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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Quarterly Report under Section 13 or 15(d)

of the Securities Exchange Act of 1934

For Quarter Ended June 30, 2002

Commission File Number 1-5164

(Exact name of registrant as specified in its charter)

1310 Fairmont Avenue, Fairmont, West Virginia 26554

Telephone Number - 304-366-3000

     The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

     At August 14, 2002, 5,891,000 shares of the Common Stock ($50 par value) of the registrant were outstanding, all of which are held by Allegheny Energy, Inc., the Company's parent.

Monongahela Power Company (the Company) is a wholly-owned subsidiary of Allegheny Energy, Inc. (Allegheny Energy). The Company's Notes to Consolidated Financial Statements in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2001, should be read in conjunction with the accompanying consolidated financial statements and the following notes. The accompanying consolidated financial statements appearing on pages 3 through 6 and these notes to consolidated financial statements are unaudited. In the opinion of the Company, such consolidated financial statements together with these notes contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the Company's financial position as of June 30, 2002, results of operations for the three and six months ended June 30, 2002 and 2001, and cash flows for the six months ended June 30, 2002 and 2001. Certain prior period amounts in these consolidated financial statements and notes have been reclassifi ed for comparative purposes.

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminated the pooling-of-interests method and requires all business combinations initiated after June 30, 2001, to be accounted for under the purchase method of accounting. SFAS No. 141 also sets forth guidelines for applying the purchase method of accounting in the determination of goodwill and other intangible assets. The application of SFAS No. 141 did not affect any of the Company's previously reported amounts for goodwill and other intangible assets.

SFAS No. 142 eliminated amortization of goodwill and other intangible assets with indefinite lives effective January 1, 2002. Subsequent to the transitional provisions of SFAS No. 142 (see below), goodwill and other intangible assets with indefinite lives will be tested at least annually for impairment, with impairment losses recognized in operating income. Other intangible assets with finite lives will continue to be amortized over their useful lives and tested for impairment when events or circumstances warrant.

As applied to the Company, SFAS No. 142 transitional provisions required the Company to test goodwill for impairment as of January 1, 2002, and recognize any transitional goodwill impairment loss as the effect of a change in accounting principle in the first quarter of 2002 irrespective of when the loss was measured and recorded in the Company's books. During the second quarter of 2002, the Company completed its transitional goodwill impairment test, using a discounted cash flow methodology to determine the fair value of its reporting units, and recorded an impairment loss of $195.0 million ($115.4 million, net of income taxes), all of which relates to the Delivery and Services operating segment. In accordance with SFAS No. 142, this impairment loss has been be recognized in the first quarter of 2002 through restatement of first quarter 2002 financial information in this Form 10-Q and subsequent Form 10-Q filings; no amendment or re-filing of the Company's first quarter 2002 Form 10-Q is required.

Monongahela Power

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The transitional goodwill impairment loss consists of $170.0 million related to the Company's acquisition of Mountaineer Gas Company (Mountaineer Gas) in 2000 and $25.0 million related to the Company's acquisition of West Virginia Power Company (West Virginia Power) in 1999. The impairment amounts result from factors that are unique to these rate regulated entities and the ratemaking process, including the fact that none of the $195.0 million of goodwill was being recovered in rates or included in rate base.

SFAS No. 142 transitional provisions also have been completed with respect to the Company's other intangible assets resulting in no impairments or changes to amortizable lives.

The carrying amount of, and changes in, goodwill attributable to each reportable operating segment are as follows:

The Company has amortized contract-based other intangible assets (gas rights underlying land not owned or leased by the Company) included in Property, Plant, and Equipment with a gross carrying amount and accumulated amortization as follows: at June 30, 2002, $6.6 million and $3.4 million, respectively, and at December 31, 2001, $6.6 million and $3.2 million, respectively. Amortization expense is estimated to be $.3 million annually for 2002 through 2007.

If the provisions of SFAS No. 142 had been applied for the three and six months ended June 30, 2001, consolidated net income would have been as follows:

During the three months ended June 30, 2002, the Company recorded a liability and an unrealized loss for derivative instruments of $.9 million in other current liabilities for three wholesale electricity contracts. These contracts previously qualified for the normal purchases and normal sales exception under SFAS No. 133. However, due to changes resulting from the April 2002 integration with the Pennsylvania - New Jersey - Maryland Interconnection, LLC (PJM) these contracts did not qualify for the normal purchases and normal sales exception from April 1, 2002 through June 30, 2002.

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The Company's interest in the common stock of AGC decreased to 22.97 percent from 27 percent effective June 1, 2001. The decrease resulted from a transfer of a portion of the Company's Ohio and Federal Energy Regulatory Commission (FERC) jurisdictional generating assets to Allegheny Energy Supply Company, LLC (Allegheny Energy Supply). Allegheny Energy Supply owns the remaining shares. The Company reports AGC in its financial statements using the equity method of accounting. AGC owns an undivided 40 percent interest, 960 megawatts (MW), in the 2,400-MW pumped-storage hydroelectric station in Bath County, Virginia, operated by the 60 percent owner, Virginia Electric and Power Company, a nonaffiliated utility.

AGC recovers from the Company and Allegheny Energy Supply all of its operation expense, depreciation, taxes, and a return on its investment under a wholesale rate schedule approved by the FERC. AGC's rates are set by a formula filed with and previously accepted by the FERC. The only component that changes is the return on equity (ROE). Pursuant to a settlement agreement filed with the FERC on April 4, 1996, AGC's ROE was set at 11 percent for 1996 and will continue until the time any affected party seeks renegotiation of the ROE.

Following is a summary of statement of operations information for AGC:

The Company's share of the equity in earnings above was $1.1 and $1.2 million for the three month periods ended June 30, 2002 and 2001, respectively, and $2.1 million and $2.7 million for the six months ended June 30, 2002 and 2001, respectively, and is included in other income, net on the Company's Consolidated Statement of Operations.

