<PAGE>
 
                                                                   EXHIBIT 99.01


                                 PENNSYLVANIA
                           PUBLIC UTILITY COMMISSION
                             Harrisburg, PA  17120

                               Public Meeting held September 21, 1989

Commissioners Present:

     Bill Shane, Chairman
     William H. Smith, Vice Chairman
     Joseph Rhodes, Jr.
     Frank Fischl, dissenting

Petitions of West Penn Power Company for
Approval of Electric Energy Purchase
Agreements and for Orders Granting Rate
Recognition of Purchase Power Costs
                                                       Docket Nos.  
Re:  Milesburg Energy, Inc.                            P-870216    
     Monongahela Lock & Dam No. 8                      P-880283    
     Burgettstown Project                              P-880284    
     Shannopin Mine Project                            P-880286     
                                                                

                                     ORDER

BY THE COMMISSION:

          Before us for consideration is the Recommended Decision ("R.D.") of
Administrative Law Judge Larry Gesoff ("ALJ") issued June 27, 1989 in the above-
captioned consolidated proceedings, as well as the Exceptions and the Reply
Exceptions filed by the various parties.  Also before us is the Application for
Stay of Proceedings and Motion for Reconsideration filed by North Branch Energy
Partners, L.P. ("North Branch") on August 21, 1989 and September 12, 1989,
respectively, at Docket No. P-880284, as well as various responsive pleadings
thereto.  For the reasons stated more fully below, we will (1) grant West Penn
Power Company's ("West Penn") petition at Docket No. P-880283 for approval of
the Electric Energy Purchase Agreement ("EEPA"-) with Noah Corp., the developer
<PAGE>
 
of the Monongahela Lock & Dam No. 8 Project; (2) grant West Penn's petition at
Docket No. P-880286 for approval of the EEPA with Mon Valley Energy Corp. ("Mon
Valley"), the developer of the Shannopin Mine Project; (3) grant West Penn's
petition at Docket No. P-880284 for approval of the EEPA with North Branch, the
developer of the Burgettstown Project, while granting North Branch's Petition
for Modification and Application for Stay with respect to the Financing Closing
Date and related milestones in its EEPA; and (4) require West Penn to execute a
new EEPA with Milesburg Energy, Inc. ("Milesburg"), similar in terms and
conditions to Milesburg's 1987 EEPA but with modifications to the Financing
Closing Date and related milestones and revisions to the capacity credit, grant
approval of the revised EEPA, and deny West Penn's petition to withdraw its rate
recovery petition.  With respect to the rate structure issue raised in this
proceeding, we find merit in the concept of allocating capacity charges to
customers on a demand/energy basis through West Penn's Energy Cost Rate ("ECR")
mechanism.  However, rather than requiring West Penn to modify its ECR in its
next annual filing, we will open a separate proceeding to consider modifications
to West Penn's ECR after receipt of an advisory report from our Bureau of
Audits.

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                                   BACKGROUND
                                   ----------

          The long history of these proceedings was fully described at pp. 1-32
of the ALJ's R.D., which we will incorporate by reference herein.

          Following issuance of the ALJ's R.D. on June 27, 1989, Exceptions were
filed by Milesburg, North Branch, the Office of Consumer Advocate ("OCA"), and
Armco Advanced Materials Corp./Allegheny Ludlum Corp. ("Armco/Allegheny").
The West Penn Power Industrial Intervenor's ("WPPII")/1/ filed a letter stating
that it did not intend to file Exceptions to the ALJ's R.D.  Reply Exceptions
were filed by West Penn, OCA, WPPII, Armco/Allegheny and jointly by North
Branch, Milesburg, and Mon Valley.

          On August 21, 1989 North Branch filed an Application for Stay of
Proceedings with respect to the Financing Closing Date of October 1, 1989 in its
EEPA. West Penn filed an Answer and Armco/Allegheny filed a Protest opposing
North Branch's Application on August 25 and August 28, respectively. On
September 12, 1989 North Branch filed an Amendment to its

______________________

/1/  WPPII is an ad hoc group of industrial customers comprised, in these
     proceedings, of Airco Industrial Gases, Latrobe Steel Co., National Roll
     Co., Pennsylvania Pressed Metals, Powder Metal Products, Inc., and PPG
     Industries, Inc.

                                     - 3 -
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Exceptions, thereby withdrawing its request for modification to its capacity
rates, and a Motion for Reconsideration. Answers to the Motion for
Reconsideration were filed by West Penn and Armco/Allegheny on September 15 and
September 13, respectively.  North Branch filed a Response to West Penn's Answer
on September 19, 1989.

          Our decision of today's date addresses the merits of the issues raised
in these consolidating proceedings and grants North Branch's Application for
Stay.


                                  DISCUSSION
                                  ----------

          We will address the issues raised in this proceeding seriatim by
reference to the ALJ's R.D. regarding each issue, which we incorporate by
reference herein, and the Exceptions and Reply Exceptions thereto.  A discussion
and ruling on the North Branch Application for Stay will follow. Phase I of the
proceeding generally addresses the reasonableness of the capacity credits set
forth in the various EEPAs as well as the rate structure issue regarding the
methodology by which the capacity costs paid by West Penn to developers of
qualifying facilities ("QFs") should be recovered from ratepayers.  Phase II of
the proceeding addresses issues raised by the lengthy delay in the approval
process to which the EEPAs have been subjected.

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                                 A.  PHASE I.
                                 ------------

     1.   The Legal Standard to be Applied; R.D. 32-42.
          ---------------------------------------------

          The ALJ rejected the arguments of Armco/Allegheny and OCA that the
Commission's regulations cannot be used as a benchmark to assess the
reasonableness of capacity rates in negotiated contracts.  Rather, the ALJ
concluded that, if negotiated rates are at or below the rates to which a QF
would be entitled as a matter of law (i.e., as defined by the Commission's
regulations), the rates are per se reasonable. The ALJ rejected the collateral
                            --- --
attack by Armco/Allegheny and OCA on the Commission's regulations, stating that
they are in full force and effect unless and until they are modified by the
Commission or invalidated by the Commonwealth Court.  Nevertheless, the ALJ
concluded that, due to the nature of the evidence in this record, in these
proceedings the reasonableness of the various capacity credits should be
measured against West Penn's methodology as opposed to the Commission's
regulations.

          Milesburg excepts to the ALJ's conclusion that, due to the evidence in
this record, the Commission's regulations cannot be used as the benchmark in
these proceedings Milesburg states that West Penn's witness introduced the
calculations under the regulations into the record on behalf of the parties to
this proceeding, and that whether West

                                     - 5 -
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Penn or other parties are critical of the regulations is irrelevant. Milesburg
notes that the Commission consistently has held that its regulations should
serve as the standard against which the reasonableness of rates in an EEPA are
to be evaluated.

          North Branch excepts to this portion of the ALJ's R.D. as well, noting
that West Penn's witness stated on the record that West Penn's avoided cost
filing of July 31, 1986, which reflected a capacity credit for 1991 of 4.85
cents per kwh, represented West Penn's best estimate of its avoided costs based
on its interpretation of the regulations. North Branch states that the ALJ erred
in disregarding the calculations based on West Penn's opposition to and
collateral attack of the regulations.

          OCA excepts to the portion of the R.D. that states that calculations
under the Commission's regulations could serve as a proper benchmark against
which the reasonableness of the capacity credits could be measured based on
OCA's argument that the Commission's regulations do not employ discounting and
therefore violate Section 210 of the Public Utility Regulatory Policies Act of
1978, 16 U.S. (S)824a-3 ("PURPA 210").

          West Penn's Reply Exceptions at p. 2 state that "[n]o party has
challenged the formulas developed by [West

                                     - 6 -
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Penn] for computing avoided cost, which produce a lower avoided cost figure than
under the Commission's own regulations, but rather only the inputs used in the
formulas." West Penn states that it is not necessary in this case to choose
between West Penn's and the Commission's methodologies because, except for a
minor adjustment to the Milesburg calculation, use of either methodology results
in approval of the contract rates as being at or below avoided costs.

          North Branch, Milesburg and Mon Valley, jointly filed Reply Exceptions
("Projects' Reply Exceptions") stating that OCA's criticism of the Commission's
regulations should be given no consideration in these proceedings.

          OCA's Reply Exceptions state, inter alia, that the ALJ's
                                        ----- ----
recommendation not to apply the Commission's regulations was not based on West
Penn's criticisms, but on the lack of an adequate evidentiary foundation for
their consideration. OCA states that the Projects had an opportunity to file
answering testimony and alternate calculations.  OCA argues that the testimony
of West Penn witness Kave and West Penn's 1986 avoided cost filing were not
sufficient evidence.

          Armco/Allegheny's Reply Exceptions state that, since the R.D. assessed
the various capacity credits based on West Penn's methodology, it makes no
difference that the R.D. did not compare the capacity credits to rates derived

                                     - 7 -
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under the Commission's regulations.  Armco/Allegheny argue that the regulations
are ambiguous and produce rates in excess of avoided costs; that West Penn's
avoided cost filings apply only to QFS of 500 kw or less; and that the QFs in
this proceeding are not automatically entitled to capacity rates set forth in
annual avoided cost filings.

          On this issue, we adopt the ALJ's recommendation. The reasonableness
of rates in negotiated contracts generally is to be determined by a comparison
to rates that would be required by an application of the Commission's
regulations. This is a fundamental concept that has been the basis for nearly
all of the Commission's Orders approving rate recovery of amounts to be paid to
QFs under negotiated agreements. The methodology in the Commission's regulations
is binding upon all in Pennsylvania unless and until the Commission revises it
as a result of the generic investigation at Docket No. 1-860025 or otherwise.
We find no merit in arguments that our regulations overstate a utility's avoided
costs.  State regulatory commissions have been granted a substantial degree of
latitude in the implementation of PURPA 210, and avoided costs are defined by
                                                                   -------
our regulations. In other words, our regulations determine what a utility's
avoided costs are under the law, notwithstanding arguments that a different
methodology or methodologies might be preferable.  The possibility that our
regulations may not be perfect in some party's view is irrelevant.  The
regulations

                                     - 8 -
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were finalized in January 1983 after an extended notice and comment period in a
proceeding where all interested parties had the opportunity to make their views
known.  Although we may refine our regulations as a result of our generic
investigation, in our view the regulations are basically sound.  In particular,
our coal proxy regulation at 52 Pa. Code (S)57.34(c) recognizes the fact that
logically the next base load unit for a utility in Pennsylvania that is
anticipating a need for additional base load capacity would be a coal plant.  By
basing capacity credits on a capital-intensive unit with relatively stable
associated energy credits, the coal proxy regulation encourages the development
of capital-intensive qualifying facilities such as those that are fueled by coal
or coal waste.  From both a ratepayer and a public policy perspective, in our
view it is important that our regulations under PURPA 210. permit continued
development of coal and coal waste facilities.

          Notwithstanding the fact that generally avoided costs are to be
determined by application of our regulations, we agree with West Penn that it is
not necessary in this proceeding to choose between West Penn's and the
Commission's methodologies because use of either methodology results in approval
of the contract rates.  All parties agree that West Penn's methodology produces
rates that are lower than rates produced by the Commission's regulations.  None
of the Projects have requested rates calculated under the regulations.
Therefore, as a practical matter, we adopt the ALJ's recommendation

                                     - 9 -
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to utilize West Penn's methodology as the benchmark for determining West Penn's
avoided costs in these proceedings. Since rates calculated under our regulations
would be per se reasonable, and West Penn's methodology produces lower rates, it
         --- --
follows that rates calculated under West Penn's methodology (assuming the inputs
are appropriate) are per se reasonable as well.  Our decision on this issue also
                     --- --
renders it unnecessary to resolve any ambiguities that may exist in our
regulations at this time.

      2.  Burden of Proof, R.D. at 42-44.
          -------------------------------

          The ALJ concluded that under Section 332(a) of the Public Utility
Code, 66 Pa. C.S. (S)332(a), West Penn has the burden of proof in these
proceedings as the proponent of an Order.  The ALJ states that West Penn must
meet its burden of proof by substantial evidence.  No party filed an exception
to this conclusion.  We adopt the ALJ's recommendation on this issue.

     3.   Time Frame, R.D. at 44-52.
          --------------------------

          With respect to the time frame that will be utilized to determine West
Penn's avoided costs, the ALJ recommended adoption of West Penn's agreement in
principal on rates as the time of serious negotiations under the Commission's
standard set forth in Pennsylvania Public Utility Commission v.
                      -----------------------------------------

                                     - 10 -
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Duquesne Light Company, Docket No. R-860556 (July ___, 1987).  Agreement in
----------------------
principle on rates was reached in April 1985, May 1986, September 1986, and
October 1986 for the Monongahela, Milesburg, Shannopin and Burgettstown
Projects, respectively.

          The only party to file an exception to this recommendation was
Armco/Allegheny, which argue that the date that the EEPAs were executed should
be utilized.  Armco/Allegheny state that two tax changes occurred prior to the
contract signing dates that should be incorporated into the calculation of the
capacity credits for the Milesburg, Shannopin and Burgettstown Projects, namely
the Tax Reform Act of 1986, signed into law October 22, 1986 and effective in
tax years 1987 and beyond, and a reduction in the Pennsylvania Corporate Net
Income Tax effective January 1, 1987.  Armco/Allegheny argue that the dates of
contract execution (February 25, 1987 and October 15, 1987) are the earliest
dates that the serious negotiations standard should be deemed satisfied because
these were the dates the Projects were legally committed.

          West Penn's Reply Exceptions state that the issue is whether West
Penn's use of time of agreement in principle to determine avoided costs was
reasonable. West Penn notes that Armco/Allegheny offered no witness with
experience in negotiating QF contracts or with experience in financing

                                     - 11 -
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     such contracts; witnesses with such experience were West Penn's chief
     contract negotiator; representatives of the Projects, and a Vice-President
     of Mellon Bank with considerable experience in project financing. West Penn
     states that the testimony of these witnesses demonstrates that calculation
     of avoided costs at the time of agreement in principle on rates is critical
     to encourage and stabilize the process of voluntary negotiation of
     contracts under PURPA, since the developer of a QF needs rates upon which
     it can rely in evaluating the potential feasibility of a project.
     Typically, a developer has only limited available resources and has to
     borrow between 75% and 85%, and sometimes more, of the funds necessary to
     construct a facility. Usually this money is loaned without recourse to any
     assets other than the project itself; therefore, lending institutions must
     rely on the revenue stream generated by the sales of power to repay the
     debt. As a result, substantive evaluation of project financing cannot be
     made until the qualifying facility and the utility have agreed upon a
     particular rate. An up-front evaluation of economic feasibility is
     important because often the substantial investment to lay the groundwork
     for a project is not possible without some assurance that the project is
     economically feasible. If West Penn were not able to agree to purchase
     rates until a contract is signed, the QF could get all the way to final
     contract negotiations only to find that avoided costs for capacity have
     dropped. West Penn states that, although a broad "serious negotiation"
     standard

                                      -12-
<PAGE>
 
     creates problems for a utility, West Penn's selection of a specific point
     during negotiations (agreement in principle) is consistent with the intent
     of the serious negotiation standard. In calculating avoided costs for these
     contracts, West Penn selected a specific time during the negotiation
     process at which its risk of relying on a project's capacity for planning
     purposes is significantly reduced. West Penn states that Armco/Allegheny's
     argument on this point applies hindsight because, in this case, lower rates
     would result. However, avoided costs just as easily could have increased.

          The Projects' Reply Exceptions state that Armco/Allegheny's position
     on the tax issue in reality is a request that the Commission change its
     policy on the serious negotiations standard, and that any changes in policy
     should not be made retroactively. Acceptance of Armco/Allegheny's argument
     would assume that existing policy is meant to be changed on a case-by-case
     basis and would seriously undermine the Commission's credibility. The
     Projects support the Commission's standard because it ensures that
     negotiated rates will be preserved as negotiations continue; under
     Armco/Allegheny's proposal developers would be required to petition the
     Commission for higher rates under the regulations in order to "lock-in"
     avoided cost estimates. The Projects note that Armco/Allegheny relied
     solely on the testimony of one witness to support their argument who had no
     experience in advising parties to QF contracts, had never negotiated a QF
     contract, and did

                                      -13-
<PAGE>
 
     not consider the effect of his theory on potential developers.
     Nevertheless, with no experience or background, the witness stated that
     "[t]he time frame of serious negotiations is completely nebulous and
     ambiguous. Such a time frame could expanse years of negotiations prior to
     the signing of a contract." Projects' Reply Exceptions, p. 3. The Projects
     assert the time frame for serious negotiations is neither nebulous nor
     ambiguous, and that each project has identified a specific period, none
     longer than seven months, during which rates were agreed upon and
     expenditures were made in reliance thereon. The Projects state that
     Armco/Allegheny's witness has confused negotiation of rates with
     negotiation of technical terms and conditions. The Projects refer to
     testimony that, without a firm commitment on price (1) contractors and
     engineers are reluctant to provide bids and financing is unavailable; (2)
     developers would not risk the substantial development costs required to
     perform essential activities necessary to advance a project from the early
     feasibility study stage to contract signing; and (3) use of contract
     execution date would have a chilling effect on cogeneration and small power
     production. The Projects state that use of hindsight would establish a
     constantly moving target with respect to avoided capacity rates and could
     be used by a utility to circumvent the requirement to provide capacity
     credits to a QF merely by refusing to enter into an EEPA or by delaying
     execution of an EEPA. The Projects

                                      -14-
<PAGE>
 
     argue that the rates quoted to the Projects were reasonable at the time,
     and any change thereto would be retroactive policy-making which has never
     been contemplated by this Commission even in the generic investigation.
     Finally, the Projects' Reply Exceptions briefly describe the negotiations
     and project development work that took place for each Project and conclude
     that each Project satisfied the serious negotiations standard in Duquesne.
                                                                      --------
     The Projects aver that Armco/Allegheny's proposal is totally unrealistic
     and cannot result in a negotiated EEPA because an EEPA cannot be executed
     without the prior completion of substantial development work. With respect
     to the related tax issue, the Projects state that West Penn correctly
     applied the tax laws in effect at the time of serious negotiations in the
     calculation of the Fixed Charge Rate ("FCR"). The Projects' rates were
     calculated in or before May 1986 while the Conference Report on the Tax
     Reform Act of 1986 was not issued until September 19, 1986. Thus, it is
     unreasonable to argue that West Penn should have recalculated its prior
     firm price quotes after the Projects had expended substantial amounts of
     money in reliance upon those rates.

          On this issue we adopt the ALJ's recommendation, and reiterate our
     longstanding policy that avoided costs are to be determined as of the time
     of serious negotiations. Objective criteria are needed and must be applied
     consistently to give reliability to negotiations between utilities and

                                      -15-
<PAGE>
 
     QFs. Otherwise, avoided cost rates would evolve into a constantly moving
     target, a phenomenon that would undermine contract negotiations and chill
     the continued development of cogeneration and small power production
     facilities. Our policy was formulated in recognition of the fact that a
     utility's avoided costs could drop; however, a utility's avoided costs just
     as easily could rise. The ALJ correctly noted that, "[u]ltimately, no
     matter what time is used to fix EEPA purchase rates, the ratepayers bear a
     risk that avoided costs will go down after that time and the QF bears the
     risk that avoided costs will go up." R.D. at 51. For the reasons set forth
     in the Reply Exceptions of West Penn and the Projects, we find that
     Armco/Allegheny's argument that time of contract execution should control
     is without merit. Therefore, we affirm our policy on the serious
     negotiations standard and accept West Penn's agreement in principle on
     rates as the time that the serious negotiations standard was satisfied. Our
     adoption of the agreement in principle on rates is limited to the facts of
     the instant proceeding since utilities other than West Penn utilize
     different practices and procedures when negotiating QF contracts. Moreover,
     if the evidence in a proceeding demonstrated that a utility unreasonably
     delayed the issuance of project price proposals, the time frame for serious
     negotiations would be set prior to the agreement in principle on rates. In
     addition to the need to prevent avoided costs from evolving into a moving
     target, there is a need to assure that utilities

                                      -16-
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     cannot deprive QFs of avoided cost rate entitlement by delaying
     negotiations.

          4.   The Reasonableness of the Capacity Rates in the EEPAs.
               ----------------------------------------------------- 

               a.   West Penn's Methodology, R.D. at 52-55.
                    -------------------------------------- 

          The ALJ's description of West Penn's methodology is not a
     recommendation on a contested issue, and does not require a discussion.
     Nevertheless, the ALJ's R.D. aptly summarizes West Penn's methodology and
     the remaining issues in Phase I of these proceedings. Therefore, for
     purposes of clarity and completeness, we will set forth in full this
     section of the R.D.

          West Penn's methodology for calculating the avoided costs in the EEPAs
     is set forth in WPP Exhibit 1 and described in WPP Statement 1 at pages 15-
     20 generally and at pages 20-24 for each Project. West Penn's methodology
     is included in a report captioned "The Value of Generating Capacity". WPP
     Ex. 1. West Penn's methodology calculates avoided costs by determining the
     amount of overlap between the QF's supply of capacity and the APS need for
     capacity. This overlap shows how much capacity (in months) can be avoided
     by recognizing the in-service date and economic life of the APS plant as
     well as the in-service date and contract term of the QF. These avoided
     costs are spread over the QF contract term as

                                      -17-
<PAGE>
 
     a levelized rate such that the present value of the avoided APS plant costs
     equals the present value of the payments to the QF. According to Mr. Kave,
     these equivalent present values ensure that the ratepayers pay no more for
     QF capacity than the avoided costs of the APS plant, regardless of the in-
     service date and contract term of the QF. WPP St. 1 at 15-16.

