POTOMAC EDISON 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 March 31, 2005


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) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-5531602

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) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-5323955

0-14688	ALLEGHENY GENERATING COMPANY (A Virginia Corporation) 800 Cabin Hill Drive Greensburg, Pennsylvania 15601 Telephone (724) 837-3000	13-3079675

This combined Form 10-Q is separately filed by Allegheny Energy, Inc., Monongahela Power Company, The Potomac Edison Company and Allegheny Generating Company. Information contained in the Form 10-Q relating to Monongahela Power Company, The Potomac Edison Company and Allegheny Generating Company is filed by each such registrant on its own behalf. Each of Monongahela Power Company, The Potomac Edison 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 x No ¨

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 ¨
Monongahela Power Company		Yes ¨ No x
The Potomac Edison Company		Yes ¨ No x
Allegheny Generating Company		Yes ¨ No x

Number of shares outstanding of each class of common stock as of May 4, 2005:


Allegheny Energy, Inc.	162,538,405	($1.25 par value	)
Monongahela Power Company	5,891,000	($50.00 par value	)
The Potomac Edison Company	22,385,000	($0.01 par value	)
Allegheny Generating Company	1,000	($1.00 par value	)

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Allegheny Energy, Inc.:
Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004		6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		7
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004		8-9
Notes to Consolidated Financial Statements		11-32

Monongahela Power Company:
Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004		33
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		34
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004		35-36
Notes to Consolidated Financial Statements		38-46

The Potomac Edison Company:
Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004		47
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		48
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004		49-50
Notes to Consolidated Financial Statements		52-55

Allegheny Generating Company:
Statements of Operations for the Three Months Ended March 31, 2005 and 2004		56
Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		57
Balance Sheets as of March 31, 2005 and December 31, 2004		58-59
Notes to Financial Statements		61-62

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)		63-103

Item 3. Quantitative and Qualitative Disclosures About Market Risk		103

Item 4. Controls and Procedures		103

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		103

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		103


Item 3. Defaults Upon Senior Securities		103

Item 4. Submission of Matters to a Vote of Security Holders		104

Item 5. Other Information		104

Item 6. Exhibits		105-108

Signatures		109

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 AE.
AGC		Allegheny Generating Company, an unregulated generation subsidiary of AE Supply.
Allegheny		AE together with its consolidated subsidiaries.
Allegheny Ventures		Allegheny Ventures, Inc., an unregulated subsidiary of AE.
Distribution Companies		Collectively, Monongahela, Potomac Edison and West Penn. The Distribution Companies do business as “Allegheny Power.”
Monongahela		Monongahela Power Company, a regulated subsidiary of AE.
Mountaineer		Mountaineer Gas Company, a subsidiary of Monongahela.
Potomac Edison		The Potomac Edison Company, a regulated subsidiary of AE.
West Penn		West Penn Power Company, a regulated subsidiary of AE.
WVP		West Virginia Power, a division of Monongahela.

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


2004 Annual Report on Form 10-K		Combined Annual Report on Form 10-K of AE, Monongahela, Potomac Edison and AGC for the year ended December 31, 2004.
CDWR		California Department of Water Resources.
Clean Air Act		Clean Air Act of 1970.
Exchange Act		Securities Exchange Act of 1934, as amended.
FASB		Financial Accounting Standards Board.
FERC		Federal Energy Regulatory Commission, an independent commission within the Department of Energy.
GAAP		Generally accepted accounting principles in the United States of America.
KWh		Kilowatt-hour, which is a unit of electric energy equivalent to one kilowatt operating for one hour.
Maryland PSC		Maryland Public Service Commission.
MW		Megawatt.
MWh		Megawatt-hour.
OVEC		Ohio Valley Electric Corporation.
Pennsylvania PUC		Pennsylvania Public Utility Commission.
PJM		PJM Interconnection, LLC, a regional transmission organization.
PLR		Provider-of-last-resort.
PUCO		Public Utilities Commission of Ohio.
PUHCA		Public Utility Holding Company Act of 1935, as amended.
PURPA		Public Utility Regulatory Policies Act of 1978.
SEC		United States Securities and Exchange Commission.
SFAS No. 133		FASB’s Statement of Financial Accounting Standards 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,” SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133,” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”


SFAS No. 144		FASB’s Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.”
Virginia SCC		Virginia State Corporate Commission.
West Virginia PSC		Public Service Commission of West Virginia.

