Allegheny Energy (AYE) 8-K Allegheny Energy Reports Strong Financial Results for Fourth Quarter, Full Year 2006

Exhibit 99.1

FOR IMMEDIATE RELEASE

Allegheny Energy Reports Strong Financial Results for Fourth Quarter, Full Year 2006

GREENSBURG, Pa., February 8, 2007— Allegheny Energy, Inc.(NYSE: AYE)today reported financial results for the fourth quarter and full year 2006. To provide a better understanding of core results and trends, Allegheny Energy also reported adjusted financial results, as shown in the table below:

	$ millions				Per share
	2006		2005		2006		2005
Three Months Ended December 31
Consolidated net income-GAAP	$	64.6	$	3.1	$	0.38	$	0.02
Adjusted net income		61.8		3.4		0.37		0.02
Twelve Months Ended December 31
Consolidated net income-GAAP	$	319.3	$	63.1	$	1.89	$	0.40
Adjusted net income		307.8		149.6		1.83		0.94

Adjusted net income for all periods shown above excludes results of discontinued operations. There were no other adjustments for the three months ended December 31, 2006. For the three months ended December 31, 2005, adjusted net income excluded a $5.9 million (after-tax) charge due to the effect of an accounting change. For information on adjustments for both twelve-month periods, and the calculation of adjusted net income for all periods, see the attached reconciliation of non-GAAP financial measures.

“We delivered strong earnings growth in 2006, aided by a solid fourth quarter,” said Paul J. Evanson, Chairman, President and Chief Executive Officer of Allegheny Energy. “Improved performance at our power plants, reduced costs and lower interest expense more than offset the effect of lower market prices and mild weather in the fourth quarter. Looking ahead, we remain focused on growing earnings and building shareholder value through improving operations, managing the transition to market-based rates and expanding our transmission system.”

Fourth Quarter Consolidated Results

Adjusted net income for the fourth quarter of 2006 increased by $58.4 million compared to the same period in 2005. Key factors contributing to the improved results include the following:

• Operating revenues increased by $12.8 million, reflecting improved plant performance, higher generation rates in Pennsylvania and the expiration of a below-market power sales contract, partially offset by lower market prices, the expiration of a power purchase agreement with the Ohio Valley Electric Corporation (OVEC) and milder weather. During the fourth quarter of 2005, unplanned power plant outages adversely affected Allegheny’s financial results.

• Fuel expense increased by $9.9 million, largely due to higher prices paid for coal and increased coal usage.

• Purchased power and transmission expense decreased by $36.4 million, reflecting reduced purchases from OVEC and the sale of the former Ohio service territory.

• Operations and maintenance expense decreased by $27.6 million, due in part to lower special maintenance costs at the company’s power plants and increased costs in the previous year due to a severe October snowstorm.

• Depreciation and amortization expense decreased by $8.8 million, largely due to the previously disclosed extension of the estimated lives of unregulated power plants.

• Interest expense decreased by $10.2 million, due to a lower debt balance.

• Income taxes for the quarter increased by $33.3 million, reflecting an increase in pre-tax income of $92.2 million.

Adjusted EBITDA for the fourth quarter of 2006 was $234.7 million, an increase of $72.6 million compared to the same period of the prior year. EBITDA and adjusted EBITDA are non-GAAP financial measures. Details on the calculation of EBITDA and adjusted EBITDA and a reconciliation of EBITDA to net income are attached to this release.

Fourth Quarter Segment Results

To provide a better understanding of core results and trends, Allegheny also reported adjusted financial results for each segment, as shown in the table below.

Three Months Ended December 31
($ millions)

	2006			2005
Delivery and Services:
Net income- GAAP	$	65.9		$	38.3
Adjusted net income		66.9			34.8
Generation and Marketing:
Net loss — GAAP	$	(1.3	)	$	(35.2	)
Adjusted net loss		(5.1	)		(31.5	)

Adjusted results for both periods shown exclude results of discontinued operations. For the three months ended December 31, 2005, adjusted results for the Generation and Marketing segment also exclude the charge related to the accounting change previously mentioned. For further information, see the attached reconciliation of non-GAAP financial measures.

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Delivery and Services: Adjusted net income for the quarter increased by $32.1 million compared to the same quarter of the prior year. Operating revenues and retail electric kilowatt-hour sales decreased by $31.4 million and 10.2 percent, respectively. The decrease in operating revenues reflected the expirations of a below-market power sales contract and transmission capacity contracts, along with milder weather. The impact of these factors was partially offset by higher Pennsylvania generation rates, the impact of the sale of the Ohio service territory and customer growth. Purchased power and transmission costs decreased by $28.3 million, primarily due to the below-market sales contract expiration, the impact of the sale of the Ohio territory and milder weather, partially offset by higher Pennsylvania generation rates and customer growth. Operations and maintenance expense decreased by $12.3 million, reflecting lower employee and contract work costs and the costs associated with the previously mentioned snowstorm in the fourth quarter of 2005. Taxes other than income taxes decreased by $8.2 million, primarily due to a decrease in reserves. Interest expense decreased by $2.4 million, reflecting lower debt balances. Pre-tax income increased by $18.2 million compared to the fourth quarter of 2005. Income taxes decreased by $13.9 million, primarily due to favorable resolutions of tax issues.

Generation and Marketing: The adjusted net loss for the quarter decreased by $26.4 million compared to same quarter of the prior year. The loss for the fourth quarter of 2005 reflected the adverse impact of the unplanned outages previously mentioned. Operating revenues in the fourth quarter of 2006 increased by $39.2 million, reflecting better power plant performance, higher generation rates in Pennsylvania and the expiration of a below-market contract, partially offset by lower market prices and the expiration of the OVEC agreement. Fuel costs increased by $9.9 million as a result of higher coal prices and increased coal usage. Purchased power and transmission expense decreased by $12.8 million, reflecting reduced purchases from OVEC. Operations and maintenance expense decreased by $15.8 million, largely due to lower special maintenance costs at power plants. Depreciation and amortization decreased by $8.5 million, reflecting the previously mentioned extension of unregulated power plants’ estimated lives. Interest expense decreased by $7.4 million, reflecting lower debt outstanding. As a result, pre-tax income for the fourth quarter was $26.0 million, a $74.1 million increase compared to a loss of $48.1 million for the fourth quarter of 2005. Income taxes increased by $47.2 million, primarily due to higher pre-tax income and, to a lesser extent, an increase in reserves associated with an open tax position taken in previous years.

Discontinued Operations: For the fourth quarter of 2006, Allegheny Energy reported income from discontinued operations of $2.8 million, compared to income of $5.7 million in the same quarter of the prior year. The 2006 results reflect adjustments associated with the sale of Midwest peaking units, including the December 2006 sale of the Gleason power station, which represents the last in a series of previously announced asset sales.

Reclassification: During the fourth quarter of 2006, Allegheny began classifying fuel handling and residual disposal costs as fuel expenses. Formerly, such costs were classified as operations and maintenance expenses. The company made this change to improve comparability with other energy and utility companies and to more closely conform to industry standards. The reclassification had no impact on net income in any of the reporting periods. In the attached Consolidated Statement of Operations, fuel and operations and maintenance expenses for all periods ending December 31, 2006 and December 31, 2005 reflect this reclassification. Fuel handling and disposal costs for the fourth quarter of 2006 were $6.4 million, compared to $6.1 million in the fourth quarter of 2005. Fuel handling and disposal costs for the full year 2006 and 2005 were $24.7 million and $22.4 million, respectively.

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Full Year Segment Results

Twelve Months Ended December 31
($ millions)

	2006		2005
Delivery and Services:
Net income — GAAP	$	179.4	$	113.2
Adjusted net income		181.4		143.4
Generation and Marketing:
Net income (loss) — GAAP	$	139.9	$	(50.1	)
Adjusted net income		126.5		6.2

Adjusted net income for the twelve-month periods excludes results from discontinued operations and other adjustments detailed in the attached reconciliation of non-GAAP financial measures.

Reconciliation of Non-GAAP Financial Measures

This news release and the attached table include non-GAAP financial measures as defined in the Securities and Exchange Commission’s Regulation G. Where noted, we present financial information on an adjusted basis to exclude the effect of certain items as described herein. By presenting adjusted results, management intends to provide investors with a better understanding of the core results and underlying trends from which to consider past performance and prospects for the future. We also present EBITDA as an additional measure of our operating performance.

Users of this financial information should consider the types of events and transactions for which adjustments have been made. Neither the adjusted information nor EBITDA should be considered in isolation or viewed as substitutes for or superior to net income or other data prepared in accordance with GAAP as measures of our operating performance or liquidity. In addition, neither the adjusted information nor EBITDA are necessarily comparable to similarly titled measures provided by other companies.

