Fitch Rates West Penn Power's $145MM First Mortgage Bonds 'BBB+'

Business Wire, August 9, 2006

NEW YORK -- Fitch assigns a 'BBB ' rating to the $145 million initial issuance of 5.875% first mortgage bonds of West Penn Power Company (West Penn) due Aug. 15, 2016. The bonds rank equally in right of payment with future unsubordinated indebtedness under West Penn's general mortgage indenture dated Aug. 16, 2006. The proceeds from the sale of the bonds will be used to repay indebtedness, pay a dividend to its parent, Allegheny Energy Inc., and for general corporate purposes. The bonds are secured by a first priority lien on certain real estate and substantially all of West Penn's transmission and distribution systems and franchises. The Rating Outlook is Stable. E[acute accent]The ratings of West Penn reflect its low business risk as a transmission and distribution (T&D) utility with hedged power supply and generation rate certainty through the end of 2010. The ratings also include Fitch's expectation of increasing leverage and lower coverage ratios due to rising operating expenses and capital expenditures during the period of capped generation and distribution rates. E[acute accent]The Stable Rating Outlook includes Fitch's view that West Penn's financial leverage will increase over the next two years but will remain consistent with the issuer default rating (IDR) of 'BBB-'. Fitch forecasts that internal cash flow will not fully cover capital spending and upstream dividends during the distribution rate freeze. West Penn agreed to cap distribution rates through 2007, as part of the April 2005 rate settlement. In Fitch's view, the hedging of power costs and generation rate certainty through 2010 reduced the risk of political intervention in utility rate matters and is supportive of credit quality. However, West Penn will be challenged to limit deterioration of credit ratios during the rate cap period through effective control of operating costs.

E[acute accent]Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.