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The consolidated balance sheet includes the amounts listed below for generation assets not subject to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation."

In February 2002, the Company redeemed $2.1 million of 4.35 percent unsecured notes as per the original terms.

7. Related Party Transactions

Substantially all of the employees of Allegheny Energy are employed by Allegheny Energy Service Corporation (AESC), which performs services at cost for the Company and its affiliates in accordance with the Public Utility Holding Company Act of 1935 (PUHCA). Through AESC, the Company is responsible for its proportionate share of services provided by AESC. The total billings by AESC (including capital) to the Company for the three months ended June 30, 2002 and 2001 were $41.3 million and $43.9 million, respectively, and $88.4 million and $92.7 million for the six months ended June 30, 2002 and 2001, respectively.

The Company purchases power, primarily to meet its retail load requirements as the default provider during the transition period for the deregulation plan approved in Ohio, from its unregulated generation company affiliate, Allegheny Energy Supply, in accordance with agreements approved by the FERC. The expense from these purchases is reflected in "Purchased energy and transmission" on the Consolidated Statement of Operations. Total power purchased by the Company from Allegheny Energy Supply amounted to $4.8 million and $1.2 million for the three months ended June 30, 2002 and 2001, respectively, and $7.5 million and $2.2 million for the six months ended June 30, 2002 and 2001, respectively. If the Company purchases or generates more energy than is needed to serve its customers, the excess energy is sold to Allegheny Energy Supply and is reflected as operating revenues in "Wholesale and other, including affiliates" on the Consolidated Statement of Operations. For the three months ended June 30, 2002 and 2 001, the Company sold excess energy to Allegheny Energy Supply of $6.1 million and $21.0 million, respectively. For the six months ended June 30, 2002 and 2001, the sale of excess energy amounted to $18.0 million and $44.1 million, respectively.

Monongahela Power

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The Ohio and FERC jurisdictional generation assets transferred to Allegheny Energy Supply on June 1, 2001, have been leased back by the Company. The lease was effective on June 1, 2001 for a term of one year and renews automatically. The Company and Allegheny Energy Supply have mutually agreed to continue the lease. For the three months ended June 30, 2002 and 2001, the rental expense from this arrangement totaled $9.9 million and $3.3 million, respectively. Total rental expense for the six months ended June 30, 2002 and 2001 was $19.7 million and $3.3 million, respectively. The rental expense for all periods is reported as "Purchased energy and transmission" on the Consolidated Statement of Operations.

The Company and its affiliates use an Allegheny Energy internal money pool as a facility to accommodate intercompany short-term borrowing needs, to the extent that certain companies have funds available. As of June 30, 2002 and December 31, 2001, the Company had $88.4 million and $91.5 million invested in the money pool, respectively.

The Company joins with Allegheny Energy and its subsidiaries in filing a consolidated federal income tax return. The consolidated income tax liability is allocated among the participants generally in proportion to the taxable income of each participant, except that no subsidiary pays income tax in excess of its separate return income tax liability. In the first six months of 2002 and 2001, the Company paid income tax allocations to Allegheny Energy of $2.2 million and $19.4 million, respectively.

8. Business Segments

The Company manages and evaluates its operations in two business segments: 1) Delivery and Services and 2) Generation and Marketing. Prior to the second quarter of 2002, the Company reported a single segment for all of its

regulated utility operations. Business segments have been changed to reflect current internal management reporting. Prior period segment information has been restated for comparability.

The Delivery and Services segment operates regulated electric and natural gas transmission and distributions systems.

The Generation and Marketing segment develops, owns, operates, and manages electric generating capacity.

The Company accounts for intersegment sales based on cost or regulatory commission approved tariffs or contracts.

Monongahela Power

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Business segment information is summarized below. Significant transactions between reportable segments are shown as eliminations to reconcile the segment information to consolidated amounts.

Monongahela Power

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"Other income, net" on the Consolidated Statement of Operations represents nonoperating revenues and expenses, net of related income taxes. The following table summarizes the Company's other income, net for the three and six months ended June 30, 2002 and 2001:

Other income includes the Company's portion of equity earnings in AGC, which is not subject to income taxes. See Note 4 to the consolidated financial statements for further details regarding the Company's investment in AGC.

In February 2002, the Allegheny Energy companies completed the sale of 12,000 acres of land in the Canaan Valley of West Virginia to the U.S. Fish and Wildlife Service, which will use the land to expand the Canaan Valley National Wildlife Refuge. As a result, the Company recorded a gain of approximately $1.8 million, before income taxes ($1.5 million, after income taxes) in other income, net on the Consolidated Statement of Operations.

The Company is subject to various laws, regulations, and uncertainties as to environmental matters. Compliance may require the Company to incur substantial additional costs to modify or replace existing and proposed equipment and facilities and may adversely affect the cost of future operations.

The Environmental Protection Agency's (EPA) nitrogen oxides (NO_X) State Implementation Plan (SIP) call regulation has been under litigation and, on March 3, 2000, the United States Court of Appeals issued a decision that upheld the regulation. However, state and industry litigants filed an appeal of that decision in April 2000. On June 23, 2000, the Court denied the request for the appeal. Although the Court did issue an order to delay the compliance date from May 1, 2003, until May 31, 2004, both the Maryland and Pennsylvania state rules to implement the EPA NO_X SIP call regulation still require compliance by May 1, 2003. West Virginia has issued a final rule that would require compliance by May 1, 2004. The EPA Section 126 petition regulation also requires the same level of NO_X reductions as the EPA NO_X SIP call regulation and was also under litigation in the United States Court of Appeals. A Court decision in May 2001 upheld the rule. In August 2001, t he Court issued an order that suspended the Section 126 petition rule May 1,

2003, compliance date pending EPA review of the growth factors used to calculate the state NO_X budgets. In January 2002, the EPA announced its intention to revise the Section 126 petition rule compliance date from May 1, 2003, to May 31, 2004. The Company's compliance with such stringent regulations will require the installation of post-combustion control

Monongahela Power

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technologies on most of its power stations. The Company's construction forecast includes the expenditure of $52.4 million of capital costs during the 2002 through 2003 period to comply with these regulations.

