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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

WEST PENN FUNDING LLC

Delaware

2325B Renaissance Drive

Las Vegas, NV 89119

Telephone (702) 895-6752

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether 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.    Yes  x     No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes   ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant: None.

The registrant is a limited liability company, the interests in which are not represented by shares.

DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.

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WEST PENN FUNDING LLC

FORM 10-K ANNUAL REPORT TO

THE SECURITIES AND EXCHANGE COMMISSION

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

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Glossary of Terms and Abbreviations

BOND TRUSTEE - Deutsche Bank Trust Company Americas (formerly Bankers Trust Company, a New York banking corporation) as Trustee under the Indenture.

CAPITAL SUBACCOUNT - An account held by the Trustee under the Indenture which is funded by a contribution to West Penn Funding LLC by West Penn Funding Corporation at the date of issuance of each series of Transition Bonds.

COMPETITION ACT - The Pennsylvania Electricity Generation Customer Choice and Competition Act enacted in Pennsylvania in December 1996.

GENERAL SUBACCOUNT - An account held by the Trustee under the Indenture into which Intangible Transition Charge remittances by the Servicer are deposited. The Trustee allocates the funds from the General Subaccount to other subaccounts on the quarterly payment dates.

INDENTURE - The agreement entered into by West Penn Funding LLC and the Trustee, dated November 16, 1999, providing for the issuance of Transition Bonds.

INTANGIBLE TRANSITION CHARGES (ITC) - The charge West Penn Power Company (West Penn) has been authorized by the Pennsylvania Public Utility Commission to impose on customer bills and to collect through a non-bypassable billing mechanism to recover Qualified Transition Expenses.

INTANGIBLE TRANSITION PROPERTY (ITP) -The property right created under the Competition Act representing the irrevocable right of West Penn Funding LLC to receive, through ITC, amounts sufficient to recover all Qualified Transition Expenses.

OVERCOLLATERALIZATION SUBACCOUNT - An account held by the Trustee under the Indenture which is funded ratably from collections of ITC over the term of each series of Transition Bonds.

PENNSYLVANIA PUC - The Pennsylvania Public Utility Commission.

QUALIFIED RATE ORDER - The final order issued by the Pennsylvania PUC to West Penn in November 1998, in connection with West Penn’s restructuring filing under the Competition Act, as supplemented by an August 1999 Pennsylvania PUC order.

QUALIFIED TRANSITION EXPENSES - The transition or stranded costs of an electric utility approved by the Pennsylvania PUC for recovery through the issuance of Transition Bonds; the costs of retiring existing debt or equity capital of the electric utility or its holding company parent, including accrued interest and acquisition or redemption premium, costs of defeasance, and other related fees, costs and charges, through the issuance of Transition Bonds or the assignment, sale, or other transfer of ITP; and the costs incurred to issue, service, or refinance the Transition Bonds, including accrued interest and acquisition or redemption premium, and other related fees, costs, and charges associated with the Transition Bonds, or to assign, sell, or otherwise transfer ITP.

RESERVE SUBACCOUNT - An account held by the Trustee under the Indenture which consists of the remaining funds available after required allocations on the quarterly payment dates.

SERVICING AGREEMENT - The ITP Servicing Agreement between West Penn, as Servicer, and West Penn Funding LLC, as Issuer.

WEST PENN - West Penn Power Company, a Pennsylvania corporation.

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General

West Penn Funding LLC (the Company) is a Delaware limited liability company, whose sole member is West Penn Funding Corporation. West Penn Funding Corporation is a wholly-owned subsidiary of West Penn Power Company (West Penn), which operates an electric transmission and distribution system in southwestern, north and south central Pennsylvania under the trade name Allegheny Power. West Penn is a wholly-owned subsidiary of Allegheny Energy, Inc. (Allegheny or AE). For further information concerning West Penn, see reports filed by West Penn with the Securities and Exchange Commission (SEC), including its most recent Annual Report on Form 10-K. The Company was organized in May 1999 for the sole purpose of purchasing and owning Intangible Transition Property (ITP), issuing Transition Bonds (the Bonds or Transition Bonds), pledging its interest in ITP and other collateral to the Trustee under an Indenture between the Company and the Trustee to collateralize the Transition Bonds, and performing activities that are necessary to accomplish these purposes. The Company’s organizational documents require it to operate in a manner so that its assets will not be consolidated with the bankruptcy estate of West Penn or West Penn Funding Corporation in the event that they become subject to a bankruptcy proceeding.

