Allegheny Energy (AYE) 8-K Allegheny Energy Reports Strong Third Quarter Financial Results

Exhibit 99.1

NEWS RELEASE

800 Cabin Hill Drive, Greensburg, PA 15601-1650

Media contact:	Investor contact:
David Neurohr	Max Kuniansky
Director, External Communications	Executive Director, Investor Relations
Phone: (724) 838-6020	and Corporate Communications
Media Hotline: 1-888-233-3583	Phone: (724) 838-6895
E-mail:dneuroh@alleghenyenergy.com	E-mail:mkunian@alleghenyenergy.com

FOR IMMEDIATE RELEASE

Allegheny Energy Reports Strong Third Quarter Financial Results

GREENSBURG, Pa., October 27, 2010 –Allegheny Energy, Inc.(NYSE: AYE) today reported financial results for the third quarter of 2010.

Consolidated Net Income Attributable to Allegheny Energy, Inc.

	$ millions				Per share
	2010		2009		2010		2009
Three Months Ended September 30
GAAP	$	115.1	$	77.0	$	0.68	$	0.45
Adjusted		124.9		100.1		0.73		0.59
Nine Months Ended September 30
GAAP	$	323.5	$	283.5	$	1.90	$	1.67
Adjusted		324.8		283.9		1.91		1.67

Adjusted net income for the third quarter of 2010 excludes $19.1 million of pre-tax expense related to the proposed merger with FirstEnergy Corp., $7.3 million of pre-tax interest expense related to a debt tender offer, and net unrealized pre-tax gains of $10.5 million from economic hedges that do not qualify for hedge accounting. Adjusted net income for the third quarter of 2009 excludes $19.3 million of pre-tax interest expense related to a debt tender offer and net unrealized pre-tax losses of $18.3 million from economic hedges.

Adjusted net income is a non-GAAP financial measure. For information on the calculation of adjusted net income for all periods, see the attached reconciliations of non-GAAP financial measures.

“We had strong earnings for the quarter. Increased customer usage, transmission expansion and a rate increase in West Virginia were key drivers of our improved performance,” said Paul J. Evanson, Chairman, President and Chief Executive Officer of Allegheny Energy. “Looking forward, we remain focused on our TrAIL and PATH transmission expansion projects, completing the merger with FirstEnergy, and building value for our shareholders.”

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Third Quarter Consolidated Results

Adjusted net income for the third quarter of 2010 increased by $24.8 million compared with the same period in 2009. Key factors contributing to the results include:

• Adjusted operating revenues increased by $221.2 million reflecting higher generation output, increased power prices, higher customer usage due in part to warmer weather, transmission expansion and a rate increase in West Virginia. These benefits were partially offset by the effect of power hedges, decreased third party sales and the sale of the Virginia distribution operations on June 1, 2010.

• Fuel expense increased by $135.3 million due to higher generation volume and higher costs to operate new scrubbers at the Hatfield’s Ferry and Fort Martin power plants.

• Purchased power costs decreased by $19.8 million reflecting lower purchases from third parties to serve Maryland customers, partially offset by increased purchases from a PURPA power plant.

• Deferred energy cost income decreased by $32.0 million largely due to the timing of fuel and purchased power cost recovery.

• Adjusted operations and maintenance expense increased by $25.9 million primarily due to increased maintenance at power plants, energy efficiency program and other formulaically recovered costs, and service restoration following summer storms.

• Depreciation increased by $9.9 million primarily due to the operation of new scrubber equipment.

• Adjusted interest expense increased by $10.5 million reflecting increased debt levels to finance transmission expansion and a decrease in capitalized interest due to placing scrubber equipment in service.

• Adjusted income tax expense increased by $4.6 million due to an increase in pre-tax income, partially offset by favorable resolution of a prior-year tax matter.

Adjusted EBITDA for the third quarter of 2010 was $346.8 million, an increase of $49.8 million compared to the same quarter of the prior year. EBITDA and adjusted EBITDA are non-GAAP financial measures. Details on the calculation of EBITDA and adjusted EBITDA, as well as reconciliations of these financial measures to net income, are attached to this release.

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Third Quarter Segment Results

Net Income Attributable to Allegheny Energy, Inc.