Pursuant to the requirements of Regulation G, we have attached tables that reconcile non-GAAP financial measures, including those presented in this release, to the most directly comparable GAAP measures.

Investor Conference Call

Allegheny Energy will comment further on these results in an investor conference call at 8:30 a.m. Eastern Time on Friday, February 9, 2007. To listen to a live Internet broadcast of the call, visitwww.alleghenyenergy.com. A taped replay of the call will be available after the live broadcast.

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Allegheny Energy

Headquartered in Greensburg, Pa., Allegheny Energy is an investor-owned utility consisting of two major businesses. Allegheny Energy Supply owns and operates electric generating facilities, and Allegheny Power delivers low-cost, reliable electric service to customers in Pennsylvania, West Virginia, Maryland and Virginia. For more information, visit our Web site atwww.alleghenyenergy.com.

Forward-Looking Statements

In addition to historical information, this release may contain a number of “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as anticipate, expect, project, intend, plan, believe, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These include statements with respect to: regulation and the status of retail generation service supply competition in states served by Allegheny Energy’s delivery business, Allegheny Power; the closing of various agreements; financing plans; demand for energy and the cost and availability of raw materials, including coal; provider-of-last-resort (“PLR”) and power supply contracts; results of litigation; results of operations; internal controls and procedures; capital expenditures; status and condition of plants and equipment; capacity purchase commitments; regulatory matters; and accounting issues. Forward-looking statements involve estimates, expectations and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations. Factors that could cause actual results to differ materially include, among others, the following: plant performance and unplanned outages; changes in the price of power and fuel for electric generation; general economic and business conditions; changes in access to capital; complications or other factors that render it difficult or impossible to obtain necessary lender consents or regulatory authorizations on a timely basis; environmental regulations; the results of regulatory proceedings, including proceedings related to rates; changes in industry capacity, development and other activities by Allegheny Energy’s competitors; changes in the weather and other natural phenomena; changes in the underlying inputs and assumptions, including market conditions used to estimate the fair values of commodity contracts; changes in customer switching behavior and their resulting effects on existing and future PLR load requirements; changes in laws and regulations applicable to Allegheny Energy, its markets or its activities; the loss of any significant customers or suppliers; dependence on other electric transmission and gas transportation systems and their constraints or availability; changes in PJM, including changes to participants rules and tariffs; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and the continuing effects of global instability, terrorism and war. Additional risks and uncertainties are identified and discussed in Allegheny Energy’s reports and registration statements filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this document. Allegheny Energy undertakes no obligation to update its forward-looking statements to reflect events or circumstances after the date of this document.

5

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)

	Three Months Ended					Year Ended
	December 31,					December 31,
(In thousands, except per share amounts)	2006		2005			2006			2005
Operating revenues	$	736,963	$	724,143		$	3,121,489		$	3,037,887
Operating expenses:
Fuel		201,182		191,259			842,661			759,057
Purchased power and transmission		84,689		121,130			382,990			458,306
Loss (gain) on sale of Ohio T&D assets		—		(1,243	)		—			29,256
Gain on sale of OVEC power agreement and shares		—		—			(6,124	)		—
Deferred energy costs, net		2,359		3,272			7,584			(1,528	)
Operations and maintenance		178,384		205,995			685,650			735,330
Depreciation and amortization		68,815		77,648			273,134			308,141
Taxes other than income taxes		43,644		52,438			203,274			212,534
Total operating expenses		579,073		650,499			2,389,169			2,501,096
Operating income		157,890		73,644			732,320			536,791
Other income and expenses, net		8,186		10,449			33,956			44,230
Interest expense and preferred dividends:
Interest expense		60,378		70,573			270,264			436,447
Preferred dividends of subsidiary		293		293			1,172			4,071
Total interest expense and preferred dividends		60,671		70,866			271,436			440,518
Income from continuing operations before income taxes and minority interest		105,405		13,227			494,840			140,503
Income tax expense		43,415		10,152			173,543			64,771
Minority interest in net income (loss) of subsidiaries		182		(313	)		2,562			587
Income from continuing operations		61,808		3,388			318,735			75,145
Income (loss) from discontinued operations, net of tax		2,789		5,670			586			(6,152	)
Income before cumulative effect of accounting changes		64,597		9,058			319,321			68,993
Cumulative effect of accounting change, net of tax of $3,367		—		(5,928	)		—			(5,928	)
Net income	$	64,597	$	3,130			319,321		$	63,065
Common Shares Data:
Weighted average common shares outstanding
Basic		165,286		162,842			164,184			155,016
Diluted		168,932		166,941			168,676			158,634
Basic income (loss) per common share:
Income from continuing operations	$	0.37	$	0.02		$	1.94		$	0.48
Income (loss) from discontinued operations, net of tax		0.02		0.04			—			(0.04	)
Cumulative effect of accounting change, net of tax		—		(0.04	)		—			(0.04	)
Net income per common share	$	0.39	$	0.02		$	1.94		$	0.40
Diluted income (loss) per common share:
Income from continuing operations	$	0.37	$	0.02		$	1.89		$	0.47
Income (loss) from discontinued operations, net of tax		0.01		0.04			—			(0.04	)
Cumulative effect of accounting changes, net of tax		—		(0.04	)		—			(0.03	)
Net income per common share	$	0.38	$	0.02		$	1.89		$	0.40