The only material business conducted by the Company has been the acquisition of ITP from West Penn Funding Corporation and the issuance of $600 million of Bonds, Series 1999-A, Class A-1 through Class A-4, in November 1999. Class A-1 Bonds were retired in 2001 and Class A-2 Bonds were retired in 2003. The specific interest rate and maturity of each class of bonds is specified in Note 3 to the Financial Statements. Each series of Bonds has been registered in the name of Cede & Co., as nominee of The Depository Trust Company. All of the Bonds were sold to a syndicate of underwriters.

In November 1999, the Company used the proceeds of the issuance of the Bonds to pay expenses of issuance and to purchase the transferred ITP from West Penn Funding Corporation. West Penn arranged for the formation of the Company as a bankruptcy remote special purpose entity for the purpose of holding ITP before the issuance of the first series of the Bonds.

West Penn, as Servicer under the Servicing Agreement, is required to manage, service, administer, and make collections of the ITP. The Servicing Agreement also requires West Penn, as Servicer, to file adjustment requests on each calculation date. The Pennsylvania Electricity Generation Customer Choice and Competition Act (Competition Act) and the Qualified Rate Order require the Pennsylvania Public Utility Commission (Pennsylvania PUC) to act upon these requests within specified time periods. These adjustment requests are based on actual Intangible Transition Charge (ITC) collections and updated assumptions by the Servicer as to projected future usage of electricity by customers, expected delinquencies and write-offs, and future payments and expenses relating to the ITP and the Bonds. West Penn filed a request for an adjustment to the ITC with the Pennsylvania PUC on October 1, 2003. On December 18, 2003, the Pennsylvania PUC approved West Penn’s request for rates to become effective in 2004.

Intangible Transition Property

The ITP represents the irrevocable right of West Penn, or its successor or assignee, to collect a non-bypassable ITC from its customers pursuant to the Qualified Rate Order in accordance with the Competition Act. The Qualified Rate Order authorized West Penn to securitize up to $670 million of its stranded costs. West Penn, or any assignee of West Penn to whom the ITP is sold, may issue and sell, in reliance on the Qualified Rate Order, one or more series of the Bonds, each series in one or more classes, secured by the ITP. The Company acquired the ITP and issued the Bonds in November 1999. The principal amount of the Bonds, interest, fees, and funding of the Overcollateralization Subaccount will be recovered through ITC, payable by retail consumers of electricity within West Penn’s service territory who receive electric delivery service from West Penn. Retail consumers in West Penn’s service area cannot avoid paying ITC even if they purchase electricity from a supplier other than West Penn.

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The Company has no physical property. Its primary asset is the ITP described above in ITEM 1. BUSINESS - Intangible Transition Property.

None

There were no matters submitted to a vote of security holders in the fourth quarter of 2003.

PART II

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WEST PENN FUNDING LLC

In addition to historical information, this report contains a number of forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as anticipate, expect, project, intend, plan, believe, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These include statements with respect to:

Forward-looking statements involve estimates, expectations, and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations.

Factors that could cause actual results to differ materially include, among others, the following:

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OVERVIEW

As discussed under ITEM 1. BUSINESS - General, the Company is a Delaware limited liability company. Its sole member is West Penn Funding Corporation, which is a wholly-owned subsidiary of West Penn. As discussed above and in Note 3 to the Financial Statements, in November 1999, the Company issued the Bonds and transferred the proceeds in exchange for all rights, title, and interest in the ITP from West Penn Funding Corporation. As the Company was formed for limited purposes, the factors affecting the statement of operations are limited primarily to revenue from collections of ITC by the Servicer, interest income earned on the Capital Subaccount maintained by the Trustee and on temporary investments, interest expense on the Bonds, amortization of the ITP, servicing fees, and other administrative expenses.

In 2002, Allegheny and its subsidiaries, including the Company, identified various errors relating to their financial statements for years prior to 2002 as a result of a comprehensive financial review discussed in Note 2 to the Financial Statements. Allegheny’s management concluded that these errors were not material, either individually or in the aggregate, to the Company’s current year or any prior years’ financial statements. Accordingly, corrections to these errors are reflected in the financial statements for the year ended December 31, 2002.

New Accounting Standards

Various new accounting pronouncements that were effective in 2003 do not have a material effect on the Company’s results of operations, cash flows, and financial position. Also, the Company expects that various other new accounting pronouncements, effective in 2003, will not have a significant impact on its financial statements.

REVIEW OF OPERATIONS

Critical Accounting Estimates

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles of the United States (GAAP) requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingencies during the reporting period. Significant changes in the estimates could have a material effect on the Company’s results of operations, cash flows, and financial position. On a continuous basis, the Company evaluates its estimates, including those related to the provisions for amortization, income taxes, and contingencies related to litigation.

Regulatory Assets and Liabilities: The Company, through West Penn, is regulated by various federal and state regulatory agencies. As a result, the Company qualifies for the application of Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation.” SFAS No. 71 recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. Regulatory assets or liabilities arise as a result of a difference between GAAP and the economic effect of decisions by the regulatory agencies. Regulatory assets generally represent incurred costs that have been deferred, as they are probable of recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for various reasons.

Earnings Summary

Net income (loss) was $0 in 2003, $(151,000) in 2002 and $31,000 in 2001. The Company modified its accounting treatment for the amortization of ITP as a result of the comprehensive accounting review discussed in Note 2 to these financial statements resulting in no net income or loss for each period effective in 2003 and thereafter.

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Operating Revenues

ITC billings resulted in operating revenue of $107.4 million, $105.6 million, and $98.6 million for 2003, 2002 and 2001, respectively. Revenue increases were $1.8 million in 2003, $7.1 million in 2002 and $2.6 million in 2001, partially due to the ITC rate increases that went into effect on January 1 of each year. West Penn, as Servicer, is required by the Servicing Agreement to file adjustment requests based on actual ITC collections and assumptions by the Servicer as to projected future usage of electricity by customers, expected delinquencies and write-offs, and future payments and expenses related to the ITP and the Bonds. The increases were a direct result of the approval of West Penn’s requests for a rate increase. There are no known trends or uncertainties that have had or might have a material favorable or unfavorable effect on revenues.

Operating Expenses

Operation Expense: Operation expense includes servicing fees and other administration expenses paid to the Bond Trustee as outlined in the Indenture. Operation expense was relatively flat for 2003, 2002 and 2001. In 2003, the Company recorded $1.4 million in operation expense compared to $1.3 million in 2002 and $1.4 million in 2001. As outlined in the Indenture, the Company made annual payments of $1.25 million in 2003, 2002 and 2001 to West Penn to administer the Bonds.

Amortization of Intangible Transition Property: In 2003, the ITP was amortized over the life of the bonds based on ITC revenues adjusted by interest on Transition Bonds, operation expense, and interest income. These adjustments result in no reportable net income. In 2002 and 2001, the ITP was amortized over the life of the Bonds, based on ITC revenues, interest accruals and other fees. The schedule of amortization calculated the monthly amortization based on actual ITC revenues to date and the projection of ITC revenues on a going forward basis, adjusting future months estimated amortization over the remaining life of the Bonds. The amortization of ITP increased by $6.6 million, $11.7 million, and $5.9 million in 2003, 2002, and 2001, respectively, mainly due to higher revenues and lower interest expense on the Transition Bonds.

Other Income

Other income consists of interest income earned on the investments in various Subaccounts required by the Indenture amounting to $13.4 million at December 31, 2003. The Servicer deposits collections of the ITC into a General Subaccount maintained by the Trustee under the Indenture. In 1999, the Company also deposited an amount equal to 0.5 percent of the initial principal amount of the Bonds, or $3.0 million, into the Capital Subaccount with the Bond Trustee. As of December 31, 2003, the Capital Subaccount’s balance is $3.0 million. The various Subaccounts are classified in “restricted funds” on the balance sheet. See Note 3 to the Financial Statements for additional information regarding the various subaccounts.

Interest earned on the General and Capital Subaccounts was $0.1 million, $0.2 million, and $0.3 million for 2003, 2002, and 2001, respectively. During 2000, the Trustee withdrew amounts from the Capital Subaccount to cover the shortage in the General and Reserve Subaccounts, in order to make the scheduled payments in the first and second quarters of 2000. Replenishments to the Capital Subaccount were initiated late in 2001, resulting in reduced interest income earnings for the Capital Subaccount in 2002 and 2001.

The General Subaccount, while recognizing an increase in the ITC collections deposited into the account in 2002 in comparison to prior years, recognized less investment earnings over the prior years due to a decline in interest rates.

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Interest Charges

Interest charges on the Transition Bonds include interest accrued on the outstanding Transition Bonds balance for the period and amortization of the debt issuance expenses and discount.

The Company recorded a decrease in interest expense on Transition Bonds of $5.0 million, $4.5 million, and $3.4 million in 2003, 2002, and 2001, respectively. Interest expense decreased due to the amortization of the principal amount of the Transition Bonds.

Federal Income Taxes

The Company did not have any federal income tax expense in 2003 as a result of the Company having no taxable income. Federal income taxes decreased for 2002 and 2001 due to the decrease in taxable income. See Note 5 to the financial statements for further analysis of income taxes.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

FINANCIAL CONDITION, REQUIREMENTS, AND RESOURCES

Liquidity and Capital Requirements

To meet cash needs for operating expenses, the payment of interest, and retirement of debt, the Company has used net cash flows from operations, restricted funds, and contributions from its member.

The Company’s debt agreement requires it to file copies of its annual and quarterly reports as filed with the U.S. Securities and Exchange Commission (SEC) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 with or for the debt holders. The Company is also required to deliver to the trustee under its indentures a certificate indicating that the Company has complied with all conditions and covenants under the agreements. On April 30, 2003, the Company provided certificates to the trustee under the indenture indicating that it was not in compliance with the covenants related to the Transition Bonds for filing its annual and quarterly reports. The covenant breaches with respect to the Transition Bonds are deemed defaults of the related debt agreements for the Company’s financial reporting purposes in accordance with SFAS No. 78, “Classification of Obligations That Are Callable by the Creditor.” Accordingly, the total debt related to the Transition Bonds reclassified as current in the accompanying consolidated balance sheet was $346.7 million as of December 31, 2002. During the period of noncompliance with the reporting obligations, none of the debt holders provided the Company with any notices of default under the agreement.

On December 19, 2003, the Company filed its first quarter 2003 and second quarter 2003 quarterly reports on Form 10-Q with the SEC. On January 23, 2004, the Company filed its third quarter 2002 and third quarter 2003 quarterly reports on Form 10-Q with the SEC. The Company is now current on all required SEC filings. Since the Company is in compliance with its reporting obligations under its debt covenants, long-term debt related to the Transition Bonds is no longer classified as current as of December 31, 2003.

During 2002, credit rating agencies lowered the credit ratings of Allegheny and certain of its subsidiaries, including West Penn. As a result, West Penn currently does not have a credit rating for short-term debt. Since West Penn does not have a credit rating for short-term debt of A-1 or better by Standard & Poor’s, P-1 or better by Moody’s, and F-1 or better by Fitch, West Penn is required to remit ITC collections to the Bond Trustee not later than the second business day after ITC collections are received. Accordingly, daily remittances to the Bond Trustee began on October 16, 2002.

On a short-term basis, the Company’s ability to cover operating expenses and issue debt payments within the stated due date is solely reliant on the collection of ITC. Revenues from ITC collections on a long-term basis are dependent on the approval of annual rate adjustments by the Pennsylvania PUC, through the annual reconciliation process.

