Allegheny Energy (AYE) 10-Q 7 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Apr. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	AYE
Entity Registrant Name	ALLEGHENY ENERGY, INC
Entity Central Index Key	0000003673
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		169,578,804

CONSOLIDATED STATEMENTS OF INCO

CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating revenues	1048.9	957.2
Operating expenses:
Fuel	317.9	259
Purchased power and transmission	148.9	133.9
Deferred energy costs, net	8	(17)
Operations and maintenance	218.7	167.2
Depreciation and amortization	79.9	68.5
Taxes other than income taxes	57	55.8
Total operating expenses	830.4	667.4
Operating income	218.5	289.8
Other income (expense), net	2.4	2.5
Interest expense	76.9	57.3
Income before income taxes	144	235
Income tax expense	55.8	100.9
Net income	88.2	134.1
Net income attributable to noncontrolling interest		-0.2
Net income attributable to Allegheny Energy, Inc.	88.2	133.9
Earnings per common share attributable to Allegheny Energy, Inc.:
Basic	0.52	0.79
Diluted	0.52	0.79
Average common shares outstanding:
Basic	169.7	169.4
Diluted	170.1	169.9
Dividends per common share	0.15	0.15

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Cash Flows From Operating Activities:
Net income.	88.2	134.1
Adjustments for non-cash items included in income:
Depreciation and amortization	79.9	68.5
Amortization of debt related costs	5.8	2.8
Amortization of liability for adverse power purchase commitment	-4.5	-4.4
Gain on disposal or retirement of assets		-0.2
Provision for uncollectible accounts	3.3	1.9
Deferred income taxes and investment tax credit, net	47.1	98.1
Deferred energy costs, net	8	(17)
Unrealized (gains) or losses on derivative contracts, net	7.8	-33.2
Employee benefit expenses	25.6	13.7
Contributions to pension and OPEB plans	-2.6	-1.7
Deferred revenue-Fort Martin scrubber project	0.6	3.4
Deferred revenue-Virginia		-15.4
Deferred revenue/expense-energy efficiency programs	5
Uncollected transmission revenue	-15.5	-2.3
Other, net	-1.5	1.1
Share-based excess tax benefits included in cash flows from financing activities		(20)
Changes in certain assets and liabilities:
Accounts receivable, net	-49.8	-61.8
Materials, supplies and fuel	17.7	-42.4
Prepaid taxes	-39.1	-39.9
Collateral deposits	-6.3	-73.3
Accounts payable	27.8	15.1
Accrued taxes	-14.6	-49.5
Accrued interest	21.4	10.5
Regulatory assets and liabilities	-7.8	18.1
Assets and liabilities held for sale	(8)
Other operating assets and liabilities	-9.9	1.2
Net cash provided by operating activities	178.6	7.4
Cash Flows From Investing Activities:
Capital expenditures	-266.9	-254.1
Decrease in restricted funds	23.3	58.9
Deconsolidation of PATH WV	-3.4
Other investments	-0.9	-1.3
Net cash used in investing activities	-247.9	-196.5
Cash Flows From Financing Activities:
Issuance of long-term debt	613	97.7
Repayment of long-term debt	-616.8	-57.2
Payments on capital lease obligations	-2.2	-2.2
Share-based excess tax benefits		20
Cash dividends paid on common stock	-25.4	-25.4
Net cash provided by (used in) financing activities	-31.4	32.9
Net decrease in cash and cash equivalents	-100.7	-156.2
Cash and cash equivalents at beginning of period	286.6	362.1
Cash and cash equivalents at end of period	185.9	205.9
Supplemental Cash Flow Information:
Cash paid during the period for interest (net of amounts capitalized)	49.5	43.8
Accounts payable at March 31 relating to capital expenditures	150.1	161.7

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current Assets:
Cash and cash equivalents	185.9	286.6
Accounts receivable:
Customer	271.2	188.2
Unbilled utility revenue	98	116.4
Wholesale and other	46.5	64.4
Allowance for uncollectible accounts	-15.5	(14)
Materials and supplies	112.2	110.6
Fuel	187.7	206.4
Deferred income taxes	39	81.5
Prepaid taxes	87.6	48.4
Collateral deposits	20.1	20.8
Derivative assets	24.4	4.6
Restricted funds	16.8	25.9
Regulatory assets	129	132.7
Assets held for sale	39.1	32.4
Other	37.3	40.4
Total current assets	1279.3	1345.3
Property, Plant and Equipment:
Generation	7513.5	7469.4
Transmission	1312.6	1313.2
Distribution	3,823	3784.4
Other	439.1	440.7
Accumulated depreciation	(5,160)	-5104.9
Subtotal	7928.2	7902.8
Construction work in progress	912.7	800.6
Property, plant and equipment held for sale, net	257.3	253.7
Total property, plant and equipment, net	9098.2	8957.1
Other Noncurrent Assets:
Regulatory assets	723.7	717.3
Goodwill	367.3	367.3
Restricted funds	45.9	60.2
Investments in unconsolidated affiliates	44.1	26.7
Derivative assets	36.7
Other	105	115.2
Total other noncurrent assets	1322.7	1286.7
Total Assets	11700.2	11589.1
Current Liabilities:
Long-term debt due within one year	167	140.8
Accounts payable	412.7	411.4
Accrued taxes	65.8	87.3
Payable to PJM for FTRs	24.9	31.7
Derivative liabilities	7.8	24.4
Regulatory liabilities	20.9	37.4
Accrued interest	89.7	68.3
Security deposits	52.5	51
Liabilities associated with assets held for sale	8.9	10.1
Other	108.8	123.2
Total current liabilities	959	985.6
Long-term Debt	4397.7	4,417
Deferred Credits and Other Liabilities:
Derivative liabilities	5.8	6.7
Income taxes payable	87.6	85.7
Investment tax credit	61	61.6
Deferred income taxes	1537.2	1501.3
Regulatory liabilities	468.8	461.2
Pension and other postretirement employee benefit plan liabilities	619.2	597.4
Adverse power purchase commitment	109.9	114.4
Liabilities associated with assets held for sale	51.2	53.1
Other	176.8	177
Total deferred credits and other liabilities	3117.5	3058.4
Commitments and Contingencies (Note 17)
Equity:
Common stock-$1.25 par value per share, 260,000,000 shares authorized and 169,629,317 and 169,620,917 shares issued at March 31, 2010 and December 31, 2009, respectively	212	212
Other paid-in capital	1974.1	1970.2
Retained earnings	1085.5	1022.7
Treasury stock at cost-51,313 shares at March 31, 2010 and December 31, 2009, respectively	-1.8	-1.8
Accumulated other comprehensive loss	-43.8	-89.9
Total Allegheny Energy, Inc. common stockholders' equity	3,226	3113.2
Noncontrolling interest		14.9
Total equity	3,226	3128.1
Total Liabilities and Equity	11700.2	11589.1

