4 th quarter financial results february 10, 2006

4th Quarter Financial Results

February 10, 2006

2

Forward-Looking StatementsIn 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; 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.

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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 www.alleghenyenergy.com.

4

Paul Evanson

Chairman, President and Chief Executive Officer

5

Earnings per Share

2005 2004

As reported $0.02 $0.48

As adjusted 0.02 0.22

Fourth Quarter Results

6

Events in Early December

Four large units off line

Heavy POLR demand

Very high PJM prices

Adverse impact: $0.10 per share

7

76%

82%

78%

83%83%

91%

79%

2002 2003 2004

Availability Improvement Program On Track

2008Goal

Proforma*

Actual

* Excludes extended unplanned outages at Hatfield, Pleasants

(supercritical units)

2005

8

Power Plant Investment

$100 $105

$192

$165

2002 2003 2004 2005

Maintenance Spending($ millions)

9

Availability Improvement Program On Track

Over 30 improvement project teams

New vice president-operations, regional plant director

Expect lower unplanned outage rate in 2006

10

Achieving 91% Availability by 2008

2002 2003 2004 2005 2006 2007 2008

Outage Rate(supercritical units)

22%

24%

17% 17%

15%

9%

Reduce planned outages

Reduce unplanned outages

18%

11

Earnings per Share

2005 2004

As reported $0.40 ($1.83)

As adjusted 0.94 0.47

2005 Accomplishments:Earnings Growth

12

2005 Accomplishments: Completed Asset Sales

West Virginia gas assets

Wheatland generating facility

Ohio service territory

13

2005 Accomplishments:Reduced Debt

$1.9 billion since Dec. 1, 2003

$919 million in 2005

Refinanced nearly $2 billion

Improved credit ratings; one step below investment grade

14

2005 Accomplishments:Controlled Costs

Reduced O&M by nearly $40 million

Outsourced information technology functions

On track to achieve O&M target of $700-750 million

15

301 291 281

217

2002 2003 2004 2005

2005 Accomplishments:Improved Service Reliability

Service Unavailability(average minutes without power)

16

2005 Accomplishments:Managed Transition to Market

Pennsylvania rate cap extensions/increases approved

Won supply contracts in Pennsylvania, Maryland

Contracted 95% of 2006 generation

17

2005 Accomplishments:Contracted Coal Supplies

Contracted POLR requirements through 2008

Announced development of coal reserves

18

2005 Accomplishments:Environmental Stewardship

West Virginia securitization legislation approved

Expect PSC decision by early April

19

2006 Priorities Strong earnings growth

Environmental stewardship

20

2006 Priorities Strong earnings growth

Environmental stewardship

Transmission investments

Strengthen financial condition; investment grade by year-end 2007

21

Jeffrey Serkes

Senior Vice President and Chief Financial Officer

22

Financial Results3 Months Ended December 31

2005 2004

Net income $3 $72

Diluted income per share 0.02 0.48

($ millions except EPS)

23


2005 2004

Net income $3 $72

Diluted income per share 0.02 0.48

Accounting change (6) ---

Discontinued operations 6 (9)

Continuing operations: Income Diluted income per share

30.02

810.53

($ millions except EPS)

24

Adjustments3 Months Ended December 31

($ millions, pre-tax)

2005 2004

OVEC gain --- ($95)

Financing costs --- 9

Severance --- 4

25

Adjusted Income FromContinuing Operations

3 Months Ended December 31

$ millions Diluted EPS

$30

$3

2004 2005

$0.22

$0.02

2004 2005

26

EBITDA FromContinuing Operations


($ millions)

$162

$313

2004 2005

$222

$162

2004 2005

As reported As adjusted

27

EBITDA FromContinuing Operations

Year Ended December 31

($ millions)

$889$914

2004 2005

$763

$890

2004 2005

As reported As adjusted

28

Plant Outage DaysDecember 1-16

4

8

13

16Hatfield #1

Pleasants #2

Pleasants #1

Hatfield #3

Unplanned Planned

29

$0

$40

$80

$120

$160

1/1

1/1

6

1/3

1

2/1

5

3/2

3/1

7

4/1

4/1

6

5/1

5/1

6

5/3

1

6/1

5

6/3

0

7/1

5

7/3

0

8/1

4

8/2

9

9/1

3

9/2

8

10/1

3

10/2

8

11/1

2

11/2

7

12/1

2

12/2

7

PJM Prices in 2005

$ per MWH*

Outages at 4 units

* Daily average, round-the-clock, APS zone

30

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

40,000

Dai

ly G

ener

atio

n

Sh

ort

fall

(m

wh

)

$40

$60

$80

$100

$120

$140

$160

PJM

Pri

ces

($/m

wh

)

Daily Shortfall PJM Price

Generation Shortfall and PJM PricesDecember 1-16, 2005

PJM Price: Day-ahead APS Zone

POLR Demand Exceeded Plant Output

31

($ millions)