Three Months Ended September 30

($ millions)

	2010		2009		Increase
Regulated Operations:
GAAP	$	55.0	$	38.8	$	16.2
Adjusted		62.8		38.8		24.0
Merchant Generation:
GAAP	$	59.9	$	38.0	$	21.9
Adjusted		62.0		61.1		0.9

Adjusted net income for both segments for 2010 excludes merger costs. There were no adjustments in the Regulated Operations segment in 2009. Adjusted net income for the Merchant Generation segment in both the third quarter of 2010 and 2009 excludes net unrealized gains and losses from economic hedges that do not qualify for hedge accounting and expenses related to debt tender offers.

Regulated Operations:Adjusted net income increased by $24.0 million compared to the same period a year earlier. Contributing to the improved results were higher usage as a result of favorable weather, increased revenue from transmission expansion and a base rate increase in West Virginia. These positive factors were partially offset by higher service restoration costs following summer storms and a decrease in recurring operating income as a result of the sale of the Virginia distribution operations on June 1, 2010.

Merchant Generation:Adjusted net income increased by $0.9 million compared to the same period a year earlier. Contributing to the improved results were increased generation output and higher power prices. These positive factors were offset by higher maintenance costs at power plants, the effects of power hedges, and increased depreciation and interest expense.

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Nine-Month Consolidated Results

Adjusted net income for the nine months ended September 30, 2010 increased by $40.9 million compared to the same period in 2009. Adjusted EBITDA for the nine months ended September 30, 2010 increased by $120.0 million compared to the same period of the prior year. Details on the calculation of EBITDA and adjusted EBITDA, as well as reconciliations of these financial measures to net income, are attached to this release.

Nine-Month Segment Results

Net Income Attributable to Allegheny Energy, Inc.

Nine Months Ended September 30

($ millions)

	2010		2009		Increase (Decrease)
Regulated Operations:
GAAP	$	167.6	$	123.1	$	44.5
Adjusted		154.5		123.1		31.4
Merchant Generation:
GAAP	$	155.2	$	159.8	$	(4.6	)
Adjusted		169.6		160.2		9.4

Adjusted net income for both segments for 2010 excludes merger costs. Adjusted net income in the Regulated Operations segment for 2010 excludes a gain from the sale of the company’s Virginia distribution operations. There were no adjustments in the Regulated Operations segment in 2009. Adjusted net income for the Merchant Generation segment for the first nine months of 2010 and 2009 excludes net unrealized gains and losses from economic hedges that do not qualify for hedge accounting, and expense related to debt tender offers.

Reconciliation of Non-GAAP Financial Measures

This news release includes presentation of adjusted net income, EBITDA, adjusted EBITDA and other non-GAAP financial measures as defined in the Securities and Exchange Commission’s Regulation G.

Management believes that presenting these additional financial measures provide investors with a more complete understanding of the core results and underlying trends from which to consider past performance and prospects for the future. These financial measures should not be considered in isolation or viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as a measure of operating performance or liquidity.

Pursuant to the requirements of Regulation G, tables are attached that reconcile non-GAAP financial measures in this document to the most directly comparable GAAP measure.

Investor Conference Call; Outlook

Allegheny Energy will discuss these results in a live Internet broadcast at 1:00 p.m. Eastern Daylight Time on Wednesday, October 27, 2010. To listen, visitwww.alleghenyenergy.com. Slides to be used in the Webcast presentation will be available atwww.alleghenyenergy.com several hours prior to the broadcast. A taped replay will be available after the live broadcast.

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Information provided on this call regarding the outlook for the year 2011 will be less detailed than in the past due to the pending merger with FirstEnergy Corp., which Allegheny expects to complete in the first half of 2011.

Allegheny Energy

Headquartered in Greensburg, Pa., Allegheny Energy is an investor-owned electric utility with total annual revenues of over $3 billion and more than 4,000 employees. The company owns and operates generating facilities and delivers low-cost, reliable electric service to 1.5 million customers in Pennsylvania, West Virginia and Maryland. For more information, visitwww.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: rate regulation and the status of retail generation service supply competition in states served by Allegheny Energy’s distribution business, Allegheny Power; financing plans; demand for energy and the cost and availability of raw materials, including coal; provider-of-last-resort 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; and regulatory matters. 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 markets and actions of rating agencies; 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 customer switching behavior and their resulting effects on existing and future load requirements; changes in the underlying inputs and assumptions, including market conditions used to estimate the fair values of commodity contracts; 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; inflationary and interest rate trends changes in market rules, including changes to PJM participant rules and tariffs; the likelihood and timing of the completion of the proposed merger with FirstEnergy, the terms and conditions of any required regulatory approvals of the proposed merger, the impact of the proposed merger on Allegheny’s employees and the potential diversion of management’s time and attention from ongoing business during this time period; general economic conditions; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies and accounting issues facing our organization; and other risks, including the continuing effects of global instability, terrorism and war. Additional risks and uncertainties are identified and discussed in Allegheny Energy’s reports filed with the Securities and Exchange Commission.