          The APS need for generating capacity is determined from the APS
     Integrated Resource Plan which, for these Projects, shows that new,
     avoidable generating capacity would be needed in the form of three, 300 Mw
     coal-fired units. These units were included as a part of West Penn's annual
     system cost data filing (52 Pa. Code (S)57.33) and the annual resource
     planning report (52 Pa. Code (S)57.49). Mr. Kave states that these units
     are also consistent with the coal proxy definitions used within the
     Commission's regulations. WPP St. 1 at 16.

          The rates in cents per Kwh will differ among projects depending on the
     length of the contract term and the QF's in-service date. Generally, the
     closer a QF's in-service date is to WPP's need for capacity, and the longer
     the contract term overlaps the life of the avoided plant, the greater the
     costs are that can be avoided.

                                      -18-
<PAGE>
 
          Similarly, avoided capacity rates differ depending on when the next
     APS plant is needed. That is, for a given QF contract term and in-service
     date, the rate may change if the APS Integrated Resource Plan changes. All
     other things being equal, the farther into the future the next need for an
     APS plant, the lower the avoided capacity cost rates will be under APS's
     methodology. This tends to discourage capacity additions by QFs that are
     not needed. Conversely, if there is a near term need for capacity, the
     methodology tends to encourage QF development by offering higher rates
     According to Mr. Kave, this sensitivity to forces of supply and demand
     creates a built-in safeguard against excess capacity problems. WPP St. 1 at
     17.

          Another reason that capacity rates may differ among projects is that
     capacity rate calculations are performed using standard APS information and
     estimates which are available at the time of calculation. Since these
     calculations are performed at different times, the underlying information
     may change. WPP St. 1 at 17.

          Capacity rates are normally paid to QFs on a cents per Kwh basis for
     Kwh's of energy which are scheduled and delivered. This provides a strong
     incentive for the QF to maximize its availability and deliveries. Under
     dispatch conditions the QF is paid a capacity rate for the amount of
     capacity which is available and scheduled for possible

                                      -19-
<PAGE>
 
     delivery. Under certain conditions of poor performance, such as excessive
     deliveries during off-peak hours and inability to meet dispatch criteria,
     the capacity payments to the QF are reduced. WPP St. 1 at 17.

          As noted above, West Penn maintains that the EEPA rates are below its
     avoided costs under either its methodology or the Commission's regulations.
     No party challenged West Penn's methodology or the calculated energy rate
     in the EEPAs.

          At issue are the correctness of the inputs West Penn used in its
     methodology regarding the capacity rate calculation. These inputs include
     the reserve margin, the type of avoided unit used (coal v. combustion
     turbine), the avoided unit's availability, and the fixed charge rate.

          Also at issue is WPPII's assertion that West Penn's capacity rates
     should be based on the renovated Springdale and Mitchell plants which will
     come on line before any of the QFs. In addition, OCA argues in favor of a
     correction to the Milesburg Project avoided capacity costs to reflect
     monthly payments required by the EEPA. Finally, Armco/Allegheny and WPPII
     argue for EEPA capacity rates to be passed through to West Penn's
     ratepayers on a demand/energy basis instead of on an energy basis only.
     These issues are addressed below.

                                      -20-
<PAGE>
 
          b.   Reserve Margin, R.D. at 55-71.
               ------------------------------ 
         
          The ALJ recommended adoption of West Penn' planning reserve margin of
     25%. Armco/Allegheny and OCA argued for reserve margins of 15% and 20%,
     respectively. The ALJ's R.D. accurately summarizes the position of each
     party and is, as stated above, fully incorporated herein by reference. The
     ALJ concluded that West Penn demonstrated that its planning reserve margin
     was not out of line with the electric industry throughout the United States
     and within the North American Reliabilitiy Council's ("NERC") regional
     council; that West Penn's high load factors and number of super-critical
     generating units supported its 25% margin; that West Penn used correct
     judgment in 1986 that the planning reserve margin should not be changed in
     response to a then recent improvement in generation availability; and that
     West Penn used correct judgment in considering potential acid rain
     legislation as one of several reasons why current availability data might
     not hold in the future. The ALJ concluded by noting that forecasting a
     reserve margin requires the use of studies and computer analyses, but the
     final decision requires informed judgment based on experience. The ALJ
     found that West Penn demonstrated that its 25% reserve margin decision was
     supported by studies available when the decision was made and by informed
     judgment based on experience, and recommended approval of the 25% planning
     reserve margin.

                                      -21-
<PAGE>
 
          OCA and Armco/Allegheny excepted to the recommendation OCA reiterates
     its claim that Allegheny Power Systems ("APS"), West Penn's parent company,
     should have conducted new reserve margin and generation planning studies in
     1986, which would have indicated that the planning reserve margin should
     have been no more than 20% based primarily on an increase in unit
     availability on the APS system between 1983 and 1986 and OCA's view that
     large interconnected systems generally have a reserve margin of 15% to 20%.
     Armco/Allegheny reiterate their claim that West Penn did not meet its
     burden of proof with respect to its 25% planning reserve margin because the
     studies relied upon by West Penn were outdated and because West Penn and
     APS have allowed their reserve margins to drop below 25% by entering into
     agreements for the sale of 700 MW to out-of-state utilities.

          West Penn's Reply Exceptions state that the issue is not, as OCA and
     Armco/Allegheny would like to frame it, whether APS should have done a
     formal study in 1986 but whether, in light of the objective information
     available to APS planners in 1986, the judgment to use a 25% planning
     reserve margin in calculating avoided costs for these contracts was
     reasonable. West Penn states that the ALJ correctly concluded that its
     judgment regarding the proper planning reserve margin was appropriate
     given, inter alia, the existence of the super-critical units on the APS
            ----- ----
     system, APS' high load factor, and the availability of the units. With
     respect

                                      -22-
<PAGE>
 
     to Armco/Allegheny's exception, West Penn states that the 700 MW off-system
     sale in the winter of 1988/89 has no bearing on APS' planning reserve
     margin because the sale is interruptible and subordinate to native system
     load, which permits APS to use its existing capacity effectively without
     compromising system reliability. APS does not plan for off-system sales
     when determining that new capacity is needed; therefore the projected
     addition of capacity in 1995 was planned to meet native load plus a 25%
     reserve margin, as opposed to native load, plus off-system sales, plus 25%.
     West Penn notes that the 700 MW off-system sale actually was a sale of 700
     MW for one year dropping to 300 MW for six years and zero thereafter.

          The Projects' Reply Exceptions emphasize that West Penn's 25% planning
     reserve margin had been sanctioned by the Commission in two prior
     proceedings, that the reserve margin is being used for planning purposes by
     West Penn to this day, and that West Penn still projects a need for energy
     in 1995. The Projects state that the reasonableness of West Penn's planning
     reserve margin is the issue, not the exact results of West Penn's
     forecasts.

          Upon review of the Exceptions and Reply Exceptions we find nothing
     that was not considered by the ALJ prior to making his recommendation that
     West Penn's planning reserve margin of 25% be adopted. The ALJ's decision
     on this issue

                                      -23-
<PAGE>
 
     is persuasive and we adopt it as our own. We find particularly persuasive
     the rebuttal testimony of West Penn's Director of Planning regarding the
     factors that were taken into account in establishing the reserve criterion,
     particularly the existence of ten super-critical units ranging in size from
     540 mw to 640 mw, each of which is about 10% of the APS system peak load;
     APS' high load factor, which is normally one of the ten highest load
     factors of the top 100 investor-owned utilities in the country; and the
     uncertainty whether the recent improvement in unit availability would
     continue given, inter alia, the fact that the equipment is aging and the
                     ----- ---- 
     temporary lower stress levels on individual units resulting from
     temporarily higher operating reserves. One issue raised on exception that
     was not addressed by the R.D. was Armco/Allegheny's argument that the
     interruptible off-system sale of 700 MW in 1988/89 (dropping to 300 MW for
     -------------
     six years) demonstrated that West Penn did not need additional capacity. We
     find this completely unpersuasive for the reasons set forth in West Penn's
     Reply Exceptions.


          c.   Coal Unit v. Combustion Turbine, R.D. at 71-80.
               -----------------------------------------------

          The capacity credits in this proceeding were based on West Penn's
     projection in 1986 that the next generating unit it would construct would
     be a series of three 300 MW coal units, the first of which would be brought
     on line in 1995. OCA argued that in 1986 West Penn should have planned

                                      -24-
<PAGE>
 
     to construct oil or gas fired combustion turbines ("CTs") to provide
     peaking capacity before constructing additional coal units. The ALJ
     concluded that West Penn submitted substantial evidence to support the APS
     decision in 1986 that a coal unit would be required in 1995.

          OCA excepted to this finding, arguing that peaking units (oil or gas
     fired CTs) should have been planned by West Penn rather than base load
     generation in the form of coal fired units. OCA's preference for oil or gas
     fired units is based on arguments pertaining to need for fuel diversity,
     projected fuel costs for the coal plant v. marginal fuel costs on the
     system, and the use of a dependent forced outage rather than actual unit
     unavailability in West Penn's studies.

          West Penn's Reply Exceptions state that the APS 1986 Generation Plan
     was supported by considered judgment based on the following factors:

          (1)  the many years of satisfactory service provided by coal-fired
               units to APS and its ratepayers;

          (2)  the drastic escalation in the price of oil and gas even though
               tempered by a drop in prices in late 1985 and early 1986;

                                      -25-
<PAGE>
 
          (3)  the results of studies that at best showed only a minor financial
               advantage for combustion turbines;

          (4)  the technological limitation(s) on combustion turbines at that
               time; and

          (5)  public policies and laws designed to encourage the use of coal.

     West Penn's Reply Exceptions refer to its Main Brief and Reply Brief, which
     refute the arguments in support of an oil or gas fired peaking unit raised
     by OCA. With respect to fuel diversity, West Penn states that the objective
     is not to provide a pre-determined fuel mix, but to provide a reliable
     power supply at the lowest cost, which should be done by using the fuel
     sources that are the most reliable and cost the least over the planning
     horizon. West Penn notes that the APS service area has large reserves of
     coal that have over time provided a stable supply of fuel at a reasonable
     cost; that the availability and price of oil and gas have been
     unpredictable and uncertain; and that the economy of the APS service area
     benefits from the use of coal.