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
	Mar. 31, 2010	Dec. 31, 2009
Common stock, par value	1.25	1.25
Common stock, shares authorized	260,000,000	260,000,000
Common stock, shares issued	169,629,317	169,620,917
Treasury stock at cost, shares	51,313	51,313

CONSOLIDATED STATEMENTS OF CHAN

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (USD $)
In Millions, except Share data	Common stock	Other paid-in capital	Retained earnings	Treasury stock	Accumulated other comprehensive loss	Total Allegheny Energy, Inc. common stockholders' equity	Noncontrolling interest	Total
Beginning Balance at Dec. 31, 2008	211.8	1952.5	731.6	-1.8	-43.3	2850.8	4.9	2855.7
Beginning Balance (in shares) at Dec. 31, 2008	169,364,394
Net income			133.9			133.9	0.2	134.1
Defined benefit pension and other benefit plans:
Defined benefit pension and other benefit plan amortization, net of tax of $0.6 in 2010 and $0.6 in 2009					0.8	0.8		0.8
Defined benefit pension and other benefit plan amortization, net of tax of $0.6 in 2010 and $0.6 in 2009					0.8	0.8		0.8
Cash flow hedges, net of tax of $29.0 in 2010 and $13.3 in 2009					21.1	21.1		21.1
Dividends on common stock			-25.4			-25.4		-25.4
Stock-based compensation expense:
Non-employee director stock awards (in shares)	13,201
Non-employee director stock awards		0.2				0.2		0.2
Stock options		1.7				1.7		1.7
Performance shares		1.6				1.6		1.6
Restricted shares (in shares)	17,850
Exercise of stock options (in shares)	3,600
Share-based excess tax benefits		20				20		20
Ending Balance (in shares) at Mar. 31, 2009	169,399,045
Ending Balance at Mar. 31, 2009	211.8	1,976	840.1	-1.8	-21.4	3004.7	5.1	3009.8
Beginning Balance at Dec. 31, 2009	212	1970.2	1022.7	-1.8	-89.9	3113.2	14.9	3128.1
Beginning Balance (in shares) at Dec. 31, 2009	169,569,604
Net income			88.2			88.2		88.2
Defined benefit pension and other benefit plans:
Net loss during period, net of tax of $0.3					-0.4	-0.4		-0.4
Defined benefit pension and other benefit plan amortization, net of tax of $0.6 in 2010 and $0.6 in 2009					0.8	0.8		0.8
Defined benefit pension and other benefit plan amortization, net of tax of $0.6 in 2010 and $0.6 in 2009					0.8	0.8		0.8
Cash flow hedges, net of tax of $29.0 in 2010 and $13.3 in 2009					45.7	45.7		45.7
Deconsolidation of PATH WV							-14.9	-14.9
Dividends on common stock			-25.4			-25.4		-25.4
Stock-based compensation expense:
Non-employee director stock awards (in shares)	3,000
Non-employee director stock awards		0.2				0.2		0.2
Stock options		1.5				1.5		1.5
Performance shares		2				2		2
Exercise of stock options (in shares)	5,400
Exercise of stock options		0.1				0.1		0.1
Other		0.1				0.1		0.1
Ending Balance (in shares) at Mar. 31, 2010	169,578,004
Ending Balance at Mar. 31, 2010	$212	1974.1	1085.5	-1.8	-43.8	$3,226	$0	$3,226

1_CONSOLIDATED STATEMENTS OF CH

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net loss during period, tax	0.3
Defined benefit pension and other benefit plan amortization, tax	0.6	0.6
Cash flow hedges, tax	$29	13.3