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
(In millions, except per share amounts)	2010		2009			2010			2009
Operating revenues	$	1,043.7	$	793.7		$	3,038.3		$	2,565.7
Operating expenses:
Fuel		323.3		188.0			937.0			663.8
Purchased power and transmission		114.4		134.2			389.7			380.4
Deferred energy costs, net		17.7		(14.3	)		28.0			(38.9	)
Gain on sale of Virginia distribution business		0		0			(45.1	)		0
Operations and maintenance		196.2		151.2			573.4			518.9
Depreciation and amortization		81.2		71.3			241.7			207.0
Taxes other than income taxes		58.3		57.4			171.9			159.7
Total operating expenses		791.1		587.8			2,296.6			1,890.9
Operating income		252.6		205.9			741.7			674.8
Other income (expense), net		4.4		1.9			9.7			6.1
Interest expense		83.6		85.1			240.1			201.5
Income before income taxes		173.4		122.7			511.3			479.4
Income tax expense		58.3		45.3			187.8			195.1
Net income		115.1		77.4			323.5			284.3
Net income attributable to noncontrolling interest		0		(0.4	)		0			(0.8	)
Net income attributable to Allegheny Energy, Inc.	$	115.1	$	77.0		$	323.5		$	283.5
Earnings per common share attributable to Allegheny Energy, Inc.:
Basic	$	0.68	$	0.45		$	1.91		$	1.67
Diluted	$	0.68	$	0.45		$	1.90		$	1.67
Average common shares outstanding:
Basic		169.8		169.6			169.7			169.5
Diluted		170.3		170.0			170.1			169.9
Dividends per common share	$	0.15	$	0.15		$	0.45		$	0.45

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In millions)	September 30, 2010			December 31, 2009
ASSETS
Current Assets:
Cash and cash equivalents	$	463.6		$	286.6
Accounts receivable:
Customer		235.3			188.2
Unbilled utility revenue		97.8			116.4
Wholesale and other		41.3			64.4
Allowance for uncollectible accounts		(15.5	)		(14.0	)
Materials and supplies		109.2			110.6
Fuel		140.9			206.4
Deferred income taxes		0			81.5
Prepaid taxes		56.0			48.4
Collateral deposits		21.5			20.8
Derivative assets		45.0			4.6
Restricted funds		14.3			25.9
Regulatory assets		114.8			132.7
Assets held for sale		0			32.4
Other		76.2			40.4
Total current assets		1,400.4			1,345.3
Property, Plant and Equipment:
Generation		7,548.6			7,469.4
Transmission		1,408.2			1,313.2
Distribution		3,888.5			3,784.4
Other		498.7			440.7
Accumulated depreciation		(5,308.0	)		(5,104.9	)
Subtotal		8,036.0			7,902.8
Construction work in progress		1,104.7			800.6
Property, plant and equipment held for sale, net		0			253.7
Total property, plant and equipment, net		9,140.7			8,957.1
Other Noncurrent Assets:
Regulatory assets		730.9			717.3
Goodwill		367.3			367.3
Restricted funds		31.6			60.2
Investments in unconsolidated affiliates		48.9			26.7
Derivative assets		22.6			0
Other		99.7			115.2
Total other noncurrent assets		1,301.0			1,286.7
Total Assets	$	11,842.1		$	11,589.1

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(unaudited)