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)

		As of December 31,
(In thousands)		2006			2005
ASSETS
Current Assets:
Cash and cash equivalents		$	114,138		$	262,212
Accounts receivable:
Customer			167,792			179,634
Unbilled utility revenue			117,977			129,111
Wholesale and other			63,894			82,261
Allowance for uncollectible accounts			(14,591	)		(16,778	)
Materials and supplies			96,117			98,069
Fuel			74,951			67,273
Deferred income taxes			127,531			93,404
Prepaid taxes			44,603			45,758
Assets held for sale			—			1,521
Collateral deposits			39,399			147,775
Commodity contracts			1,430			9,325
Restricted funds			12,923			21,589
Regulatory assets			39,128			38,418
Other			24,130			14,246
Total current assets			909,422			1,173,818
Property, Plant and Equipment, Net:	��
Generation			5,820,278			5,751,077
Transmission			1,056,759			1,028,323
Distribution			3,597,405			3,448,350
Other			412,894			429,108
Accumulated depreciation			(4,636,972	)		(4,508,707	)
Subtotal			6,250,364			6,148,151
Construction work in progress			262,529			129,277
Total property, plant and equipment, net			6,512,893			6,277,428
Investments and Other Assets:
Non-current assets held for sale			—			48,559
Goodwill			367,287			367,287
Investments in unconsolidated affiliates			28,259			28,555
Intangible assets			—			27,396
Other			27,932			49,413
Total investments and other assets			423,478			521,210
Deferred Charges:
Regulatory assets			674,095			544,810
Other			32,558			41,546
Total deferred charges			706,653			586,356
Total Assets		$	8,552,446		$	8,558,812

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(unaudited)

	As of December 31,
(In thousands, except share data)	2006			2005
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Long-term debt due within one year	$	201,189		$	477,217
Accounts payable		236,706			316,713
Accrued taxes		136,216			154,587
Commodity contracts		5,984			92,934
Accrued interest		99,854			91,433
Other		140,830			153,570
Total current liabilities		820,779			1,286,454
Long-term Debt		3,383,986			3,624,483
Deferred Credits and Other Liabilities:
Commodity contracts		17,982			22,994
Investment tax credit		72,938			76,965
Deferred income taxes		936,911			706,092
Obligations under capital leases		26,007			16,427
Regulatory liabilities		464,092			454,275
Adverse power purchase commitment		166,937			184,224
Other		547,706			445,614
Total deferred credits and other liabilities		2,232,573			1,906,591
Commitments and Contingencies
Minority Interest		10,713			21,989
Preferred Stock of Subsidiary		24,000			24,000
Common Stockholders’ Equity:
Common stock, $1.25 par value, 260 million shares authorized and 165,409,908 and 163,002,295 shares issued at December 31, 2006 and 2005, respectively		206,762			203,753
Other paid-in capital		1,907,879			1,880,644
Retained earnings (accumulated deficit)		74,698			(244,625	)
Treasury stock at cost; 49,493 shares		(1,756	)		(1,756	)
Accumulated other comprehensive loss		(107,188	)		(142,721	)
Total common stockholders’ equity		2,080,395			1,695,295
Total Liabilities and Stockholders’ Equity	$	8,552,446		$	8,558,812

8

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
RESULTS BY BUSINESS SEGMENT
THREE MONTHS ENDED DECEMBER 31, 2006 and 2005
(unaudited)

