3rd Quarter Financial Results October 28, 2005

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 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; execution of restructuring activity and liquidity enhancement plans; results of litigation; financing requirements and plans to meet those requirements; demand for energy and the cost and availability of inputs; demand for products and services; capacity purchase commitments; results of operations; capital expenditures; regulatory matters; internal controls and procedures and outstanding financial reporting obligations; and stockholder rights plans. 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. Factors that could cause actual results to differ materially include, among others, the following: execution of restructuring activity and liquidity enhancement plans; complications or other factors that render it difficult or impossible to obtain necessary lender consents or regulatory authorizations on a timely basis; general economic and business conditions; changes in access to capital markets; the continuing effects of global instability, terrorism, and war; changes in industry capacity, development, and other activities by Allegheny's competitors; changes in the weather and other natural phenomena; changes in technology; changes in the price of power and fuel for electric generation; the results of regulatory proceedings, including those related to rates; changes in the underlying inputs, including market conditions, and assumptions used to estimate the fair values of commodity contracts; changes in laws and regulations applicable to Allegheny, its markets, or its activities; environmental regulations; the loss of any significant customers and suppliers; the effect of accounting policies issued periodically by accounting standard-setting bodies; additional collateral calls; and changes in business strategy, operations, or development plans. Additional risks and uncertainties are identified and discussed in Allegheny Energy's reports filed with the Securities and Exchange Commission.

3 Non-GAAP Financial Measures This presentation includes non-GAAP financial measures as defined in the Securities and Exchange Commission’s Regulation G. Where noted, the presentation shows certain financial information on an “as adjusted” basis, to exclude the effect of certain items as described herein. By presenting “as adjusted” results, management intends to provide investors with a better understanding of the core results and underlying trends from which to consider past performance and prospects for the future. Users of this financial information should consider the types of events and transactions for which adjustments have been made. “As adjusted” information should not be considered in isolation or viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as measures of our operating performance or liquidity. In addition, the “as adjusted” information is not necessarily comparable to similarly titled measures provided by other companies. Pursuant to the requirements of Regulation G, we have attached a table that reconciles the non-GAAP financial measures in this presentation to the most directly comparable GAAP measures. The table is also available at

4 Paul Evanson Chairman, President and Chief Executive Officer

5 Earnings per Share As reported$0.21($2.40) As adjusted Third Quarter Results: Strong Performance

6 Third Quarter Highlights  Higher operating revenues Increased generation output Higher PJM market prices Market-based C&I rates in Maryland  Lower interest expense Debt reduction Refinancings

7 Earnings per Share As reported$0.38 ($2.97) As adjusted Year-to-Date Results

8 Reducing Debt  Goal: $1.5 billion (Dec. 1, 2003 – Dec. 31, 2005)  Achieved: $1.9 billion* (thru Oct. 15, 2005)  Refinanced: $1.3 billion (since July 1) * Includes tender offer for convertible trust preferred securities.

9 Asset Sales  Completed sale of Mountaineer Gas and Wheatland generating facility  Awaiting regulatory approvals for sale of Ohio service territory

10 Improving Environmental Performance  Using low-sulfur PRB coal at Ft. Martin and Willow Island; scheduled for January at Hatfield  Obtained FERC approval for Fort Martin scrubbers; seeking state regulatory approvals  Evaluating options for Hatfield scrubbers

11 Plant Availability 2007 Year-End Goal Proforma* Actual * Adjusted for extended outages at Hatfield, Pleasants Improvement of ~$100 million if year-end 2007 goal achieved (supercritical units) 2005 Est.

12 Transition to Market-Based Rates  Already underway in Maryland  Strong demand for power, high gas prices in third quarter  Average PJM market price was $71/mwh (APS Zone)  Benefits Allegheny through excess generation sales

13 Litigation Update  Settled class action shareholder lawsuits  Cost to be paid by insurance  Requires court approval

14 Turnaround Growth Entering Growth Phase

15 Jeffrey Serkes Senior Vice President and Chief Financial Officer

16 Financial Results 3 Months Ended September 30 ($ millions except EPS) Net income (loss)$35.7($376.8) Diluted income (loss) per share0.21(2.40)

17 Financial Results 3 Months Ended September Net income (loss)$35.7($376.8) Diluted income (loss) per share0.21(2.40) Loss, discontinued operations(7.8)(427.5) Continuing operations: Income Diluted income per share ($ millions except EPS)

18 Adjustments 3 Months Ended September 30 ($ millions) Debt redemption costs$ Ohio sale Insurance proceeds received(11.0)---

