,  1995  and  ended  on
          December  31,  1997.  The figure  shown  for  1997
          represents the dollar value paid in 1998  to  each
          of  the  named executive officers who participated
          in  Cycle  II.  A third cycle began on January  1,
          1996  and ended on December 31, 1998.  The  figure
          shown for 1998 represents the dollar value paid in
          1999  to each of the named executive officers  who
          participated in Cycle III.  A fourth  cycle  began
          on January 1, 1997 and ended on December 31, 1999.
          The  figure  shown for 1999 represents the  dollar
          value  paid in 2000 to each of the named executive
          officers  who participated in Cycle IV.  In  1998,
          the  Board  of Directors of AE implemented  a  new
          Long-Term  Incentive Plan, which was  approved  by
          the shareholders of AE at the AE annual meeting in
          May  1998.   A  fifth cycle (the first  three-year
          performance  period  of this new  Plan)  began  on
          January 1, 1998 and will end on December 31, 2000.
          A  sixth  cycle began on January 1, 1999 and  will
          end  on  December 31, 2001.  After  completion  of
          each cycle, AE stock, stock options (for Cycle V),
          cash,  a combination, or just AE stock (Cycle  VI)
          may be paid if performance criteria have been met.

     (e)  The  figures  in this column include  the  present
          value  of the executives' cash value at retirement
          attributable to the current year's premium payment
          for  both the Executive Life Insurance and Secured
          Benefit  Plans  (based upon  the  premium,  future
          valued  to  retirement, using the policy  internal
          rate  of  return  minus the corporation's  premium
          payment),  as  well as the premium  paid  for  the
          basic  group life insurance program plan  and  the
          contribution for the Employee Stock Ownership  and
          Savings  Plan  (ESOSP)  established  as   a   non-
          contributory stock ownership plan for all eligible
          employees  effective January 1, 1976, and  amended
          in 1984 to include a savings program.

          Effective  January 1, 1992, the basic  group  life
          insurance provided employees was reduced from  two
          times  salary during employment, which reduced  to
          one  times  salary after five years in retirement,
          to  a  new  plan which provides one  times  salary
          until  retirement  and  $25,000  thereafter.  Some


<PAGE>

                               59

          executive  officers  and  other  senior   managers
          remain under the prior plan.  In order to pay  for
          this  insurance for these executives, during  1992
          insurance  was purchased on the lives of  each  of
          them,  except Mr. Morrell, who is not  covered  by
          this  plan.  Effective January 1, 1993,  Allegheny
          started  to  provide funds to pay for  the  future
          benefits  due  under  the supplemental  retirement
          plan  (Secured Benefit Plan).  To do this,  during
          1993  Allegheny  purchased life insurance  on  the
          lives  of  the  covered executives.   The  premium
          costs  of both policies plus a factor for the  use
          of  the  money  are returned to Allegheny  at  the
          earlier  of  (a) death of the insured or  (b)  the
          later  of age 65 or 10 years from the date of  the
          policy's inception.  Under the ESOSP for 1999, all
          eligible  employees may elect to have from  2%  to
          12%  of their compensation contributed to the Plan
          as  pre-tax contributions and an additional 1%  to
          6%  as  post-tax contributions.  Employees  direct
          the investment of these contributions into one  or
          more  of  nine available funds.  Fifty percent  of
          the pre-tax contributions up to 6% of compensation
          are  matched  with common stock of AE.   Effective
          January  1  1997,  the  maximum  amount   of   any
          employee's compensation that may be used in  these
          computations is $160,000.  Employees' interests in
          the   ESOSP   vest  immediately.   Their   pre-tax
          contributions may be withdrawn only  upon  meeting
          certain  financial hardship requirements  or  upon
          termination of employment.  For 1999,  the  figure
          shown   includes  amounts  representing  (a)   the
          aggregate  of life insurance premiums  and  dollar
          value  of the benefit to the executive officer  of
          the  remainder of the premium paid  on  the  Group
          Life  Insurance  program and  the  Executive  Life
          Insurance and Secured Benefit Plans, and (b) ESOSP
          contributions, respectively, as follows:  Mr. Noia
          $107,550 and $4,800; Mr. Skrgic $2,593 and $4,332;
          Mr.  Morrell $23,391 and $4,201; Mr. Pifer  $2,273
          and $4,800; Mr. Gagliardi $10,399 and $4,314.

     (f)  Michael  P.  Morrell joined Allegheny  on  May  1,
          1996, and did not receive a payment from the Long-
          Term  Performance Plan for the second Plan  cycle.
          His  Cycle  III payout is prorated for the  period
          May 1, 1996 - December 31, 1998.


<PAGE>

                               60



         ALLEGHENY ENERGY, INC. LONG-TERM INCENTIVE PLAN
          SHARES AWARDED IN LAST FISCAL YEAR (CYCLE VI)


                                Estimated Future Payout

<TABLE>
<CAPTION>


                            Number of    Performance      Threshold     Target      Maximum
                            Shares      Period Until      Number of    Number of   Number of
Name                                       Payout           Shares      Shares      Shares


<S>                           <C>        <C>                <C>          <C>         <C>
Alan J. Noia
Chief Executive Officer       5,165      1999-2001          2,583        5,165       10,330

Peter J. Skrgic
Senior Vice President         2,645      1999-2001          1,323        2,645        5,290

Michael P. Morrell
Senior Vice President         2,149      1999-2001          1,075        2,149        4,298

Jay S. Pifer
Senior Vice President         1,983      1999-2001            992        1,983        3,966

Richard J. Gagliardi
Vice President                1,488      1999-2001            744        1,488        2,976

</TABLE>


<PAGE>

                               61




       The  named  executives were awarded the  above  number  of
performance shares for Cycle VI.  Such number of shares are  only
targets.   As  described below, no payouts will  be  made  unless
certain criteria are met.  Each executive's 1999-2001 target long-
term  incentive opportunity was converted into performance shares
equal  to an equivalent number of shares of AE common stock based
on  the price of such stock on December 31, 1998.  At the end  of
this   three-year  performance  period,  the  performance  shares
attributed  to the calculated award will be valued based  on  the
price  of  AE common stock on December 31, 2001 and will  reflect
dividends  that  would have been paid on such  stock  during  the
performance period as if they were reinvested on the  date  paid.
If  an executive retires, dies or otherwise leaves the employment
of  Allegheny  prior  to  the end of the three-year  period,  the
executive  may  still receive an award based  on  the  number  of
months  worked  during  the  period.   The  final  value  of   an
executive's  account, if any, will be paid to  the  executive  in
early 2002.