BUSINESS AND BASIS OF PRESENTAT

BUSINESS AND BASIS OF PRESENTATION
	3 Months Ended Mar. 31, 2010
BUSINESS AND BASIS OF PRESENTATION	NOTE 1: BUSINESS AND BASIS OF PRESENTATION Business Description Allegheny Energy, Inc. (AE and, together with its subsidiaries, Allegheny) is an integrated energy business that owns and operates electric generation facilities and delivers electric services to customers in Pennsylvania, West Virginia, Maryland and Virginia. Allegheny manages its operations through two business segments: Merchant Generation and Regulated Operations. These business segments are also referred to as reportable segments. The Merchant Generation segment includes Alleghenys unregulated electric generation operations including Allegheny Energy Supply Company, LLC (AE Supply) and AE Supplys interest in Allegheny Generating Company (AGC). AE Supply owns, operates and controls electric generation capacity and supplies and trades energy and energy-related commodities. AGC owns and sells generation capacity to AE Supply and Monongahela Power Company (Monongahela), which own approximately 59% and 41% of AGC, respectively. The Merchant Generation segment is subject to federal and state regulation but, unlike the Regulated Operations segment, is not generally subject to state regulation of rates. The Regulated Operations segment includes the operations of Monongahela, The Potomac Edison Company (Potomac Edison) and West Penn Power Company (West Penn and, together with Monongahela and Potomac Edison, the Distribution Companies), which primarily operate electric transmission and distribution (TD) systems in Pennsylvania, West Virginia, Maryland and Virginia. Monongahela also owns and operates electric generation facilities in West Virginia and has a 41% interest in AGC. The Distribution Companies are subject to federal and state regulation, including state regulation of rates. The Regulated Operations segment also includes the operations of Trans-Allegheny Interstate Line Company (TrAIL Company) and Alleghenys interests in Potomac-Appalachian Transmission Highline, LLC (PATH, LLC). These entities were created to construct or facilitate the construction of high voltage transmission lines and other transmission facilities, including the Trans-Allegheny Interstate Line (TrAIL) and the Potomac-Appalachian Transmission Highline (PATH). TrAIL Company and PATH, LLC are subject to the regulation of rates by the Federal Energy Regulatory Commission (FERC). PATH, LLC is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties regarding specified property and the series profits and losses associated with such property. A subsidiary of AE owns 100% of the Allegheny Series and owns 50% of the West Virginia Series (PATH WV), which is a joint venture with a subsidiary of American Electric Power Company, Inc. (AEP). Allegheny accounts for its interest in PATH WV using the equity method of accounting, effective January1, 2010. See Note 3, Recently Adopted and Recently Issued Accounting Standards for additional information. In May 2009, Potomac Edison signed definitive agreements to sell its electric distribution operations in Virginia. See Note 4, Assets Held for Sale for additional information. Allegheny

MERGER AGREEMENT

MERGER AGREEMENT
	3 Months Ended Mar. 31, 2010
MERGER AGREEMENT	NOTE 2: MERGER AGREEMENT On February10, 2010, AE entered into an Agreement and Plan of Merger (the Merger Agreement) with FirstEnergy Corp. (FirstEnergy) and Element Merger Sub, Inc. (Merger Sub). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub, which is wholly owned by FirstEnergy, will merge with and into AE (the Merger), with AE continuing as the surviving corporation and a wholly owned subsidiary of FirstEnergy. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and be tax-free to AE stockholders. Pursuant to the Merger Agreement, upon the closing of the Merger, each issued and outstanding share of AE common stock, including grants of restricted common stock, will automatically be converted into the right to receive 0.667 of a share of common stock of FirstEnergy (the Exchange Ratio). All options to purchase shares of AE common stock under AEs stock plans, whether vested or unvested, will automatically be converted into options to acquire a number of shares of FirstEnergy common stock that reflects the Exchange Ratio at an equitably adjusted option price and otherwise on the same terms and conditions. All awards of AE restricted stock that have not already vested in accordance with their terms as of immediately prior to the closing of the Merger will automatically be converted into the right to receive similarly restricted shares of FirstEnergy common stock based on the Exchange Ratio. Likewise, any performance shares and restricted stock units that have not already vested in accordance with their terms as of immediately prior to the closing of the Merger will automatically be converted into performance shares or stock units in respect of FirstEnergy common stock based on the Exchange Ratio as equitably adjusted as appropriate to reflect resulting changes in their underlying terms. Upon the closing of the Merger, FirstEnergys Board of Directors will be increased from 11 to 13 members, and two of AEs current Board members will be appointed to FirstEnergys Board. Paul J. Evanson, currently Chairman, President and Chief Executive Officer of AE, will become the Executive Vice Chairman of FirstEnergy upon the closing. Completion of the Merger is subject to various customary conditions, including, among others, (i)requisite approvals of AE and FirstEnergy stockholders, (ii)effectiveness of the registration statement for the FirstEnergy common stock to be issued in the Merger, (iii)expiration or termination of the applicable Hart-Scott-Rodino Act waiting period, (iv)receipt of all required regulatory approvals from, among others, the FERC and certain state public service and utility commissions, (v)the absence of any governmental action challenging or seeking to prohibit the Merger and (vi)the absence of any material adverse effect with respect to either AE or FirstEnergy. The Merger Agreement contains customary representations, warranties and covenants of AE and FirstEnergy, including, among others, covenants (i)to conduct their respective businesses in the ordinary course during the interim period between the executio

RECENTLY ADOPTED AND RECENTLY I

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
	3 Months Ended Mar. 31, 2010
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS	NOTE 3: RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS Consolidations and Variable Interest Entities Allegheny adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-17 (Consolidations Topic 810), Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities on January1, 2010. Under this new guidance, consolidation of a variable interest entity (VIE) is required by an enterprise (the primary beneficiary), if any, that is determined qualitatively to have both the power to direct the activities that most significantly impact the VIEs economic success and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the prior guidance, the primary beneficiary (consolidator) of a VIE was the party that absorbed a majority of the expected losses or the majority of the expected residual returns of the VIE using a quantitative analysis. Through December31, 2009 Allegheny consolidated PATH WV for financial statement purposes because Allegheny determined that PATH WV was a VIE and determined that Allegheny was its primary beneficiary under the prior accounting standard. Allegheny determined that it is not the primary beneficiary of PATH WV under the new accounting standard and deconsolidated PATH WV for financial statement purposes, effective January1, 2010. Allegheny did not retrospectively apply this new guidance by deconsolidating PATH WV in its financial statements for periods prior to January1, 2010. The deconsolidation of PATH WV did not impact retained earnings or net income attributable to Allegheny Energy, Inc. See Note 16 Variable Interest Entities for additional information. Fair Value Measurements and Disclosures Allegheny adopted the FASBs ASU on Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements in January 2010. The ASU added new requirements for disclosures about transfers into and out of fair value Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. The ASU also clarified existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. Alleghenys adoption of this ASU did not affect its results of operations or financial position.