          With respect to OCA's argument comparing fuel costs of a coal plant to
     the fuel costs of the APS system,

                                      -26-
<PAGE>
 
     West Penn states that even if the new coal units were projected to have a
     higher operating cost than the average costs on the system, it is
     inappropriate to compare operating costs between types of generation. West
     Penn notes that if this type of comparison were to be made, CTs always
     would have exceedingly high costs (about 4 (cents) to 1O (cents)/kwh
     depending on oil and gas prices) compared to coal. West Penn states that
     neither of the computer runs discussed by OCA shows either a large benefit
     or cost to installing CTs, and that there certainly was not enough
     difference to make a decision based only on computer runs. West Penn avers
                                         ----
     that "[t]he decision to stay with coal fired generation was based on the
     experience of many years and common sense. The use of coal has been the
                                                ----------------------------
     reason the APS cost of electricity has been among the lowest in the
     -----------------------------------------------------
     country." West Penn Reply Brief at 12 (emphasis supplied).
     --------

          With respect to OCA's argument on the use of dependent forced outage
     rates, West Penn states that the purpose of using these rates is to better
     model the way the power system actually operates. While most computer
     models use an average forced outage rate, in actual practice many units may
     be out of service at one time, necessitating the use of CTs. West Penn
     states that if there are many units out of service at the same time,
     usually it is due to some type of dependency, i.e., weather-related,
     equipment similarities, storms, etc. When these dependent forced outage
     conditions

                                    - 27 -
<PAGE>
 
     do occur, necessitating the use of CTs, it might be necessary to run them
     eight to thirteen hours a day because of the APS high daily load factors,
     where hourly loads do not vary much over long periods during the day.

          The Projects' Reply Exceptions state that OCA's entire argument that
     the avoided unit should have been a CT rather than a coal-fired unit is
     that planning and judgment cannot be used along with a least cost study.
     The Projects state that, while all of West Penn's planning for the mid-
     1990's included adding base load plant in 1995, OCA unilaterally decided
     that West Penn should add peaking power in that year and assumed a low cost
     and available source of oil in 1995 and beyond. The Projects state that
     none of OCA's assumptions as to oil prices were known in early 1986, and
     that OCA's continued reliance on its argument with respect to cheap and
     stable oil prices in the future is unsupportable in light of the current
     state of the fuel market. Finally, the Projects note that West Penn added
     considerable peaking capacity in 1986 (the Bath County Pumped Storage
     Unit), and that there is nothing on the record to support the proposition
     that another large peaking unit is needed next.

          We agree with the ALJ's recommendation on this issue; further we find
     compelling reasons supporting West Penn's choice of a coal-fired base load
     unit as opposed to

                                      -28-
<PAGE>
 
     an oil or gas-fired CT as the next generating plant on the system. Even
     assuming for the purposes of argument that studies showed a financial
     advantage to CTs, the advantage was minor at best. West Penn appropriately
     used its experience and judgment as well as formal studies when formulating
     its capacity addition plans. Its experience supported the choice of a coal
     unit for many reasons, including the many years of satisfactory service of
     coal units to its ratepayers, and the fact that the reason West Penn's
     rates are the lowest in Pennsylvania and among the lowest in the country is
     due to the use of coal. The volatility in the supply and price of natural
     gas and oil as well as the public policy in Pennsylvania of encouraging the
     use of coal also supported its decision. Additionally, West Penn's high
     daily load factor supports the decision to add additional base load
     capacity, as opposed to oil or gas fired peaking units (with low capital
     costs but high fuel costs), as well as the use of dependent forced outage
     rates in its studies. In sum, we strongly endorse West Penn's decision to
     add a coal-fired unit as opposed to an oil or gas-fired CT as its next
     generating unit. Selection of a CT over a coal unit due to at best a minor
     financial advantage produced by a formal study in our opinion would have
     been unwise. First, it would have exposed ratepayers to the volatility in
     the supply and price of oil and gas in the future; whereas coal supplies in
     the APS service territory are abundant and can be procured under long term
     contract. Second, in our opinion

                                      -29-
<PAGE>
 
     West Penn gave appropriate consideration to the public policy in
     Pennsylvania of encouraging the use of our indigenous coal resources and
     the economic benefits in the service territory resulting from the use of
     coal. The choice of a coal unit over a CT has more than theoretical
     consequences for the Projects under consideration, even though the Projects
     are designed to avoid or defer the construction of the next unit by APS.
     The Projects are themselves capital-intensive as they are designed to
     utilize coal and coal waste. Generally speaking, a capital-intensive
     project cannot be supported by capacity credits derived from a low cost
     combustion turbine. Moreover, we note that OCA did not advocate revising
     the Projects' energy credits (which were not challenged by any party to
                   ------
     these proceedings) to reflect the fact that its avoided unit of choice
     would be fired by oil or gas as opposed to coal. It is an interesting
     position that advocates capacity rates based on a cheap oil- or gas-fired
     combustion turbine and energy credits based on coal.

          There is an independent reason why basing the capacity credits in this
     proceeding on a coal plant was required that was not addressed by the ALJ's
     R.D. As West Penn notes in its Reply Brief, in 1986 it was anticipating
     inadequate system reliability within the next ten years as a result of not
     being committed to sufficient plant because its reliability criterion of a
     25% reserve margin would not

                                      -30-
<PAGE>
 
     be met without additional generating units. Under 52 Pa. Code
     (S)57.34(c)(4)(iii) this triggers the required use of a coal plant as a
     proxy. Therefore, in addition to the fact that West Penn reasonably
     selected a coal plant as its next generating unit, our regulations would
     have required the payment by West Penn of capacity credits based on a coal
     plant even if West Penn had not selected any particular type of generating
     unit at all.

          For all of the foregoing reasons, we find that the capacity credits in
     this proceeding should be based on the costs of a coal-fired generating
     unit.

          d.   Mitchell and Springdale Units, R.D. at 81-85.
               ---------------------------------------------

          In 1983 West Penn's Springdale and Mitchell generating units were
     placed in cold reserve and removed from West Penn's rate base. In the Bath
     County litigation it was determined that the Springdale and Mitchell units,
     collectively 361 MW, would not be considered installed capacity for the
     purpose of evaluating whether the Bath County pumped storage project was
     excess capacity. WPPII argued that West Penn could return the units to
     active service by expending $71 million, and that West Penn's capacity
     credits should have been based on the reactivation costs rather than a new
     300 MW coal unit. West Penn responded by noting that its 1986 Generating
     Capacity Plan showed the need for additional capacity in

                                      -31-
<PAGE>
 
     1995 despite the planned reactivation of Springdale and Mitchell in 1992
          -------
     and 1993. West Penn also noted that Mitchell and Springdale are oil-fired
     peaking units, and the Commission's regulations base capacity credits on a
     peaking unit only when it is due on-line within five years. Since in 1986
     springdale and Mitchell were not "committed" units under the regulations,
     they were properly not used as the basis of the capacity credits in West
     Penn's avoided costs calculations.

          The ALJ agreed with West Penn's application of the facts to the
     Commission's regulations at 52 Pa. Code (S)57.34(c)(4)(i) and (iii), while
     disagreeing with West Penn's conclusion that the regulations require the
     use of costs associated with a new plant, as opposed to one in cold
     reserve. The ALJ rejected Armco/Allegheny's argument that the capacity
     credits in these proceedings should be based on the costs of reactivating
     Springdale and Mitchell.

          No exceptions to the ALJ's recommendation on this issue were filed. We
     agree with the ALJ and find that the costs of reactivating springdale and
     Mitchell were not the proper basis for determining West Penn's avoided
     costs in these proceedings. West Penn's Generating Capacity Plans in 1986
     showed West Penn's need for a 300 MW coal unit in 1995 in addition to the
                                                            -- -------- --
     planned reactivation of Springdale and Mitchell in 1992 and 1993.

                                      -32-
<PAGE>
 
          Where a utility projects a need for more than one capacity addition,
     nothing in our regulations bars the payment of capacity credits based on
     more than one plant. Therefore, although it was appropriate for West Penn
     to offer the projects in these proceedings capacity credits based on its
     1995 coal plant, West Penn also could have offered capacity credits to
     other QFs based on the reactivation of Springdale/Mitchell in 1987-1988
     (five years before the planned reactivation). Although the resulting
     capacity credit would have been extremely small, the energy credit
     associated with Springdale and Mitchell, which are oil-fired, would have
     been substantially higher than the energy credits at issue in these
     proceedings. In sum, just as utility capacity addition plans are not
     mutually exclusive, capacity credits based on different capacity addition
     plans likewise are not mutually exclusive. In 1986 the appropriate plant
     upon which West Penn's avoided costs were based was the 1995 coal plant;
     even if West Penn had planned to reactivate Springdale and Mitchell within
     five years or by 1991, the Projects in question would have had the choice
     of which capacity addition plan they would help defer or avoid, which would
     in turn determine their appropriate avoided costs.

          e.   Fixed Charge Rate, R.D. at 85-95.
               ---------------------------------

          West Penn utilizes a levelized annual fixed charge rate ("FCR") to
     estimate the cost of owning capital assets.

                                      -33-
<PAGE>
 
     The principal elements of the-FCR are the cost of capital, depreciation,
     income taxes, insurance, and property related taxes. West Penn used a FCR
     of 17.7% for all three contested Projects. Armco/Allegheny argued for a FCR
     of 13.88% for Milesburg and 14.65% for Burgettstown and Shannopin. The ALJ
     concluded that West Penn calculated its FCR correctly and recommended its
     acceptance.

          No exceptions were filed with respect to the ALJ's findings on cost of
     capital, capital structure, cost of debt, cost of preferred stock, state
     and federal taxes, ad valorem rate (insurance and property taxes), or rate
     base. We adopt the ALJ's recommendation on these issues as our own.

          Armco/Allegheny excepted to the ALJ's recommendation to adopt West
     Penn's forecasted return on equity of 15%. West Penn's forecast was made by
     adding a risk premium of 400 basis points to forecasted bond rates, since
     it is universally recognized that investments in common stock are riskier
     than investments in bonds. To encourage investment in common stock, it is
     necessary to provide a higher return than an investor could receive in the
     bond market.

          Armco/Allegheny argue that the most appropriate return on equity would
     be the return of 14.25% approved by the Commission in July 1986 in West
     Penn's Bath County rate

                                      -34-
<PAGE>
 
     proceeding at Docket No. R-85022O. Armco/Allegheny argue that only the
     Commission can set a utility's return on equity, and that West Penn
     unlawfully usurped the Commission's authority by forecasting a higher rate
     of return. Armco/Allegheny state that West Penn committed its ratepayers to
     pay a higher return on equity to the QF developers than the Commission had
     required West Penn's ratepayers to pay to the utility.