On August 2, 2000, the Company received a letter from the EPA requiring it to provide certain information on the following ten electric generating stations: Albright, Armstrong, Fort Martin, Harrison, Hatfield's Ferry, Mitchell, Pleasants, Rivesville, R. Paul Smith, and Willow Island. Allegheny Energy Supply and the Company, either individually or together, now own these electric generating stations. The letter requested information under Section 114 of the federal Clean Air Act (Act) to determine compliance with the Act and state implementation plan requirements, including potential application of federal New Source Review (NSR). In June 2002, Allegheny Energy received a request from the EPA to provide additional information concerning three of its electric generating stations. The information will be provided to the EPA by the end of the fourth quarter of 2002. In general, these standards can require the installation of additional air pollution control equipment upon the major modification of an existing facility. The Company submitted these records in January 2001. The eventual outcome of the EPA investigation is unknown.

Similar inquiries have been made of other electric utilities and have resulted in enforcement proceedings being brought in many cases. The Company believes its generating facilities have been operating in accordance with the Clean Air Act and the rules implementing the Act. The experience of other utilities, however, suggests that, in recent years, the EPA may well have revised its interpretation of the rules regarding the determination of whether an action at a facility constitutes routine maintenance, which would not trigger the requirements of NSR, or a major modification of the facility, which would require compliance with NSR. If federal NSR were to be applied to these generating stations, in addition to the possible imposition of fines, compliance would entail significant expenditures. In connection with the deregulation of generation, the Company has agreed to rate caps in each of its jurisdictions, and there are no provisions under those arrangements to increase rates to cover such expendit ures.

In December 2000, the EPA issued a decision to regulate coal- and oil-fired electric utility mercury emissions under Title III, Section 112 of the Clean Air Act Amendments of 1990 (CAAA). The EPA plans to issue a proposed regulation by December 2003 and a final regulation by December 2004. The timing and level of required mercury emission reductions are unknown at this time.

On March 4, 1994, The Potomac Edison Company (Potomac Edison), West Penn Power Company (West Penn), and the Company received notice that the EPA had identified them as potentially responsible parties (PRPs) under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, with respect to a Superfund Site. There are approximately 175 other PRPs involved. A final determination has not been made for the Company's share of the remediation costs based on the amount of materials sent to the site. However, the Company estimates that its share of the cleanup liability will not exceed $.6 million, which has been accrued as a liability at June 30, 2002.

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Potomac Edison, West Penn, and the Company have also been named as defendants along with multiple other defendants in pending asbestos cases involving multiple plaintiffs. While the Company believes that all of the cases are without merit, the Company cannot predict the outcome of the litigation. The Company has accrued a reserve of $1.5 million as of June 30, 2002, related to the asbestos cases as the potential cost to settle the cases to avoid the anticipated cost of defense. For the three and six months ended June 30, 2002, the Company received $.7 million of insurance recoveries (net of $.2 million of legal fees) related to these asbestos cases. For the three and six months ended June 30, 2001, the Company received $.01 million of insurance recoveries related to these asbestos cases.

The Attorney General of the State of New York and the Attorney General of the State of Connecticut in their letters dated September 15, 1999, and November 3, 1999, respectively, notified the Company of their intent to commence civil actions against Allegheny Energy or certain of its subsidiaries alleging violations at the Fort Martin Power Station under the federal Clean Air Act, including the new source performance standards, which requires existing generating facilities that make major modifications to comply with the same emission standards applicable to new generating facilities. Other governmental authorities may commence similar actions in the future. Fort Martin is a station located in West Virginia and is now jointly owned by Allegheny Energy Supply and the Company. Both Attorney Generals stated their intent to seek injunctive relief and penalties. In addition, the Attorney General of the State of New York in his letter indicated that he may assert claims under the state common law of publi c nuisance seeking to recover, among other things, compensation for alleged environmental damage caused in New York by the operation of the Fort Martin Power Station. At this time, Allegheny Energy and its subsidiaries are not able to determine what effect, if any, these actions threatened by the Attorney Generals of New York and Connecticut may have on them.

In the normal course of business, the Company becomes involved in various legal proceedings. The Company does not believe that the ultimate outcome of these proceedings will have a material effect on its results of operations, cash flows, or financial position.

In July 2002, Allegheny Energy announced plans to reduce its workforce of approximately 6,000 employees by approximately 10 percent. The workforce reductions will occur mostly this year through the combination of an early retirement option, normal attrition, and other selected staff reductions. At this time, the Company cannot estimate the cost of the workforce reduction since the results of the early retirement offer to employees is not known. The Company expects to record a charge in conjunction with the early retirement offer in the third quarter of 2002 based on the window for employees to accept the offer. The timing for recording charges for involuntary termination benefits related to selective staff reductions is being evaluated, including the potential impact of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which was issued in June 2002.

The Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in Monongahela Power Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2001, should be read in conjunction with the following Management's Discussion and Analysis information.

Certain statements within constitute forward-looking statements with respect to Monongahela Power Company and its subsidiaries (collectively, the Company). Such forward-looking statements include statements with respect to deregulated activities and movements towards competition in the states served by the Company, markets, products, services, prices, capacity purchase commitments, results of operations, capital expenditures, regulatory matters, liquidity and capital resources, the effect of litigation, and accounting matters. All such forward-looking information is necessarily only estimated. There can be no assurance that actual results of the Company will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations.