       The actual payout of an executive's award may range from 0
to  200% of the target amount, before dividend reinvestment.  The
Management Review and Director Affairs Committee of the Board  of
Directors  may  decide to convert the value of  such  performance
shares to stock options at that time or deliver cash or shares of
common  stock.  The payout is based upon stockholder  performance
versus  the peer group.  The stockholder rating is then  compared
to  a  pre-established percentile ranking chart to determine  the
payout percentage of target.  A ranking below 30% results in a 0%
payout.   The  minimum payout begins at the  30%  ranking,  which
results  in a payout of 60% of target, ranging up to a payout  of
200% of target if there is a 90% or higher ranking.


<PAGE>

                               62

<TABLE>
<CAPTION>


                                         Stock Option Grants in 1999 (1)
                           Number of       % of                              Grant
                           Securities  Total Options                         Date
                           Underlying   Granted to    Exercise   Expiration  Present
Name                        Options     Employees      Price        Date     Value(2)
                           Granted(1)    in 1999       ($/Sh)                  ($)

<S>                        <C>            <C>         <C>        <C>         <C>
Alan J. Noia                40,000         3.64%      30.1875    02/22/2009  $203,102
                           150,000        13.66%      31.4895    12/02/2009   794,480


Peter J. Skrgic             20,000         1.82%      30.1875    02/22/2009   101,551
                            60,000         5.46%      31.4895    12/02/2009   317,792


Michael P. Morrell          16,000         1.46%      30.1875    02/22/2009    81,241
                            50,000         4.55%      31.4895    12/02/2009   264,827


Jay S. Pifer                16,000         1.46%      30.1875    02/22/2009    81,241
                            50,000         4.55%      31.4895    12/02/2009   264,827


Richard J. Gagliardi        12,000         1.09%      30.1875    02/22/2009    60,930
                            40,000         3.64%      31.4895    12/02/2009   211,861


</TABLE>

(1)  Options become exercisable three years after date of the
     grant.

(2)  The Black-Scholes option pricing model was chosen to
     estimate the Grant Date Present Value of the options set forth in
     this table.  Allegheny Energy's use of this model should not be
     construed as an endorsement of its accuracy of valuing options.
     All stock option valuation models, including the Black-Scholes
     model, require a prediction about the future movement of the
     stock price.  The following assumptions were made for purposes of
     calculating the Grant Date Present Value:  an option term of 10
     years, volatility of 22.83%  dividend yield at 5.83%, and
     interest rate of 6.25%.  The real value of the options in this
     table depends upon the actual performance of Allegheny Energy's
     stock during the applicable period.

                         Retirement Plan

     Allegheny maintains a Retirement Plan covering substantially
all   employees.   The  Retirement  Plan  is  a  noncontributory,
trusteed  pension  plan  designed to  meet  the  requirements  of
Section  401(a) of the Internal Revenue Code of 1986, as  amended
(the Code).  Each covered employee is eligible for retirement  at
normal retirement date (age 65), with early retirement permitted.
In   addition,  executive  officers  and  other  senior  managers
participate in a supplemental executive retirement plan  (Secured
Benefit Plan).


<PAGE>

                               63


      Pursuant to the Secured Benefit Plan, senior executives  of
Allegheny companies who retire at age 60 or over with 40 or  more
years  of  service  are  entitled to  a  supplemental  retirement
benefit  in an amount that, together with the benefits under  the
basic  plan  and  from other employment, will equal  60%  of  the
executive's  highest  average  monthly  earnings   for   any   36
consecutive  months.  Beginning February 1,  1996,  the  earnings
include  50% of the actual award paid under the Annual  Incentive
Plan  and  beginning January 1, 1999, include 100% of the  actual
award  paid  under  the Annual Incentive Plan.  The  supplemental
benefit  is  reduced  for  less than 40  years  service  and  for
retirement  age  from 60 to 55.  It is included  in  the  amounts
shown  where applicable.  To provide funds to pay such  benefits,
beginning January 1, 1993, Allegheny purchased insurance  on  the
lives  of the participants in the Secured Benefit Plan.   If  the
assumptions  made  as to mortality experience, policy  dividends,
and  other  factors  are  realized, Allegheny  will  recover  all
premium  payments, plus a factor for the use of  the  Allegheny's
money.   The portion of the premiums for this insurance  required
to  be  deemed  "compensation"  by the  Securities  and  Exchange
Commission is included in the "All Other Compensation" column  on
page   57  of  this  Form  10-K.   All  executive  officers   are
participants  in the Secured Benefit Plan.  It also provides  for
use of Average Compensation in excess of Code maximums.

      The following table shows estimated maximum annual benefits
payable  to  participants in the Secured Benefit  Plan  following
retirement (assuming payments on a normal life annuity basis  and
not  including any survivor benefit) to an employee in  specified
remuneration  and  years  of  credited  service  classifications.
These  amounts  are  based on an estimated  Average  Compensation
(defined  as  12  times  the  highest  average  monthly  earnings
including  overtime  and other salary payments  actually  earned,
whether  or  not  payment  is deferred, for  any  36  consecutive
calendar  months), retirement at age 65 and without consideration
of  any  effect of various options which may be elected prior  to
retirement.   The benefits listed in the Pension Plan  Table  are
not  subject  to any deduction for Social Security or  any  other
offset amounts.

