EX-99 2 exh0612.htm EXHIBIT H - FORM OF NOTICE Notice is hereby given that the following filing(s) has/have been made with

EXHIBIT H

FORM OF NOTICE

Notice is hereby given that the following filing(s) has/have been made with the Commission pursuant to provisions of the Act and rules promulgated under the Act. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendment(s) is/are available for public inspection through the Commission's Branch of Public Reference.

Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by ____________ 2001, to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549-0609, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address (es) specified below. Proof of service (by affidavit or, in the case of an attorney at law, by certificate) should be filed with the request. Any request for hearing should identify specifically the issues of facts or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After __________, 2001 the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective.

            Allegheny Energy, Inc. Corporation, et al. (70-99__)

Allegheny Energy, Inc. ("Allegheny"), a registered holding company located at 10435 Downsville Pike, Hagerstown, Maryland 21740, and Allegheny Energy Supply Co., LLC ("AE Supply"), a wholly-owned generating company subsidiary of Allegheny located at 4350 Northern Pike, Monroeville, Pennsylvania 15146, and their respective nonutility subsidiaries (together, "Applicants"), have filed an application-declaration (the "Application") under sections 6(a), 7, 9(a), 10, 12(b), 12(c), 12(d), 32 and 33 of the Act, and rules 43, 44, 45, 46, 53, 54, 90 and 91 under the Act.

Allegheny is a diversified energy company, headquartered in Hagerstown, Maryland. The Allegheny family of companies consists of three regulated electric public utility companies, West Penn Power Company ("West Penn"), Monongahela Power Company ("Monongahela Power") and The Potomac Edison Company ("Potomac Edison"), and a regulated public utility natural gas company, Mountaineer Gas Company, which is a wholly owned subsidiary of Monongahela Power (all collectively d/b/a "Allegheny Power" and collectively, West Penn, Monongahela Power and Potomac Edison are referred to herein as the "Operating Companies"). The subsidiaries of Allegheny (other than the Operating Companies), whether now existing or hereafter created or acquired, are referred to herein as the "Other Subsidiaries".

In order to enable the Applicants to respond quickly and efficiently to market opportunities and financing needs, Applicants request authorization to engage in the proposed financing transactions for the period beginning with the effective date of the Commission's order in this matter and continuing for a period through July 31, 2005 ("Authorization Period"). In addition, Applicants request the Commission to authorize various proposed intrasystem transactions. Applicants further request that the Commission reserve jurisdiction over certain interest rate and currency hedging transactions which may not qualify for hedge accounting treatment under U.S. generally accepted accounting principles ("GAAP").

Financings by the Applicants will be subject to the following conditions ("Financing Conditions"): (1) during the Authorization Period, the common stock equity of Allegheny and of each of the Operating Companies, individually, will not fall below 30% of its consolidated total capitalization; (2) Allegheny will maintain its senior unsecured long-term debt rating at investment grade level, as established by a nationally recognized statistical rating organization; (3) the effective cost of money on long-term debt borrowings will not exceed the greater of (a) 400 basis points over comparable term U.S. Treasury securities and (b) the gross spread over U.S. Treasuries that is consistent with similar securities of comparable credit quality and maturities issued by other companies; (4) the effective cost of money on short-term debt borrowings will not exceed the greater of (a) 300 basis points over the comparable term London Interbank Offered Rate ("LIBOR") and (b) a gross spread over LIBOR that is consistent with similar securities of comparable credit quality and maturities issued by other companies; (5) the dividend rate on any series of preferred securities will not exceed the greater of (a) 500 basis points over the yield to maturity of a comparable term U.S. Treasury security and (b) a rate that is consistent with similar securities of comparable credit quality and maturities issued by other companies; (6) the underwriting fees, commissions, and other similar remuneration paid in connection with the non-competitive issue, sale or distribution of a security will not exceed 5% of the principal or total amount of the security being issued; (7) the maturity of long-term debt will be not less than 1 year and not exceed 30 years; and (8) short-term debt will have a maturity of not less than 1 day and not more than 364 days.