(In millions, except share amounts)	September 30, 2010			December 31, 2009
LIABILITIES AND EQUITY
Current Liabilities:
Long-term debt due within one year	$	15.5		$	140.8
Accounts payable		360.0			411.4
Accrued taxes		78.6			87.3
Payable to PJM for FTRs		10.0			31.7
Derivative liabilities		4.0			24.4
Regulatory liabilities		12.6			37.4
Accrued interest		90.0			68.3
Security deposits		53.8			51.0
Liabilities associated with assets held for sale		0			10.1
Deferred income taxes		6.2			0
Other		119.2			123.2
Total current liabilities		749.9			985.6
Long-term Debt:
Securitized debt – Environmental Control Bonds		481.0			496.5
Other long-term debt		4,069.6			3,920.5
Total long-term debt		4,550.6			4,417.0
Deferred Credits and Other Liabilities:
Derivative liabilities		4.8			6.7
Income taxes payable		70.9			85.7
Investment tax credit		59.2			61.6
Deferred income taxes		1,636.8			1,501.3
Regulatory liabilities		474.0			461.2
Pension and other postretirement employee benefit plan liabilities		571.1			597.4
Adverse power purchase commitment		100.9			114.4
Liabilities associated with assets held for sale		0			53.1
Other		192.4			177.0
Total deferred credits and other liabilities		3,110.1			3,058.4
Equity:
Common stock-$1.25 par value per share, 260,000,000 shares authorized and 169,990,965 and 169,620,917 shares issued at September 30, 2010 and December 31, 2009, respectively		212.5			212.0
Other paid-in capital		1,984.1			1,970.2
Retained earnings		1,269.9			1,022.7
Treasury stock at cost - 54,955 and 51,313 shares at September 30, 2010 and December 31, 2009, respectively		(1.9	)		(1.8	)
Accumulated other comprehensive loss		(33.1	)		(89.9	)
Total Allegheny Energy, Inc. common stockholders’ equity		3,431.5			3,113.2
Noncontrolling interest		0			14.9
Total equity		3,431.5			3,128.1
Total Liabilities and Equity	$	11,842.1		$	11,589.1

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

SEGMENT STATEMENT OF INCOME

(unaudited)

	Three Months Ended September 30, 2010										Three Months Ended September 30, 2009
(In millions)	Merchant Generation			Regulated Operations		Eliminations (a)			Total		Merchant Generation			Regulated Operations			Eliminations (a)			Total
Operating revenues	$	484.5		$	878.0	$	(318.8	)	$	1,043.7	$	358.3		$	729.2		$	(293.8	)	$	793.7
Operating expenses:
Fuel		233.1			90.2		0			323.3		151.2			36.8			0			188.0
Purchased power and transmission		9.0			422.9		(317.5	)		114.4		9.0			417.5			(292.3	)		134.2
Deferred energy costs, net		0			17.7		0			17.7		0			(14.3	)		0			(14.3	)
Operations and maintenance		70.2			127.3		(1.3	)		196.2		50.2			102.5			(1.5	)		151.2
Depreciation and amortization		32.4			49.2		(0.4	)		81.2		28.5			43.3			(0.5	)		71.3
Taxes other than income taxes		12.3			46.0		0			58.3		12.4			45.0			0			57.4
Total operating expenses		357.0			753.3		(319.2	)		791.1		251.3			630.8			(294.3	)		587.8
Operating income		127.5			124.7		0.4			252.6		107.0			98.4			0.5			205.9
Other income (expense), net		1.6			6.4		(3.6	)		4.4		0.1			4.5			(2.7	)		1.9
Interest expense		40.5			44.1		(1.0	)		83.6		46.5			38.8			(0.2	)		85.1
Income before income taxes		88.6			87.0		(2.2	)		173.4		60.6			64.1			(2.0	)		122.7
Income tax expense		26.3			32.0		0			58.3		20.4			24.9			0			45.3
Net income		62.3			55.0		(2.2	)		115.1		40.2			39.2			(2.0	)		77.4
Net income attributable to noncontrolling interest		(2.4	)		0		2.4			0		(2.2	)		(0.4	)		2.2			(0.4	)
Net income attributable to Allegheny Energy, Inc.	$	59.9		$	55.0	$	0.2		$	115.1	$	38.0		$	38.8		$	0.2		$	77.0

(a) Represents elimination of transactions between reportable segments.