Factors that could cause actual results of the Company to differ materially include, among others, the following: general economic and business conditions; changes in industry capacity, development, and other activities by the Company's competitors; changes in the weather and other natural phenomena; changes in technology; changes in the price of purchased power and fuel for electric generation; changes in laws and regulations applicable to the Company, its markets, or its activities; litigation involving the Company; environmental regulations; the loss of any significant customers and suppliers; the effect of accounting policies issued periodically by accounting standard-setting bodies; and changes in business strategy, operations, or development plans.

In July and August 2002, Allegheny Energy, the Company's parent, announced a series of initiatives to improve financial performance and respond to the challenges it faces in the current energy marketplace. The combination of the challenges to various electricity sales contracts and markets, the Enron bankruptcy, accounting scandals, energy trading improprieties, and other matters has significantly affected the merchant energy market. As a result, trading and origination opportunities have not occurred as Allegheny Energy expected and are not expected to occur in the near future. In addition, additional generating capacity resources, lower than expected demand, and a relatively weak economy have led to reduced wholesale energy prices in several markets in which Allegheny Energy owns, operates, or contractually controls generation capacity.

Monongahela Power

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Allegheny Energy's long-term strategy will be to focus on improving and maximizing the performance of its two business segments: Generation and Marketing, and Delivery and Services. In this context, Allegheny Energy completed a thorough re-examination of its businesses, operations, and strategic plans and has developed the following objectives:

- Allegheny Energy will focus on identifying ways to improve, grow, and   build on the earnings and cash flows from its core delivery and generation   businesses. Furthermore, Allegheny Energy's asset-backed strategy will   refocus on the regions in which it owns generating facilities and serves   customers such as the Mid-Atlantic and Midwest.

- Allegheny Energy will reduce its reliance on energy marketing and trading.   Allegheny Energy has modified its energy marketing and trading activities to   focus on reducing risk, optimizing its generating facilities, reducing the   effect and amount of mark-to-market earnings, and prudently managing and   protecting the value associated with the existing positions in Allegheny   Energy's energy marketing and trading portfolio.

- Allegheny Energy is pursuing ways to bolster its balance sheet, improve   its liquidity, and reduce capital and operations and maintenance expenses.

Allegheny Energy also is implementing an aggressive cost reduction program which includes:

- Reducing pre-tax operating expenses by $45 million for the remainder of   2002;

- Canceling 1,080 megawatts (MW) of generation planned for La Paz, Arizona,   and 88 MW of combustion turbine generation planned for St. Joseph,   Indiana, reducing capital expenditures by approximately $700 million over   the next several years; and

- Reducing Allegheny Energy's workforce of approximately 6,000 employees by   roughly 10 percent to reflect current market conditions. The workforce   reductions will occur mostly this year through the combination of an early   retirement option, normal attrition, and other selected staff reductions,   resulting in approximately $5 million, before income taxes, of expense   reductions this year and an ongoing annualized savings of $40 to $50   million, before income taxes.

Allegheny Energy has modified its energy marketing and trading and origination activities to focus on short-term trading, asset optimization, and hedging its generating capacity. These activities are more appropriately aligned with Allegheny Energy's existing portfolio of physical assets.

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At this time, the Company cannot estimate the cost of the workforce reduction since the results of the early retirement offer to employees are not known. The Company expects to record a charge for the early retirement offer in the third or fourth quarter of 2002. The timing for recording charges for involuntary termination benefits related to selective staff reductions is being evaluated, including the potential impact of Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which was issued in June 2002. See the discussion of "Accounting Standards" below for additional information concerning SFAS No. 146.

On April 1, 2002, the Company and its regulated affiliates - The Potomac Edison Company (Potomac Edison) and West Penn Company (West Penn) - collectively doing business as Allegheny Power, and the Pennsylvania-New Jersey-Maryland Interconnection, LLC (PJM), the electric grid operator for the mid-Atlantic region, announced that PJM's wholesale electricity market had begun operating in Allegheny Power's service territory. The collaboration between Allegheny Power and PJM, which is known as PJM West, brings Allegheny Power's transmission system under PJM's functional control. This creates an integrated energy market and congestion management system operating under a single governance structure in two separate control areas and across multiple North American Electric Reliability Councils. The larger energy market provides one market with a common transmission tariff, business practices, and market tools, thus eliminating interface issues between Allegheny Power and PJM.

PJM West provides transmission service to all market participants in accordance with the requirements of the Federal Energy Regulatory Commission (FERC) Order 2000. Transmission ties between PJM and PJM West are dynamically scheduled to support the integrated energy market.

On April 28, 2002, the negotiating teams for Allegheny Energy Service Corporation (AESC), an affiliate that employs all of the employees who work on behalf of the Company, and the Utility Workers Union of America (UWUA) System Local 102 reached a tentative agreement on a five-year contract. On June 8, 2002, AESC and the UWUA System Local 102 announced that the union's 1,165 members had ratified the agreement.

On January 1, 2002, the Company adopted SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminated the pooling-of-interests method and requires all business combinations initiated after June 30, 2001, to be accounted for under the purchase method of accounting. SFAS No. 141 also sets forth guidelines for applying the purchase method of accounting in the determination of goodwill and other intangible assets. The application of SFAS No. 141 did not affect any of the Company's previously reported amounts for goodwill and other intangible assets.

Monongahela Power

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SFAS No. 142 eliminated amortization of goodwill and other intangible assets with indefinite lives effective January 1, 2002. Subsequent to the transitional provisions of SFAS No. 142 (see below), goodwill and other intangible assets with indefinite lives will be tested at least annually for impairment, with impairment losses recognized in operating income. Other intangible assets with finite lives will continue to be amortized over their useful lives and tested for impairment when events or circumstances warrant.

