Mail Stop 0308
May 23, 2005
VIA U.S. MAIL AND FACSIMILE
Mr. Paul J. Evanson
Chief Executive Officer
Allegheny Energy, Inc.
800 Cabin Hill Drive
Greensburg, PA 15601
RE: The Potomac Edison Company
Allegheny Generating Company
Form 10-K for the fiscal year ended December 31, 2004
Filed March 11, 2005
File Nos. 1-3376 and 0-14688
Registration Statement on Form S-4
Filed April 29, 2005
File No. 333-124473
Dear Mr. Evanson:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended December 31, 2004
General
1. Where a comment below requests additional disclosures or other
revisions to be made, these revisions should be included in your
future filings, as applicable.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
The Potomac Edison Company and Subsidiaries - Results of
Operations,
page 85
2. We note that effective January 8, 2002, distribution rates for
Maryland customers decreased due to the Customer Choice Credit,
which
will remain in effect until a total of $72.8 million has been
credited to residential customers and a total of $10.5 million has
been credited to commercial and industrial customers. Please
explain
the specific provisions of this credit. Further, please explain
why
the total amount to be credited does not represent a regulatory
liability under paragraph 11 of SFAS 71.
Financial Condition, Requirements and Resources
Liquidity and Capital Requirements
Other Matters Concerning Liquidity and Capital Requirements, page
95
3. Please consider revising your table of contractual cash
obligations to include the following:
(a) Estimated interest payments on your debt;
(b) Estimated payments under interest rate swap agreements; and
(c) Required funding of pension and other postretirement benefit
obligations.
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. If you
choose not to include these payments, a footnote to the table
should
clearly identify the excluded items and provide any additional
information that is material to an understanding of your cash
requirements. See Section IV.A and footnote 46 to the
Commission`s
MD&A Guidance issued December 19, 2003, available at www.sec.gov.
New Accounting Standards, page 106
4. You disclose that, based on a qualitative analysis, you do not
believe that either West Penn or Potomac Edison is the primary
beneficiary of either of the described variable interest entities.
Please show us how you performed the qualitative analysis,
including
the basis for your conclusion. Further, tell us when you entered
into the long-term electricity purchase contracts with these
entities, whether the contracts are PURPA related, why you are
"unable" to obtain the quantitative information, and whether this
represents a temporary or permanent situation.
The Potomac Edison Company and Subsidiaries - Consolidated
Statements
of Cash Flows, page 219
5. Your netting of cash flows related to other assets and
liabilities
in arriving at your operating cash flows may not be appropriate.
Please present the changes in other assets separately from the
changes in other liabilities to the extent significant. If not,
please provide us a detail of the items comprising other operating
cash flows and, if not clear from the descriptive caption, ensure
we
understand your basis for operating classification.
Note 5. Asset Impairments, page 231
6. Please explain your basis under GAAP for including the
impairment
of the Hagerstown, Maryland property in "Other income and
expenses,
net" rather than as a component of operating income. See
paragraph
25 of SFAS 144.
Note 11. Pension Benefits and Postretirement Benefits Other than
Pensions, page 234
7. Please explain to us how you calculate the market related value
of
plan assets as that term is defined in SFAS 87. Since there is an
alternative to how you can calculate this item, and it has a
direct
effect on pension expense, we believe you should disclose how you
determine this amount.
Item 9A. Controls and Procedures, page 263
8. We note your statement that "any system of controls, however
well
designed and operated, can provide only reasonable, and not
absolute,
assurance that the objectives of the system will be met." Please
revise to state clearly, if true, that your disclosure controls
and
procedures are designed to provide reasonable assurance of
achieving
their objectives and that your Chief Executive Officer and Chief
Financial Officer concluded that your disclosure controls and
procedures are effective at that reasonable assurance level. In
the
alternative, remove the reference to the level of assurance of
your
disclosure controls and procedures. Please refer to Section
II.F.4
of SEC Release No. 33-8238, available on our website at
www.sec.gov.
* * * *
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. Please furnish a letter that keys your responses
to
our comments and provides any requested supplemental information.
Detailed response letters greatly facilitate our review. Please
file
your response letter on EDGAR. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Sarah Goldberg, Staff Accountant, at (202)
551-
3340, or me at (202) 551-3849 if you have questions regarding
comments on the financial statements and related matters.
Sincerely,
Jim Allegretto
Senior Assistant Chief
Accountant
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Mr. Evanson
May 23, 2005
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