ASSETS HELD FOR SALE

ASSETS HELD FOR SALE
	3 Months Ended Mar. 31, 2010
ASSETS HELD FOR SALE	NOTE 4: ASSETS HELD FOR SALE On May4, 2009, Potomac Edison signed definitive agreements to sell its electric distribution operations in Virginia (the VA Distribution Business) to Rappahannock Electric Cooperative and Shenandoah Valley Electric Cooperative (together, the Cooperatives) in exchange for cash proceeds of approximately $340 million, subject to adjustment for changes in assets and liabilities through the closing date, including depreciation of the assets on a regulatory basis. In addition, Potomac Edison agreed to negotiate in good faith for the purchase of certain West Virginia distribution operations from Shenandoah Valley Electric Cooperative. The transaction is subject to state and federal regulatory approvals, certain third-party consents and other conditions to closing. On January29, 2010, consultants retained by the Staff of the Virginia State Corporation Commission (the Virginia SCC) filed testimony analyzing the transaction. Potomac Edison and the Cooperatives filed rebuttal testimony on February12, 2010. The Virginia SCC held a hearing regarding this matter beginning on March2, 2010 at which witnesses for Potomac Edison, the Cooperatives and the Staff of the Virginia SCC provided testimony. On April27, 2010, Potomac Edison, the Cooperatives, the Consumer Counsel Division of the Virginia Office of the Attorney General and Frederick County filed a stipulation agreement with the Virginia SCC. Under the stipulation agreement, Potomac Edison would contribute $27.5 million between July1, 2011 and July1, 2014 to reduce the impact of any rate increases, and would contribute an additional $35 million to be applied to decrease the purchase price from $340 million to $305 million, subject to adjustment for changes in assets and liabilities through the closing date, including depreciation of the assets on a regulatory basis. Also, under the stipulation agreement, the Cooperatives would defer collection of $5 million in rates, would not increase base rates before July1, 2014 and would limit distribution rate increases for 2014, 2015 and 2016 so that total customer bills do not increase by more than 5% annually. The Virginia SCC held a hearing on the stipulation agreement on May 3, 2010 and will make a final determination approving or denying the transfer. The VA Distribution Business is included in the Regulated Operations segment. Assets and liabilities relating to the VA Distribution Business have been classified as held for sale in Alleghenys consolidated balance sheets, and depreciation expense on those assets has ceased. The operating results of the VA Distribution Business have not been reported as discontinued operations because AE Supply will continue to provide the majority of the power to serve the customers of this business under a power sales agreement through June 30, 2011. Assets held for sale and liabilities associated with assets held for sale were as follows: (In millions) March31, 2010 December31, 2009 Current Assets: Accounts receivable $ 36.8 $ 31.2 Materials and supplies 1.7 0.7 Regulatory assets 0.6 0.5

RATES AND REGULATION

RATES AND REGULATION
	3 Months Ended Mar. 31, 2010
RATES AND REGULATION	NOTE 5: RATES AND REGULATION On August13, 2009, Monongahela and Potomac Edison filed with the Public Service Commission of West Virginia (the West Virginia PSC) a request to increase retail rates by approximately $122.1 million annually, effective June10, 2010. On January12, 2010, Monongahela and Potomac Edison filed supplemental testimony discussing a tax treatment change that would result in a revenue requirement that is approximately $7.7 million lower than the requirement included in the original filing. In addition, in December 2009, subsidiaries of Monongahela and Potomac Edison completed a securitization transaction to finance certain costs associated with the installation of flue-gas desulfurization equipment (Scrubbers) at the Fort Martin generating facility, which costs would otherwise have been included in the request for rate recovery. Monongahela and Potomac Edison ultimately requested an increase in retail rates of approximately $95 million, rather than $122.1 million, annually. On April2, 2010, Monongahela and Potomac Edison filed with the West Virginia PSC a Joint Stipulation and Agreement of Settlement (the West Virginia Stipulation) reached with the other parties in the proceeding. The West Virginia Stipulation provides for: a $40 million annualized base rate increase effective June29, 2010; the deferral of February 2010 storm restoration expenses in West Virginia over a maximum five-year period; an additional $20 million annualized base rate increase effective January 2011; a decrease of $20 million in Expanded Net Energy Clause (ENEC) rates effective January 2011, which amount is deferred for later recovery in 2012; and a moratorium on filing for further increases in base rates in West Virginia before December1, 2011, except under specified circumstances. The West Virginia PSC conducted a hearing on the West Virginia Stipulation on April6, 2010, but to date has not issued a final order in the proceeding.

REGULATORY ASSETS AND LIABILITI

REGULATORY ASSETS AND LIABILITIES
	3 Months Ended Mar. 31, 2010
REGULATORY ASSETS AND LIABILITIES	NOTE 6: REGULATORY ASSETS AND LIABILITIES Alleghenys regulated utility operations are subject to regulated, industry-specific accounting provisions. Regulatory assets represent probable future revenues associated with incurred costs that are expected to be recovered in the future from customers through the rate-making process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited or refunded to customers through the rate-making process or amounts collected for costs not yet incurred. Regulatory assets and regulatory liabilities reflected in the Consolidated Balance Sheets were as follows: (In millions) March31, 2010 December 31, 2009 Regulatory assets, including current portion: Income taxes (a)(b) $ 233.4 $ 234.9 Pension benefits and postretirement benefits other than pensions (a)(c) 390.6 396.5 Pennsylvania Competitive Transition Charge (CTC) reconciliation (d) 0.8 5.0 Unamortized loss on reacquired debt (a)(e) 37.4 26.8 Unrealized loss on decreased fair value of financial transmission rights (f) 1.7 1.7 Deferred ENEC charges (f) 97.9 109.5 Transmission revenue requirement (g) 48.3 29.8 Other (h) 42.6 45.8 Subtotal 852.7 850.0 Regulatory liabilities, including current portion: Net asset removal costs (i) 379.9 374.2 Income taxes 29.0 29.3 SO2 allowances 12.6 12.8 Fort Martin Scrubber project environmental control surcharge 40.7 40.1 Maryland rate stabilization and transition plan surcharge 19.3 30.1 Other 8.2 12.1 Subtotal 489.7 498.6 Net regulatory assets $ 363.0 $ 351.4 (a) Does not earn a return. (b) Amount is being recovered over various periods associated with the remaining useful life of related regulated utility property, plant and equipment. (c) Amount is being recovered over various periods up to 13 years. (d) Recorded amount includes an 11% return earned through 2005. No additional return will be earned through the 2010 recovery period. (e) Amount is being recovered over various periods through 2025, based upon the maturities of reacquired debt. (f) Includes amounts that do not earn a return with recovery periods up to two years. (g) Amount earns interest at the approved FERC interest rate and will be recovered through 2012. (h) Includes amounts that do not earn a return with various recovery periods through 2027. (i) Net asset removal costs of $50.8 and $51.0 million are included in liabilities associated with assets held for sale at March31, 2010 and December31, 2009, respectively, in the consolidated balance sheet.