As applied to the Company, SFAS No. 142 transitional provisions required the Company to test goodwill for impairment as of January 1, 2002, and recognize any transitional goodwill impairment loss as the effect of a change in accounting principle in the first quarter of 2002 irrespective of when the loss was measured and recorded in the Company's books. During the second quarter of 2002, the Company completed its transitional goodwill impairment test, using a discounted cash flow methodology to determine the fair value of its reporting units, and recorded an impairment loss of $195.0 million ($115.4 million, net of income taxes), all of which relates to the Delivery and Services operating segment. In accordance with SFAS No. 142, this impairment loss has been recognized in the first quarter of 2002 through restatement of first quarter 2002 financial information in this Form 10-Q and subsequent Form 10-Q filings; no amendment or re-filing of the Company's first quarter 2002 Form 10-Q is required.

The transitional goodwill impairment loss consists of $170.0 million related to the Company's acquisition of Mountaineer Gas Company (Mountaineer Gas) in 2000 and $25.0 million related to the Company's acquisition of West Virginia Power Company (West Virginia Power) in 1999. The impairment amounts result from factors that are unique to these rate regulated entities and the ratemaking process, including the fact that none of the $195.0 million of goodwill was being recovered in rates or included in rate base.

SFAS No. 142 transitional provisions also have been completed with respect to the Company's other intangible assets resulting in no impairments or changes to amortizable lives.

See Note 2 to the consolidated financial statements for additional information regarding SFAS No. 142.

On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement establishes one accounting model for long-lived assets to be disposed of by sale, including discontinued operations, and carries forward the general impairment provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The adoption of SFAS No. 144 did not have a material effect on the Company's results of operations, cash flows, or financial position.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 amends SFAS No. 13,

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"Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement are effective over various dates beginning May 15, 2002. SFAS No. 145 is not expected to have a material effect on the Company's results of operations, cash flows, or financial position.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Costs associated with exit or disposal activities include termination benefits provided to employees that are involuntarily terminated, costs to terminate an operating lease or other contract, and incremental direct costs associated with, for example, facility closures and restructuring plans. The principal difference between this Statement and EITF Issue No. 94-3 involves the timing of recognition of a liability. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. The Company is currently evaluating the effect of applying SFAS No. 146 on its results of operations and financial position. The Company has not determined whether it will adopt the Statement early or what effect, if any, SFAS No. 146 may have on the accounting for the 10 percent workforce reduction announced in July 2002.

Consolidated income, before cumulative effect of an accounting change, for the three and six months ended June 30, 2002, were $1.8 million and $17.7 million, respectively, compared to $19.3 million and $49.4 million for the corresponding 2001 periods. The decrease in earnings was the result of a decrease in operating revenues coupled with an increase in purchased energy and transmission. The decrease in operating revenues is the result of decreases in energy sales to affiliates and natural gas sales. The increase in purchased energy and transmission is a result of the Company transferring its Ohio and FERC jurisdictional generation assets to Allegheny Energy Supply on June 1, 2001.

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Total operating revenues for the three and six months ended June 30, 2002 and 2001 were as follows:

Delivery and Services electric revenues increased $4.6 million for the three months ended June 30, 2002 as a result of an increase in the average number of customers served and an increase in customer usage due to warmer weather conditions in the latter part of the quarter. Delivery and Services electric revenue increased $3.7 million for the six months ended June 30, 2002 as a result of an increase in the average number of customers served offset, in part, by a decrease in customer usage due to milder weather conditions.

Delivery and Services natural gas revenues decreased $1.6 million and $18.5 million for the three and six months ended June 30, 2002, respectively. The decreases are primarily the result of a decrease in customer usage due to milder weather conditions in the first quarter of 2002 and movement of some commercial natural gas customers to alternate suppliers and becoming transportation customers only. As a significant portion of the natural gas sold by the Company is ultimately used for space heating, both revenues and earnings are subject to seasonal fluctuations. The Purchased Gas Adjustment (PGA) mechanism continues to exist for West Virginia Power and came into effect for Mountaineer Gas following a three-year moratorium, which ended on October 31, 2001. Under the PGA mechanism, differences between revenues received for energy costs and actual energy costs are deferred until the next rate proceeding, when energy rates are adjusted to return or recover previous overrecoveries or underrecoveries, respectiv ely.

Generation and Marketing represents energy and ancillary services sales to the Company's Delivery and Services segment and excess energy sales to Allegheny Energy Supply, the Company's unregulated generation affiliate. Generation and Marketing decreased $22.2 million and $54.1 million for the three and six months ended June 30, 2002, respectively, primarily due to the transfer of the Company's Ohio and FERC jurisdictional generation assets to Allegheny Energy Supply on June 1, 2001 and generation outages in the second quarter of 2002 limiting the Company's ability to generate and sell excess energy.

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Fuel consumed for electric generation for the three and six months ended June 30, 2002 and 2001 was as follows:

Fuel consumed for electric generation for the three months ended June 30, 2002 decreased $6.7 million primarily due to a 25.4 percent decrease in kilowatt hours (kWhs) generated offset, in part, by a 5.5 percent increase in average fuel prices. For the six months ended June 30, 2002, fuel consumed for electric generation decreased $14.3 million primarily due to a 23.3 percent decrease in kWhs generated offset, in part, by a 3.8 percent increase related to average fuel prices. The decrease in kWhs generated is the result of the Company transferring its Ohio and FERC jurisdictional generation assets to Allegheny Energy Supply on June 1, 2001.

Purchased energy and transmission represents power purchases primarily from Allegheny Energy Supply and qualified facilities under the Public Utility Regulatory Policies Act of 1978 (PURPA), and capacity charges paid to Allegheny Generating Company (AGC), an affiliate partially owned by the Company, and for the three and six months ended June 30, 2002 and 2001 were as follows:

Delivery and Services purchased energy and transmission consists of energy purchases from Allegheny Energy Supply, PURPA generators, and nonaffiliated energy providers and increased by $6.7 million and $4.6 million for the three and six months ended June 30, 2002, respectively. The increase for the three and six months ended June 30, 2002 was primarily due to the Company purchasing energy from Allegheny Energy Supply in order to meet its Ohio load requirements. Effective January 1, 2001, a portion of the electricity purchased by the Company from Allegheny Energy Supply is now subject to pricing at market-based rates. See "Item 3 - Quantitative and Qualitative Disclosures About Market Risk" for additional details.

Monongahela Power

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Generation and Marketing purchased energy and transmission consists of energy purchases from AGC and nonaffiliated energy providers. Generation and Marketing purchased energy and transmission increased by $1.7 million for the three months ended June 30, 2002, and remained relatively flat for the six months ended June 30, 2002. The increase for the three months ended June 30, 2002 is primarily due to an increase in energy purchases from nonaffiliated providers offset, in part, by a decrease in AGC capacity charges.

The elimination between Delivery and Services and Generation and Marketing purchased energy and transmission is necessary to remove the effect of affiliated purchased energy and transmission expenses.

Natural gas purchases and production expenses for the three and six months ended June 30, 2002 and 2001 were as follows:

Natural gas purchases for the three months ended June 30, 2002 increased $1.7 million primarily due a benefit received in accounting for unaccounted natural gas for the three months ended June 30, 2001. Natural gas purchases for the six months ended June 30, 2002 decreased $9.6 million due primarily to a decrease in gas sales due to weather conditions coupled with lower average natural gas costs.

Other operation expenses for the three and six months ended June 30, 2002 and 2001 were as follows:

Total other operation expenses increased $3.6 million and decreased $4.0 million for the three and six months ended June 30, 2002, respectively. The changes in total other operating expenses for the second quarter of 2002 are primarily due to increased maintenance costs and materials and supplies. The decrease for the six months ended June 30, 2002 were primarily the result of changes in materials and supplies, contract work, and uncollectible expense.

Monongahela Power

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Depreciation and amortization for the three and six months ended June 30, 2002 and 2001 were as follows:

Total depreciation and amortization for the three and six months ended June 30, 2002, decreased $1.8 million and $3.7 million, respectively, due primarily to the discontinuation of amortization of goodwill effective January 1, 2002, and a decrease in depreciation due to the transfer of the Company's Ohio and FERC jurisdictional generation assets on June 1, 2001. See Note 2 to the Consolidated Financial Statements for details regarding goodwill.

Taxes other than income taxes for the three and six months ended June 30, 2002 and 2001 were as follows:

Total taxes other than income taxes primarily include gross receipts taxes, payroll taxes, property taxes, and capital stock/franchise taxes. Taxes other

than income taxes decreased $2.3 million and $1.8 million in the three and six months ended June 30, 2002, respectively, as a result of a decrease in the West Virginia Gross Receipts Tax due to a decline in taxable revenues. The decrease was offset, in part, by an increase in property taxes as a result of increased assessments.

Federal and state income taxes for the three and six months ended June 30, 2002 and 2001 were as follows:

Monongahela Power

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Total federal and state income taxes decreased $8.2 million and $16.5 million for the three and six months ended June 30, 2002 and is primarily the result of a decrease in taxable income.

Other income, net represents nonoperating revenues and expenses, net of related income taxes. Total other income, net decreased $1.0 million for the three months ended June 30, 2002 due to an decrease in other non-operating income. Total other income, net for the six months ended remained relatively flat. See Note 9 to the consolidated financial statements for additional details.

The cumulative effect of an accounting change, net reflects a charge of $115.4 million for the impairment of goodwill in accordance with SFAS 142. See Note 2 to the Consolidated Financial Statements for further details regarding goodwill impairment.

The Company's discussion of Financial Condition, Requirements, and Resources and Significant Continuing Issues in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2001, should be read in conjunction with the following information.

To meet cash needs for operating expenses, the payment of interest, the retirement of debt, and its construction program, the Company has used internally generated funds (net cash provided by operating activities less common dividends) and external financings, such as the sale of common and preferred stock, debt instruments, and lease arrangements. The timing and amount of external financings depend primarily upon economic and financial market conditions, the Company's cash needs, and capital structure objectives of the Company. The availability and cost of external financings depend upon the financial condition of the Company and market conditions.

The Company's ability to meet its payment obligations under its indebtedness and to fund capital expenditures will depend on its future operations. The Company's future performance is subject to regulatory, economic, financial, competitive, legislative, and other factors that are beyond its control, as discussed in "Factors That May Affect Future Results" on page 15. The Company's future performance could affect its ability to maintain its investment grade credit rating.

To enhance liquidity and meet short-term borrowing needs, the Company issues commercial paper and has access to lines of credit and an Allegheny Energy internal money pool. The Company is a participant, along with Allegheny Energy and various affiliates, in bank lines of credit totaling $380 million at June 30, 2002 for general corporate purposes and as a backstop to their commercial paper programs. At June 30, 2002, the entire $380 million in bank lines of credit was supporting commercial paper and thus unavailable to the Company.

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Effective July 1, 2002, the lines of credit declined to $360 million. In addition, an Allegheny Energy internal money pool accommodates intercompany short-term borrowing needs, to the extent that Allegheny Energy and its regulated subsidiaries have funds available. The Company has SEC authorization for total short-term borrowings, from all sources, of $206 million. See "Financings" below for additional information on short-term debt outstanding at June 30, 2002, and December 31, 2001.