(In millions)	Delivery			Generation
	and			and
2006	Services			Marketing			Eliminations			Total
Operating revenues	$	680.4		$	424.6		$	(368.0	)	$	737.0
Fuel		—			201.2			—			201.2
Purchased power and transmission		444.2			6.6			(366.1	)		84.7
Deferred energy costs, net		2.4			—			—			2.4
Operations and maintenance		79.8			100.4			(1.9	)		178.3
Depreciation and amortization		38.0			30.8			—			68.8
Taxes other than income taxes		23.3			20.4			—			43.7
Operating income		92.7			65.2			—			157.9
Other income and expenses, net		5.7			3.3			(0.8	)		8.2
Interest expense and preferred dividends		19.0			42.5			(0.8	)		60.7
Income from continuing operations before income taxes and minority interest		79.4			26.0			—			105.4
Income tax expense from continuing operations		12.5			30.9			—			43.4
Minority interest in net income of subsidiaries		—			0.2			—			0.2
Income (loss) from continuing operations		66.9			(5.1	)		—			61.8
Income (loss) from discontinued operations, net of tax		(1.0	)		3.8			—			2.8
Net income (loss)	$	65.9		$	(1.3	)	$	—		$	64.6
2005
Operating revenues	$	711.8		$	385.4		$	(373.2	)	$	724.0
Fuel		—			191.3			—			191.3
Purchased power and transmission		472.5			19.4			(370.8	)		121.1
Gain on sale of Ohio T&D assets		(1.2	)		—			—			(1.2	)
Deferred energy costs, net		3.3			—			—			3.3
Operations and maintenance		92.1			116.2			(2.4	)		205.9
Depreciation and amortization		38.3			39.3			—			77.6
Taxes other than income taxes		31.5			20.9			—			52.4
Operating income (loss)		75.3			(1.7	)		—			73.6
Other income and expenses, net		7.3			3.5			(0.4	)		10.4
Interest expense and preferred dividends		21.4			49.9			(0.4	)		70.9
Income (loss) from continuing operations before income taxes and minority interest		61.2			(48.1	)		—			13.1
Income tax expense (benefit) from continuing operations		26.4			(16.3	)		—			10.1
Minority interest in net loss of subsidiaries		—			(0.3	)		—			(0.3	)
Income (loss) from continuing operations		34.8			(31.5	)		—			3.3
Income from discontinued operations, net of tax		3.5			2.2			—			5.7
Cumulative effect of accounting change, net of tax		—			(5.9	)		—			(5.9	)
Net income (loss)	$	38.3		$	(35.2	)	$	—		$	3.1

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
RESULTS BY BUSINESS SEGMENT
YEAR ENDED DECEMBER 31, 2006 and 2005
(unaudited)

(In millions)	Delivery			Generation
	and			and
2006	Services			Marketing			Eliminations			Total
Operating revenues	$	2,717.7		$	1,834.4		$	(1,430.6	)	$	3,121.5
Fuel		—			842.7			—			842.7
Purchased power and transmission		1,773.0			33.2			(1,423.2	)		383.0
Gain on sale of OVEC power agreement and shares		—			(6.1	)		—			(6.1	)
Deferred energy costs, net		7.6			—			—			7.6
Operations and maintenance		344.0			349.0			(7.4	)		685.6
Depreciation and amortization		151.3			121.8			—			273.1
Taxes other than income taxes		122.0			81.3			—			203.3
Operating income		319.8			412.5			—			732.3
Other income and expenses, net		22.2			14.8			(3.0	)		34.0
Interest expense and preferred dividends		81.4			193.1			(3.0	)		271.5
Income from continuing operations before income taxes and minority interest		260.6			234.2			—			494.8
Income tax expense from continuing operations		80.2			93.3			—			173.5
Minority interest in net income of subsidiaries		—			2.6			—			2.6
Income from continuing operations		180.4			138.3			—			318.7
Income (loss) from discontinued operations, net of tax		(1.0	)		1.6			—			0.6
Net income	$	179.4		$	139.9		$	—		$	319.3
2005
Operating revenues	$	2,845.5		$	1,703.3		$	(1,510.9	)	$	3,037.9
Fuel		—			759.1			—			759.1
Purchased power and transmission		1,878.7			81.0			(1,501.4	)		458.3
Loss on sale of Ohio T&D assets		29.3			—			—			29.3
Deferred energy costs, net		(1.5	)		—			—			(1.5	)
Operations and maintenance		388.5			356.2			(9.5	)		735.2
Depreciation and amortization		153.6			154.6			—			308.2
Taxes other than income taxes		130.4			82.1			—			212.5
Operating income		266.5			270.3			—			536.8
Other income and expenses, net		24.2			21.1			(1.1	)		44.2
Interest expense and preferred dividends		123.3			318.2			(1.0	)		440.5
Income (loss) from continuing operations before income taxes and minority interest		167.4			(26.8	)		(0.1	)		140.5
Income tax expense from continuing operations		55.2			9.6			—			64.8
Minority interest in net income of subsidiaries		—			0.6			—			0.6
Income (loss) from continuing operations		112.2			(37.0	)		(0.1	)		75.1
Income (loss) from discontinued operations, net of tax		1.0			(7.2	)		0.1			(6.1	)
Cumulative effect of accounting change, net of tax		—			(5.9	)		—			(5.9	)
Net income (loss)	$	113.2		$	(50.1	)	$	—		$	63.1