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ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

SEGMENT STATEMENT OF INCOME (continued)

(unaudited)

	Nine Months Ended September 30, 2010												Nine Months Ended September 30, 2009
(In millions)	Merchant Generation			Regulated Operations			Eliminations (a)			Total			Merchant Generation			Regulated Operations			Eliminations (a)			Total
Operating revenues	$	1,405.0		$	2,634.3		$	(1,001.0	)	$	3,038.3		$	1,188.1		$	2,309.6		$	(932.0	)	$	2,565.7
Operating expenses:
Fuel		697.7			239.3			0			937.0			490.2			173.6			0			663.8
Purchased power and transmission		27.8			1,358.9			(997.0	)		389.7			27.2			1,280.9			(927.7	)		380.4
Deferred energy costs, net		0			28.0			0			28.0			0			(38.9	)		0			(38.9	)
Gain on sale of Virginia distribution business		0			(45.1	)		0			(45.1	)		0			0			0			0
Operations and maintenance		188.8			388.7			(4.1	)		573.4			201.0			322.2			(4.3	)		518.9
Depreciation and amortization		97.0			145.9			(1.2	)		241.7			76.2			132.2			(1.4	)		207.0
Taxes other than income taxes		38.4			133.5			0			171.9			33.7			126.0			0			159.7
Total operating expenses		1,049.7			2,249.2			(1,002.3	)		2,296.6			828.3			1,996.0			(933.4	)		1,890.9
Operating income		355.3			385.1			1.3			741.7			359.8			313.6			1.4			674.8
Other income (expense), net		3.0			16.9			(10.2	)		9.7			1.2			13.2			(8.3	)		6.1
Interest expense		112.9			129.9			(2.7	)		240.1			84.4			117.8			(0.7	)		201.5
Income before income taxes		245.4			272.1			(6.2	)		511.3			276.6			209.0			(6.2	)		479.4
Income tax expense		83.3			104.5			0			187.8			110.0			85.1			0			195.1
Net income		162.1			167.6			(6.2	)		323.5			166.6			123.9			(6.2	)		284.3
Net income attributable to noncontrolling interest		(6.9	)		0			6.9			0			(6.8	)		(0.8	)		6.8			(0.8	)
Net income attributable to Allegheny Energy, Inc.	$	155.2		$	167.6		$	0.7		$	323.5		$	159.8		$	123.1		$	0.6		$	283.5

(a) Represents elimination of transactions between reportable segments.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

CONSOLIDATED DATA FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in millions, except per share data)

(unaudited)

THREE MONTHS ENDED SEPTEMBER 30, 2010	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			DILUTED EARNINGS PER  SHARE
Calculation of Adjusted Income:
Income - GAAP Basis	$	173.4		$	115.1		$	0.68
Adjustments:
Net unrealized gain associated with economic hedges1		(10.5	)		(6.4	)
Expense associated with the planned merger2		19.1			11.7
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		7.3			4.5
Adjusted Income	$	189.3		$	124.9		$	0.73
Calculation of Adjusted EBITDA:
Net Income attributable to Allegheny Energy, Inc. - GAAP basis				$	115.1
Interest expense					83.6
Income tax expense					58.3
Depreciation and amortization					81.2
EBITDA					338.2
Net unrealized gain associated with economic hedges1					(10.5	)
Expense associated with the planned merger2					19.1
Adjusted EBITDA				$	346.8
THREE MONTHS ENDED SEPTEMBER 30, 2009	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			DILUTED EARNINGS PER SHARE
Calculation of Adjusted Income:
Income – GAAP Basis	$	122.7		$	77.0		$	0.45
Adjustments:
Net unrealized loss associated with economic hedges1		18.3			11.2
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		19.3			11.9
Adjusted Income	$	160.3		$	100.1		$	0.59
Calculation of Adjusted EBITDA:
Net Income attributable to Allegheny Energy, Inc. - GAAP basis				$	77.0
Interest expense					85.1
Income tax expense					45.3
Depreciation and amortization					71.3
EBITDA					278.7
Net unrealized loss associated with economic hedges1					18.3
Adjusted EBITDA				$	297.0

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

SEGMENT DATA FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in millions)

(unaudited)