The proceeds from the financings proposed in this Application will be used for general corporate purposes, including: (a) payments, redemptions, acquisitions and refinancing of outstanding securities issued by Applicants; (b) acquisitions of and investments in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs"), provided that Allegheny's aggregate investment in these projects does not exceed the applicable limit; (c) acquisitions of, and investments in, companies engaged in activities permitted by Rule 58 ("Rule 58 Companies"), provided that Applicants' aggregate investments in these companies does not exceed the aggregate investment limitation of Rule 58; (d) loans to, and investments in, other system companies, including through the Allegheny system money pool, and (e) other lawful corporate purposes.

I.         EXISTING FINANCING ARRANGEMENTS

Pursuant to prior Commission orders,1 Allegheny and its subsidiary companies have been authorized to: (1) issue and sell up to $138 million of long-term unsecured notes to banks or other institutions; and (2) enter into support agreements for the benefit of AE Supply in amounts

In a series of orders issued in File No. 70-7888, dated January 29, 1992, February 28, 1992, July 14, 1992, November 5, 1993, November 28, 1995, April 18, 1996, December 23, 1997, May 19, 1999, and October 8, 1999 (Holding Co. Act Release Nos. 25462, 25481, 25581, 25919, 26418, 26506, 26804, 27030, and 27084 and in File 9677 Holding Co. Act Release No. 27199 (July 14, 2001) (collectively "Money Pool and Financing Orders"), among other things, the Allegheny system companies were authorized to engage in certain financing transactions and to establish and participate in a money pool.

up to $250 million, and AE Supply is authorized to: (1) issue and sell up to $400 million of secured and unsecured long-term debt; and (2) issue and sell notes and paper and borrow from the money pool, in aggregate outstanding amounts of up to $300 million. Allegheny and AE Supply were authorized to use the proceeds for general corporate purposes.

In Holding Co. Act. Release No. 27370 (Mar. 31, 2001), among other things, the Commission authorized (1) Allegheny to: (a) issue up to $1 billion in equity securities, (b) loan up to $500 million of the equity securities proceeds to AE Supply and (c) provide an additional $150 million in guarantees to, or for the benefit of, AE Supply (up to an aggregate of $400 million when combined with the then existing authorizations described above); and (2) AE Supply to: (a) issue and sell an aggregate of $550 million in short-term and long-term debt, and establish a financing vehicle, Allegheny Energy Supply Capital ("Supply Capital"), to, among other things, issue equity, or other financial instruments, to and accept notes, or other financial instruments from AE Supply in connection with activities described therein; and, (b) engage in the loaning and re-loaning of up to $1.05 billion by Supply Capital to AE Supply to be used for authorized acquisitions and other activities.

In Holding Co. Act Release No. 27383 (April 20, 2001), the Commission authorized Allegheny and/or AE Supply, in the aggregate, to issue to unaffiliated third parties guarantees, short-term debt and long-term debt through July 31, 2005, up to an aggregate amount of $430 million. The guarantees or proceeds would be used directly or indirectly for investments in EWGs and FUCOs, Rule 58 Companies, or for other strategic corporate purposes. Debt and guarantees authorized include, but are not limited to, bank financing, bank credit support, sales of secured or unsecured debt, notes, loans, and debentures.

The authorizations requested in the Application are in addition to the authorizations granted pursuant to the Commission orders in separate proceedings.

