WEST PENN POWER CO - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

Commission File Number	Name of Registrant State of Incorporation Address of Principal Executive Offices and Telephone Number	IRS Employer Identification Number
1-267	Allegheny Energy, Inc. (A Maryland Corporation) 10435 Downsville Pike Hagerstown, Maryland 21740-1766 Telephone (301) 790-3400	13-5531602

333-72498	Allegheny Energy Supply Company, LLC (A Delaware Limited Liability Company) 4350 Northern Pike Monroeville, Pennsylvania 15146-2841 Telephone (412) 858-1600	23-3020481

1-5164	Monongahela Power Company (An Ohio Corporation) 1310 Fairmont Avenue Fairmont, West Virginia 26554 Telephone (304) 366-3000	13-5229392

1-3376-2	The Potomac Edison Company (A Maryland and Virginia Corporation) 10435 Downsville Pike Hagerstown, Maryland 21740-1766 Telephone (301) 790-3400	13-5323955

1-255-2	West Penn Power Company (A Pennsylvania Corporation) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-5480882

0-14688	Allegheny Generating Company (A Virginia Corporation) 10435 Downsville Pike Hagerstown, Maryland 21740-1766 Telephone (301) 790-3400	13-3079675

This combined Form 10-Q is separately filed by Allegheny Energy, Inc., Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company. Information contained in the Form 10-Q relating to Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company is filed by such registrant on its own behalf. Each of Allegheny Energy Supply Company, LLC, Monongahela Power Company, The Potomac Edison Company, West Penn Power Company and Allegheny Generating Company makes no representation as to information relating to registrants other than itself.

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).

Allegheny Energy, Inc.	Yes x	No ¨
Allegheny Energy Supply Company, LLC	Yes ¨	No x
Monongahela Power Company	Yes ¨	No x
The Potomac Edison Company	Yes ¨	No x
West Penn Power Company	Yes ¨	No x
Allegheny Generating Company	Yes ¨	No x

Number of shares outstanding of each class of common stock as of December 31, 2003:

Allegheny Energy, Inc.	126,969,238	($1.25 par value)
Allegheny Energy Supply Company, LLC	(a)
Monongahela Power Company	5,891,000	($50.00 par value)
The Potomac Edison Company	22,385,000	($0.01 par value)
West Penn Power Company	24,361,586	(no par value)
Allegheny Generating Company	1,000	($1.00 par value)

(a) The registrant is a limited liability company, the interests in which are not represented by shares.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)

	Allegheny Energy, Inc.:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	8
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	9

	Allegheny Energy Supply Company, LLC:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	11
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	12
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	13

	Monongahela Power Company:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	15
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	16
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	17

	The Potomac Edison Company:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	19
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	20
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	21

	West Penn Power Company:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	23
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	24
	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	25

	Allegheny Generating Company:
	Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	27
	Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	28
	Balance Sheets as of September 30, 2002 and December 31, 2001	29

	Combined Notes to Consolidated Financial Statements	30

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)	56

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	93

Item 4.	Controls and Procedures	94

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	97

Item 2.	Changes in Securities and Use of Proceeds	97

Item 3.	Default Upon Senior Securities	98

Item 4.	Submission of Matters to Vote of Security Holders	98

Item 5.	Other Information	99

Item 6.	Exhibits and Reports on Form 8-K	100

Signature		108

GLOSSARY

I.	The following abbreviations and terms are used in this report to identify Allegheny Energy, Inc. and its subsidiaries:

AE		Allegheny Energy, Inc., a diversified utility holding company

AE Supply		Allegheny Energy Supply Company, LLC, an unregulated generation subsidiary of Allegheny Energy, Inc., also a holding company

AGC		Allegheny Generating Company, an unregulated generation unit of Allegheny Energy, Inc.

Allegheny		Allegheny Energy, Inc., together with its consolidated subsidiaries

Allegheny Ventures		Allegheny Ventures, Inc., a non-utility, unregulated subsidiary of Allegheny Energy, Inc.

Alliance Energy Services		Alliance Energy Services, LLC, a former indirect subsidiary of Allegheny Ventures, Inc.

Distribution Companies		Collectively, Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company. The Distribution Companies do business as “Allegheny Power.”

Fellon-McCord		Fellon-McCord & Associates, Inc., a subsidiary of Allegheny Ventures, Inc.

Monongahela		Monongahela Power Company, a regulated subsidiary of Allegheny Energy, Inc.

Mountaineer		Mountaineer Gas Company, a subsidiary of Monongahela Power Company

Potomac Edison		The Potomac Edison Company, a regulated subsidiary of Allegheny Energy, Inc.

West Penn		West Penn Power Company, a regulated subsidiary of Allegheny Energy, Inc.

II.