	MERCHANT GENERATION						REGULATED OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2010	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			INCOME BEFORE INCOME TAXES		NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.
Calculation of Adjusted Income:
Income – GAAP Basis	$	88.6		$	59.9		$	87.0	$	55.0
Adjustments:
Net unrealized gain associated with economic hedges1		(10.5	)		(6.4	)		—		—
Expense associated with the planned merger2		6.4			4.0			12.7		7.8
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes 3		7.3			4.5			—		—
Adjusted Income	$	91.8		$	62.0		$	99.7	$	62.8
Calculation of Adjusted EBITDA:
Net income attributable to Allegheny Energy, Inc. - GAAP basis				$	59.9				$	55.0
Interest expense					40.5					44.1
Income tax expense					26.3					32.0
Depreciation and amortization					32.4					49.2
EBITDA					159.1					180.3
Net unrealized gain associated with economic hedges1					(10.5	)				—
Expense associated with the planned merger2					6.4					12.7
Adjusted EBITDA				$	155.0				$	193.0
	MERCHANT GENERATION						REGULATED OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2009	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			INCOME BEFORE INCOME TAXES		NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.
Calculation of Adjusted Income:
Income - GAAP Basis	$	60.6		$	38.0		$	64.1	$	38.8
Adjustments:
Net unrealized loss associated with economic hedges1		18.3			11.2			—		—
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		19.3			11.9			—		—
Adjusted Income	$	98.2		$	61.1		$	64.1	$	38.8
Calculation of Adjusted EBITDA:
Net income attributable to Allegheny Energy, Inc. - GAAP basis				$	38.0				$	38.8
Interest expense					46.5					38.8
Income tax expense					20.4					24.9
Depreciation and amortization					28.5					43.3
EBITDA					133.4					145.8
Net unrealized loss associated with economic hedges1					18.3					—
Adjusted EBITDA				$	151.7				$	145.8

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

12

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

CONSOLIDATED DATA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in millions, except per share data)

(unaudited)

NINE MONTHS ENDED SEPTEMBER 30, 2010	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			DILUTED EARNINGS PER  SHARE
Calculation of Adjusted Income:
Income - GAAP Basis	$	511.3		$	323.5		$	1.90
Adjustments:
Net unrealized loss associated with economic hedges1		3.7			2.3
Expense associated with the planned merger2		36.7			22.5
Gain on sale of Virginia distribution business4		(45.1	)		(28.0	)
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		7.3			4.5
Adjusted Income	$	513.9		$	324.8		$	1.91
Calculation of Adjusted EBITDA:
Net Income attributable to Allegheny Energy, Inc. - GAAP basis				$	323.5
Interest expense					240.1
Income tax expense					187.8
Depreciation and amortization					241.7
EBITDA					993.1
Net unrealized loss associated with economic hedges1					3.7
Expense associated with the planned merger2					36.7
Gain on sale of Virginia distribution business4					(45.1	)
Adjusted EBITDA				$	988.4
NINE MONTHS ENDED SEPTEMBER 30, 2009	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			DILUTED EARNINGS PER SHARE
Calculation of Adjusted Income:
Income – GAAP Basis	$	479.4		$	283.5		$	1.67
Adjustments:
Net unrealized gain associated with economic hedges1		(18.7	)		(11.5	)
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		19.3			11.9
Adjusted Income	$	480.0		$	283.9		$	1.67
Calculation of Adjusted EBITDA:
Net Income attributable to Allegheny Energy, Inc. - GAAP basis				$	283.5
Interest expense					201.5
Income tax expense					195.1
Depreciation and amortization					207.0
EBITDA					887.1
Net unrealized gain associated with economic hedges1					(18.7	)
Adjusted EBITDA				$	868.4

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

13

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

SEGMENT DATA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in millions)

(unaudited)

	MERCHANT GENERATION						REGULATED OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2010	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.
Calculation of Adjusted Income:
Income - GAAP Basis	$	245.4		$	155.2		$	272.1		$	167.6
Adjustments:
Net unrealized loss associated with economic hedges1		3.7			2.3			—			—
Expense associated with the planned merger2		12.5			7.6			24.2			14.9
Gain on sale of Virginia distribution business4		—			—			(45.1	)		(28.0	)
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		7.3			4.5			—			—
Adjusted Income	$	268.9		$	169.6		$	251.2		$	154.5
Calculation of Adjusted EBITDA:
Net income attributable to Allegheny Energy, Inc. - GAAP basis				$	155.2					$	167.6
Interest expense					112.9						129.9
Income tax expense					83.3						104.5
Depreciation and amortization					97.0						145.9
EBITDA					448.4						547.9
Net unrealized loss associated with economic hedges1					3.7						—
Expense associated with the planned merger2					12.5						24.2
Gain on sale of Virginia distribution business4					—						(45.1	)
Adjusted EBITDA				$	464.6					$	527.0
	MERCHANT GENERATION						REGULATED OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2009	INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.			INCOME BEFORE INCOME TAXES			NET INCOME ATTRIBUTABLE TO ALLEGHENY ENERGY, INC.
Calculation of Adjusted Income:
Income - GAAP Basis	$	276.6		$	159.8		$	209.0		$	123.1
Adjustments:
Net unrealized gain associated with economic hedges1		(18.7	)		(11.5	)		—			—
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		19.3			11.9			—			—
Adjusted Income	$	277.2		$	160.2		$	209.0		$	123.1
Calculation of Adjusted EBITDA:
Net income attributable to Allegheny Energy, Inc. - GAAP basis				$	159.8					$	123.1
Interest expense					84.4						117.8
Income tax expense					110.0						85.1
Depreciation and amortization					76.2						132.2
EBITDA					430.4						458.2
Net unrealized gain associated with economic hedges1					(18.7	)					—
Adjusted EBITDA				$	411.7					$	458.2