II.        REQUESTED FINANCNG AUTHORITY

    1. Common and Preferred Stock

      2. Allegheny proposes, during the Authorization Period, to issue common stock and preferred stock in amounts that, when combined with the proposed additional long-term debt and short-term debt of Allegheny and AE Supply, will not exceed $1 billion outstanding at any one time. Allegheny may issue common stock or options, warrants or other stock purchase rights exercisable for common stock in public or privately-negotiated transactions as consideration for the equity securities or assets of other companies, provided that the acquisition of any such equity securities or assets has been authorized in this proceeding or in a separate proceeding or is exempt under the Act or the rules under the Act. Allegheny common stock issued in connection with such acquisitions of companies shall be valued, for purposes of determining compliance with the Aggregate Financing Limit, at its market value as of the date of issuance (or if appropriate at the date of a binding contract providing for the issuance thereof).

      Allegheny seeks to have the flexibility to issue its authorized preferred stock or other types of preferred securities (including, without limitation, trust preferred securities or monthly income preferred securities) directly or indirectly through one or more special-purpose financing subsidiaries organized by Allegheny specifically for such purpose as authorized in this proceeding. The aggregate amount of financing obtained by Allegheny during the Authorization Period from issuance and sale of preferred securities, when combined with the amount of common stock, short-term debt, long-term debt and Guarantees (as hereinafter defined) issued and then outstanding, as described in this section, shall not exceed $7 billion (the "Aggregate Financing Limit"). Preferred stock or other types of preferred securities may be issued in one or more series with such rights, preferences, and priorities as may be designated in the instrument creating each such series, as determined by Allegheny's board of directors. Dividends or distributions on preferred securities will be made periodically and to the extent funds are legally available for such purpose, but may be made subject to terms which allow the issuer to defer dividend payments for specified periods. Preferred securities may be convertible or exchangeable into shares of Allegheny common stock or indebtedness.

      Stock financings may be affected in accordance with underwriting agreements of a type generally standard in the industry. Public distributions may be pursuant to private negotiation with underwriters, dealers or agents or effected through competitive bidding among underwriters. In addition, sales may be made through private placements or other non-public offerings to one or more persons. All stock sales will be at rates or prices and under conditions negotiated or based upon, or otherwise determined by, competitive capital markets.

    2. Debt Financings

      3. Allegheny and AE Supply request authorization to issue long-term and short-term debt to non-associate banks or other parties during the Authorization Period in amounts that, when combined with the equity financings described above, will not exceed $4 billion outstanding at any one time. Such debt may be non-recourse to Allegheny. Allegheny will issue only unsecured debt. The debt securities would comply with the Financing Conditions.

      Through the Authorization Period, Allegheny seeks authorization to transfer some or all of the debt proceeds to AE Supply in the form of interest-bearing loan(s). Loan(s) will bear interest at the lower market rate available to AE Supply or Allegheny. As set forth in this Application, Allegheny and AE Supply propose to use the proceeds for investments in EWGs and FUCOs, Rule 58 Companies, general corporate purposes and other purposes and activities authorized by this Commission, the Act or the rules under the Act.

    3. Guarantees

      4. The Applicants request authorization for Allegheny to enter into guarantees, extend credit, obtain letters of credit, enter into guaranty-type expense agreements and otherwise to provide credit support ("Guarantees") for the obligations from time to time of the direct and indirect subsidiaries of Allegheny ("Allegheny Guarantees") during the Authorization Period in an aggregate principal amount, together with the Other Subsidiary Guarantees (as defined below), not to exceed $4 billion (the "Aggregate Guarantee Limitation"), based on the amount at risk, outstanding at any one time, exclusive of (a) any such guarantees or credit support arrangements authorized by the Commission in separate proceedings and (b) any such guarantees exempt pursuant to Rule 45(b).

      In addition, the Applicants request authorization for the Other Subsidiaries to enter into guarantees, extend credit, obtain letters of credit, enter into guaranty-type expense agreements or otherwise provide credit support with respect to the obligations of any of the Other Subsidiaries as may be appropriate to enable such Other Subsidiaries to carry on their respective businesses (the "Other Subsidiary Guarantees"), in an aggregate principal amount, together with the Allegheny Guarantees, not to exceed the Aggregate Guarantee Limitation, based on the amount at risk, outstanding at any one time, exclusive of (a) any such guarantees or credit support arrangements authorized by the Commission in separate proceedings and (b) any such guarantees exempt pursuant to Rule 45(b).

