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Rating Action:

MOODY'S DOWNGRADES THE PARENT COMPANY RATING OF ALLEGHENY ENERGY, INC.TO Baa1 from A3 AND UPGRADES AND CONFIRMS OTHER SUBSIDIARIES

27 Mar 2001
MOODY'S DOWNGRADES THE PARENT COMPANY RATING OF ALLEGHENY ENERGY, INC.TO Baa1 from A3 AND UPGRADES AND CONFIRMS OTHER SUBSIDIARIES

Approximately $1.4 Billion of Debt Securities Affected.

New York, March 27, 2001 -- Moody's Investors Service has downgraded the parent company rating of Allegheny Energy, Inc. (AYE), upgraded one operating subsidiary, West Penn Power Company (WPP), confirmed the ratings of three other subsidiaries, Monongahela Power Company (MP), The Potomac Edison Company (PE) and Allegheny Generating Company (AGC) and assigned a new rating to Mountaineer Gas Company (MGC), a subsidiary of MP.

Ratings downgraded are AYE's senior unsecured notes, downgraded to Baa1 from A3 and its commercial paper rating, downgraded to Prime-2 from Prime-1. The rating outlook for AYE's senior unsecured notes remains negative.

Ratings upgraded are WPP's senior unsecured notes and issuer rating, upgraded to Aa3 from A1; and WPP's subordinated debt, upgraded to A1 from A2. The rating outlook remains stable. WPP's commercial paper program is affirmed at Prime-1.

Ratings confirmed are MP's first mortgage bonds, rated A1; MP's senior unsecured notes and issuer rating, rated A2; MP's subordinated debt, rated A3; MP's preferred stock, rated "a2"; MP's commercial paper program, rated Prime-1; PE's first mortgage bonds, rated A1; PE's senior unsecured notes and issuer rating, rated A2; PE's junior subordinated debt, rated A3; PE's commercial paper program, rated Prime-1; AGC's senior unsecured debt, rated Baa1; and AGC's commercial paper program, rated Prime-2. The rating outlook for MP, PE, and AGC remains stable.

Separately, Moody's has assigned an initial commercial paper program rating of Prime-2 to MGC.

These rating changes are based primarily on the restructured business profile of the company as a result of regulatory settlement in most of the states in which the companies operate. Allegheny Energy Supply Company LLC (AE Supply) (Baa1 senior unsecured) which has consolidated AYE's deregulated generating assets now accounts for the majority of cashflow and distributions to the parent company. It currently owns 6,472 megawatts of generating capacity, the majority of which were transferred by WPP and PE, formerly vertically-integrated utility subsidiaries of AYE and which now function as pure transmission and distribution companies. AYE's third utility subsidiary, MP, will transfer 351 megawatts of generating capacity in Ohio and anticipates the transfer of an additional 2,083 megawatts in West Virginia during 2001 to AE Supply. The company has announced an additional 4,268 megawatts of generating capacity either through acquisition or greenfield construction in Arizona, Illinois, Indiana, Pennsylvania and Tennessee.

The negative rating outlook of AYE is reflective of the AE Supply's majority contribution to the parent company and its near term financing risk associated with the company's growth strategy from both a financing needs perspective and a challenging non-regulated environment.

WPP's upgrade is based on the company's strong cashflow coverages and a solid capital structure and mitigation of its exposure to market forces through an all-requirements contract with AE Supply. Both PE and MP have reduced their market risk with similar power contracts, but have not achieved the same level of cashflow coverage or strong capital base.

AGC is the AYE subsidiary which owns a 40 percent interest in the 2,100 MW Bath County, Virginia hydroelectric pumped storage facility and which recovers its costs with a return on owned investment through a FERC-approved power sales agreement.

MGC, a West Virginia natural gas LDC, was acquired by MP in August 2000 and operates in a regulated WV service territory.

Allegheny Energy Inc. is an electric holding company headquartered in Hagerstown, Maryland.

New York
Cheryl Solometo
Vice President - Senior Analyst
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Susan D. Abbott
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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