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
CONSOLIDATED DATA FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005
(in millions, except per share data)
(unaudited)

	INCOME FROM
	CONTINUING
	OPERATIONS BEFORE
	INCOME TAXES AND					DILUTED INCOME
THREE MONTHS ENDED DECEMBER 31, 2006	MINORITY INTEREST		NET INCOME			PER SHARE
Calculation of Adjusted Income:
Income — GAAP Basis	$	105.4	$	64.6		$	0.38
Adjustments:
Income from discontinued operations				(2.8	)
Adjusted Income	$	105.4	$	61.8		$	0.37
Calculation of Adjusted EBITDA:
Net Income — GAAP basis			$	64.6
Income from discontinued operations				(2.8	)
Interest expense and preferred dividends				60.7
Income tax expense				43.4
Depreciation and amortization				68.8
EBITDA from continuing operations				234.7
No adjustments				—
Adjusted EBITDA from continuing operations			$	234.7

	INCOME FROM
	CONTINUING
	OPERATIONS BEFORE
	INCOME TAXES AND					DILUTED INCOME
THREE MONTHS ENDED DECEMBER 31, 2005	MINORITY INTEREST		NET INCOME			PER SHARE
Calculation of Adjusted Income:
Income — GAAP Basis	$	13.1	$	3.1		$	0.02
Adjustments:
Income from discontinued operations				(5.7	)
Cumulative effect of accounting change (1)				5.9
Rounding				0.1
Adjusted Income	$	13.1	$	3.4		$	0.02
Calculation of Adjusted EBITDA:
Net Income — GAAP basis			$	3.1
Income from discontinued operations				(5.7	)
Cumulative effect of accounting change (1)				5.9
Interest expense and preferred dividends				70.9
Income tax expense				10.2
Depreciation and amortization				77.7
EBITDA from continuing operations				162.1
No adjustments				—
Adjusted EBITDA from continuing operations			$	162.1

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

11

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
SEGMENT DATA FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005
(in millions)
(unaudited)

	DELIVERY AND SERVICES				GENERATION AND MARKETING
	INCOME FROM				INCOME FROM
	CONTINUING				CONTINUING
	OPERATIONS BEFORE				OPERATIONS BEFORE
THREE MONTHS ENDED DECEMBER 31,	INCOME TAXES AND		NET		INCOME TAXES AND		NET
2006	MINORITY INTEREST		INCOME		MINORITY INTEREST		LOSS
Calculation of Adjusted Income:
Income (Loss) — GAAP Basis	$	79.4	$	65.9	$	26.0	$	(1.3	)
Adjustments:
Loss (income) from discontinued operations				1.0				(3.8	)
Adjusted Income (Loss)	$	79.4	$	66.9	$	26.0	$	(5.1	)

	DELIVERY AND SERVICES					GENERATION AND MARKETING
	INCOME FROM					LOSS FROM
	CONTINUING					CONTINUING
	OPERATIONS BEFORE					OPERATIONS BEFORE
THREE MONTHS ENDED DECEMBER 31,	INCOME TAXES AND		NET			INCOME TAXES AND			NET
2005	MINORITY INTEREST		INCOME			MINORITY INTEREST			LOSS
Calculation of Adjusted Income:
Income (Loss) — GAAP Basis	$	61.2	$	38.3		$	(48.1	)	$	(35.2	)
Adjustments:
Income from discontinued operations				(3.5	)					(2.2	)
Cumulative effect of accounting change (1)				—						5.9
Adjusted Income (Loss)	$	61.2	$	34.8		$	(48.1	)	$	(31.5	)

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

12

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
CONSOLIDATED DATA FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(in millions, except per share data)
(unaudited)

