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U.S. Securities and Exchange Commission


(Release No. 35-27653; 70-10109)

Allegheny Energy Inc.

Order Authorizing Charter Amendment to Eliminate Preemptive Rights of Stockholders.

February 20, 2003

Allegheny Energy Inc. ("Allegheny"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended, ("Act"), Hagerstown, Maryland, has filed a declaration ("Declaration") with the Securities and Exchange Commission ("Commission") under sections 6(a), 7 and 12(e) of the Act and rules 62 and 65 under the Act. The Commission issued a notice of the Declaration on January 21, 2003 (HCAR No. 27640).

Allegheny seeks authorization to amend its charter ("Charter") to eliminate preemptive rights of stockholders to subscribe for newly issued securities of Allegheny. Under Maryland law, a preemptive right is the preferential right of existing stockholders to purchase any issuance of stock or any issuance of a security convertible into an additional issuance of stock. Preemptive rights do not accrue unless expressly granted in a charter. Under the existing provisions of the Charter, stockholders of Allegheny possess preemptive rights to purchase, on a pro rata basis, any new issuance by Allegheny in a non-public offering for money of common stock or securities convertible into common stock of Allegheny. On December 5, 2002, the Board of Directors of Allegheny unanimously approved resolutions proposing to amend and restate Article VII of the Charter to provide that preemptive rights shall not exist with respect to Allegheny's securities. It is proposed that the current Article VII, Section B of the Charter be deleted and a new Article VII, Section B be inserted so that Article VII, Section B of the Charter as amended shall read in full and in its entirety as follows:

B. No holder of Common Stock shall be entitled to preemptive rights and preemptive rights shall not exist with respect to shares or securities of the Corporation.

The affirmative vote of a majority of all the votes entitled to be cast is required for the approval of the proposal.

Allegheny states that elimination of preemptive rights will give the Board of Directors of Allegheny greater flexibility and reduce the cost of financings, such as the sale through private placements of new shares of common stock or senior securities convertible into common stock. The company states that the preemptive rights provision in the Charter serves as a significant impediment to any private sale of equity securities for cash to institutional or strategic investors. These types of issuances of equity can be important in times like these when both Allegheny and the capital markets, at least for energy companies, are under great stress, Allegheny states.

Allegheny would like to submit the proposed amendments to its Charter as described in this Declaration to stockholders and to solicit proxies from stockholders at a special meeting during the first quarter of 2003. Adoption of the proposed amendments will require the affirmative vote of the holders of a majority of the outstanding shares of Allegheny's common stock entitled to vote at the special meeting. By order dated January 21, 2003 (HCAR No. 27640), Allegheny was authorized to solicit proxies from shareholders in connection with the proposed Charter amendment.

The cost of the solicitation of proxies will be borne by Allegheny. In addition to the solicitation of proxies by use of the mails, Allegheny, or its subsidiaries, may use the services of its officers, directors and regular employees (none of whom will receive any compensation other than their regular compensation) to solicit proxies, personally or by telephone. Arrangements may also be made with banks, brokerage houses and other custodians, nominees and fiduciaries to forward the proxy materials to the beneficial owners, and Allegheny may reimburse these banks, brokerage houses, custodians, nominees and fiduciaries for reasonable expenses. Allegheny has hired MacKenzie Partners, Inc. to assist in soliciting proxies and has agreed to pay a customary fee for these services, in addition to expenses incurred in connection with the solicitation of proxies.

The following estimated fees and expenses, including expenses of the special meeting of stockholders, are expected to be incurred by Allegheny in connection with the proposed proxy solicitation and special meeting: Proxy Solicitation, $50,000; Printing, $15,000; Mailings, $100 to $150,000; Legal Fees, $100,000. The total estimated fees and expenses are $265,000 to $315,000.

No state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.

Due notice of the filing of the Declaration has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the Declaration be permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland
Deputy Secretary



Modified: 08/04/2003