INCOME TAXES

INCOME TAXES
	3 Months Ended Mar. 31, 2010
INCOME TAXES	NOTE 7: INCOME TAXES Allegheny computes income taxes under the liability method. Deferred income tax balances are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Tax benefits are recognized in the financial statements when it is more likely than not that a tax position will be sustained upon examination by the tax authorities based on the technical merits of the position. Such tax positions are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Allegheny allocates federal income tax expense (benefit) among its subsidiaries pursuant to its consolidated tax sharing agreement. The following is a reconciliation of reported income tax expense to income tax expense calculated by applying the federal statutory rate of 35% to income before income taxes: Three Months Ended March31, 2010 2009 (In millions, except percentages) Amount % Amount % Income before income taxes $ 144.0 $ 235.0 Income tax expense calculated at the federal statutory rate of 35% 50.4 35.0 82.3 35.0 Increases (reductions) resulting from: Rate-making effects of depreciation differences and removal costs 0.9 0.7 0.7 0.3 Change in estimated Pennsylvania net operating loss benefits 9.5 4.0 Other state income tax, net of federal income tax benefit 4.3 3.0 7.9 3.4 Amortization of deferred investment tax credits (0.9 ) (0.6 ) (0.9 ) (0.4 ) Changes in tax reserves related to uncertain tax positions and audit settlements 1.6 1.1 1.7 0.7 Other, net (0.5 ) (0.4 ) (0.3 ) (0.1 ) Income tax expense $ 55.8 38.8 $ 100.9 42.9 During the quarter ended March31, 2009, a charge of $9.5 million was recorded, net of applicable federal income tax, to adjust the recorded Pennsylvania net operating loss carryforward asset to reflect current estimates of future Pennsylvania taxable income during the carryforward period. The Commonwealth of Pennsylvania limits the amount of net operating loss carryforwards that may be used to reduce current year taxable income to the greater of $3 million or 15% of taxable income per year for 2010 and the greater of $3 million or 20% of taxable income for years after 2010.

COMMON STOCK AND DEBT

COMMON STOCK AND DEBT
	3 Months Ended Mar. 31, 2010
COMMON STOCK AND DEBT	NOTE 8: COMMON STOCK AND DEBT Common Stock On March22, 2010, AE paid a cash dividend on its common stock of $0.15 per share to stockholders of record at the close of business on March8, 2010. Debt Outstanding debt and scheduled debt repayments at March31, 2010 were as follows: (In millions) April1, 2010 through December31, 2010 2011 2012 2013 2014 Thereafter Total AE: AE Revolving Credit Facility $ $ 30.0 $ $ $ $ $ 30.0 Total AE 30.0 30.0 AE Supply: Medium-Term Notes 150.5 503.2 600.0 1,253.7 Pollution Control Bonds 1.3 15.4 251.7 268.4 Exempt Facilities Revenue Bonds 235.0 235.0 Debentures-AGC 100.0 100.0 Total AE Supply 150.5 504.5 15.4 1,186.7 1,857.1 Monongahela: Environmental Control Bonds (a) 5.7 11.6 12.2 12.8 13.5 322.1 377.9 First Mortgage Bonds 300.0 120.0 220.0 640.0 Pollution Control Bonds 6.0 7.1 57.1 70.2 Total Monongahela 5.7 11.6 18.2 319.9 133.5 599.2 1,088.1 West Penn: First Mortgage Bonds 420.0 420.0 Transition Bonds (a) 1.4 1.4 Medium-Term Notes 80.0 80.0 Total West Penn 1.4 80.0 420.0 501.4 Potomac Edison: First Mortgage Bonds 175.0 245.0 420.0 Environmental Control Bonds (a) 2.0 3.9 4.1 4.3 4.5 107.5 126.3 Total Potomac Edison 2.0 3.9 4.1 4.3 179.5 352.5 546.3 TrAIL Company: Medium-Term Notes 450.0 450.0 Revolving Loan 115.0 115.0 Total TrAIL 115.0 450.0 565.0 Unamortized debt discounts (1.2 ) (1.5 ) (1.2 ) (1.1 ) (0.9 ) (2.9 ) (8.8 ) Eliminations (b) (1.3 ) (13.1 ) (14.4 ) Total consolidated debt $ 7.9 $ 194.5 $ 604.3 $ 438.1 $ 327.5 $ 2