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Cash Flows

Cash flows from operations were $87.0 million, $72.6 million, and $61.7 million in 2003, 2002, and 2001, respectively. Cash flows from operations increased $14.4 million in 2003, compared with an increase of $10.8 million in 2002. The increase in 2003 is primarily the result of a decrease in accounts receivable from West Penn resulting from an acceleration of remittances to the Company from West Penn’s collections and an increase in ITC revenues collected by West Penn. The increase in 2002 was mainly due to an increase in ITC revenues collected by West Penn, as Servicer, and a decrease in cash paid for interest expense on the Bonds.

Cash flows used in investing increased $10.3 million in 2003. The largest component was the change in restricted funds resulting from accelerated remittances from West Penn as discussed above. Cash flows used in investing were fairly consistent in 2002 compared to 2001.

Cash flows used in financing activities increased $5.7 million in 2003, compared with an increase of $10.1 million in 2002. The increases in 2003 and 2002 were the result of scheduled bond principal payments as defined in the Indenture.

West Penn, as Servicer, remitted to the Trustee a total of $115.4 million for ITC collections during 2003. All quarterly payments were made on the scheduled due dates.

During 2002, West Penn remitted to the Trustee a total of $105.6 million of ITC collections. On the scheduled payment dates in March, June, September, and December 2002, the Trustee made quarterly payments of Bond principal, interest, and related administrative expenses. Payments and ITC collections were sufficient to pay interest of $31.8 million and principal payments in the amount of $70.3 million for the twelve-month period ended December 31, 2002. For the first quarter ended March 31, 2002, principal payments were scheduled at $17.5 million and payments were issued in full. During the second quarter ended June 30, 2002, scheduled principal payments were $18.4 million, with principal payments issued at $18.3 million, creating a year-to-date shortfall of $.1 million. During the third quarter ended September 30, 2002, principal payments were scheduled at $17.0 million, with principal payments issued at $17.1 million, which offset the shortfall created in the prior quarter. During the fourth quarter ended December 31, 2002, scheduled principal payments of $17.4 million were made. The shortfall at June 30, 2002 did not constitute an event of default under the Indenture.

In accordance with the Qualified Rate Order for prior years, in order to reconcile undercollections and to recover expected interest and principal payments, fees, or expenses expected in 2004, West Penn, as Servicer, filed a request for an adjustment to the ITC with the Pennsylvania PUC on October 1, 2003. On December 18, 2003, the Pennsylvania PUC approved West Penn’s request for rates to become effective in 2004.

Financing

Transition Bonds: The Company’s obligations for future cash payments are limited to the principal, interest, and administrative fees related to the outstanding Transition Bonds. The balance at December 31, 2003 of Transition Bond obligations was $346.7 million (with $73.7 million representing the amount of principal contractually due within one year). The following table provides a summary of payments due by period for these obligations:

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The bondholders’ exposure to market risk is de minimus.

The bondholders’ exposure to regulatory risks could be affected by inaccurate estimates of future revenue requirements necessary to meet debt obligations as filed in the annual adjustment requests or unforeseen changes in the Pennsylvania Competition Act or West Penn’s Qualified Rate Order.

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WEST PENN FUNDING LLC

Statements of Operations

See accompanying Notes to Financial Statements

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WEST PENN FUNDING LLC

Statements of Cash Flows

See accompanying Notes to Financial Statements

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WEST PENN FUNDING LLC

Balance Sheets

See accompanying Notes to Financial Statements

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NOTES TO FINANCIAL STATEMENTS

These notes are an integral part of the financial statements.

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

West Penn Funding LLC (the Company), a limited liability company established under the laws of the State of Delaware, was formed in May 1999. West Penn Funding Corporation is the sole member of the Company. West Penn Funding Corporation is a wholly-owned subsidiary of West Penn Power Company (West Penn), an operating electric utility. West Penn is a wholly-owned subsidiary of Allegheny Energy, Inc. (Allegheny), a public utility holding company.