               West Penn's Reply Exceptions note that the return on equity in
     the FCR for these avoided cost calculations required economic forecasting
     for the life of the contracts, i.e., as far out as the year 2031 (33 years
                                    ----
     past 1998). Armco/Allegheny did not contest the reasonableness of West
     Penn's projections; rather, Armco/Allegheny contended that using any
                                                                      ---
     projection was an error of law. West Penn states that Armco/Allegheny's
     argument defies logic and erroneously assumes that West Penn's return on
     equity is static and will remain at 14.25% for over 33 years. The Projects'
     Reply Exceptions note that Armco/Allegheny did not argue that West Penn's
     forecast was incorrect, and that the rates for each of these Projects were
     first quoted to developers prior to July 24, 1986, when the return on
     common equity from the then prior rate case was 15.5%.

               Armco/Allegheny's argument on this point requires little
     discussion. We agree with West Penn that it defies logic to assume that
     West Penn's rate of return on equity

                                     - 35 -
<PAGE>
 
     will remain static for the next 30-40 plus years. All components of an
     avoided cost calculation, including a fixed charge rate, require the use of
     reasonable projections. The use of a forecasted 15% return on equity did
     not usurp a Commission function. Therefore, we adopt the ALJ's
     recommendation on this issue.

           f.  Availability Factor.
               -------------------

          Armco/Allegheny have excepted to the fact that, through an oversight,
     the ALJ's R.D. failed to rule on their argument that the availability
     factor of the avoided coal unit should have been 8.0% rather than 75%. The
     availability factor is the percentage of time during the year that the
     avoided unit would be expected to operate, and is used as a component in
     the calculation of West Penn's capacity credit. The lower the assumed
     availability factor, the higher the capacity credit because the cost of the
     avoided unit will be spread over fewer Kwh. Armco/Allegheny aver that the
     newest scrubbed coal-fired units on the APS system are the 621 MW Pleasants
     Units, which had average availabilities of 80-81% between 1983-1987.
     Armco/Allegheny aver that, although the only other scrubbed coal-fired unit
     on the APS system, Mitchell No. 3, had an availability of only 73.9%
     between 1983-1987, it is more appropriate to use the Pleasants Units
     because they are newer and provide a better indication of the expected
     availability of units that would be built in the mid-1990s.

                                    - 36 -
<PAGE>
 
               West Penn's Reply Exceptions state that Armco/Allegheny
     selectively analyzed APS availability data in order to find an example to
     support its contention. West Penn takes into account many factors,
     including potential acid rain legislation, in forecasting future
     availability. Selection of one four year average availability of one unit
     does not support an assumption that West Penn should anticipate that
     particular availability over the economic-life of the avoided unit. The
     Projects' Reply Exceptions similarly state that the selection of only one
                                                                           ---
     time period for one unit does not support use of the corresponding
                     ---
     availability factor.

               On this issue we agree with West Penn, and reject the argument of
     Armco/Allegheny. Selection of one four year period for one unit does not
     support an assumption that the avoided unit would have had an equivalent
     availability factor over its useful life. Even if the Pleasants Units were
     selected as the best representative units on the APS system, the four year
                                         -----
     period of 1983-1987 selected by Armco/Allegheny occurred very soon after
     ------
     Pleasants Units 1 and 2 were placed in-service in 1979-1980. It is
     unreasonable to assume that a plant will continue to operate over its 30-33
     year life at the same availability factor that it did when it was nearly
     new. Over time, equipment ages and must be replaced. Therefore, we find
     that the four year availability factor cited by Armco/Allegheny is not
     particularly relevant, and adopt West Penn's projection of a 75%
     availability factor for the life of the avoided unit.

                                    - 37 -
<PAGE>
 
          5.   Section 527 of the Code, R.D. at 95-97.
               --------------------------------------

               The ALJ's R.D. rejected Armco/Allegheny's argument that Section
     527 of the Public Utility Code, 66 Pa.C.S. (S)527, requires discounts from
     full avoided costs. We rejected this argument previously in our Order on
     Reconsideration in these proceedings entered January 19, 1989.
     Nevertheless, Armco/Allegheny argue that Section 527 applies to negotiated
     rates as opposed to rates set administratively by the Commission.

               The ALJ rejected Armco/Allegheny's argument as "engaging in
     legislative mindreading with no support except stretched logic." R.D. at
     97. The ALJ concluded that, since Section 527 cannot be used against full
     avoided cost rates calculated under the Commission's regulations, neither
     can it be applied to full avoided cost rates in a voluntary agreement. The
     ALJ notes that, even though not mandated by Section 527, the record in
     these proceedings demonstrates that the EEPA rates are below West Penn's
     avoided costs.

               Armco/Allegheny's Exceptions at p. 32 repeat their assertion that
     "Section 527 clearly requires that in Pennsylvania rates paid to QFS should
     be less than avoided costs since this is the only way to provide ratepayers
        ---- ----
     with savings as a result of cogeneration." (emphasis supplied). While
     conceding that the federal full avoided cost standard applies to rates
     imposed by the Commission as a result of a complaint proceeding,

                                    - 38 -
<PAGE>
 
     Armco/Allegheny assert that PURPA does not apply to a negotiated contract.
     Armco/Allegheny also argue that none of the contracts under consideration
     provide for savings since West Penn's input assumptions into its
     methodology were erroneous, and that even if the inputs were correct, the
     savings under the contracts are not enough.

               West Penn's Reply Exceptions state that Section 527 is clear on
     its face and, rather than mandating discounts from avoided costs, requires
     only that discounts that do exist be passed on to ratepayers. West Penn
     states that there is no legislative history to support Armco/Allegheny's
     interpretation of Section 527, and that any requirement that rates
     available to QFs in voluntary contracts be below avoided costs would be
     preempted by federal law.

               The Projects' Reply Exceptions characterize Armco/Allegheny's
     argument on this issue as farfetched, and note that the Federal Energy
     Regulatory Commission ("FERC") directly addressed the savings issue and
     mandated that rates to QFs be set at a utility's full avoided costs. The
                                                      ----
     Projects echo West Penn's interpretation of Section 527 as requiring
     utilities to pass any savings that exist to customers rather than retaining
     a profit on purchases of power from QFs.

               On this issue we agree with the ALJ's R.D.  Armco/Allegheny's
     argument is based on stretched logic and, if

                                    - 39 -
<PAGE>
 
     accepted, would result in an interpretation of Section 527 that would
     violate federal law.  When promulgating its rules under PURPA 210, FERC
     considered and rejected arguments that rates to QFs should produce savings
     to customers.  FERC mandated that rates for purchases be set at a utility's
     full avoided costs.  Small Power Production and Cogeneration Facilities;
     ----                 --------------------------------------------------
     Regulation Implementing Section 210 of the Public Utility Regulatory
     -------------------------------------------------------------------
     Policies Act of 1978, Docket No. RM79-55, Order No. 69 (February 19, 1980),
     --------------------
     45 Fed. Reg. 12214, 12222 (February 25, 1980).  The full avoided cost
        ---- ----
     standard was reviewed and approved by the U.S. Supreme Court in American
                                                                     --------
     Paper Institute v. American Electric Power Service Corp., 461 U.S. 402
     --------------------------------------------------------
     (1983).  Therefore, unless and until the full avoided cost standard is
     revised by FERC, any interpretation of Section 527 as requiring discounts
     from full avoided costs would be unconstitutional.  Hines v. Davidowitz,
                                                         -------------------
     312 U.S. 52, 67 (1941).  Armco/Allegheny's argument that negotiated rates
     are not governed by PURPA is equally invalid. Although FERC's and this
     Commission's regulations allow a QF to voluntarily accept rates below a
     utility's avoided costs, there is nothing to support an argument that a
     utility cannot voluntarily agree to pay full avoided cost-based rates. If
     this were so, a utility could not voluntarily comply with PURPA 210!
     Rather, utility compliance with PURPA could be achieved only upon the
     filing of a formal complaint. This is clearly unsupported and we reject
     Armco/Allegheny's argument in its entirety.

                                    - 40 -
<PAGE>
 
          6.   OCA's Corection to Milesburg's EEPA, R.D. at 97-100.
               ---------------------------------------------------

               This issue was addressed in Phase I of the ALJ's R.D. We will 
     address it in Phase II. Our intention is that Phase I issues addressed in
     our Order be applicable to four peoceedings. Issues that are specific to an
     individual Project will be discussed in Phase II, and our Order(s) in Phase
     II will be specific as to each individual docket number.

          7.   Capacity Costs Allocated on a Demand/Energy 
               -------------------------------------------
               Basis, R.D. at 101-105.
               -----------------------

               This rate structure issue involves the methodology by which QF
     capacity payments will be recovered from ratepayers. Currently, all QF
     costs (energy and capacity) are recovered through West Penn's Energy Cost
     Rate mechanism ("ECR"). a West Penn currently has approximately 135 MW of
     QF capacity on-line. The Projects in these proceedings represent another
     205 MW. While rates paid to Monongahela, Milesburg, Burgettstown and
     Shannopin will not be reflected in customers' bills until the Projects are
     financed and constructed, West Penn's existing ECR recovers all costs paid
     to QFs on an energy or kwh basis. WPPII and Armco/Allegheny advocate
     recovery of QF capacity payments from ratepayers on a demand/energy basis
     through the ECR in a manner similar to that which

                                      -41-
<PAGE>
 
     would have occurred if the capacity had been built by West Penn and the
     costs allocated on cost-of-service principles in base rates.
     Armco/Allegheny advocated the adoption of a particular mechanism to
     achieve a demand/energy allocation based on a single coincident peak
     methodology.

               The OCA opposed Armco/Allegheny's proposal on the basis that (1)
     it would add complexity to West Penn's ECR; (2) the single coincident peak
     methodology was not utilized for Bath County; (3) a single coincident peak
     methodology could result in volatile changes in cost allocations depending
     on peak responsibility for a single day; and (4) the rate structure issue
     has not been set for decision by the Commission in these proceedings.

               The ALJ concluded that both Armco/Allegheny and OCA were correct.
     Finding that the reasons for using a demand/energy allocation are sound,
     but that the allocation should not be set in this proceeding, the ALJ
     recommended that West Penn be directed to make a demand/energy allocation
     in its next ECR filing, and that all existing on-line QF capacity be
     included. OCA excepted, reiterating its position that no action on the rate
     structure issue should be taken in these proceedings. OCA states that the
     Commission has never held that it is necessary to determine QF rate
     structure years in advance of the time when the costs will be collected
     from customers. OCA also states that no notice was provided

                                      -42-
<PAGE>
 
     to ratepayers that rate structure issues would be determined in these
     proceedings. North Branch also excepts, stating that West Penn's Petition
     for Approval of the North Branch EEPA did not request approval to pass the
     costs through to ratepayers pursuant to any particular allocation method,
     and that the allocation issue should be decided in a separate proceeding.