At June 30, 2002, due to the loss created by the adoption of SFAS No. 142 recorded by a subsidiary of the Company, certain restrictions related to the subsidiary issuing or guaranteeing additional long-term indebtedness and making Restricted Payments, as defined in the agreements related to certain outstanding debt obligations of the subsidiary, exist. Management does not believe that these restrictions will have an adverse effect on the Company's results of operations or financial position.

On August 8, 2002, Moody's Investors Service (Moody's) announced that it has placed its ratings of Allegheny Energy and all of its subsidiaries on review. Allegheny Energy continues to work with Moody's to ensure that it understands the Allegheny Energy's business and strategy and to provide it with all the information needed for its review. Moody's will determine whether to change Allegheny Energy's credit ratings following completion of its review. Moody's also indicated in its press release its review will focus on a number of factors, including Allegheny Energy's weaker-than-expected operating cash flows and earnings, currently unfavorable power purchase and hedging arrangements, challenges to a key power sales agreement, and a deteriorating outlook for wholesale power markets, as well as Allegheny Energy's management's plans for mitigating actions.

On April 16, 2002, Fitch, Inc. (Fitch) changed the rating of Allegheny Energy's senior unsecured debt to BBB+ from A- and the rating for commercial paper to F2 from F1. In addition, the ratings on West Penn's and Potomac Edison's senior unsecured debt were changed to A from A+. The commercial paper ratings of both West Penn and Potomac Edison were affirmed at F1. Fitch's Rating Outlook is stable for Allegheny Energy, Potomac Edison, and West Penn. On May 31, 2002, Fitch lowered the debt and preferred stock ratings of the Company. The Company's senior unsecured debt rating was changed to A- from A, the preferred stock rating was changed to BBB+ from A-, and their commercial paper rating was affirmed at F1. The Company's Rating Outlook was changed to negative from stable.

On August 12, 2002, Fitch placed the ratings of Allegheny Energy, Allegheny Energy Supply, Potomac Edison, West Penn, and AGC, Allegheny Energy Supply's special purpose entity Allegheny Energy Supply Statutory Trust 2001 (Allegheny Energy Supply Statutory Trust), and the Company on "Rating Watch Negative." Fitch indicated that the "Rating Watch Negative" affecting Allegheny Energy and Allegheny Energy Supply reflects its concern over the tight liquidity position of both companies in 2002 and weakening credit protection measures resulting from unfavorable developments in the power markets. Ratings for Potomac Edison, West Penn, AGC, Allegheny Energy Supply Statutory Trust, and the Company were placed on "Rating Watch Negative" due to Fitch's policy regarding the notching of subsidiaries within a holding company group.

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On April 4, 2002, Standard & Poor's announced that it has equalized the corporate credit ratings of all rated Allegheny Energy companies at BBB+. This rating equalizes Allegheny Energy Supply, AGC, Potomac Edison, West Penn, and the Company. Standard & Poor's unsecured debt ratings for the companies are now as follows: Allegheny Energy, BBB; Allegheny Energy Supply, BBB+; AGC, BBB+; West Penn, BBB+; Potomac Edison, BBB; and the Company, BBB. Standard & Poor's outlooks for all companies are stable.

Cash flows from operations decreased $10.3 million for the six months ended June 30, 2002, as compared to the same period in 2001 primarily due a decrease in operating income.

Cash flows used in investing activities decreased $7.2 million for the six months ended June 30, 2002, as compared to the same period in 2001 due to lower construction expenditures.

Cash flows used in financing activities decreased $18.4 million for the six months ended June 30, 2002, as compared to the same period in 2001 primarily due to decreased payment of dividends on common stock, decreased repayments of short-term debt, and partially offset by a reduction in repayments of notes receivable from affiliates.

In February 2002, the Company redeemed $2.1 million of 4.35 percent unsecured notes. Short-term debt is used to meet temporary cash needs. The Company had no short-term borrowings at June 30, 2002 and had short-term borrowings of $14.4 million at December 31, 2001 from bank lines of credit.

A one-percent change in the short-term borrowing interest rate would not have an impact as the Company had no short-term debt outstanding at June 30, 2002 nor is expected to incur substantial short-term debt for the remainder of the year.

The electricity supply segment of the energy industry in the United States is becoming increasingly competitive. The national Energy Policy Act of 1992 led to market-based regulation of the wholesale exchange of power within the electric industry by permitting the FERC to compel electric utilities to allow third parties to sell electricity to wholesale customers over their transmission systems. The Company and its parent, Allegheny Energy, continue to be advocates of federal legislation to remove artificial barriers to competition in electricity markets, avoid regional dislocations, and ensure a level playing field.

Monongahela Power

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The U.S. House and Senate each have passed energy bills and a conference representing the two chambers is in the initial stages of reconciling the two pieces of legislation. A final conference report is expected to be one of the last matters to be dealt with by this Congress prior to adjournment, probably in September or October of 2002. Included in energy legislation passed by the Senate and favorably considered by the House are restructuring provisions including the repeal or significant revision of the Public Utility Holding Company Act of 1935 (PUHCA), which is an issue of primary importance to the Company. Among other issues that will be considered by the conference are revisions of Section 210 (Mandatory Purchase Provisions) of the PURPA and the possibility of a renewable portfolio standard mandate, resolution of transmission issues and possibly RTOs.

Congressional interest has increased concerning the replacement of the piecemeal federal approach to improving air quality with a more comprehensive strategy to regulate Clean Air Act pollutants - sulfur dioxide (SO₂), nitrogen oxides (NO_X), and mercury. The current Administration has drafted and sent to Congress the Clear Skies legislation, which is its attempt at accomplishing this strategy. While its introduction so late in the session in all likelihood prevents meaningful action in this Congress, it is drawing serious debate and is expected to be reintroduced in 2003. Another pending proposal in the current Congress would require carbon dioxide (CO₂) emission reductions. Legislation to regulate SO₂, NO_X, mercury, and CO₂ was approved by the Senate Environment and Public Works Committee. However, a number of both political and technical impediments will likely prevent any further action before Congress adjourns this year.