SEGMENT INFORMATION

SEGMENT INFORMATION
	3 Months Ended Mar. 31, 2010
SEGMENT INFORMATION	NOTE 9: SEGMENT INFORMATION Allegheny changed the composition of its reportable segments during the fourth quarter of 2009, consistent with changes made to its management structure and the internal financial reporting used by its chief operating decision maker to regularly assess the performance of the business and allocate resources. Segment information for the three months ended March31, 2009 has been reclassified to conform to the 2010 presentation included below. The following tables summarize the results of operations for Alleghenys two reportable segments. The information for the Regulated Operations segment includes the operations of the Virginia distribution business. See Note 4, Assets Held for Sale, for additional information. Three Months Ended March31, 2010 Three Months Ended March31, 2009 (In millions) Merchant Generation Regulated Operations Eliminations (a) Total Merchant Generation Regulated Operations Eliminations (a) Total Operating revenues: External operating revenues $ 89.3 $ 959.6 $ $ 1,048.9 $ 102.4 $ 854.8 $ $ 957.2 Internal operating revenues 373.3 1.4 (374.7 ) 353.2 3.1 (356.3 ) Total operating revenues 462.6 961.0 (374.7 ) 1,048.9 455.6 857.9 (356.3 ) 957.2 Operating expenses: Fuel 234.4 83.5 317.9 185.4 73.6 259.0 Purchased power and transmission 9.6 512.6 (373.3 ) 148.9 9.4 479.4 (354.9 ) 133.9 Deferred energy costs, net 8.0 8.0 (17.0 ) (17.0 ) Operations and maintenance 66.0 154.1 (1.4 ) 218.7 62.0 106.6 (1.4 ) 167.2 Depreciation and amortization 32.2 48.1 (0.4 ) 79.9 23.8 45.2 (0.5 ) 68.5 Taxes other than income taxes 13.2 43.8 57.0 12.8 43.0 55.8 Total operating expenses 355.4 850.1 (375.1 ) 830.4 293.4 730.8 (356.8 ) 667.4 Operating income 107.2 110.9 0.4 218.5 162.2 127.1 0.5 289.8 Other income (expense), net 0.6 5.0 (3.2 ) 2.4 0.7 4.6 (2.8 ) 2.5 Interest expense 36.0 41.6 (0.7 ) 76.9 17.9 39.6 (0.2 ) 57.3 Income before income taxes 71.8 74.3 (2.1 ) 144.0 145.0 92.1 (2.1 ) 235.0 Income tax expense 27.0 28.8 55.8 62.8 38.1 100.9 Net income 44.8 45.5 (2.1

FAIR VALUE MEASUREMENTS, DERIVA

FAIR VALUE MEASUREMENTS, DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
	3 Months Ended Mar. 31, 2010
FAIR VALUE MEASUREMENTS, DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES	NOTE 10: FAIR VALUE MEASUREMENTS, DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Alleghenys assets and liabilities measured at fair value on a recurring basis at March31, 2010 consisted of the following: (In millions) Assets Liabilities Cash equivalents (a) $ 166.0 $ Derivative instruments (b): Current 73.0 (7.8 ) Non-current 36.7 (10.5 ) Total derivative instruments 109.7 (18.3 ) Total recurring fair value measurements $ 275.7 $ (18.3 ) (a) Cash equivalents represent amounts invested in money market mutual funds and are valued using Level 1 inputs. (b) Before netting of cash collateral and financial transmission right (FTR) obligation. The following table disaggregates the net fair values of derivative assets and liabilities by class, before netting of cash collateral and FTR obligation, based on their level within the fair value hierarchy at March31, 2010. This table excludes derivatives that have been designated as normal purchases or normal sales. Fair Value at March31, 2010 Using (In millions) Level1 Level 2 Level3 Total Derivative assets: Power contracts futures $ 0.4 $ $ $ 0.4 Power contracts forwards 56.3 56.3 Gas contracts futures 25.7 25.7 Gas contracts forwards 0.5 0.5 FTRs 26.8 26.8 Total derivative assets 26.1 56.8 26.8 109.7 Derivative liabilities: Power contracts futures (7.2 ) (7.2 ) Power contracts forwards (5.9 ) (5.9 ) Gas contracts forwards (0.1 ) (0.1 ) Interest rate swaps (5.1 ) (5.1 ) Total derivative liabilities (7.2 ) (11.1 ) (18.3 ) Net derivative assets $ 18.9 $ 45.7 $ 26.8 $ 91.4 The following table shows the expected settlement year for derivative assets and liabilities outstanding before netting of cash collateral and FTR obligation at March31, 2010. This table excludes derivatives that have been designated as normal purchases or normal sales: (In millions) 2010 2011 2012 2013 Total Level 1 $ 26.6 $ 0.5 $ (8.2 ) $ $ 18.9 Level 2 5.9 38.5 1.3 45.7 Level 3 26.8 26.8 Net derivative assets (liabilities) $ 59.3 $ 39.0 $ (6.9 ) $ $ 91.4 The following table disaggregates the net fair values of derivative assets and liabilities, before netting of cash collateral and FTR obligation, based on their level within the fair value hierarchy at December31, 2009. This table excludes derivatives that have been designated as normal purchas

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION
	3 Months Ended Mar. 31, 2010
STOCK-BASED COMPENSATION	NOTE 11: STOCK-BASED COMPENSATION The following table summarizes stock-based compensation expense included in operations and maintenance expenses: Three Months Ended March31 (In millions) 2010 2009 Performance shares $ 2.0 $ 1.6 Stock options 1.5 1.7 Non-employee director stock awards 0.2 0.2 Total stock-based compensation expense 3.7 3.5 Income tax benefit 1.5 1.4 Total stock-based compensation expense, net of tax $ 2.2 $ 2.1 Stock-based compensation expense recognized in the Consolidated Statements of Income is based on awards ultimately expected to vest, using an estimated annual forfeiture rate of 5%. No stock-based compensation cost was capitalized during the three months ended March31, 2010 and 2009. Stock Options Allegheny records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant under the Black-Scholes option-pricing model. No stock options were granted during the three months ended March31, 2010. The following were the weighted-average assumptions for stock options granted during the three months ended March31, 2009: Annual risk-free interest rate 2.85 % Expected term of the option (in years) 6.00 Expected annual dividend yield 2.54 % Expected stock price volatility 36.45 % Grant date fair value per stock option $ 7.13 The annual risk-free interest rate is based on the United States Treasury yield curve at the date of the grant for a period equal to the expected term of the options granted. The expected term of the first quarter 2009 stock option grants was calculated in accordance with Staff Accounting Bulletin 107, using the simplified method. AE used the simplified method for its calculation of expected term due to its lack of sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term and because AE has granted stock options in prior years with varying vesting terms, which also made it difficult to evaluate historical exercise data. The expected annual dividend yield assumption was based on AEs current dividend rate at the time of each grant. For stock options granted during 2009, the expected stock price volatility was based on both historical stock volatility and the volatility levels implied on the grant date by actively traded option contracts on AEs common stock. Stock option activity during the three months ended March31, 2010 was as follows: Stock Options Weighted- Average Exercise Price Aggregate Intrinsic Value (inmillions) Outstanding at December31, 2009 2,852,942 $ 27.62 Exercised (a) (5,400 ) $ 13.35 Expired (1,825 ) $ 53.67 Outstanding at March31, 2010 2,845,717 $ 27.63 $ 7.5 (b) Exercisable at March31, 2010 1,796,654 $ 26.45 $ 7.5 (b) (a) Proceeds to AE from stock option exercises were $0.1 million for the three months ended March31