      Any of the Allegheny Guarantees and Other Subsidiary Guarantees outstanding at the end of the Authorization Period shall continue until expiration or termination thereof in accordance with their terms. The amount of guarantees outstanding at any one time shall not be counted against the Aggregate Financing Limit. Any securities issued by a subsidiary, which are supported by an Allegheny Guarantee, or Other Subsidiary Guarantee will either be issued pursuant to a Commission order or pursuant to an applicable exemption under the Act. Allegheny or the Other Subsidiary which issues a guarantee may charge a fee for each guarantee it provides, which fee will not exceed the cost of obtaining the liquidity necessary to perform the guarantee.

    4. Form Capital Corps

      5. Applicants seek authorization to form one or more Capital Corps as direct or indirect subsidiaries. Capital Corps will be limited liability companies, corporations, trusts, partnerships or other entities formed to engage in tax efficient and financially efficient transactions with Applicants or any of their respective subsidiaries for the acquisition of EWGs and FUCOs, Rule 58 Companies, general corporate purposes, and other transactions.

      AE Supply seeks authorization through the Authorization Period to: (1) make capital contributions to the Capital Corps in exchange for equity ownership; (2) have Capital Corps make interest-bearing loan(s) of up to $4 billion to AE Supply evidenced by note(s) at market interest rates and terms; and (3) permit Capital Corps, as the loan(s) are repaid, to make additional borrowings available to AE Supply and its subsidiaries from the interest and principal payments it receives. Any such intra-system loans will count against the intra-system financing limit described below. These borrowings will be used for authorized acquisitions, EWGs and FUCOs, Rule 58 Companies, or other corporate purposes. Such loans will not affect AE Supply's debt-equity ratio and will provide for a tax efficient capital structure. The benefit of using this financing technique is to provide a vehicle to identify and assign capital costs and to provide substantial tax benefits that will serve to reduce the overall capital costs to AE Supply in connection with an acquisition and future transactions.

      Request is also made for authorization for Capital Corps to serve as financing entities to issue securities, including trust preferred securities, to third parties in the event such issuances are not exempt pursuant to Rule  52. Request is made for authorization with respect to (i) the issuance of debentures or other evidences of indebtedness by any of Allegheny and its direct and indirect subsidiaries to a financing entity in return for the proceeds of the financing, (ii) the acquisition by any of Allegheny or any of such subsidiaries of voting interests or equity securities issued by the financing entity to establish ownership of the financing entity, and (iii) the guarantee by Allegheny or any of such subsidiaries of such financing entity's obligations in connection therewith.

      Allegheny and its direct and indirect subsidiaries also may enter into expense agreements with its respective financing entity, pursuant to which it would agree to pay all expenses of such entity. All expense reimbursements would be at cost. Allegheny and its direct and indirect subsidiaries seek authorization for such expense reimbursement arrangements under Section 7(d)(4) of the Act, regarding the reasonableness of fees paid in connection with the issuance of a security, and/or under Section 13 of the Act and the rules thereunder to the extent the financing entity is deemed to provide services to an associate company.

      Any amounts issued by such financing entities to third parties pursuant to these authorizations will count against the Aggregate Financing Limit. However, the underlying intra-system mirror debt and guarantee will not count against any applicable inter-company financing limit or the separate guarantee limits applicable to Allegheny or such subsidiary.