The following abbreviations and acronyms are used in this report to identify entities and terms relevant to Allegheny’s business and operations:

ARO		Asset retirement obligation

Borrowing Facilities		Agreements entered into on February 25, 2003, and March 13, 2003, by AE, AE Supply, Monongahela, and West Penn with various credit providers to refinance and restructure the majority of AE and AE Supply’s short-term debt

CAAA		Clean Air Act Amendments of 1990

CDWR		California Department of Water Resources

Clean Air Act		Clean Air Act of 1970

EITF		Emerging Issues Task Force

EPA		United States Environmental Protection Agency

FASB		Financial Accounting Standards Board

FERC		Federal Energy Regulatory Commission (an independent commission within the Department of Energy)

FIN		FASB Interpretation Number

FIN 45		FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others”

FIN 46		FIN 46, “Consolidation of Variable Interest Entities”

GAAP		Generally Accepted Accounting Principles in the United States of America

KWh		Kilowatt-hour

LV Cogen		Las Vegas Cogeneration II


MW		Megawatt

MWh		Megawatt-hour

NSR		The New Source Performance Review Standards, or “New Source Review” applicable to facilities deemed “new” sources of emissions

PJM		PJM Interconnection, LLC, a regional transmission organization

PJM West		The commonly used name of the western extension of PJM Interconnection, LLC

PLR		Provider-of-last-resort

QUID		Quarterly Income Debenture

PURPA		Public Utility Regulatory Policies Act of 1978

SEC		United States Securities and Exchange Commission

SFAS		Statement of Financial Accounting Standards

SFAS No. 71		SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation”

SFAS No. 133		SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133 – an amendment of FASB Statement No. 133,” and SFAS No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133”

SFAS No. 142		SFAS No. 142, “Goodwill and Other Intangible Assets”

SFAS No. 143		SFAS No. 143, “Accounting for Asset Retirement Obligations”

T&D		Transmission and Distribution

Williams		Williams Energy Marketing and Trading Company

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ALLEGHENY ENERGY, INC.

Consolidated Statements of Operations

	Unaudited Three Months Ended September 30,						Unaudited Nine Months Ended September 30,
*(In thousands, except number of shares and per share data)*	2002			2001			2002			2001
Total operating revenues	$	537,136		$	947,286		$	2,326,834		$	2,592,433
Cost of revenues:
Fuel consumed for electric generation		166,095			162,016			436,266			438,062
Purchased energy and transmission		75,060			92,763			265,498			222,318
Natural gas purchases		128,572			7,555			432,099			99,084
Deferred energy costs, net		(3,675	)		1,959			10,908			(5,450	)
Other		37,287			7,582			77,267			26,397

Total cost of revenues		403,339			271,875			1,222,038			780,411

Net revenues		133,797			675,411			1,104,796			1,812,022

Other operating expenses:
Workforce reduction expenses		104,170			—			104,170			—
Operation expense		218,704			212,248			714,084			614,804
Depreciation and amortization		77,359			79,445			233,226			220,696
Taxes other than income taxes		52,381			51,081			168,570			162,871

Total other operating expenses		452,614			342,774			1,220,050			998,371

Operating (loss) income		(318,817	)		332,637			(115,254	)		813,651

Other (expenses) and income, net (Note 11)		(34,867	)		3,281			(27,844	)		7,061

Interest charges and preferred dividends:
Interest on debt		81,183			74,782			229,176			210,680
Allowance for borrowed funds used during construction and interest capitalized		(3,610	)		(2,816	)		(9,485	)		(6,684	)
Dividends on preferred stock of subsidiaries		1,260			1,260			3,778			3,780

Total interest charges and preferred dividends		78,833			73,226			223,469			207,776

Consolidated (loss) income before income taxes, minority interest, and cumulative effect of accounting changes		(432,517	)		262,692			(366,567	)		612,936

Federal and state income tax (benefit) expense		(164,883	)		94,691			(141,563	)		226,314

Minority interest		(4,618	)		2,267			(4,602	)		2,267

Consolidated (loss) income before cumulative effect of accounting changes		(263,016	)		165,734			(220,402	)		384,355
Cumulative effect of accounting changes, net of taxes of $ 79,596 and $ 21,139, respectively		—			—			(130,514	)		(31,147	)

Consolidated net (loss) income	$	(263,016	)	$	165,734		$	(350,916	)	$	353,208

Average basic common shares outstanding		125,691,877			124,866,568			125,460,716			118,434,527
Average diluted common shares outstanding		125,691,877			125,302,357			125,460,716			118,920,222

Basic (loss) earnings per share:
Consolidated (loss) income before cumulative effect of accounting changes	$	(2.09	)	$	1.33		$	(1.76	)	$	3.24
Cumulative effect of accounting changes, net<

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