On March 11, 2000, the West Virginia Legislature approved an electric restructuring plan that would open the State to full retail competition, but assigned tax issues surrounding the plan to a legislative subcommittee for further study. The start date of competition was made contingent upon the necessary tax changes being made and implementation being approved by the Legislature. The Company worked with the West Virginia Public Utility Commission (West Virginia PSC) to transfer its generating assets to Allegheny Energy Supply pending implementation of the restructuring plan. No final legislative action was taken in 2001 or during this year's legislative session, and the current climate regarding restructuring makes it unlikely

that the existing plan will be advanced. Accordingly, Allegheny Energy Supply no longer anticipates receiving the Company's jurisdictional generating assets pursuant to the previously approved restructuring plan. On June 28, 2002, the West Virginia PSC dismissed its electric restructuring case from its docket, and the Company cannot predict when the State may revisit electric deregulation. The Company is, however, currently negotiating, among other things, to transfer certain generating capacity to Allegheny Energy Supply.

Monongahela Power

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The Environmental Protection Agency's (EPA) nitrogen oxides (NO_X) State Implementation Plan (SIP) call regulation has been under litigation and, on March 3, 2000, the United States Court of Appeals issued a decision that upheld the regulation. However, state and industry litigants filed an appeal of that decision in April 2000. On June 23, 2000, the Court denied the request for the appeal. Although the Court did issue an order to delay the compliance date from May 1, 2003, until May 31, 2004, both the Maryland and Pennsylvania state rules to implement the EPA NO_X SIP call regulation still require compliance by May 1, 2003. West Virginia has issued a final rule that would require compliance by May 1, 2004. The EPA Section 126 petition regulation also requires the same level of NO_X reductions as the EPA NO_X SIP call regulation and was also under litigation in the United States Court of Appeals. A Court decision in May 2001 upheld the rule. In August 2001, t he Court issued an order that suspended the Section 126 petition rule May 1, 2003, compliance date pending EPA review of the growth factors used to calculate the state NO_X budgets. In January 2002, the EPA announced its intention to revise the Section 126 petition rule compliance date from May 1, 2003, to May 31, 2004. The Company's compliance with such stringent regulations will require the installation of post-combustion control technologies on most of its power stations. The Company's construction forecast includes the expenditure of $52.4 million of capital costs during the 2002 through 2003 period to comply with these regulations.

In the normal course of business, the Company becomes involved in various legal proceedings. The Company does not believe that the ultimate outcome of these proceedings will have a material effect on its results of operations, cash flows, or financial position. See Note 10 to the Consolidated Financial Statements for additional information regarding environmental matters and litigation, including asbestos litigation.

The Company is exposed to market risks associated with commodity prices and interest rates. The commodity price risk exposure results from market fluctuations in the price and transportation costs of electricity and natural gas as discussed below. The interest rate risk exposure results from changes in interest rates related to commercial paper and fixed-rate debt. The Company is mandated by Allegheny Energy's Board of Directors to engage in a program that systematically identifies, measures, evaluates, and actively manages and reports on market-driven risks. Allegheny Energy has a Corporate Energy Risk Policy adopted by Allegheny Energy's Board of Directors and monitored by a Risk Management Committee chaired by Allegheny Energy's Chief Executive Officer and composed of members of senior management. An independent risk management group within Allegheny Energy actively measures and monitors the risk exposures to ensure compliance with the policy and it is periodically reviewed.

As part of the Company's efforts to spur electric deregulation in West Virginia, the Company agreed to terminate its expanded net energy cost (fuel clause) effective July 1, 2000. However, the West Virginia deregulation process has stalled with advancement of the current plan unlikely. As a

Monongahela Power

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result, the Company is subject to capped rates from a revenue standpoint without the existence of a fuel clause to offset fluctuations in the market price of fuel. In order to manage the Company's financial exposure to these price fluctuations, the Company routinely enters into contracts, such as fuel and natural gas purchase commitments in order to reduce its risk exposure. To the extent that the Company purchases fuel and natural gas at significantly higher prices, the Company's results of operations could be adversely affected.

As a result of the Company's restructuring plan in Ohio, the Company unbundled its rates in Ohio to reflect three separate charges-a generation (or supply) charge, a Restructuring Transition Charge, and transmission and distribution (T&D) charges. The generation rates applied to customers not choosing an alternate generation supplier are capped through a transition period that ends December 31, 2005.

Pursuant to agreements, Allegheny Energy Supply provides the Company with the amount of electricity needed for those Ohio customers not choosing an alternate generation supplier during the transition period. Under the rate schedule approved by the FERC effective January 1, 2001, a portion of the electricity purchased from Allegheny Energy Supply has a market-based pricing component that could result in higher electricity prices when market prices exceed the fixed prices (corresponding to the capped generation rates). Purchased electricity prices would never be set below the established fixed prices. The amount of electricity purchased under this rate schedule that is subject to market prices escalates each year through 2005. To the extent that the Company purchases electricity from Allegheny Energy Supply at market prices that exceed the established fixed prices, the Company's results of operations could be adversely affected. For the three and six months ended June 30, 2002, the Company incurred $.5 mill ion and $1.1 million, respectively, of additional purchased electricity costs due to the market-based pricing component of the revised rate schedule. The Company incurred no such costs in the three and six months ended June 30, 2001.

           Exhibit 99.1 - Sarbanes-Oxley Act CEO/CFO Certification

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August 14, 2002