19 Adjusted Income From Continuing Operations 3 Months Ended September 30 $ millionsDiluted EPS

20 EBITDA From Continuing Operations 3 Months Ended September 30 ($ millions) As reportedAdjusted

21 ($ millions) Better (Worse) Total operating revenues$845.1$723.3$121.8 Financial Results 3 Months Ended September 30

22 Key Drivers of Revenue Increase 3 Months Ended September 30 ($ millions) Better (Worse) Increased plant output and higher prices$42

23 MWH Generated Up 5.7% from 3 rd Quarter 2004 (MWH millions)

24 Utility MWH Sales Up 4.8% from 3 rd Quarter 2004 (MWH millions)

25 Key Drivers of Revenue Increase 3 Months Ended September 30 ($ millions) Better (Worse) Increased plant output and higher prices$42 Maryland: market-based rates37 Ohio: Supply contract expiration 21 Customer growth9 All other 13 TOTAL INCREASE IN REVENUES$122

26 ($ millions) Better (Worse) Total operating revenues$845.1$723.3$121.8 Operating expenses (109.8) Operating income$171.1$159.1$12.0 Key factors - operating expenses: Ohio sale($31) Insurance proceeds11 Fuel, purchased power, deferred energy(84) Financial Results 3 Months Ended September 30

27 ($ millions) Better (Worse) Fuel and deferred energy$207.3$161.4($45.9) Purchased power (38.2) TOTAL$331.4$247.3($84.1) Key factors: Fuel: More output, coal costs($48) Purchased power: Maryland, Ohio(42) Purchased power: other contracts4 Operating Expense 3 Months Ended September 30

28 Operating Expense 3 Months Ended September 30 ($ millions) Better (Worse) Fuel, purchased power, deferred energy$331.4$247.3($84.1) Operations and maintenance Key factors: O&M Insurance proceeds$11 Litigation reserves (net)(9) Other6

29 Special Maintenance at Power Plants ($ millions)

30 Year-to-Year Better/(Worse) $ millions $11.0Insurance proceeds (9.2)Litigation reserves (net) 2.8Reduced special maintenance 3.5All other $8.1TOTAL DECREASE IN O&M EXPENSE Lower O&M Expense 3 rd Quarter 2005

31 Operating Expense 3 Months Ended September 30 ($ millions) Better (Worse) Fuel, purchased power, deferred energy$331.4$247.3($84.1) Operations and maintenance Depreciation and amortization (1.6) Taxes other than income taxes (1.7) Ohio sale (30.5) TOTAL OPERATING EXPENSE$674.0$564.2($109.8)

32 ($ millions) Better (Worse) Operating income$171.1 $159.1$12.0 Interest expense: As reported Debt redemption costs (32.6) --- As adjusted$ 80.5 $91.4$10.9 Reduced Interest Expense 3 Months Ended September 30 Key factors – interest expense: Lower debt balance Refinancings

33 Strengthening the Balance Sheet Debt Outstanding ($ billions) Sept Equity Ratio Sept Sept Sept Sept Sept. 2005

34 Income, Continuing Operations 3 Months Ended September 30 Better (Worse) As reported: $ millions$43.5$50.6($7.1) As reported: per share (0.11) As adjusted: per share

35 Strategic Initiative: Information Technology  Selected EDS for ongoing IT tasks, ERP system installation, supply chain review  Start-up costs: ~$6 million in 2006 ~$20 million (capital) in 2006 for ERP system

36 Strategic Initiative: Information Technology  Selected EDS for ongoing IT tasks, ERP system installation, supply chain review  Start-up costs: ~$6 million in 2006 ~$20 million (capital) in 2006 for ERP system  Outsourcing expected to reduce O&M ~$5 million in 2007 ~$11 million annually in  Operational and purchasing cost savings

37 Cash Flow Periods ending September 30, 2005 ($ millions) 3 Months9 Months Net cash from operations: As reported$140.6$326.3 As adjusted* Capital expenditures (77.7)(204.4) FREE CASH FLOW$92.4$198.6 * Excludes costs for St. Joe’s senior notes redemption and convertible trust preferred securities tender offer.

38 Outlook: Fourth Quarter 2005  Strong market prices  Planned outages at two supercritical units  Special maintenance O&M up $20 million  Lower interest expense

Earnings Growth: Key Drivers CONTRIBUTION TO PRE-TAX INCOME ($ millions; estimates*) Pennsylvania rates~$55 Maryland transition to market~ 55 Ohio territory sale~ 35 Market pricespositive/negative Plant availabilityno impact Higher coal costs~(80) SO 2 allowance costs~(25) Lower O&M expense~20 Lower interest expense ~65 Other factorspositive/negative * 2006 vs as adjusted