               WPPII's Reply Exceptions state that the Commission has expressed
     an unwillingness to review the demand/energy allocation of QF purchased
     power costs in the context of an ECR proceeding, and that the ALJ
     recommended only that the principal of a demand/energy allocation be
                               ---------
     adopted in this proceeding, leaving the particular methodology to a later
     proceeding where all parties will be afforded an opportunity to be heard.
     WPPII notes that West Penn currently is collecting QF purchased power costs
     through its ECR. WPPII argues that the rate structure issue is relevant to
     these proceedings because rate recognition permits West Penn to recover
     costs through its ECR mechanism. WPPII states that ratepayer indifference
     embodied in PURPA should be preserved. Finally, WPPII states that modifying
     the practice of allocating QF capacity costs on a kwh basis will alleviate
     any need for industrial intervention in QF development.

               Armco/Allegheny's Reply Exceptions state that the demand
     allocation issue is within the scope of these proceedings

                                    - 43 -
<PAGE>
 
     because: (1) fai1ure to allocate capacity costs on a demand basis would
     violate the underlying premise of PURPA of customer indifference; (2) West
     Penn's rate recovery petitions sought ECR pass through; and (3) The ALJ did
     not recommend that any particular type of allocation be adopted in these
     proceedings.

               We agree in part with the ALJ's recommendation and adopt the R.D.
     on this issue up to the conclusion of the first paragraph on p. 104.
     However, the ALJ's statement that the costs in question will not be
     recovered until West Penn's next ECR proceeding is inaccurate. The capacity
     costs at issue in these proceedings will not be recovered for several years
     as the Projects proceed to financing construction. Therefore, there is no
     overriding necessity to revise West Penn's ECR in its next ECR filing.

               This rate structure issue is one that will take on added
     importance in the future as utilities begin to substitute purchases from
     QFs for their own construction. If QFS begin to represent a more
     significant portion of a utility's installed capacity, continued recovery
     of capacity charges on an energy basis through a fuel clause mechanism
     would incorporate a bias against high load factor customers (usually energy
     intensive industrial customers). While we have strongly supported the
     continued development of cogeneration and small power production as in
     ratepayers' best long-term

                                      -44-
<PAGE>
 
     interests, a rate structure bias against a particular customer class
     certainly would not be our intent. In order to fully analyze the
     complexities inherent in a modification to West Penn's ECR so as to achieve
     ratepayer indifference, we will require a report and recommendation from
     our Bureau of Audits, with the assistance of the Law Bureau, on how best to
     proceed. Upon receipt of this report we will determine whether opening a
     formal investigation into West Penn's ECR or some other action is required.
     As stated above, the capacity costs currently being recovered through West
     Penn's ECR are not substantial, and there is no overriding need to
     implement an ECR modification in West Penn's next ECR filing. Our
     preference is to proceed on this issue at a slower pace to ensure that the
     final result will accomplish our objectives. Therefore, we will request the
     Audits/Law Bureau report within three months of the date of this Order and
     will endeavor to initiate formal action shortly thereafter.


          8.   Excess Capacity, R.D. at 105-107.
               --------------------------------

               The ALJ recommended a finding that the addition of the QF
     capacity under consideration does not result in excess capacity under
     Section 1323 of the Public Utility Code, 66 Pa.C.S. (S)1323, with respect
     to the capacity itself or as to any existing West Penn capacity.

                                      -45-
<PAGE>
 
               The OCA's Exceptions request clarification of the scope of the
     excess capacity determination. Specifically OCA requests a finding that the
     QF capacity in these proceedings must be considered in determining whether
                                      ----
     future West Penn plant additions represent excess capacity. No Reply
     ------
     Exceptions were filed.

               We affirm the ALJ's decision on this issue. Section 5.3(i) of
     each of the EEPAs at issue requires, as a condition precedent to West
     Penn's obligations thereunder, that the Commission either adopt policy
     guidelines or enter an order to the effect that the QF capacity in question
     will not be treated as "excess capacity" under Section 1323 either as to
     the projects themselves or as to any existing West Penn capacity, including
     the Bath County project. That determination has been made. We see no need
     to clarify the determination as OCA has suggested. To do so would
     constitute ruling on the merits of a case that is not before us and clearly
     would be improper. However, we note in general terms that it has never been
     our intention to exclude consideration of existing QF capacity from excess
     capacity determinations for future utility plant. A more specific statement
     is not appropriate at this time.

                                      -46-
<PAGE>
 
          9.   Conclusion.
               ----------

               Phase I of our Order addresses issues that are applicable to each
     Project and is hereby adopted with respect to all four proceedings and
     docket numbers under consideration. Resolution of Phase I issues concludes
     our Order with respect to the Monongahela and Shannopin EEPA. On the basis
     of Phase I of our Order, the capacity credits of 3.6 (cents)/kwh and
     4.0 (cents)/kwh for Monongahela and Shannopin, respectively, are approved.
     Orders specific to these two proceedings are appended to this order. Phase
     II issues remaining for consideration are specific to the Milesburg and
     Burgettstown Projects. Phase II of our Order in turn will be separated
     between Docket Nos. P-870216 (Milesburg) and P-880284 (Burgettstown).


                          B. Phase II - Burgettstown 
                          --------------------------
                             Docket No. P-880284.
                             -------------------


               North Branch filed a Petition for Modification of its EEPA on
     April 5, 1989 requesting modification of milestone dates and an increase to
     its capacity rate to reflect the delay in its in-service date occasioned by
     the lengthy approval process to which it has been subjected. The capacity
     credit for Burgettstown was based on the Project being placed in service on
     October 1, 1991. Among other related milestones, under its EEPA
     Burgettstown must hold a full financial closing before October 1, 1989 or
     its EEPA will by

                                      -47-
<PAGE>
 
     its own terms expire. Although West Penn filed the Burgettstown EEPA with
     the Commission for approval in January 1988, unforseen circumstances have
     delayed approval for nearly two years Without Commission approval of the
     EEPA in the form of a final and nonappealable Commission Order, financing
                                     -------------
     and construction cannot take place. As a result, it is impossible for
     Burgettstown to meet its contractual milestones. North Branch presented
     unrebutted testimony that financial closing would take six (6) months from
     the date of a final and nonappealable order, and that construction would
     take approximately thirty-three (33) additional months, for a total of
     thirty-nine (39) months.

               The ALJ recommended that North Branch's Petition for Modification
     be denied. North Branch excepts to the ALJ's failure to recommend
     modification of the milestones in its EEPA. North Branch also excepted to
     the failure of the ALJ to recommend an increase to its capacity credit of
     3.6 (cents) /Kwh. However, on September 8, 1989 North Branch filed an
     Amendment to its Exceptions, thereby withdrawing its request for an
     increase to its capacity credit. Therefore, the only issue before us is
     whether or not North Branch's request for an extension to its financing and
     related milestones should be granted.

               North Branch states that the ALJ's recommendation not to modify
     the various milestone dates is illogical

                                      -48-
<PAGE>
 
     because litigation before the Commission has prevented North Branch from
     meeting the milestones. Although the ALJ recommended that North Branch's
     EEPA be approved, approval Of the FEPA without the requested modification
     effectively cancels the EEPA and rewards the intervenors for having
     presented a meritless case. With respect to the ALJ's characterization of
     North Branch's request for an extension as open-ended, North Branch states
     it requested six (6) months from a final order for the Financing Closing
     Date, which is not open-ended. Given the fact that the plant does not have
     to be in-service until October 1, 1995 to meet West Penn's needs, the
     Financing Closing Date could occur as late as January 1, 1993 without
     presenting a risk to West Penn's planning process. North Branch states that
     the Commission should consider the environmental and economic benefits of
     the Burgettstown Project, the substantial savings to ratepayers from the
     Project, the inequity of not granting the extensions, the great effort and
     expense incurred by the developers, and the reasonableness of the
     modifications requested when reviewing North Branch's 5 Exception.


          West Penn's Reply Exceptions state that the extensions entail risk to
     ratepayers that West Penn will not have sufficient time to replace the
     capacity at a reasonable cost if the Project fails to go in-service at a
     time when the need is critical. West Penn asserts that projects of this
     magnitude require years of lead time before construction

                                      -49-
<PAGE>
 
     commences. West Penn states that the developer has the ability to limit its
     exposure and walk away from the Project at any time, while West Penn does
     not have the same luxury with respect to its obligation to serve its
     customers. West Penn states that the ALJ properly questioned whether forced
     extensions of milestone dates in fully negotiated contracts for an
     unpredictable period of time should take precedence over a utility's
     obligation to serve.


          Armco/Allegheny's Reply Exceptions argue that the Commission cannot
     turn a negotiated PURPA contract into a non-negotiated PURPA contract if
     the resulting contract is not in compliance with federal and state
     regulations. Armco/Allegheny state that, if Burgettstown is no longer
     satisfied with its FEPA, it is free to seek a non-negotiated agreement in
     compliance with the state and federal regulations through the initiation of
     a new proceeding at the Commission.


          We will reverse the ALJ's recommendation on this issue. The
     Burgettstown Project has been before us for approval since January 1988.
     Due to unforseen events, primarily the issuance of the Commonwealth Court
     decision in Barasch v. Pennsylvania Public Utility Commission, 119 Pa.
                 -------------------------------------------------
     Commonwealth Ct. 81, 546 A.2d 1296 (1988) ("Milesburg") and the resulting
                                                 ---------
     necessity to initiate a bill insert notification procedure and evidentiary
     hearings thereafter, resolution of this proceeding has been delayed
     substantially. In essence,

                                      -50-
<PAGE>
 
     a proceeding that began as a request for a declaratory order evolved in a
     vigorously contested rate proceeding that took over twice as long to
     complete as a major general rate increase proceeding under 66 Pa. C.S.
     (S)1308(d).  At today's conclusion of the proceeding, we have affirmed the
     ALJ's recommendation and found that the Burgettstown EEPA should be
     approved as providing for rates that are at or below West Penn's avoided
     costs.  If we were to deny North Branch's request for modification to its
     milestone dates, its EEPA with West Penn would expire by its own terms on
     October 1, 1989.  This result would be untenable, akin perhaps to a doctor
     meticulously evaluating diagnostic procedures for a patient that died for
     want of treatment.