	INCOME FROM
	CONTINUING
	OPERATIONS BEFORE
	INCOME TAXES AND					DILUTED INCOME
YEAR ENDED DECEMBER 31, 2006	MINORITY INTEREST		NET INCOME			PER SHARE
Calculation of Adjusted Income:
Income — GAAP Basis	$	494.8	$	319.3		$	1.89
Adjustments:
Income from discontinued operations				(0.6	)
Change in Pennsylvania state income tax law (2)				(16.7	)
Write-off of prior deferred financing costs (3)		9.5		5.8
Adjusted Income	$	504.3	$	307.8		$	1.83
Calculation of Adjusted EBITDA:
Net Income — GAAP basis			$	319.3
Income from discontinued operations				(0.6	)
Interest expense and preferred dividends				271.5
Income tax expense				173.5
Depreciation and amortization				273.1
EBITDA from continuing operations				1,036.8
No adjustments				—
Adjusted EBITDA from continuing operations			$	1,036.8

	INCOME FROM
	CONTINUING
	OPERATIONS BEFORE
	INCOME TAXES AND						DILUTED INCOME
YEAR ENDED DECEMBER 31, 2005	MINORITY INTEREST			NET INCOME			PER SHARE
Calculation of Adjusted Income:
Income — GAAP Basis	$	140.5		$	63.1		$	0.40
Adjustments:
Loss from discontinued operations					6.2
Cumulative effect of accounting change (1)					5.9
Interest expense related to Merrill Lynch summary judgment (4)		38.5			24.3
Expense related to conversion of trust preferred securities (3)		47.2			29.8
Cash receipt from former trading executive’s forfeited assets (5)		(11.2	)		(6.9	)
Receipt of Hatfield power station insurance proceeds (6)		(17.7	)		(10.9	)
Redemption costs of 10.25% and 13.0% Senior Notes (3)		32.6			20.1
Impairment charge on Ohio T&D assets (7)		30.5			18.0
Adjusted Income	$	260.4		$	149.6		$	0.94
Calculation of Adjusted EBITDA:
Net Income — GAAP basis				$	63.1
Loss from discontinued operations					6.2
Cumulative effect of accounting change					5.9
Interest expense and preferred dividends					440.5
Income tax expense					64.8
Depreciation and amortization					308.1
EBITDA from continuing operations					888.6
Cash receipt from former trading executive’s forfeited assets (5)					(11.2	)
Receipt of Hatfield power station insurance proceeds (6)					(17.7	)
Impairment charge on Ohio T&D assets (7)				$	30.5
Adjusted EBITDA from continuing operations				$	890.2

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

13

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
SEGMENT DATA FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(in millions)
(unaudited)

	DELIVERY AND SERVICES				GENERATION AND MARKETING
	INCOME FROM				INCOME FROM
	CONTINUING				CONTINUING
	OPERATIONS				OPERATIONS
	BEFORE				BEFORE INCOME
	INCOME TAXES				TAXES AND
	AND MINORITY				MINORITY
YEAR ENDED DECEMBER 31, 2006	INTEREST		NET INCOME		INTEREST		NET INCOME
Calculation of Adjusted Income:
Income — GAAP Basis	$	260.6	$	179.4	$	234.2	$	139.9
Adjustments:
Loss (income) from discontinued operations				1.0				(1.6	)
Change in Pennsylvania state income tax law (2)				—				(16.7	)
Write-off of prior deferred financing costs (3)		1.6		1.0		7.9		4.9
Adjusted Income	$	262.2	$	181.4	$	242.1	$	126.5

	DELIVERY AND SERVICES					GENERATION AND MARKETING
	INCOME FROM
	CONTINUING
	OPERATIONS					INCOME FROM
	BEFORE INCOME					CONTINUING
	TAXES AND					OPERATIONS BEFORE
	MINORITY		NET			INCOME TAXES AND			NET
YEAR ENDED DECEMBER 31, 2005	INTEREST		INCOME			MINORITY INTEREST			INCOME
Calculation of Adjusted Income:
Income (Loss) — GAAP Basis	$	167.4	$	113.2		$	(26.8	)	$	(50.1	)
Adjustments:
Loss from discontinued operations				(1.0	)					7.2
Cumulative effect of accounting change (1)				—						5.9
Interest expense related to Merrill Lynch summary judgment (4)		—		—			38.5			24.3
Expense related to conversion of trust preferred securities (3)		21.0		13.2			26.2			16.6
Cash receipt from former trading executive’s forfeited assets (5)		—		—			(11.2	)		(6.9	)
Receipt of Hatfield power station insurance proceeds (6)		—		—			(17.7	)		(10.9	)
Redemption costs of 10.25% and 13.0% Senior Notes (3)		—		—			32.6			20.1
Impairment charge on Ohio T&D assets (7)		30.5		18.0			—			—
Adjusted Income	$	218.9	$	143.4		$	41.6		$	6.2