The Company was organized for the sole purpose of purchasing and owning Intangible Transition Property (ITP), issuing Transition Bonds (the Bonds or Transition Bonds), pledging its interest in ITP and other collateral to the bond trustee, and performing activities that are necessary, suitable, or convenient to accomplish these purposes. ITP represents the irrevocable right of West Penn, or its successor or assignee, to collect a non-bypassable Intangible Transition Charge (ITC) from customers pursuant to a Qualified Rate Order (Pennsylvania Public Utility Commission Order) issued on November 19, 1998, and supplemented by order dated August 12, 1999, by the Pennsylvania Public Utility Commission (Pennsylvania PUC) in accordance with the Pennsylvania Electricity Generation Customer Choice Order and Competition Act (Competition Act), enacted in December 1996. In November 1999, West Penn transferred the ITP to West Penn Funding Corporation, which then sold the ITP to the Company.

The Company issued $600 million of Bonds in four different classes on November 16, 1999. See Note 3 for additional information. The proceeds were used to fund the purchase of ITP. The ITP and restricted funds were used to collateralize the Bonds. Under applicable law, the Bonds are recourse to the Company and are collateralized on a pro rata basis by the ITP and the equity and other assets of the Company. The source of repayment of the Bonds is the ITC revenues authorized pursuant to the Pennsylvania PUC Order, under which charges are collected from West Penn customers by West Penn, as Servicer.

ITC collections are deposited by West Penn with the Company and are used to pay the expenses of the Company, to pay debt service on the Bonds, and to fund credit enhancement for the Bonds.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles used in the United States of America (GAAP) requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingencies during the reporting period. On a continuous basis, the Company evaluates its estimates, including those related to the provisions for amortization, income taxes, and contingencies related to litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the normal course of business, estimated amounts are subsequently adjusted to actual results.

Revenue

The Company records intangible transition revenues in the period ITC is billed to customers by West Penn.

Amortization of Intangible Transition Property

In 2003, the ITP was being amortized over the life of the Bonds based on ITC revenues adjusted by interest on Transition Bonds, operation expense, and interest income. These adjustments result in no reportable net income. In 2002 and 2001, the ITP was amortized over the life of the Bonds, based on ITC revenues, interest accruals and other fees. In 2002, the schedule of amortization, which calculated the monthly amortization based on actual and prospective ITC revenues was adjusted so that future amortization is recorded over the remaining life of the Bonds. See Note 2 for discussion of the amortization change.

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Amortization of Debt Issuance Costs

Debt issuance costs are amortized using the effective interest method over the life of the Bonds.

Cash and Temporary Cash Investments

For purposes of the statement of cash flows, temporary cash investments with original maturities of three months or less, generally in the form of commercial paper, certificates of deposit, and repurchase agreements, are considered to be the equivalent of cash.

Restricted Funds

Under the Indenture, collections of the ITC are deposited into a “General Subaccount”. As described in Note 3, there are various other Subaccounts used to accumulate funds not required for the bond payments. If amounts available in the “General Subaccount” are not sufficient on any payment date to make scheduled payments specified in the Indenture, the Trustee will draw on amounts in the other Subaccounts. Accordingly, the other Subaccounts are classified as Restricted Funds on the balance sheet.

After the Bonds are paid in full, any remaining amounts that collateralize the Bonds will be released to the Company. The restricted fund balance was $13.4 million and $2.4 million at December 31, 2003, and 2002, respectively.

Regulatory Asset – ITP

The Company, through West Penn, is regulated by various federal and state regulatory agencies and applies Statement of Financial Accounting Standards No. 71 (SFAS No. 71) “Accounting for the Effects of Certain Types of Regulation.” SFAS No. 71 recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. The Company purchased from West Penn Funding the ITP which was a result of the West Penn Qualified Rate Order.

Income Taxes

The Company joins with Allegheny and affiliates 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 tax in excess of its separate return tax liability. For the Company, the difference between the effective tax rate and the statutory tax rate of 35 percent is not significant. See Note 5 for additional information regarding income taxes.

Comprehensive Income

SFAS No. 130, “Reporting Comprehensive Income,” established standards for reporting comprehensive income and its components (revenues, expenses, gains, and losses) in the financial statements. The Company does not have any elements of other comprehensive income.