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended March 31,
(In thousands)	2005		2004
Operating revenues	$	754,030	$	735,350

Operating expenses:
Fuel consumed in electric generation		173,887		161,712
Purchased power and transmission		104,822		81,013
Deferred energy costs, net		1,186		914
Operations and maintenance		162,677		200,790
Depreciation and amortization		76,411		72,987
Taxes other than income taxes		55,058		49,185

Total operating expenses		574,041		566,601

Operating income		179,989		168,749

Other income and expenses, net (Note 12)		5,253		7,854

Interest expense and preferred dividends:

Interest expense		125,794		119,830
Preferred dividend of subsidiary		1,259		1,259

Total interest expense and preferred dividends		127,053		121,089

Income from continuing operations before income taxes and minority interest		58,189		55,514

Income tax expense from continuing operations		23,376		23,018

Minority interest in net income of subsidiaries		415		1,859

Income from continuing operations		34,398		30,637

Income from discontinued operations, net of tax (Note 3)		8,244		2,641

Net income	$	42,642	$	33,278

Basic weighted average common shares outstanding		137,417,964		126,969,238
Diluted weighted average common shares outstanding		165,674,343		152,941,183

Basic income per common share:
Income from continuing operations	$	0.25	$	0.24
Income from discontinued operations, net		0.06		0.02

Net income per common share	$	0.31	$	0.26

Diluted income per common share:
Income from continuing operations	$	0.24	$	0.24
Income from discontinued operations, net		0.05		0.01

Net income per common share	$	0.29	$	0.25

See accompanying Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
(In thousands)	2005			2004
Cash Flows From Operating Activities:
Net income	$	42,642		$	33,278

Adjustments for discontinued operations and non-cash charges and (credits):
Income from discontinued operations, net		(8,244	)		—
Depreciation and amortization		76,411			83,291
Gain on asset sales and disposals		(1,490	)		(11,600	)
Minority interest in net income of subsidiaries		415			1,859
Deferred investment credit and income taxes, net		24,459			13,491
Stock-based compensation expense		3,200			6,761
Unrealized (gains) losses on commodity contracts, net		(4,121	)		11,139
Other, net		5,599			31,636

Changes in certain assets and liabilities:
Accounts receivable, net		(34,328	)		(30,634	)
Materials, supplies and fuel		(5,247	)		48,396
Taxes receivable/accrued, net		(19,385	)		(15,781	)
Prepaid taxes		(29,734	)		(28,561	)
Collateral deposits		(27,595	)		(58,696	)
Accounts payable		(21,415	)		(12,620	)
Accrued interest		61,357			24,252
Other, net		34,023			20,186

Net cash from operating activities		96,547			116,397

Cash Flows From (Used In) Investing Activities:
Capital expenditures		(52,980	)		(53,773	)
Proceeds from sale of businesses and assets		2,424			11,589
Decrease in restricted funds		208,854			17,357
Other investments		(813	)		(3,116	)

Net cash from (used in) investing activities		157,485			(27,943	)

Cash Flows Used In Financing Activities:
Issuance of long-term debt		—			1,481,592
Retirement of long-term debt		(267,201	)		(1,709,650	)
Exercise of stock options		443			—

Net cash used in financing activities		(266,758	)		(228,058	)

Net decrease in cash and cash equivalents		(12,726	)		(139,604	)
Cash and cash equivalents at beginning of period		189,482			528,612

Cash and cash equivalents at end of period	$	176,756		$	389,008

Supplemental Cash Flow Information:
Cash paid for interest (net of amount capitalized)	$	60,159		$	86,337

See accompanying Notes to Consolidated Financial Statements.

ALLEGHENY ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)


(In thousands)	March 31, 2005			December 31, 2004
ASSETS

Current Assets:
Cash and cash equivalents	$	176,756		$	189,482
Accounts receivable:
Customer		211,728			164,666
Unbilled utility revenue		139,474			145,498
Wholesale and other		24,510			32,966
Allowance for uncollectible accounts		(18,126	)		(19,854	)
Materials and supplies		102,557			100,054
Fuel		64,556			61,812
Deferred income taxes		62,434			44,590
Prepaid taxes		76,634			46,900
Assets held for sale (Note 3)		114,418			150,031
Collateral deposits		116,303			88,708
Commodity contracts		14,168			13,523
Restricted funds		20,003			228,857
Regulatory assets		39,106			37,626
Other		14,619			20,273

Total current assets		1,159,140			1,305,132

Property, Plant and Equipment, Net:
Generation		5,702,559			5,695,851
Transmission		1,017,603			1,015,751
Distribution		3,399,220			3,366,217
Other		465,311			463,515
Accumulated depreciation		(4,400,442	)		(4,341,282	)

Subtotal		6,184,251			6,200,052
Construction work in progress		103,043			102,966	<

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents