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Investor Meeting and Hatfield Power Station Tour September 27-28, 2006

Investor Meeting and Hatfield Power Station Tour September 27-28, 2006. Allegheny Energy. Forward-Looking Statements.

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Investor Meeting and Hatfield Power Station Tour September 27-28, 2006

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  1. Investor Meeting and Hatfield Power Station Tour September 27-28, 2006 Allegheny Energy

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

  3. Paul EvansonChairman, President and Chief Executive Officer

  4. TODAY GENERATION OVERVIEW Joe Richardson AVAILABILITY IMPROVEMENT PROGRAM Leo Rajter QUALITY IMPROVEMENT Mike Adams Open dialogue 7:30 pm – Board bus for dinner TOMORROW 7:00 am Check out; breakfast 7:30 Board bus 8:30 Arrive Hatfield 11:00 Depart Hatfield 12:15 pm Lunch at hotel; open dialogue 1:30 Adjourn Activities

  5. Earnings Growth Drivers • Increase Pennsylvania POLR rates • Transition to market-based rates • Improve plant availability • Decrease O&M expense • Reduce interest expense • Expand transmission system

  6. Growth Driver: Increase Pennsylvania POLR Rates Cumulative Increase in Pre-Tax Operating Income $ millions; estimates Generation Rate $ per MWH

  7. Growth Driver:Transition to Market-Based Rates 20062009 State Maryland, Maryland Ohio MWH transitioning 4.8 million 3.5 million to market Increase in pre-tax income $90 million $60 million Total: $150 million

  8. Growth Driver: Improve Plant Availability Supercritical Coal Units 2007 Goal 2006 Goal 2008 Goal Each 1% improvement provides benefit >$10 million

  9. Growth Driver:Decrease O&M Expense ($ millions) Target $700-730 * 2005 = $775 after adjustment

  10. Growth Driver:Reduce Interest Expense • Reduced debt by $2.1 billion (Dec. 1, 2003 – June 30, 2006) • Refinanced $1.5 billion in 2006 (through June 30) • Projected reduction in interest expense: $65 million in 2006

  11. Growth Driver:Expand Transmission System • PJM approved ~210-mile line • Cost: over $850 million (preliminary estimate) • 80% of spending in 2009-2011 • In service 2011 • FERC approved incentive rate treatment

  12. Approved Transmission Line

  13. Other Growth Opportunities • Demand growing faster than capacity additions • Increasing marginal heat rate • Gas generation increasingly setting PJM prices • Tightening reserve margins • Improving capacity prices • Additional transmission investment

  14. Joe RichardsonChief Operating Officer - Generation

  15. Allegheny’s Generation Fleet Hatfield

  16. 96% of Output is Coal-Fired Output (MWH) Total Capacity: 9,670 MW Coal 96% Other Coal 16% Supercritical Coal 79% Other Coal 17% Supercritical Coal 63% Gas 1% Gas 9% Hydro 3% Hydro 11% Oil 1% Excludes Gleason peaking unit (held for sale). Output for year ended December 31, 2005.

  17. CAPACITY HEAT RATE STATION (MW) SCRUBBERSSCRs(BTU/KWH)* Harrison 1,972 Yes Yes 10,000 3 units Pleasants 1,300 Yes Yes 10,100 2 units Hatfield 1,710 Planned -- 9,900 3 units Fort Martin 1,107 Planned -- 9,600 2 units * Site average Supercritical Coal Units Provide 79% of Output

  18. Generation Priorities • Achieve 91% availability by 2008 • Achieve top quartile spending • Improve environmental performance • Improve upon top quartile safety • Drive High Performance Organization

  19. Outage Factor (supercritical units) 24% 22% 18% 17% 17% 15% 9% Reduce planned outages Reduce unplanned outages Goal Achieve 91% Availability

  20. Unplanned outage factor Improving Performance, Reducing Spending High Performance Re-investment Under-investment Reduce spending O&M and Capital* Goal * Special maintenance O&M and capital for supercritical coal units. Excludes environmental spending.

  21. INDUSTRY TOP QUARTILE ALLEGHENY Achieve Top Quartile Spending Supercritical Spending per MWH* * Base O&M, special maintenance O&M and maintenance capital

  22. ImproveEnvironmental Performance SO2 COST* IN REDUCTION* ($ Millions) SERVICE (000 tons/yr) Pleasants Bypass $110 2008 30 Hatfield Scrubbers ~$650 2009 145 Ft. Martin Scrubbers $500 - 550 2009 92 * Estimates

  23. Scrubber Costs: Reasons for Increase • Site-specific challenges • Topography • Restricted construction space • Increased material handling costs • Fugitive dust constraints limit truck usage • Long pipe conveyors to disposal sites • Higher material and labor costs

  24. Scrubber Status Summary • Hatfield: • Signed contracts with Babcock & Wilcox, Washington Group • Received construction permit • Fort Martin: • Seeking approval to securitize additional costs • Pending: contracts with vendors

  25. Improve Environmental Performance SO2 Emissions (thousands of tons) 70% reduction

  26. Improving Safety Incident Rate INDUSTRY TOP QUARTILE (COAL) ALLEGHENY 2006 8 mos.

  27. Creating a High Performance Organization • An engaged, capable workforce with increased involvement • Strengthening employees’ capabilities in key areas: • Results management • Measures, information and analysis • End-to-end process management • Leadership and people

  28. Generation Leadership VP Quality Mike Adams Chief Operating Officer – Generation Joseph H. Richardson Appointed in past 2 years VP Supply Operations Leo C. Rajter VP Construction & Engineering Services Michael V. Herriott VP Market Optimization & Dispatch Thomas J. Kalup General Manager, Fuel Logistics & Operations James H. Longacre Regional Director– Kevin C. Geraghty Regional Director– C. Allen McDonald Regional Director– George J. Farah Regional Director– Peter J. Kotsenas Regional Director– Daniel G. Shearer Director, Outage Planning – Anthony J. Catanese

  29. Leo RajterVice President, Supply Operations

  30. Improving Availability: Conducting Extended Planned Outages • At all supercriticial units; 7 to 14 weeks • Hatfield Unit 3 outage underway • Key activities: • Assessing equipment condition • Inspecting and repairing boilers • Completing preventive maintenance tasks • Planning for future work

  31. Improving Availability: Conducting Extended Planned Outages COMPLETED PLANNED Harrison 1 Pleasants 2 Harrison 2 Pleasants 1 Ft. Martin 2 Harrison 3 Hatfield 3 Ft. Martin 1 Hatfield 1 Hatfield 2 Tour tomorrow 2005 2006 2007

  32. Hatfield Unit 3: Outage Scope • Major availability projects: • Replace waterwall, mixed pass panels, boiler slope panels with laser cladding • Replace reheat outlet header • Replace secondary superheater inlet, outlet banks • Replace horizontal reheat, reheat inlet header • Core maintenance work • O&M: $16 million • Capital: $25 million • Goal: reduce unplanned outage factor from 16% to 5%

  33. Pre-outage Post-outage Planned Outages: Results Unplanned Outage Factor Units Which Completed Extended Outages * Including transformer failure: Harrison 1 = 10%, average = 6%. Post-outage average is time weighted.

  34. Outage Planning Results Supercritical Outage Days 8 Months Ended August 2006 • Due to: • Improved planning • Experience • Contractor incentives $5-10 million benefit 100% of planned outage scope completed

  35. Strengthening Processes • Fund highest-value projects • Optimize fleet-wide outage schedule • Reduce duration of forced outages • Reduce problem resolution cycle time • Improve root cause analysis • Enhance predictive/preventive maintenance

  36. Strengthening Preventive Maintenance Skills • Expanding predictive maintenance skills to know what is going to break before it breaks • Strengthening preventive maintenance program through conversion to new computerized maintenance management software • Expanding non-destructive examination of boiler components to better plan for timely replacement Motor Thermography Scan Vibration Orbit Analysis

  37. Hatfield Power Station: Key Facts • In service 1969-1971 • Coal delivery: barge • Coal: uses ~3.9 million tons/year • 75% Northern Appalachian (primarily from PA, WV) • 25% Powder River Basin • ~170 employees

  38. Hatfield: Performance Improvement Opportunity Outage Factor 33% 29% 25% 18% 15% 10% Planned Unplanned Goal

  39. Power Generation Process Lines Stack Coal Silo Boiler Precipitators SCRs Scrubbers Steam Burner Turbine Generator Transformer Condenser Pulverizer Cooling System Water Pump Water Heater

  40. Tour Stops and Safety Notes • Boiler • Control room • Turbine hall • Roof • Coal handling • Safety reminders: • Hardhats, safety glasses and ear protection are required inside the plant

  41. Mike AdamsVice President, Quality

  42. Quality Approachand Improvement Focus • Practical application of tools and techniques • All levels of employees involved • Carefully selected/aligned teams to performance goals • Upper quartile performance in key measures Generation Improvement Teams • Reduced Planned Outages • Reduce Frequency • Reduce Duration Reduced Unplanned Outages • Reduce Frequency • Teams eliminating/mitigating root causes • Reduce Duration • Teams withfocus on reducing time of outage

  43. PrioritizingImprovement Opportunities Unplanned Outages: Cause Categories 2004 2005 Forced Outage Factor % Outages Explained % Priority: Boiler

  44. PrioritizingImprovement Opportunities Boiler: Cause Categories (2005) Forced Outage Factor % Outages Explained % Stratification and prioritization within boiler

  45. Reducing Durationof Tube Leak Outages Unplanned Outages Due to Waterwall Tube Leaks Average return time Hours per occurrence 35% Q1-Q2 2006 Q3 2006 2004 2005 Occurrences • Reduced the average time of outage by 35% • Reducing the variation (increase predictability) of time per occurrence

  46. Sustaining the Gains • Depth and breadth of leadership and employees • Fact-based decision-making culture • Robust performance management system • End-to-end process management • Persistent focus on continuous improvement • High performance, top performing utility • Predictable upper quartile performance

  47. Allegheny Energy

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