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NOTE 2: COMPREHENSIVE FINANCIAL REVIEW

After Allegheny filed its quarterly report on Form 10-Q for the period ended June 30, 2002, Allegheny identified a miscalculation in its business segment information. Following the discovery of this miscalculation, and in light of Allegheny’s prior restatements of reports filed with the Securities and Exchange Commission (SEC), Allegheny and the Company initiated a comprehensive review of its financial processes, records, and internal controls to ensure that its current and prior financial statements, including the financial statements of the Company, are fairly presented in accordance with GAAP.

As a result of Allegheny’s and the Company’s comprehensive accounting review, the Company identified, prior to closing its books for 2002, various errors relating to the financial statements for 2001, 2000, and 1999, including certain accounting errors related to the Company’s financial statements. Allegheny’s management concluded that these errors for the Company were not material, either individually or in the aggregate, to the current year or any prior years’ financial statements. Accordingly, prior year financial statements have not been restated. Rather, the first quarter of 2002 reflects adjustments, which decreased net income by approximately $245,000 before income taxes ($164,000 net of income taxes), predominantly related to errors in the calculation of the amortization of ITP in fiscal years 2001, 2000, and years prior to 2000. These errors have had no effect on the Company’s ability to service its Transition Bonds or meet its other financial obligations.

Had the adjustments of the errors been recorded in the appropriate years, the following table demonstrates the effect on net (loss) income:

While certain changes in policies and procedures have been instituted, additional changes are needed to improve the internal control structure of Allegheny and the Company.

NOTE 3: CAPITALIZATION

Transition Bonds

In November 1999, the Company issued $600 million of Series 1999-A Bonds. The Bonds consisted of four classes with various interest rates based on the scheduled maturity date for each class, ranging from Class A-1 at 6.32 percent to Class A-4 at 6.98 percent (refer to schedule below). The Company used the proceeds from the Bonds to purchase ITP from West Penn Funding Corporation. The ITP and other assets of the Company collateralize the Bonds. The Class A-1 Bonds were retired in 2001 and the Class A-2 Bonds were retired in 2003.

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Scheduled maturities and interest rates for the Bonds at December 31, 2003, are:

The Company is required to file copies of its annual and quarterly reports as filed with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 with or for the debt holders. The Company is also required to deliver to the Trustee under the Indenture a certificate indicating that the Company has complied with all conditions and covenants under the agreement. On April 30, 2003, the Company provided certificates to the Trustee under the Indenture indicating that it was not in compliance with the covenants related to the Transition Bonds for filing its annual and quarterly reports. The covenant breaches with respect to the Transition Bonds are deemed defaults of the related agreements for the Company’s financial reporting purposes in accordance with SFAS No. 78, “Classification of Obligations That Are Callable by the Creditor.” Accordingly, the total debt related to the Transition Bonds, reclassified as current at December 31, 2002, was in the amount of $346.7 million. None of the debt holders provided the Company with any notices of default under the agreement. Such notices, if received, would have allowed the Company 30 days to cure its noncompliance before the debt holders could have accelerated the due dates of the Bonds.

On December 19, 2003, the Company filed its first quarter 2003 and second quarter 2003 quarterly reports on Form 10-Q with the SEC. On January 23, 2004, the Company filed its third quarter 2002 and third quarter 2003 quarterly reports on Form 10-Q with the SEC. The Company is now current on all required SEC filings. The Company is currently in compliance with its reporting obligations under its debt covenants. The Transition Bonds are classified as long term as of December 31, 2003.

The source of repayment of the Transition Bonds is the ITC. West Penn is collecting this non-bypassable charge from its retail electricity customers. The Servicer deposits collections of the ITC into a “General Subaccount” maintained by the Trustee under the Indenture. Each quarter, such monies are used to make principal and interest payments on the Bonds, and pay fees, costs, and charges specified in the Indenture. The Indenture also includes a “Reserve Subaccount” that is maintained for the purpose of retaining any excess amount of ITC collections and investment earnings not released to the Company. The Indenture also provides for an “Overcollateralization Subaccount.” The overcollateralization for these securities will be funded over the life of the series 1999-A Bonds and is expected to reach 0.5 percent of the initial principal balance of this series of Transition Bonds.