Better 2005 2004 (Worse)

Total operating revenues $724 $688 $36


32

Key Drivers of Revenue Increase 3 Months Ended December 31

($ millions)

Better(Worse)

Maryland: market-based rates $39

Ohio: Supply contract expiration 22

Increased plant output 18

33

10.2

12.5

11.2

12.3

11.1

13.2

11.512.2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Plant Output Up 2.6%Despite Outages

(MWH millions)

20052004

34

12.4

11.3

11.711.9

12.5

11.4

12.2 12.2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Utility MWH Sales Up 2.6%from 4th Quarter 2004

(MWH millions)

20052004

35

Key Drivers of Revenue Increase 3 Months Ended December 31

($ millions)

Better(Worse)

Maryland: market-based rates $39

Ohio: Supply contract expiration 22

Increased plant output 18

Customer growth 9

PJM purchases, higher market prices (50)

All other (2)

TOTAL INCREASE IN REVENUES $36

36

($ millions)


Total operating revenues $724 $688 $36

Operating expenses 650 457 (193)

Operating income $ 74 $231 ($157)

Key factors - operating expenses: OVEC gain ($95) Fuel, purchased power, deferred energy (80) O&M (17)


37

($ millions)


Fuel and deferred energy $188 $147 ($41)

Key factors: Higher coal costs

($29) Higher gas costs

(6)

Operating Expense3 Months Ended December 31

38

Increased Coal Costs

Coal cost increased ~$5/ton

Burned ~300,000 more tons

Coal plant output increased 437,000 MWH

Increased output from lower-margin subcritical units

39

9.2 9.0

1.0 1.6

2004 2005

Supercritical Subcritical

Coal Plant Output3 Months ended December 31

(MWH millions)

40

($ millions)


Fuel and deferred energy $188 $147 ($41)

Purchased power 121 82 (39)

TOTAL $309 $229 ($80)

Key factors: Higher coal costs ($29) Higher gas costs (6) Purchased power, MD and OH (35)


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Year-to-Year Better/(Worse)

$ millions

($19)Increased special maintenance

(9)Snowstorm

6Lower outside services

4Severance costs in 2004

1All other

($17)TOTAL INCREASE IN O&M EXPENSE

O&M Expense4th Quarter 2005

42


($ millions)


Fuel, purchased power, deferred energy $309 $229 ($80)

Operations and maintenance 212 195 (17)

Depreciation and amortization 78 77 (1)

Taxes other than income taxes 52 51 (1)

Ohio/OVEC sales (1) (95) (94)

TOTAL OPERATING EXPENSE $650 $457 ($193)

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($ millions)


Operating income $74$231 ($157)Interest expense:

As reported 71100

Financing costs ---(9)

As adjusted $71$91$20

Reduced Interest Expense


Key factors – interest expense:

Lower debt balance Lower rates

44

Strengthening the Balance Sheet

Debt Outstanding($ billions; year end)

Equity Ratio(year end)

45

9.0

6.5

4.6

<3.5

Dec.2003

Dec.2004

Dec.2005

Target

Improving Credit Statistics

Debt/EBITDA*

1.5

2.0

2.8

>4.0

Dec.2003

Dec.2004

Dec.2005

Target

EBITDA/Interest*

* Based on adjusted EBITDA and adjusted interest for 12-month periods. Excluding securitized debt and interest: Debt/EBITDA = 4.3, EBITDA/Interest = 3.0 at December 2005.

46

Income Taxes, Q4 2005

Effective tax rate = 77%

Includes $7 million charge

Charge reduced EPS by $0.04

47

Income, Continuing Operations 3 Months Ended December 31


As reported:

- $ millions $3 $81 ($78)

- Per share 0.02 0.53 (0.51)

As adjusted: per share 0.02 0.22 (0.20)

48

Cash FlowPeriods ending December 31, 2005

($ millions)

3 Months 12 Months

Net cash from operations:

As reported $153 $486As adjusted* --- 563

Capital expenditures (102) (306)

FREE CASH FLOW $51 $257

* Excludes costs for St. Joe’s senior notes redemption and convertible trust preferred securities tender offer.

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$81

$257>$300

2004 2005 2006

Increasing Free Cash Flow ($ millions)

Adjusted Cash from Operationsnet of Capital Expenditures

50

2006 Earnings Growth:Key Drivers

CONTRIBUTION TO PRE-TAX INCOME ($ millions; estimates*)

Pennsylvania rates $55

Maryland transition to market 55

Ohio territory sale 35

Market prices positive/negative

December 2005 adjustment 27

Plant availability no impact

Higher coal costs (80)

SO2 allowance costs (10)

Lower O&M expense >20

Lower depreciation, capitalize O&M >50

Lower interest expense 65

Other factors positive/negative

* 2006 vs. 2005 as adjusted

4 th quarter financial results february 10, 2006

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