                              PENSION PLAN TABLE

<TABLE>
<CAPTION>


                                        Years of Credited  Service
Average Compensation(a)  15 Years 20 Years 25 Years 30 Years  35 Years  40 Years

<S>                      <C>      <C>      <C>      <C>       <C>       <C>
$  200,000               $ 60,000 $ 80,000 $100,000 $110,000  $115,000  $120,000
   300,000                 90,000  120,000  150,000  165,000   172,500   180,000
   400,000                120,000  160,000  200,000  220,000   230,000   240,000
   500,000                150,000  200,000  250,000  275,000   287,500   300,000
   600,000                180,000  240,000  300,000  330,000   345,000   360,000
   700,000                210,000  280,000  350,000  385,000   402,500   420,000
   800,000                240,000  320,000  400,000  440,000   460,000   480,000
   900,000                270,000  360,000  450,000  495,000   517,000   540,000
 1,000,000                300,000  400,000  500,000  550,000   575,000   600,000

</TABLE>


(a)  The earnings of Messrs. Noia, Skrgic, Pifer, Morrell and
     Gagliardi covered by the plan correspond substantially to such
     amounts shown for them in the summary compensation table.  As of
     December 31, 1999, they had accrued 30, 35, 35, 3-1/2 and 21
     years of credited service, respectively, under the Retirement
     Plan.  Pursuant to an agreement with Mr. Morrell, at the end of
     ten years of employment with the Company, Mr. Morrell will be
     credited with an additional eight years of service.


<PAGE>

                               64


                   Change In Control Contracts

      AE has entered into Change in Control contracts with the named
and  certain other Allegheny executive officers (Agreements).   Each
Agreement  sets  forth  (i)  the severance  benefits  that  will  be
provided  to  the employee in the event the employee  is  terminated
subsequent  to  a  Change  in Control  of  AE  (as  defined  in  the
Agreements), and (ii) the employee's obligation to continue  his  or
her  employment  after the occurrence of certain circumstances  that
could lead to a Change in Control.  The Agreements provide generally
that  if  there  is  a  Change  in  Control,  unless  employment  is
terminated  by  AE  for Cause, Disability or Retirement  or  by  the
employee  for  other  than  Good Reason  (each  as  defined  in  the
Agreements), severance benefits payable to the employee will consist
of  a  cash  payment equal to 2.99 times the employee's base  annual
salary  and target short-term incentive together with AE maintaining
existing benefits for the employee and the employee's dependents for
a  period  of  three years.  Each Agreement expires on December  31,
2001,  but is automatically extended for one year periods thereafter
unless   either   AE   or  the  employee  gives  notice   otherwise.
Notwithstanding  the  delivery of such notice, the  Agreements  will
continue in effect for thirty-six months after a Change in Control.

                    Compensation of Directors

     Each of the directors is also a director of the following
subsidiaries of the Company:  Monongahela, Potomac Edison, West
Penn, and AESC (Allegheny companies). In 1999, directors who were
not officers or employees (outside directors) received for all
services to the Company and Allegheny companies (a) $17,000 in
retainer fees (annual retainer fee increased from $16,000 to $20,000
effective October 1, 1999), (b) $800 for each committee meeting
attended and $250 for each Board meeting of each company attended
through September 30, 1999 and (c) effective October 1, 1999 $1,000
for each committee meeting of each company attended.  The Board
meeting fee did not change.  The Chairperson of each committee
receives an additional fee of $4,000 per year.  Under an unfunded
deferred compensation plan, a director may elect to defer receipt of
all or part of his or her director's fees for succeeding calendar
years to be payable with accumulated interest when the director
ceases to be such, in equal annual installments, or, upon
authorization by the Board of Directors, in a lump sum.  In addition
to the foregoing compensation, effective October 1, 1999 the outside
directors of the company receive an annual retainer of $12,000 worth
of Common Stock (in lieu of the 200 shares of Common Stock received
pursuant to the Allegheny Energy, Inc. Restricted Stock Plan for
Outside Directors, which was terminated September 30, 1999).
Further, a Deferred Stock Unit Plan for Outside Directors provides
for a lump sum payment (payable at the director's election in one or
more installments, including interest thereon equivalent to the
dividend yield) to directors calculated by reference to the price of
the Company's Common Stock.  Directors who serve at least five years
on the Board and leave at or after age 65, or upon death or
disability, or as otherwise directed by the Board, will receive such
payments.  In 1999 the Company credited each outside director's
account with 275 deferred stock units.  The number will increase to
300 in 2000; to 325 in 2001; to 350 in 2002; and to 375 in 2003.
Effective September 1, 1999, outside directors are also granted
1,000 stock options each year.  In 1999, each director received
three-years' worth, with 1,000 options to vest each year 1999-2001.


<PAGE>

                               65

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

      The  table  below shows the number of shares of  AE  common
stock  that  are  beneficially owned, directly or indirectly,  by
each  director  and named executive officer of  AE,  Monongahela,
Potomac  Edison,  West  Penn, and AGC and by  all  directors  and
executive officers of each such company as a group as of December
31, 1999.  To the best of the knowledge of AE, there is no person
who  is  a  beneficial  owner  of more  than  5%  of  the  voting
securities of AE.

                       Executive       Shares of
                       Officer or          APS           Percent
Name                   Director of     Common Stock      of Class

Eleanor Baum          AE,MP,PE,WP          3,374*     .037% or less
William L. Bennett    AE,MP,PE,WP          4,144*          "
Richard J. Gagliardi  AE                  14,231           "
Thomas K. Henderson   AGC                  7,698           "
Wendell F. Holland    AE,MP,PE,WP          1,701*          "
Thomas J. Kloc        AGC                  5,014           "
Phillip E. Lint       AE,MP,PE,WP          2,155*          "
Frank A. Metz, Jr.    AE,MP,PE,WP          4,138*          "
Michael P. Morrell    AE,MP,PE,WP,AGC      3,870           "
Alan J. Noia          AE,MP,PE,WP,AGC     41,314             "
Jay S. Pifer          AE,MP,PE,WP         19,496           "
Steven H. Rice        AE,MP,PE,WP          4,471*          "
Gunnar E. Sarsten     AE,MP,PE,WP          7,374*          "
Peter J. Skrgic       AE,MP,PE,WP,AGC     23,351           "


All directors and executive officers
of AE as a group (19 persons)            167,206        Less than .16%

All directors and executive officers
of MP as a group (19 persons)           155,732        Less than .15%

All directors and executive officers
of PE as a group (19 persons)           155,732         "

All directors and executive officers
of WP as a group (19 persons)           155,732         "

All directors and executive officers
of AGC as a group (7 persons)            90,100         .09%


*Excludes  the outside directors' accounts in the Deferred  Stock
Unit  Plan which, at March 1, 2000, were valued at the number  of
shares  shown:   Baum 3,976; Bennett 2,132; Holland  1,982;  Lint
5,691; Metz 4,260; Rice 2,713; and Sarsten 3,654.

All  of  the  shares of common stock of Monongahela  (5,891,000),
Potomac Edison (22,385,000), and West Penn (24,361,586) are owned
by  AE.   All  of the common stock of AGC is owned by Monongahela
(270  shares), Potomac Edison (280 shares), and Allegheny  Energy
Supply Company, LLC (450 shares).


<PAGE>

                               66



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                          PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
           REPORTS ON FORM 8-K


(a)(1)(2) The  financial statements and financial  statement
          schedules  filed as part of this  Report  are  set
          forth  under ITEM 8. and reference is made to  the
          index on page 49.

(b)       AE  and  Monongahela  filed reports  on  Form  8-K
          during the quarter ended December 31, 1999.

(c)       Exhibits for AE, Monongahela, Potomac Edison, West
          Penn,  and  AGC  are listed in the  Exhibit  Index
          beginning on page E-1 and are incorporated  herein
          by reference.


<PAGE>

                               67

                           SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                              ALLEGHENY ENERGY, INC.


                              By:  /s/ Alan J. Noia
                                  (Alan J. Noia) Chairman,
President
                                   and Chief Executive Officer
Date:  March 2, 2000



        Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.

              Signature                         Title              Date

  (i) Principal Executive Officer:

      /s/ Alan J. Noia              Chairman, President, Chief
      (Alan J. Noia)                Executive Officer and Director 3/2/00

 (ii) Principal Financial Officer:

      /s/ Michael P. Morrell        Senior Vice President,
      (Michael P. Morrell)          Finance                        3/2/00

(iii) Principal Accounting Officer:

      /s/ Thomas J. Kloc            Vice President and
      (Thomas J. Kloc)              Controller                     3/2/00

 (iv) A Majority of the Directors:

      *Eleanor Baum             *Frank A. Metz, Jr.
      *William L. Bennett       *Alan J. Noia
      *Wendell F. Holland       *Steven H. Rice
      *Phillip E. Lint          *Gunnar E. Sarsten

*By:  /s/ Thomas K. Henderson                                      3/2/00
      (Thomas K. Henderson)


<PAGE>

                               68

                           SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this  report  to be signed on its behalf by the undersigned,
thereunto duly authorized.  The signature of the undersigned
company  shall  be deemed to relate only to  matters  having
reference to such company and any subsidiaries thereof.

                                MONONGAHELA POWER COMPANY

                                By:  /s/ Jay S. Pifer
                                     (Jay S. Pifer) President
                                     and Director
Date:  March 2, 2000

      Pursuant to the requirements of the Securities Exchange Act
of  1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.  The signature of each of the undersigned
shall be deemed to relate only to matters having reference to the
above-named company and any subsidiaries thereof.


             Signature                       Title                   Date

  (i) Principal Executive Officer

      /s/ Alan J. Noia             Chairman of the Board, Chief
      (Alan J. Noia)               Executive Officer and Director   3/2/00

 (ii) Principal Financial Officer:

      /s/ Michael P. Morrell
      (Michael P. Morrell)         Vice President and Director      3/2/00

(iii) Principal Accounting Officer:

      /s/ Thomas J. Kloc
      (Thomas J. Kloc)             Controller                       3/2/00

 (iv) A Majority of the Directors:

      *Eleanor Baum             *Alan J. Noia
      *William L. Bennett       *Jay S. Pifer
      *Wendell F. Holland       *Steven H. Rice
      *Phillip E. Lint          *Gunnar E. Sarsten
      *Frank A. Metz, Jr.       *Peter J. Skrgic
      *Michael P. Morrell

*By:  /s/ Thomas K. Henderson
      (Thomas K. Henderson)                                         3/2/00


<PAGE>

                               69

                           SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this  report  to be signed on its behalf by the undersigned,
thereunto duly authorized.  The signature of the undersigned
company  shall  be deemed to relate only to  matters  having
reference to such company and any subsidiaries thereof.

                                THE POTOMAC EDISON COMPANY

                                By:  /s/ Jay S. Pifer
                                     (Jay S. Pifer) President
                                     and Director
Date:  March 2, 2000

      Pursuant to the requirements of the Securities Exchange Act
of  1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.  The signature of each of the undersigned
shall be deemed to relate only to matters having reference to the
above-named company and any subsidiaries thereof.


             Signature                              Title           Date

  (i) Principal Executive Officer

      /s/ Alan J. Noia               Chairman of the Board, Chief
      (Alan J. Noia)                 Executive Officer and Director 3/2/00

 (ii) Principal Financial Officer:

      /s/ Michael P. Morrell
      (Michael P. Morrell)           Vice President and Director    3/2/00

(iii) Principal Accounting Officer:

      /s/ Thomas J. Kloc
      (Thomas J. Kloc)               Controller                     3/2/00

 (iv) A Majority of the Directors:

      *Eleanor Baum             *Alan J. Noia
      *William L. Bennett       *Jay S. Pifer
      *Wendell F. Holland       *Steven H. Rice
      *Phillip E. Lint          *Gunnar E. Sarsten
      *Frank A. Metz, Jr.       *Peter J. Skrgic
      *Michael P. Morrell

*By:  /s/ Thomas K. Henderson
      (Thomas K. Henderson)                                         3/2/00


<PAGE>

                               70

                           SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this  report  to be signed on its behalf by the undersigned,
thereunto duly authorized.  The signature of the undersigned
company  shall  be deemed to relate only to  matters  having
reference to such company and any subsidiaries thereof.

                                WEST PENN POWER COMPANY

                                By:  /s/ Jay S. Pifer
                                     (Jay S. Pifer) President
                                     and Director
Date:  March 2, 2000

      Pursuant to the requirements of the Securities Exchange Act
of  1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.  The signature of each of the undersigned
shall be deemed to relate only to matters having reference to the
above-named company and any subsidiaries thereof.


             Signature                         Title                 Date

  (i) Principal Executive Officer

      /s/ Alan J. Noia               Chairman of the Board, Chief
      (Alan J. Noia)                 Executive Officer and Director 3/2/00

 (ii) Principal Financial Officer:

      /s/ Michael P. Morrell
      (Michael P. Morrell)           Vice President and Director    3/2/00

(iii) Principal Accounting Officer:

      /s/ Thomas J. Kloc
      (Thomas J. Kloc)               Controller                     3/2/00

 (iv) A Majority of the Directors:

      *Eleanor Baum             *Alan J. Noia
      *William L. Bennett       *Jay S. Pifer
      *Wendell F. Holland       *Steven H. Rice
      *Phillip E. Lint          *Gunnar E. Sarsten
      *Frank A. Metz, Jr.       *Peter J. Skrgic
      *Michael P. Morrell

*By:  /s/ Thomas K. Henderson
      (Thomas K. Henderson)                                         3/2/00


<PAGE>

                               71

                           SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this  report  to be signed on its behalf by the undersigned,
thereunto duly authorized.  The signature of the undersigned
company  shall  be deemed to relate only to  matters  having
reference to such company and any subsidiaries thereof.

                                ALLEGHENY GENERATING COMPANY

                                By:  /s/ Alan J. Noia
                                     (Alan J. Noia)
                                     Chief Executive Officer
Date:  March 2, 2000

      Pursuant to the requirements of the Securities Exchange Act
of  1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.  The signature of each of the undersigned
shall be deemed to relate only to matters having reference to the
above-named company and any subsidiaries thereof.


             Signature                              Title              Date

  (i) Principal Executive Officer

      /s/ Alan J. Noia               Chairman of the Board, Chief
      (Alan J. Noia)                 Executive Officer and President  3/2/00

 (ii) Principal Financial Officer:

      /s/ Michael P. Morrell
      (Michael P. Morrell)           Vice President and Director      3/2/00

(iii) Principal Accounting Officer:

      /s/ Thomas J. Kloc
      (Thomas J. Kloc)               Controller                       3/2/00

 (iv) A Majority of the Directors:

      *Richard J. Gagliardi
      *Thomas K. Henderson
      *Michael P. Morrell
      *Alan J. Noia
      *Peter J. Skrgic

*By:  /s/ Thomas K. Henderson
      (Thomas K. Henderson)                                           3/2/00


<PAGE>

                               72

               CONSENT OF INDEPENDENT ACCOUNTANTS




  We  hereby consent to the incorporation by reference in
  the  Prospectus  constituting part of  Allegheny  Power
  System Inc.'s (now Allegheny Energy, Inc.) Registration
  Statements  on  Form S-3 (Nos. 33-36716  and  33-57027)
  relating   to  the  Dividend  Reinvestment  and   Stock
  Purchase  Plan  of  Allegheny  Energy,  Inc.;  in   the
  Prospectus constituting part of Allegheny Power System,
  Inc.'s   (now   Allegheny  Energy,  Inc.)  Registration
  Statement  on Form S-3 (No. 33-49791) relating  to  the
  common  stock  shelf registration;  in  the  Prospectus
  constituting   part  of  Monongahela  Power   Company's
  Registration Statements on Form S-3 (Nos. 333-31493, 33-
  51301,   33-56262  and  33-59131);  in  the  Prospectus
  constituting  part  of  The  Potomac  Edison  Company's
  Registration Statements on Form S-3 (Nos. 333-33413, 33-
  51305 and 33-59493); and in the Prospectus constituting
  part   of   West   Penn  Power  Company's  Registration
  Statements  on Form S-3 (Nos. 333-34511, 33-51303,  33-
  56997, 33-52862, 33-56260 and 33-59133); of our reports
  dated February 3, 2000 included in ITEM 8 of this  Form
  10-K.   We  also consent to the references to us  under
  the heading "Experts" in such Prospectuses.



  PricewaterhouseCoopers, LLP

  Pittsburgh, Pennsylvania
  March 29, 2000


<PAGE>

                               73

                        POWER OF ATTORNEY


             KNOW  ALL  MEN  BY THESE PRESENTS  THAT  the
  undersigned  directors  of Allegheny  Energy,  Inc.,  a
  Maryland  corporation, Monongahela  Power  Company,  an
  Ohio   corporation,  The  Potomac  Edison  Company,   a
  Maryland and Virginia corporation, and West Penn  Power
  Company,   a   Pennsylvania  corporation,   do   hereby
  constitute  and appoint THOMAS K. HENDERSON and  EILEEN
  M.  BECK,  and each of them, a true and lawful attorney
  in  his  or her name, place and stead, in any  and  all
  capacities,  to sign his or her name to Annual  Reports
  on Form 10-K for the year ended December 31, 1999 under
  the Securities Exchange Act of 1934, as amended, and to
  any and all amendments, of said Companies, and to cause
  the  same to be filed with the SEC, granting unto  said
  attorneys and each of them full power and authority  to
  do  and  perform any act and thing necessary and proper
  to be done in the premises, as fully and to all intents
  and  purposes as the undersigned could do if personally
  present,  and  the  undersigned  hereby  ratifies   and
  confirms  all that said attorneys or any  one  of  them
  shall lawfully do or cause to be done by virtue hereof.


  Dated:  March 2, 2000


  /s/ Eleanor Baum           /s/ Frank A. Metz, Jr.
  (Eleanor Baum)             (Frank A. Metz, Jr.)

  /s/ William L. Bennett     /s/ Alan J. Noia
  (William L. Bennett)       (Alan J. Noia)

  /s/ Wendell F. Holland     /s/ Steven H. Rice
  (Wendell F. Holland)       (Steven H. Rice)

  /s/ Phillip E. Lint        /s/ Gunnar E. Sarsten
  (Phillip E. Lint)          (Gunnar E. Sarsten)


<PAGE>

                               74


                        POWER OF ATTORNEY


             KNOW  ALL  MEN  BY THESE PRESENTS  THAT  the
  undersigned directors of Monongahela Power Company,  an
  Ohio   corporation,  The  Potomac  Edison  Company,   a
  Maryland and Virginia corporation, and West Penn  Power
  Company,   a   Pennsylvania  corporation,   do   hereby
  constitute  and appoint THOMAS K. HENDERSON and  EILEEN
  M.  BECK,  and each of them, a true and lawful attorney
  in   his  name,  place  and  stead,  in  any  and   all
  capacities,  to  sign his or her  name  to  the  Annual
  Report  on  Form 10-K for the year ended  December  31,
  1999  under  the Securities Exchange Act  of  1934,  as
  amended,  and  to  any  and  all  amendments,  of  said
  Company,  and  to cause the same to be filed  with  the
  SEC, granting unto said attorneys and each of them full
  power and authority to do and perform any act and thing
  necessary  and  proper to be done in the  premises,  as
  fully   and  to  all  intents  and  purposes   as   the
  undersigned  could do if personally  present,  and  the
  undersigned  hereby ratify and confirm  all  that  said
  attorneys or any one of them shall lawfully do or cause
  to be done by virtue hereof.


  Dated:  March 2, 2000


                         /s/ Michael P. Morrell
                         (Michael P. Morrell)

                         /s/ Jay S. Pifer
                         (Jay S. Pifer)

                         /s/ Peter J. Skrgic
                         (Peter J. Skrgic)


<PAGE>

                               75


                        POWER OF ATTORNEY



             KNOW  ALL  MEN  BY THESE PRESENTS  THAT  the
  undersigned directors of Allegheny Generating  Company,
  a   Virginia  corporation,  do  hereby  constitute  and
  appoint  THOMAS K. HENDERSON and EILEEN  M.  BECK,  and
  each  of them, a true and lawful attorney in his  name,
  place and stead, in any and all capacities, to sign his
  or  her name to the Annual Report on Form 10-K for  the
  year  ended  December  31, 1999  under  the  Securities
  Exchange  Act of 1934, as amended, and to any  and  all
  amendments, of said Company, and to cause the  same  to
  be filed with the SEC, granting unto said attorneys and
  each of them full power and authority to do and perform
  any  act  and thing necessary and proper to be done  in
  the  premises, as fully and to all intents and purposes
  as  the undersigned could do if personally present, and
  the undersigned hereby ratify and confirm all that said
  attorneys or any one of them shall lawfully do or cause
  to be done by virtue hereof.


  Dated:  March 2, 2000



                         /s/ Richard G. Gagliardi
                         (Richard J. Gagliardi)

                         /s/ Thomas K. Henderson
                         (Thomas K. Henderson)

                         /s/ Michael P. Morrell
                         (Michael P. Morrell)

                         /s/ Alan J. Noia
                         (Alan J. Noia)

                         /s/ Peter J. Skrgic
                         (Peter J. Skrgic)


<PAGE>




                         EXHIBIT INDEX
                         (Rule 601(a))

Allegheny Energy, Inc.
                                             Incorporation
        Documents                            by Reference

3.1  Charter of the Company,            Form 10-K of the Company
     as amended, September 16,          (1-267), December 31, 1997,
     1997                               exh. 3.1

3.1a Articles Supplementary             Form 8-K of the Company
     dated July 15, 1999 and            (1-267), July 20, 1999, exh. 3.1
     filed July 20, 1999

3.2  By-laws of the Company,
     as amended February 3, 2000


4    Subsidiaries' Indentures
     described below

10.1 Directors' Deferred                Form 10-K of the Company
       Compensation Plan                (1-267), December 31, 1994,
                                        exh. 10.1

10.2 Executive Compensation Plan        Form 10-K of the Company
                                        (1-267), December 31, 1996
                                        exh. 10.2

10.3 Allegheny Energy 1999 Annual
       Incentive Compensation Plan


10.4 Allegheny Energy                   Form 10-K of the Company
       Supplemental Executive           (1-267), December 31, 1996
       Retirement Plan                  exh. 10.4

10.5 Executive Life Insurance           Form 10-K of the Company
       Program and Collateral           (1-267), December 31, 1994,
       Assignment Agreement             exh. 10.5

10.6 Secured Benefit Plan               Form 10-K of the Company
       and Collateral Assignment        (1-267), December 31, 1994,
       Agreement                        exh. 10.6

10.7 Restricted Stock Plan              Form 10-K of the Company
       for Outside Directors            (1-267), December 31, 1998,
                                        exh. 10.7

10.8 Deferred Stock Unit Plan           Form 10-K of the Company
       for Outside Directors            (1-267), December 31, 1997,
                                        exh. 10.8


<PAGE>


                          E-1 (cont'd.)