PENSION BENEFITS AND POSTRETIRE

PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
	3 Months Ended Mar. 31, 2010
PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS	NOTE 12: PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Substantially all of Alleghenys personnel, including officers, are employed by AESC and are covered by a noncontributory, defined benefit pension plan. Allegheny also maintains a Supplemental Executive Retirement Plan (the SERP) for executive officers and other senior executives. Allegheny also provides subsidies for medical and life insurance plans for eligible retirees and dependents. Medical benefits, which make up the largest component of the postretirement benefits other than pensions, have retiree premiums based upon an age and years-of-service vesting schedule, include other plan provisions that limit future benefits and take into account certain collective bargaining arrangements. Subsidized medical coverage is not provided in retirement to employees hired on or after January1, 1993, with the exception of certain union employees who were hired or became members before May1, 2006. The provisions of the postretirement health care plans and certain collective bargaining arrangements limit Alleghenys costs for eligible retirees and dependents. The components of the net periodic cost for pension benefits and for postretirement benefits other than pensions (principally health care and life insurance) for employees and covered dependents by Allegheny were as follows: Pension Benefits PostretirementBenefitsOther Than Pensions ThreeMonthsEnded March 31, Three Months Ended March31, (In millions) 2010 2009 2010 2009 Components of net periodic cost: Service cost $ 6.6 $ 5.6 $ 1.1 $ 1.1 Interest cost 17.9 17.7 3.9 4.3 Expected return on plan assets (18.5 ) (18.5 ) (1.5 ) (1.3 ) Amortization of unrecognized transition obligation 0.1 0.1 1.4 1.4 Amortization of prior service cost 0.8 0.8 Recognized actuarial loss 4.6 2.8 0.5 Net periodic cost $ 11.5 $ 8.5 $ 4.9 $ 6.0 For the three months ended March31, 2010 and 2009, Allegheny capitalized $4.8 million and $4.3 million, respectively, of the above net periodic cost amounts to Construction work in progress, a component of Property, plant and equipment, net. During the first quarter of 2010, Allegheny determined that its benefit obligation of $264.2 million at December31, 2009 for postretirement benefits other than pensions was understated by approximately $14.9million. Allegheny increased its recorded benefit obligation for this matter during the first quarter of 2010, and recorded an additional charge to expense of approximately $10.4 million and a charge to construction work in progress in the amount of approximately $4.5 million. In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (the Acts) were signed into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS
	3 Months Ended Mar. 31, 2010
FINANCIAL INSTRUMENTS	NOTE 13:FINANCIAL INSTRUMENTS As of March31, 2010 and December31, 2009, the carrying amounts of accounts receivable and accounts payable are representative of fair value because of their short-term nature. The carrying amounts and estimated fair values of long-term debt, including long-term debt due within one year, net of unamortized debt discounts of $8.8 million and $7.4 million at March31, 2010 and December31, 2009, respectively were as follows: March31, 2010 December31, 2009 (In millions) Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt $ 4,564.7 $ 4,768.7 $ 4,557.8 $ 4,729.1 The fair value of long-term debt was estimated based on actual market prices or market prices of similar debt issues.

COMPREHENSIVE INCOME AND ACCUMU

COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
	3 Months Ended Mar. 31, 2010
COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS	NOTE 14: COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS Comprehensive income consisted of the following: ThreeMonthsEnded March 31, (In millions) 2010 2009 Net income $ 88.2 $ 134.1 Other comprehensive income, net of tax: Cash flow hedges, net of tax of $29.0 and $13.3, respectively 45.7 21.1 Defined benefit pension and other benefit plan amortization, net of tax of $0.3 and $0.6, respectively 0.4 0.8 Comprehensive income 134.3 156.0 Less comprehensive income attributable to noncontrolling interest (0.2 ) Comprehensive income attributable to Allegheny Energy, Inc. $ 134.3 $ 155.8 The components of accumulated other comprehensive loss, included in the shareholders equity section of the Consolidated Balance Sheets, were as follows: (In millions) March31, 2010 December31, 2009 Cash flow hedges, net of tax of $18.3 and $(10.7), respectively $ 28.9 $ (16.8 ) Net unrecognized pension and other benefit plan costs, net of tax of $(49.4) and $(49.7), respectively (72.7 ) (73.1 ) Total $ (43.8 ) $ (89.9 )

EARNINGS PER SHARE

EARNINGS PER SHARE
	3 Months Ended Mar. 31, 2010
EARNINGS PER SHARE	NOTE 15: EARNINGS PER SHARE The reconciliation of the basic and diluted earnings per common share calculation is as follows: Three Months Ended March31, (In millions, except share and per share amounts) 2010 2009 Basic Income per Share: Numerator: Net income attributable to Allegheny Energy, Inc. $ 88.2 $ 133.9 Denominator: Weighted average common shares outstanding 169,657,348 169,443,451 Basic earnings per share attributable to Allegheny Energy, Inc. $ 0.52 $ 0.79 Diluted Income per Share: Numerator: Net income attributable to Allegheny Energy, Inc. $ 88.2 $ 133.9 Denominator: Weighted average common shares outstanding 169,657,348 169,443,451 Effect of dilutive securities: Stock options (a) 318,957 407,703 Performance shares 94,514 17,197 Stock units 4,269 Total shares 170,070,819 169,872,620 Diluted earnings per share attributable to Allegheny Energy, Inc. $ 0.52 $ 0.79 (a) The dilutive share calculations exclude 1,976,386 shares and 1,244,506 shares for the three months ended March31, 2010 and 2009, respectively, relating to stock options because the inclusion of these amounts would have been antidilutive under the treasury stock method.