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

14

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

SUMMARY OF ADJUSTMENTS

(in millions)

(unaudited)

ADJUSTED OPERATING REVENUE	THREE MONTHS ENDED SEPT 30, 2010			THREE MONTHS ENDED SEPT 30, 2009
Operating revenue:
As reported	$	1,043.7		$	793.7
Net unrealized (gain)/loss associated with economic hedges1		(10.5	)		18.3
As Adjusted	$	1,033.2		$	812.0
ADJUSTED OPERATIONS AND MAINTENANCE EXPENSE	THREE MONTHS ENDED SEPT 30, 2010			THREE MONTHS ENDED SEPT 30, 2009
Operations and maintenance expense:
As reported	$	196.2		$	151.2
Expense associated with the planned merger2		(19.1	)		—
As Adjusted	$	177.1		$	151.2
ADJUSTED INTEREST EXPENSE	THREE MONTHS ENDED SEPT 30, 2010			THREE MONTHS ENDED SEPT 30, 2009
Interest expense:
As reported	$	83.6		$	85.1
Expense associated with Allegheny Energy Supply’s purchase of outstanding notes3		(7.3	)		(19.3	)
As Adjusted	$	76.3		$	65.8
ADJUSTED INCOME TAX EXPENSE	THREE MONTHS ENDED SEPT 30, 2010			THREE MONTHS ENDED SEPT 30, 2009
Income taxes:
As reported	$	58.3		$	45.3
Income taxes related to net unrealized gain/(losses) associated with economic hedges1		(4.1	)		7.1
Income taxes related to expense associated with the planned merger2		7.4			—
Income taxes associated with Allegheny Energy Supply’s purchase of outstanding notes3		2.8			7.4
As Adjusted	$	64.4		$	59.8

See accompanying Notes to Reconciliation of Non-GAAP Financial Measures

15

Notes to Reconciliation of Non-GAAP Financial Measures:

⁽¹⁾ Adjustments relating to certain unrealized gains/ (losses) included in GAAP operating revenues:

	THREE MONTHS ENDED SEPT 30, 2010			THREE MONTHS ENDED SEPT 30, 2009
Financial transmission rights	$	5.6		($	6.2	)
Power hedges		15.2			(5.3	)
Hedging strategy relating to a natural gas transportation contract		(10.3	)		(6.8	)
Total adjustments	$	10.5		($	18.3	)
	NINE MONTHS ENDED SEPT 30, 2010			NINE MONTHS ENDED SEPT 30, 2009
Financial transmission rights	$	20.7		$	21.3
Power hedges		1.8			(13.8	)
Hedging strategy relating to a natural gas transportation contract		(26.2	)		11.2
Total adjustments	($	3.7	)	$	18.7

⁽²⁾ In February, 2010, Allegheny Energy, Inc. and FirstEnergy Corp. entered into an Agreement and Plan of Merger. Incremental merger costs were included in operations and maintenance expense on the Consolidated Statements of Income.

⁽³⁾ In July, 2010, Allegheny Energy Supply redeemed all $150.5 million of its outstanding 7.80% Medium Term Notes due 2011. The costs associated with this purchase in the amount of $7.3 million were charged to interest expense in the GAAP basis consolidated statement of income.