                          EXHIBIT INDEX
                          (Rule 601(a))

Allegheny Energy, Inc.
                                             Incorporation
        Documents                            by Reference

10.9 Allegheny Energy                        Form 10-K of the Company
     Performance Share Plan                  (1-267), December 31, 1994,
                                             exh. 10.9

10.10   Form of Change in Control            Form 10-K of the Company
     Contract With Certain                   (1-267), December 31, 1998,
     Executive Officers Under                exh. 10.10
     Age 55

10.11   Form of Change in Control            Form 10-K of the Company
     Contract With Certain                   (1-267), December 31, 1998,
     Executive Officers Over                 exh. 10.11
     Age 55


10.12   Allegheny Energy, Inc.               Form S-8 of the Company
     1998 Long-Term Incentive Plan           (1-267), October 14, 1998,
                                             exh. 4.1

12   Statement re computation of
     per share earnings:  Clearly
     determinable from the financial
     statements contained in Item 8.

21   Subsidiaries of AE:

     Name of Company                         State of Organization

     Allegheny Generating Company (a)               Virginia
     Allegheny Energy Service Corporation           Maryland
     Allegheny Ventures, Inc.                       Delaware
     Monongahela Power Company                      Ohio
     The Potomac Edison Company                     Maryland and Virginia
     West Penn Power Company                        Pennsylvania
     Allegheny Energy Supply Company, LLC.          Delaware
     Allegheny Energy Unit No. 1 and
       Unit No. 2, LLC                              Delaware
     (a)   Owned directly by Monongahela,
         Potomac Edison, and Allegheny
         Energy Supply Company, LLC

23   Consent of Independent Accountants      See page 72 herein.

24   Powers of Attorney                      See page 73 herein.

27   Financial Data Schedule


<PAGE>


                               E-2

                          EXHIBIT INDEX
                          (Rule 601(a))


Monongahela Power Company
                                             Incorporation
        Documents                            by Reference

3.1  Charter of the Company,                 Form 10-Q of the Company
     as amended                              (1-5164), September 1995,
                                             exh. (a)(3)(i)

3.2  Code of Regulations,                    Form 10-Q of the Company
     as amended                              (1-5164), September 1995,
                                             exh. (a)(3)(ii)

4    Indenture, dated as of                  S 2-5819, exh. 7(f)
     August 1, 1945, and                     S 2-8881, exh. 7(b)
     certain Supplemental                    S 2-10548, exh. 4(b)
     Indentures of the                       S 2-14763, exh. 2(b)(i);
     Company defining rights                 Forms 8-K of the Company
     of security holders.*                   (1-268-2) dated November 21,
                                             1991, July 15, 1992,
                                             September 1, 1992, April 29,
                                             1993, May 23, 1995, and
                                             November 14, 1997.



*    There are omitted the Supplemental Indentures which do no
     more than subject property to the lien of the above Indentures
     since they are not considered constituent instruments defining the
     rights of the holders of the securities.  The Company agrees
     to furnish the Commission on its request with copies of such
     Supplemental Indentures.

10.1 Form of Change in Control               Form 10-K of the Company
     Contract With Certain                   (1-5164), December 31, 1998,
     Executive Officers Under                exh. 10.1
     Age 55


10.2 Form of Change in Control               Form 10-K of the Company
     Contract With Certain                   (1-5164), December 31, 1998,
     Executive Officers Over                 exh. 10.2
     Age 55


<PAGE>



                          E-2 (cont'd.)

                          EXHIBIT INDEX
                          (Rule 601(a))


Monongahela Power Company
                                             Incorporation
        Documents                            by Reference

12   Computation of ratio of earnings
     to fixed charges

21   Subsidiaries:  Monongahela Power
     Company has a 27% equity ownership
     in Allegheny Generating Company,
     incorporated in Virginia; and a 25%
     equity ownership in Allegheny
     Pittsburgh Coal Company, incorporated
     in Pennsylvania.

23   Consent of Independent Accountants      See page 72 herein.

24   Powers of Attorney                      See pages 73-74 herein.

27   Financial Data Schedule


<PAGE>



                               E-3

                          EXHIBIT INDEX
                          (Rule 601(a))


The Potomac Edison Company

                                             Incorporation
           Documents                         by Reference

3.1  Charter of the Company,                 Form 10-Q of the Company
     as amended                              (1-3376-2), September 1995,
                                             exh. (a)(3)(i)

3.2  By-laws of the Company,                 Form 10-Q of the Company
     as amended                              (1-3376-2), September 1995,
                                             exh. (a)(3)(ii)

4    Indenture, dated as of                  S 2-5473, exh. 7(b); Form
     October 1, 1944, and                    S-3, 33-51305, exh. 4(d)
     certain Supplemental                    Forms 8-K of the Company
     Indentures of the                       (1-3376-2) dated
     Company defining rights                 December 15, 1992,
     of security holders*                    February 17, 1993, March 30,
                                             1993, June 22, 1994, May 12,
                                             1995, May 17, 1995 and
                                             November 14, 1997.