VARIABLE INTEREST ENTITIES

VARIABLE INTEREST ENTITIES
	3 Months Ended Mar. 31, 2010
VARIABLE INTEREST ENTITIES	NOTE 16:VARIABLE INTEREST ENTITIES GAAP requires the primary beneficiary of a Variable Interest Entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling financial interest or in which the equity investment at risk is insufficient to finance the entitys activities without receiving subordinated financial support from the other parties. Independent Power Producer (IPP) contracts.Potomac Edison and West Penn each have a long-term electricity purchase contract with unrelated IPPs. Allegheny periodically requests from these IPPs the information necessary to determine whether these entities are VIEs and whether Allegheny is the primary beneficiary. Allegheny has been unable to obtain the requested information, which was determined by the IPPs to be proprietary. Potomac Edison purchased power from its IPP in the amount of $31.0 million and $30.4 million for the three months ended March31, 2010 and 2009, respectively. West Penn purchased power from its IPP in the amount of $8.5 million and $11.3 million for the three months ended March31, 2010 and 2009, respectively. Neither Potomac Edison nor West Penn is subject to any risk of loss associated with the applicable potential VIE, because neither VIE has any obligation to the applicable IPP other than to purchase the power that the IPP produces according to the terms of the applicable electricity purchase contract. APS Constellation, LLC (APS Constellation).Allegheny Ventures, Inc., a non-utility subsidiary of AE, formed a partnership in 1995 with an unregulated business of Constellation Energy in a joint venture energy services company named APS Constellation. The business purpose of APS Constellation is the marketing, development, and implementation of energy conservation projects. APS Constellation, working under an Engineer/Procure/Construct agreement as a subcontractor for Potomac Edison, completed multiple energy conservation projects for Potomac Edisons government customers at Ft. Detrick, Maryland. The projects resulted in performance payments and other fees remitted to APS Constellation. APS Constellation securitized the future revenue streams from the projects through several financings and made a partnership distribution of the proceeds. Some of the project financings required Potomac Edison to provide ongoing guarantees. In 2005, the joint venture operating agreement was amended to limit Alleghenys obligations and participation in APS Constellation. The accounts of APS Constellation are not included in Alleghenys Consolidated Financial Statements because Allegheny does not have the power to direct activities that most significantly impact APS Constellations economic performance. At March31, 2010, Alleghenys maximum exposure to loss related to APS Constellation consisted of a $0.8 million equity investment in APS Constellation, a letter of credit guarantee of $3.1 million and recourse guarantees of $6.2 million. These guarantees are not recorded on Alleghenys Consolidated Balance Sheet. PATH WV.As described in Not

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES
	3 Months Ended Mar. 31, 2010
COMMITMENTS AND CONTINGENCIES	NOTE 17: COMMITMENTS AND CONTINGENCIES Allegheny is involved in a number of significant legal proceedings. In certain cases, plaintiffs seek to recover large and sometimes unspecified damages, and some matters may be unresolved for several years. Allegheny cannot currently determine the outcome of the proceedings described below or the ultimate amount of potential losses. Management provides for estimated losses to the extent that information becomes available indicating that losses are probable and that the amounts are reasonably estimable. Additional losses may have an adverse effect on Alleghenys results of operations, cash flows and financial condition. Environmental Matters and Litigation The operations of Alleghenys owned facilities, including its generation facilities, are subject to various federal, state and local laws, rules and regulations as to air and water quality, hazardous and solid waste disposal and other environmental matters, some of which may be uncertain. Compliance may require Allegheny to incur substantial additional costs to modify or replace existing and proposed equipment and facilities. Global Climate Change. The United States relies on coal-fired power plants for more than 48% of its energy. However, coal-fired power plants have come under scrutiny due to their emission of gases implicated in climate change, primarily carbon dioxide, or CO2. Allegheny produces approximately 95% of its electricity at coal-fired facilities and currently produces approximately 45million tons of CO2 annually through its energy production. While there are many unknowns concerning the final regulation of greenhouse gases in the United States, federal and/or state legislation and implementing regulations addressing climate change, including limits on emissions of CO2, likely will be adopted some time in the future. Thus, CO 2 legislation and regulation, if not reasonably designed, could have a significant impact on Alleghenys operations. Despite the U.S. House of Representatives passing the American Clean Energy and Security Act in June 2009, and the U.S. Senate releasing its draft of the bill, the Clean Energy Jobs and American Power Act, in September2009, there is still no federal climate change statute. Concurrently, the U.S. Environmental Protection Agency (the EPA) is moving to regulate greenhouse gas emissions under the Clean Air Act of 1970 (the Clean Air Act). On December7, 2009, the EPA announced its Greenhouse Gas Endangerment Finding, stating that greenhouse gas emissions from cars and light trucks, when mixed in the atmosphere, endanger public health. The finding provides the EPA with a basis on which to regulate greenhouse gas emissions from vehicle tailpipes under the provisions of the Clean Air Act. Once a pollutant is regulated under the Clean Air Act for one source category, the EPA has authority to apply similar regulations to other source categories. On April1, 2010, the EPA and the Department of Transportations National Highway Traffic Safety Administration (NHTSA) announced a joint final rule that applies to passenger cars, light-duty trucks and medium-duty passenger vehicles, covering model years