          In our view it is essential that regulatory delay in the proceeding be
     recognized and reflected in our Order. To do otherwise would merely extend
     an open invitation to interventions in opposition to future QF proceedings
     since intervenors would realize that they could win by default, through the
     passage of time alone, results that could not be won on the merits.
     Although we are cognizant of West Penn's concerns regarding orderly
     capacity planning, our failure to grant North Branch the requested
     extension would leave an 80 MW shortfall in West Penn's generation plans.
     If West Penn attempted to make up for the shortfall by beginning the
     contract negotiation process anew with another developer, we would question
     the fate of that contract as well in the face

                                    - 51 -
<PAGE>
 
     of probable opposition and a Commission policy against reflecting and
     accounting for regulatory delay. To date North Branch has completed
     substantial development work and the lengthy review process by The
     Commission finally has been completed. North Branch is ready to proceed to
     financing, barring any appeals of our Order. Therefore, to in essence "pull
     the plug" on the Burgettstown Project at this late stage would inject the
     very uncertainty in West Penn's generation plans that it seeks to avoid.
     Similarly, it is no answer to, as Amco/Allegheny suggest, require North
     Branch to begin anew with a new evidentiary proceeding to obtain a contract
     with West Penn at rates established under the Commission's regulations. The
     point of requiring North Branch to begin from square one with a complaint
     proceeding requesting rates higher than the ones it has accepted is lost to
     us, unless of course the point is to defeat this Project through a war of
     attrition.
     

          We therefore will grant North Branch's petition for modification and
     extend the Financing Closing Date to six months after the issuance of a
     final nonappealable Commission Order in this proceeding, with corresponding
     adjustments to related contractual milestones. We also will grant North
     Branch's August 21, 1989 Application for Stay of the Financing Closing Date
     in recognition of the fact that, under Section 508, 66 Pa. C.S. (S)508, an
     Order modifying a

                                      -52-
<PAGE>
 
     contractual provision does not take effect until thirty (30) days after it
     is entered. Therefore, the effect of Section 10.2(c) of the EEPA will be
     stayed pending the effective date of the portion of our Order granting the
     contractual modifications.


                           C.  Phase II - Milesburg 

                             Docket No. P-870216.
                             --------------------

          As stated above, Milesburg's contract has been before the Commission
     and/or the Commonwealth Court since April 2, 1987. The issuance of the
     Commonwealth Court's decision in Milesburg in August 1988 necessitated the
                                      ---------
     preparation and mailing of a bill insert notice and the holding of hearings
     before an ALJ. The ALJ has recommended, and we have adopted, an Order
     affirming the reasonableness of the input assumptions utilized by West
     Penn's in the calculation of its avoided costs.


          The capacity credit of 3.3c/Kwh in the EEPA was based on an in-service
     date in 1990. Milesburg's original Financing Closing Date of September 1,
     1988 was extended to February 28, 1989 by a Consent Order entered into by
     all parties and approved by the Commission on September 1, 1988. On
     February 9, 1989 Milesburg filed a petition to, inter alia, further extend
                                                     ----- ----
     its Financing Closing Date. Although the ALJ issued an order on February
     21, 1989 granting the petition, he rescinded it on February 27, 1989 in
     recognition

                                    - 53 -
<PAGE>
 
     of the fact that it was issued without a hearing as required by Section 508
     of the Public Utility Code, 66 Pa. C.S. (S)508. N.T. at 7.  On March 3,
     1989 Milesburg filed a Petition for the Issuance of an Interim Emergency
     Order or Appeal of Judge Gesoff's February 27, 1989 Order.  Milesburg
     requested that the Commission issue an emergency order granting relief from
     the Financing Closing Date of February 28, 1989 or, in the alternative,
     reinstate the portion of the ALJ's February 21, 1989 Order that extended
     the Financing Closing Date while remanding the issue to the ALJ for a
     hearing on the merits. West Penn and Armco/Allegheny filed responsive
     pleadings in opposition to Milesburg's March 3, 1989 emergency petition. By
     Order entered March 31, 1989 the Commission denied Milesburg's request for
     an Emergency Order but granted limited interlocutory review of the ALJ's
     February 27, 1989 Order and required all parties to maintain the status quo
     with respect to the EEPA pending consideration by the ALJ, and ultimately
     the Commission, on Milesburg's February 9, 1989 petition for modification.
     Our Order parenthetically noted that:

          [I]t may be in the interests of West Penn and its ratepayers to retain
          [Milesburg] under a Voluntary agreement setting forth a negotiated
          rate for the sale of power.  Absent a negotiated rate, [Milesburg] is
          entitled to a capacity (and associated energy) rate determined in
          accordance with our regulations.  A key issue of first impression
          would be the time frame to be utilized in determining [Milesburg's]
          avoided cost-based rate.  Although we express no opinion on this issue
          at this time, our preliminary observation is that [Milesburg's]
          situation may be distinctly different from the situation considered by

                                      -54-
<PAGE>
 
          us in Petition of Pagnotti Enterprises, Docket No. P-870281 (August
                --------------------------------
          19, 1988).  In Pagnotti, a negotiated purchased power rate had been
                         --------
          approved by the Commission on June 30, 1986, and our June 30, 1986
          Order became final and nonappealable on July 30, 1986.  The project
          participants in that proceeding failed to meet, in large part, an
          agreed-upon financing deadline of December 3l, 1986, which occurred
          approximately five (5) months after the issuance of the final,
          nonappealable order that is necessary for a project's financing. We
          found in Pagnotti that, by missing the financing deadline, the project
                   --------
          participants had waived their entitlement to rates based on
          Pennsylvania Power & Light Company's ("PP&L's") avoided cost
          projections as of the time that serious negotiations took place, and
          that the project therefore was entitled to rates based on PP&L's
          avoided costs projections as of January 1, 1987.  In the instant
          proceeding, [Milesburg] has never been the beneficiary of a final,
          nonappealable Commission Order approving rate recovery of amounts
          proposed to be paid by West Penn.  In fact, [Milesburgs] agreement
          with West Penn has been before the Commission and/or the Commonwealth
          Court for nearly two years.  Without a final nonappealable Commission
          Order, a project such as [Milesburg's] cannot receive financing.
          Therefore, it may be that, if asked to rule upon this issue of first
          impression in Pennsylvania, we may determine that [Milesburg) has not
          waived its entitlement to rates based on West Penn's avoided costs as
          of the time that serious negotiations between West Penn and
          [Milesburg] took place;

     Order at 8-9.

          The ALJ recommended that Milesburg's requests to extend its milestone
     dates and to revise its capacity credit to reflect its delayed in-service
     date be denied. In the event that the Commission reversed this
     recommendation, the ALJ recommended that Milesburg's capacity credit be
     recalculated by incorporating a change in West Penn's methodology to
     reflect-monthly; as opposed to annual, payments.

                                    - 55 -
<PAGE>
 
          Milesburg excepted, stating that it has been clearly demonstrated that
     the requested modified rates are at or below West Penn's avoided costs and
     substantially below the rates to which Milesburg is entitled under the
     regulations, and that the Project will bring considerable economic and
     environmental benefits to Pennsylvania. Milesburg states that the requested
     modified capacity rates are merely the rates that would have been available
     to it had the delayed in-service date been anticipated. Milesburg asserts
     that the ALJ's suggestion that Milesburg initiate another proceeding to
     seek rates under the regulations is illogical because it would cost the
     ratepayers more for power. Milesburg argues that there never was any intent
     that the Commission intended to forego review of Milesburg's request,
     notwithstanding the fact that its EEPA lapsed on February 28, 1989.
     Milesburg points to language in the September 1, 1988 Consent Order as
     indicative of an agreement among the parties that the Commission would
     consider an extension beyond February 28, 1989. Milesburg further points to
     the Commission's Order of March 31, 1989 as indicative of the Commission's
     intent that the petition for modification be considered on the merits.
     Milesburg avers that if the ALJ had correctly recognized the Commission's
     intent and authority to modify the EEPA, the ALJ would have found the
     modifications to be in the public interest. Milesburg takes specific
     exception to the conclusion of the ALJ that there is no evidence on the
     record upon which to conclude that West Penn is hostile to the Projects,

                                    - 56 -
<PAGE>
 
     since West Penn refused on two occasions to negotiate modifications to the
     EEPA, and to the conclusion that West Penn would not have sufficient time
     to replace the Milesburg capacity should it fail to go in-service.
     Milesburg states that there is no evidence on the record that indicates
     Milesburg would fail if its milestones were extended, or that West Penn
     could not replace the Milesburg capacity. Milesburg states that arguably
     ratepayers would be better off if the milestones were extended since they
     would not pay for capacity until a date closer to 1995. Milesburg states
     that it would be erroneous to deny the extensions based on the fact that
     the Commission's Order may be appealed --rather, the modifications should
     be decided on the merits as opposed to the fear of appeals by industrial
     intervenors. Milesburg states it was incorrect to link consideration of the
     request for milestone extensions with the request for capacity rate
     modifications since each issue should be viewed separately on the merits.
     Milesburg objects to the fact that the ALJ gave little consideration to the
     fact that Milesburg has spent substantial time and money to advance its
     Project, noting that adoption of the ALJ's recommendation would discourage
     other developers from risking an undertaking in Pennsylvania.


          With respect to the ALJ's recommendation to deny the request for
     increased capacity rates, Milesburg notes that it is merely attempting to
     duplicate the EEPA that

                                      -57-
<PAGE>
 
     would have been available to it under West Penn's methodology had the
     regulatory delay been anticipated, and that it is not inconsistent with
     the serious negotiations standard to use 1986 assumptions with a modified
     in-service date for the Project. Finally, Milesburg objects to the ALJ's
     conclusion that the September 1, 1989 Consent Order bars any modification
     to the capacity credit since the rates requested are not in excess of the
     rates in the EEPA corrected for the new in-service date.


          With respect to the ALJ's recommendation to modify the methodology
     utilized for calculating its capacity credit (in the event the Commission
     ordered extensions to the milestones), Milesburg states that the reduction
     would be in error since either the Commission's regulations or West Penn's
     methodology at the time the EEPA was negotiated is the proper benchmark.


          OCA's Exceptions regarding the portion of the R.D. pertaining to
     modifications to capacity credits state that the ALJ's conclusion that the
     notice issue would not bar an increase is in error. OCA states that notice
     would have to be given if any significant increase to the originally
     noticed EEPAs is granted. Armco/Allegheny similarly excepted to this
     finding.

                                    - 58 -
<PAGE>
 
          West Penn's Reply Exceptions addressed Phase II issues for
     Burgettstown and Milesburg together. A brief description of West Penn's
     Reply Exceptions on the milestone extensions is set forth in the previous
     section of this Order. With respect to the requested increase to the
     capacity rates, West Penn states that Milesburg's argument that updating
     the rate is not an increase is a strained reading of the Consent Order.
     West Penn states that the EEPA automatically terminated on February 28,
     1989 and that the Commission therefore has no authority under Section 508
     to modify it. West Penn states that the Commission has no authority to
     order a new contract because avoided costs must be determined at the time a
     legally enforceable obligation is incurred. West Penn asserts that, since
     the EEPA lapsed, it has no legally enforceable obligation.


          OCA's Reply Exceptions do not address the request for extensions to
     milestone dates. However, OCA supports the recalculation under West Penn's
     revised methodology of Milesburg's capacity credit, stating that the
     purpose of the proceeding is to determine West Penn's avoided costs and set
     rates accordingly. With respect to Milesburg's request for an increase to
     its capacity credit, OCA states that if rates are locked in as of the time
     of serious negotiations they cannot be revised, and to do so would give the
     QF the best of both worlds. Finally, OCA states that Milesburg's on-line
     date of January 1990 was 33 months from the date West Penn's

                                    - 59 -
<PAGE>
 
     rate recovery petition was filed and that it is unlikely that the on-line
     date would have been met under any circumstances.


          Armco/Allegheny's Reply Exceptions state that Section 508 does not
     empower the Commission to modify a contract that has lapsed and that an
     increase to rates would violate the September 1, 1988 Consent Order.


          The Projects' Reply Exceptions take issue with OCA's and
     Armco/Allegheny's argument that an additional bill insert would be required
     before granting an increase to the capacity credits. The Projects state
     that the bill insert provided all interested parties with sufficient notice
     of the nature of the hearing, and that the ratepayers are well represented
     in these proceedings. The Projects state that a new notice is not required
     by the Commission every time an impact is modified during the course of a
     rate proceeding.


          On Milesburg's Phase II issues, we reverse the ALJ. In our opinion the
     resolution of these issues is clear. We agree with the ALJ that Milesburg's
     EEPA has lapsed and that modification to the EEPA under Section 508 is a
     moot point. Nevertheless, Milesburg has been endeavoring to obtain an
     approved power purchase agreement with West Penn since 1986. Although West
     Penn does not have a legally enforceable obligation to purchase power under
     the lapsed

                                      -60-
<PAGE>
 
     1987 EEPA, it does have a legally enforceable obligation under PURPA 210 to
     purchase Milesburg's power at rates determined in accordance with West
     Penn's avoided cost projections in effect in 1986. The Commission has the
     responsibility to enforce the provisions of PURPA 210 in Pennsylvania.
     Milesburg has requested rates based on West Penn's methodology, which we
     have determined to be the appropriate benchmark of avoided costs in these
     proceedings. Milesburg has done nothing to waive its entitlement to rates
     based on avoided costs as of the time of serious negotiations. Therefore,
     it is our responsibility to require West Penn to enter into a new EEPA with
     Milesburg, identical in terms with the lapsed EEPA, with extensions to the
     milestone dates and revised capacity rates that reflect the Project's later
     in-service date. Specifically, we will require a financing closing date six
     months after the issuance of a final and nonappealable Order, with similar
     extensions to related milestones. With respect to the capacity rates, we
     find no inconsistency with reflecting the Project's later in-service date
     in the calculation under West Penn's methodology. All of the inputs
     regarding West Penn's avoided costs will remain the same. The in-service
     date is not a component of West Penn's avoided costs, or the cost of the
     300 MW coal unit, but a component in the calculation of the QF's ability to
     defer or avoid West Penn's projected costs. West Penn's avoided costs do
                                                                     -----
     not change with changes in a Project's in-service date. Rather, a change in
     the in-service date

                                      -61-
<PAGE>
 
     changes the capacity credit while keeping West Penn's avoided costs
                          ------                                   -----
     constant.


          With respect to the issue of whether or not the Consent Order bars any
     in-crease to Milesburg's capacity credit, a reasonable interpretation
     thereof is that Milesburg agreed to forego an increase based on the six
     month extension agreed upon by all of the parties. In other words, a
     reasonable interpretation is that the quid pro quo for getting parties to
                                           ---- --- ---
     agree to the limited six month extension was Milesburg's agreement not to
     seek a capacity credit increase based on that particular six months.
     Therefore, we will deduct six months from the anticipated financing and
     construction period of 36-42 months and set the in-service date at 30
     months past the issuance of a final and nonappealable Order in this
     proceeding.


          With respect to the use of the revised West Penn formula, we agree
     with the ALJ that the capacity credit should be calculated using the
     revision. West Penn "fine tuned" its methodology after the issuance of
     price proposals to Milesburg. Since we are requiring the execution of a new
     contract, the revision should be incorporated.


          With respect to the suggestion of the ALJ that Milesburg be required
     to seek a contract in a new evidentiary proceeding under the Commission's
     regulations, we find that

                                      -62-
<PAGE>
 
     such a requirement would make no sense. Milesburg should not be denied
     rates based on West Penn's methodology and forced to seek higher rates.
                                                               ------
     Moreover, requiring Milesburg to begin anew with another vigorously
     contested proceeding likely would result in the abandonment of this
     Project. For the policy reasons set forth in the section of the Order
     addressing Burgettstown's Phase II proceeding, we find that a failure in
     this proceeding to recognize and account for regulatory delay would have
     consequences contrary to the public interest.


          Finally, we agree with the ALJ's recommendation regarding the notice
     issue. The original bill insert provided adequate notice to ratepayers of
     the nature of these proceedings. We cannot help but note that all of the
     active parties to these proceedings were before us before the preparation
     and issuance of the bill insert. In other words, the bill insert elicited
     no active parties. Therefore, a finding that a new bill insert would be
     required before granting Milesburg's request for modified capacity-rates
     would elevate form over substance; THEREFORE,

                                      -63-
<PAGE>
 
     Petition of West Penn                       Docket No. 
     Power Company Re:                           P-880283
     Monongahela Lock and Dam
     No. 8.



          IT IS ORDERED:

          1. That the Petition of West Penn Power Company ("West Penn") for
     approval of an Electric Energy Purchase Agreement ("EEPA") with Noah
     Corporation is granted.


          2. That the rates established by the EEPA are approved as just,
     reasonable, and in the public interest.


          3. That West Penn is authorized to fully collect all costs paid
     pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
     mechanism as may replace the ECR in the future.


          4. That capacity costs paid pursuant to the EEPA will be recovered
     through the ECR on a demand/energy basis, the particular methodology for
     which will be established in a separate proceeding that will be initiated
     after receipt of an advisory report from the Commission's Bureau of Audits.

                                      -64-
<PAGE>
 
          5. - That-the addition of capacity under the EEPA does not result in
     excess capacity under Section 1323 of the Public Utility Code as to the
     capacity itself or as to any existing West Penn capacity.


                                                       BY THE COMMISSION,

                                                       \s\ Jerry Rich
                                                       ------------------
                                                       Jerry Rich
                                                       Secretary

     (SEAL)

     ORDER ADOPTED:      September 2l, 1989

     ORDER ENTERED:      September 29, 1989

                                      -65-
<PAGE>
 
     Petition of West Penn                       Docket No. 
     Power Company Re:                           P-880286
     Shannopin Mine Project


          IT IS ORDERED:

          1. That the Petition of West Penn Power Company ("West Penn") for
     approval of an Electric Energy Purchase Agreement ("EEPA") with Mon Valley
     Energy Corporation is granted.


          2. That the rates established by the EEPA are approved as just,
     reasonable, and in the public interest.


          3. That West Penn is authorized to fully collect all costs paid
     pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
     mechanism as may replace the ECR in the future.

          4. That capacity costs paid pursuant to the EEPA will be recovered
     through the ECR on a demand/energy basis, the particular methodology for
     which will be established in a separate proceeding that will be initiated
     after receipt of an advisory report from the Commission's Bureau of Audits.

                                      -66-
<PAGE>
 
          5. That the addition of capacity under the EEPA does not result in
     excess capacity under Section 1323 of the Public Utility Code as to the
     capacity itself or as to any existing West Penn capacity.


                                             BY THE COMMISSION,
     
                                             /s/ Jerry Rich
                                             --------------------
                                             Jerry Rich
                                             Secretary

     (SEAL)

     ORDER ADOPTED:      September 2l, 1989

     ORDER ENTERED:      September 29, 1989

                                      -67-
<PAGE>
 
     Petition of West Penn                         Docket No. 
     Power Company Re:                             P-880284
     Burgettstown Project



          IT IS ORDERED:

          1. That the Petition of West Penn Power Company ("West Penn") for
     approval of an Electric Energy Purchase Agreement ("EEPA") with North
     Branch Energy Partners, L.P. ("North Branch") is granted.

          2. That the Petition of North Branch for modification of its EEPA is
     granted insofar as the Financing Closing Date will be extended to six
     months after the issuance of a final and nonappealable Order in this
     proceeding and related contractual milestones will be adjusted accordingly.

          3. That North Branch's Application for Stay of the effect the
     Financing Closing Date is granted.

          4. That the rates established by the EEPA are approved as just,
     reasonable, and in the public interest.

          5. That West Penn is authorized to fully collect all costs paid
     pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
     mechanism as may replace the ECR in the future.

                                      -68-


<PAGE>
 
          6. That capacity costs paid pursuant to the EEPA will be recovered
     through the ECR on a demand/energy basis, the particular methodology for
     which will be established in a separate proceeding that will be initiated
     after receipt of an advisory report from the Commission's Bureau of Audits.

          7. That the addition of capacity under the EEPA does not result in
     excess capacity under Section 1323 of the Public Utility Code as to the
     capacity itself or as to any existing West Penn capacity. 


                                             BY THE COMMISSION,

                                             /s/Jerry Rich
                                             -------------------
                                             Jerry  Rich
                                             Secretary

     (SEAL)

     ORDER ADOPTED:      September 2l, 1989

     ORDER ENTERED:      September 29, 1989

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<PAGE>
 
     Petition of West Penn                      Docket No. 
     Power Company Re:                          P-870216
     Milesburg Energy, Inc.



          IT IS ORDERED:

          1. That West Penn Power Company ("West Penn") is directed to enter
     into an Electric Energy Purchase Agreement ("EEPA") with Milesburg Energy,
     Inc. within thirty (30) days of the date on which this Order becomes final
     and nonappealable. The terms and conditions shall be identical to the 1987
     EEPA with the milestone extensions and capacity credit modifications set
     forth in the foregoing Order.


          2. That the rates established by the resulting EEPA are approved as
     just, reasonable, and in the public interest.


          3. That West Penn is authorized to fully collect all costs paid
     pursuant to the EEPA through the Energy Cost Rate ("ECR"), or such
     mechanism as may replace the ECR in the future.


          4. That capacity costs paid pursuant to the EEPA will be recovered
     through the ECR on a demand/energy basis, the particular methodology for
     which will be established in a separate proceeding that will be initiated
     after receipt of an advisory report from the Commission's Bureau of Audits.

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