*    There are omitted the Supplemental Indentures which do no
     more than subject property to the lien of the above Indentures
     since they are not considered constituent instruments defining the
     rights of the holders of the securities.  The Company agrees
     to furnish the Commission on its request with copies of such
     Supplemental Indentures.

10.1 Form of Change in Control               Form 10-K of the Company
     Contract With Certain                   (1-3376-2), December 31,
     Executive Officers Under                1998, exh. 10.1
     Age 55


10.2 Form of Change in Control               Form 10-K of the Company
     Contract With Certain                   (1-3376-2), December 31,
     Executive Officers Over                 1998, exh. 10.2
     Age 55


12   Computation of ratio of earnings
     to fixed charges


<PAGE>



                          E-3 (cont'd.)

                          EXHIBIT INDEX
                          (Rule 601(a))


The Potomac Edison Company

                                             Incorporation
           Documents                         by Reference

21   Subsidiaries:  The Potomac Edison
     Company has a 28% equity ownership in
     Allegheny Generating Company, incorporated
     in Virginia and a 25% equity ownership in
     Allegheny Pittsburgh Coal Company,
     incorporated in Pennsylvania.

23   Consent of Independent                  See page 72 herein.
     Accountants

24   Powers of Attorney                      See pages 73-74 herein.

27   Financial Data Schedule


<PAGE>



                               E-4

                          EXHIBIT INDEX
                          (Rule 601(a))


West Penn Power Company


                                             Incorporation
     Documents                               by Reference

3.1  Charter of the Company,                 Form 10-Q of the Company
     as amended, July 16, 1999               (1-255-2), June 30, 1999
                                             exh. (a)(3)(i)

3.2  By-laws of the Company,                 Form 10-Q of the Company
     as amended                              (1-255-2), September 1995,
                                             exh. (a)(3)(ii)

10.1 Form of Employment Contract             Form 10-K of the Company
     with Certain Executive Officers         (1-255-2), December 31, 1998,
     Under Age 55                            exh. 10.1

10.2 Form of Employment Contract             Form 10-K of the Company
     with Certain Executive Officers         (1-255-2), December 31, 1998,
     Over Age 55                             exh. 10.2

12   Computation of ratio of earnings
     to fixed charges

21   Subsidiaries:  West Penn Power Company
     has   a 50% equity ownership in
     Allegheny Pittsburgh Coal Company,
     incorporated in Pennsylvania; a 100%
     equity ownership interest in West Penn
     Funding Corporation, incorporated in
     Delaware, which owns a 100% equity
     ownership interest in West Penn Funding
     LLC, incorporated in Delaware; and a
     100% equity ownership in West Virginia
     Power and Transmission Company,
     incorporated in West Virginia, which
     owns a 100%equity ownership in West Penn
     West Virginia Water Power Company,
     incorporated in Pennsylvania.



<PAGE>


                          E-4 (cont'd.)

                          EXHIBIT INDEX
                          (Rule 601(a))


West Penn Power Company

                                             Incorporation
     Documents                               by Reference

23   Consent of Independent                  See page 72 herein.
     Accountants

24   Powers of Attorney                      See pages 73-74 herein.

27   Financial Data Schedule


<PAGE>



<PAGE>


                                 E-5

                           EXHIBIT INDEX
                           (Rule 601(a))


Allegheny Generating Company
                                                  Incorporation
           Documents                              by Reference

3.1(a)  Charter of the Company,
        as amended*

3.1(b)  Certificate of Amendment to
        Charter, effective July 14, 1989**

3.2     By-laws of the Company, as amended,       Form 10-K of the Company
        effective December 23, 1996.              (0-14688), December 31, 1996

4       Indenture, dated as of December 1,
        1986, and Supplemental Indenture,
        dated as of December 15, 1988, of the
        Company defining rights of security
        holders.***

10.1    APS Power Agreement-Bath County
        Pumped Storage Project, as amended,
        dated as of August 14, 1981, among
        Monongahela Power Company, Allegheny
        Energy Supply Company, LLC, and The
        Potomac Edison Company and Allegheny
        Generating Company.****

10.2    Amendment No. 8, effective date           Form 10-K of the Company
        January 1, 1999, to the APS Power         (0-14688), December 31, 1998
        Agreement - Bath County Pumped
        Storage Project.

10.3    Operating Agreement, dated as of
        June 17, 1981, among Virginia
        Electric and Power Company, Allegheny
        Generating Company, Monongahela Power
        Company, Allegheny Energy Supply Company,
        LLC and The Potomac Edison Company.****

10.4    Equity Agreement, dated June 17,
        1981, between and among Allegheny
        Generating Company, Monongahela Power
        Company, Allegheny Energy Supply Company,
        LLC, and The Potomac Edison Company.****


<PAGE>


                           E-5 (cont'd.)

                           EXHIBIT INDEX
                           (Rule 601(a))


Allegheny Generating Company
                                                  Incorporation
           Documents                              By Reference

10.5    United States of America Before The
        Federal Energy Regulatory Commission,
        Allegheny Generating Company, Docket
        No. ER84-504-000, Settlement Agreement
        effective October 1, 1985.****

12      Computation of ratio of earnings
        to fixed charges

23      Consent of Independent
        Accountants                               See page 72 herein.

24      Powers of Attorney                        See page 75 herein.

27      Financial Data Schedule

__________

*    Incorporated by reference to the designated exhibit to AGC's
     registration statement on Form 10, File No. 0-14688.

**   Incorporated by reference to Form 10-Q of the Company (0-
     14688) for June 1989, exh. (a).

***  Incorporated by reference to Forms 8-K of the Company (0-
     14688) for December 1986, exh. 4(A), and December 1988, exh. 4.1.

**** Incorporated by reference to Form 10-Q of the Company (0-
     14688) for June 1989, exh. (a).


<PAGE>