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

14

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
CONSOLIDATED OPERATIONS AND MAINTENANCE EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, 2004 AND 2003
(in millions)
(unaudited)

	YEAR ENDED DECEMBER 31,
	2006		2005		2004			2003
Operations and maintenance expense — GAAP Basis (8):	$	685.6	$	735.2	$	798.8		$	965.0
Receipt of Hatfield power station insurance proceeds		—		17.7		—			--
New York office space charge		—		—		(2.4	)		(4.6	)
Severance accrual		—		—		(3.9	)		--
Loss on assets retired/held for sale		—		—		—			(37.5	)
Baltimore Gas & Electric contract termination costs		—		—		—			(32.0	)
Special termination and other benefits		—		—		—			(15.7	)
Enron litigation reserves		—		—		—			(7.0	)
Asset sales		—		—		—			(3.6	)
Adjusted operations and maintenance expense	$	685.6	$	752.9	$	792.5		$	864.6

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

Notes to Reconciliation of Non-GAAP Financial Measures:

(1)	Represents the charge recorded in connection with adoption of the Financial Accounting Standards Board’s Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.”
(2)	Included in income tax expense on the Consolidated Statements of Operations.
(3)	Included in interest expense on the Consolidated Statements of Operations.
(4)	Included in interest expense on the Consolidated Statements of Operations. This amount represents the estimated interest owed to Merrill Lynch from March 16, 2001 thru March 31, 2005. It does not include interest accrued subsequent to March 31, 2005.
(5)	Included in other income and expenses, net, on the Consolidated Statements of Operations.
(6)	Included in operations and maintenance expense on the Consolidated Statements of Operations.
(7)	Included in loss on sale of Ohio T&D assets on the Consolidated Statements of Operations.
(8)	Operations and maintenance expense reflects the reclassification of fuel handling and residual disposal costs to fuel expense for all periods presented.

15

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
OPERATING STATISTICS
(unaudited)
Three Months Ended December 31,

	2006			2005			Change
DELIVERY AND SERVICES:
Retail electricity sales (million KWH)		10,921			12,158			-10.2	%
Usage per customer (KWH):
Residential		3,016			3,118			-3.3	%
Commercial		14,900			15,380			-3.1	%
Industrial		155,254	*		186,925			-16.9	%
GENERATION AND MARKETING:
Total generation (million KWH):
Supercritical coal		9,544			9,005			6.0	%
Other coal		1,452			1,620			-10.4	%
Gas		72			77			-6.6	%
Hydro and other		488			825			-40.9	%
Total		11,556			11,527			0.3	%
Net capacity factor:
Supercritical coal		71	%		67	%		4	%
All coal		66	%		64	%		2	%
Equivalent availability factor:
Supercritical coal		79	%		76	%		3	%
All coal		80	%		77	%		3	%
DEGREE DAYS:
Heating		1,792			1,996			-10.2	%
Cooling		3			22			-86.4	%

* Reflects the expiration of a below-market contract with a Maryland industrial customer

16

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES
OPERATING STATISTICS (cont.)
(unaudited)
Twelve Months Ended December 31,

	2006			2005			Change
DELIVERY AND SERVICES:
Retail electricity sales (million KWH)		43,179			48,275			-10.6	%
Usage per customer (KWH):
Residential		12,040			12,538			-4.0	%
Commercial		60,213			61,458			-2.0	%
Industrial		605,805	*		739,892			-18.1	%
GENERATION AND MARKETING:
Total generation (million KWH):
Supercritical coal		39,813			37,740			5.5	%
Other coal		5,865			6,011			-2.4	%
Gas		473			586			-19.2	%
Hydro and other		2,455			3,763			-34.8	%
Total		48,606			48,100			1.1	%
Net capacity factor:
Supercritical coal		76	%		72	%		4	%
All coal		70	%		67	%		3	%
Equivalent availability factor:
Supercritical coal		84	%		83	%		1	%
All coal		85	%		84	%		1	%
DEGREE DAYS:
Heating		4,861			5,333			-8.9	%
Cooling		781			1,087			-28.2	%

* Reflects the expiration of a below-market contract with a Maryland industrial customer

17