    5. Intra-System Financings

      6. Applicants request authorization for inter-company loans by Allegheny and the Other Subsidiaries to Other Subsidiaries in an aggregate principal amount at any one time outstanding during the Authorization Period not to exceed $4 billion. Such financings would generally be in the form of cash capital contributions, open account advances, inter-company loans, and/or capital stock purchases. The terms and conditions of inter-company loans available to any borrowing company will be materially no less favorable than the terms and conditions of loans available to such borrowing company from third-party lenders. Specifically, the interest rate on inter-company loans payable by the borrower will be equal to the lending company's cost of capital.

      The authorization for intra-system financings requested in this paragraph excludes (a) financings that are exempt pursuant to Rules 45(b) and 52, as applicable, and (b) amounts outstanding from time to time under the money pool.

    6. Interest Rate and Currency Risk Management

      7. Applicants request authority to enter into, perform, purchase and sell financial instruments intended to manage the volatility of interest rates and currency exchange rates, including but not limited to interest rate and currency swaps, caps, floors, collars and forward agreements or any other similar agreements ("Instruments"). Applicants will employ Instruments as a means of prudently managing the interest rate and currency risks associated with any of its outstanding debt issued pursuant to this Application or an applicable exemption by, in effect, synthetically (i) converting variable rate debt to fixed rate debt, (ii) converting fixed rate debt to variable rate debt, (iii) limiting the impact of changes in interest rates resulting from variable rate debt and (iv) hedging currency exposures of foreign currency denominated debt. In addition, Applicants may utilize Instruments for planned issuances of debt securities in order to lock-in current interest rates and or to manage interest rate and currency risks in future periods. In no case will the notional amount of any Instruments exceed that of the underlying debt instrument. Thus, Applicants will not engage in "speculative" transactions. Applicants agree to only enter into Instruments with counterparties which have, or whose obligations are guaranteed by a party with, senior debt ratings, as published by Standard & Poor's, that are greater than or equal to "BBB+", or an equivalent rating from Moody's Investors Service, Inc. or Fitch IBCA, Inc.

      Applicants represent that the Instruments to be entered into will qualify for hedge accounting treatment under GAAP. Allegheny will comply with the financial disclosure requirements of the Financial Accounting Standards Board. Applicants request the Commission to reserve jurisdiction over the authority of Applicants to enter into Instruments, which do not qualify for hedge accounting treatment under GAAP.

    7. Payment of Dividends

      8. Applicants request authorization for their respective Other Subsidiaries to pay dividends, from time to time through the Authorization Period, out of capital and unearned surplus (including revaluation reserve), to the extent permitted under applicable corporate law. Applicants anticipate that there will be situations in which one or more of their respective direct or indirect subsidiaries will have unrestricted cash available for distribution in excess of any such company's current and retained earnings. In such situations, the declaration and payment of a dividend would have to be charged, in whole or in part, to capital or unearned surplus.

      Applicants represent on behalf of their respective Other Subsidiaries that it will not declare or pay any dividend out of capital or unearned surplus in contravention of any law restricting the payment of dividends. In this regard, it should be noted that all U.S. jurisdictions limit the authority of corporations to make dividend distributions to shareholders. Most state corporations statutes contain both an equity insolvency test and/or a balance sheet test. Applicants will comply, and will cause the Other Subsidiaries to comply, with the terms of any credit agreements and indentures that restrict the amount and timing of distributions to shareholders.

    8. EWG and FUCO Financing

Allegheny seeks authority to apply the proceeds of equity issuances, short-term debt, long-term debt and guarantees to increase its "aggregate investment" in EWGs and FUCOs up to $2.0 billion, or 207% of its consolidated retained earnings. Applicants state that Allegheny's aggregate investment in EWGs and FUCOs as of March 31, 2001, after taking into account the transactions contemplated by Holding Co. Act Release No. 27370 (March 30, 2001), was approximately $462 million, or 49% of its consolidated retained earnings. Allegheny further states that it currently plans to acquire and/or build additional generating facilities and that these investments, if consummated, would bring Allegheny's aggregate investment in EWGs and FUCOs in excess of 50% of its consolidated retained earnings.