In September, 2009, Allegheny Energy Supply purchased its outstanding 7.80% Notes due 2011 and its 8.25% Notes due 2012 in the aggregate principal amount of $244.3 million, pursuant to a cash tender offer. The costs associated with this purchase in the amount of $19.3 million were charged to interest expense in the GAAP basis consolidated statement of income.

⁽⁴⁾ On June 1, 2010, Potomac Edison sold its electric distribution operations in Virginia (the “Virginia distribution business”) to Rappahannock Electric Cooperative and Shenandoah Valley Electric Cooperative, resulting in a pre-tax gain of approximately $45.1 million. The gain on sale is presented as “Gain on sale of Virginia distribution business” on the Consolidated Statements of Income.

16

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

OPERATING STATISTICS

(unaudited)

Three Months Ended September 30,

	Actual			Actual						Excluding Virginia Operations*
	2010			2009			Change			2010		2009		Change
REGULATED OPERATIONS
Retail electricity sales (thousand MWh):
Residential		4,183			3,837			9.0	%		4,183		3,553		17.7	%
Commercial		2,877			2,903			-0.9	%		2,877		2,705		6.4	%
Industrial and other		3,542			3,537			0.1	%		3,542		3,294		7.5	%
Total		10,602			10,277			3.2	%		10,602		9,552		11.0	%
Usage per customer (KWh):
Residential		3,254			2,808			15.9	%		3,254		2,774		17.3	%
Commercial		16,663			15,585			6.9	%		16,663		15,767		5.7	%
Industrial		135,180			128,509			5.2	%		135,180		126,937		6.5	%
Regulated generation (thousand MWh):
Supercritical coal		2,687			1,123			139.3	%
Other coal		252			73			245.2	%
Hydro and other		220			167			31.7	%
Total		3,159			1,363			131.8	%
MERCHANT GENERATION
Generation (thousand MWh):
Supercritical coal		6,534			4,668			40.0	%
Other coal		894			304			194.1	%
Gas		563			331			70.1	%
Hydro and other		421			343			22.7	%
Total		8,412			5,646			49.0	%
Net capacity factor:
Supercritical coal		68	%		49	%		19.0	%
All coal		66	%		44	%		22.0	%
Equivalent availability factor:
Supercritical coal		80	%		87	%		-7.0	%
All coal		82	%		87	%		-5.0	%
DEGREE DAYS
Heating		50			54			-7.4	%
Cooling		818			549			49.0	%

*Represents actual results for both 2010 and 2009 excluding amounts relating to the Virginia distribution operations that were sold on June 1, 2010.

17

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

OPERATING STATISTICS

(unaudited)

Nine Months Ended September 30,

		Actual		Actual						Excluding Virginia Operations*
		2010		2009			Change			2010		2009		Change
REGULATED OPERATIONS
Retail electricity sales (thousand MWh):
Residential			12,938		12,609			2.6	%		12,346		11,639		6.1	%
Commercial			8,365		8,450			-1.0	%		8,064		7,883		2.3	%
Industrial and other			10,922		10,474			4.3	%		10,533		9,803		7.4	%
Total			32,225		31,533			2.2	%		30,943		29,325		5.5	%
Usage per customer (KWh):
Residential			9,462		9,227			2.5	%		9,608		9,089		5.7	%
Commercial			44,832		45,446			-1.4	%		46,776		46,027		1.6	%
Industrial			395,989		381,793			3.7	%		404,154		378,947		6.7	%
Regulated generation (thousand MWh):
Supercritical coal			7,205		5,620			28.2	%
Other coal			535		284			88.4	%
Hydro and other			507		402			26.1	%
Total			8,247		6,306			30.8	%
MERCHANT GENERATION
Generation (thousand MWh):
Supercritical coal	21,010				16,611			26.5	%
Other coal	2,384				1,025			132.6	%
Gas	843				507			66.3	%
Hydro and other	1,158				968			19.6	%
Total	25,394				19,111			32.9	%
Net capacity factor:
Supercritical coal	73%				58	%		15.0	%
All coal	69%				52	%		17.0	%
Equivalent availability factor:
Supercritical coal	83%				79	%		4.0	%
All coal	85%				80	%		5.0	%
DEGREE DAYS
Heating	3,197				3,343			-4.4	%
Cooling	1,202				813			47.8	%

*Represents actual results for both 2010 and 2009 excluding amounts relating to the Virginia distribution operations that were sold on June 1, 2010.

18