Additionally, an amount equal to 0.5 percent of the initial principal amount of the Bonds was deposited into the “Capital Subaccount” under the Indenture on the date of issuance. If amounts available in the “General Subaccount,” “Reserve Subaccount,” and the “Overcollateralization Subaccount” are not sufficient on any payment date to make scheduled payments specified in the Indenture, the Trustee will draw on amounts in the “Capital Subaccount.”

On payment in full of the Bonds, any remaining amounts that collateralize the Bonds will be released to the Company.

The expected final payment date for the Series 1999-A Bond is June 25, 2008, based upon its estimate of ITC

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collections. The actual dates on which principal is paid on each class of Transition Bonds are affected by the amount and timing of receipt of collections of ITC. If collections of ITC are received at a slower rate than expected, payments on the Transition Bonds may be made later than expected. Although the final payment may be made later than the expected final payment date, it must be made before the termination date. The Series 1999-A Bonds will not be in default unless they are not paid in full by their respective termination dates, as defined under the Indenture.

NOTE 4: RESTRICTED PAYMENTS

The Company may not directly or indirectly pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities, or a combination thereof, to any owner of a beneficial interest in the Company or otherwise with respect to any ownership or equity interest in, or ownership security of, the Company. The Company may not redeem, purchase, retire, or otherwise acquire for value any such ownership or equity interest or security and is also prohibited from setting aside or otherwise segregating any amounts for any such purpose.

NOTE 5: INCOME TAXES

There are no basis differences between financial reporting and tax return treatment of assets and liabilities. The total provision for income taxes is not materially different from the amount produced by applying the federal income statutory tax rate of 35 percent to financial accounting income for the years ended December 31, 2003, 2002 and 2001, respectively.

NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair value of Transition Bonds at December 31 were as follows:

The carrying value of the Bonds, as stated above, does not reflect the netting of the unamortized discount of $31,000, and $38,000 at December 31, 2003, and December 31, 2002, respectively. The carrying amount of accounts receivable and accounts payable approximate their fair value. The fair value of the Bonds was estimated based on market prices of similar issues. The Company has no financial instruments held or issued for trading purposes.

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NOTE 7: QUARTERLY FINANCIAL INFORMATION (Unaudited)

The 2002 quarterly amounts included in the table above reflect the adjustments identified in Allegheny’s comprehensive financial review, as discussed in Note 2. The following table summarizes the effect of the adjustments on amounts previously reported for the Company’s first and second quarter 2002 operating revenues, operating income, and net (loss) income. The amounts shown as previously reported for operating income reflect reclassifications made in the Company’s presentation of its statement of operations after the Forms 10-Q for the first and second quarters of 2002 were filed. The reclassifications were made to provide consistent presentations among Allegheny’s various SEC registrants. In aggregate, the reclassifications had no effect on previously reported net (loss) income.

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NOTE 8: RELATED PARTY TRANSACTIONS

Under the Servicing Agreement, West Penn is required to manage and administer the ITP of the Company and to collect the ITC on behalf of the Company. The Company will pay a maximum annual service fee of $1.25 million to West Penn. The Company recorded servicing fees of $1.25 million for the periods ended December 31, 2003, 2002, and 2001. Servicing fees are included in operation expense on the statement of operations.

The balance sheet includes a receivable from West Penn of $7.1 million and $14.8 million at December 31, 2003, and 2002, respectively, for ITC collections.

The Company joins with Allegheny 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 tax in excess of its separate return tax liability. The Company is a disregarded entity for income tax purposes. Income tax liabilities of the Company are combined with its parent. See Note 5 for additional information regarding income taxes.

The Company has no employees. Certain services to the Company are provided by West Penn Funding Corporation. The cost of services provided by West Penn Funding Corporation have been directly charged to the Company at cost or allocated to the Company using methods the Company believes are reasonable.

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Report of Independent Auditors

To West Penn Funding Corporation, the Sole Member

of West Penn Funding LLC:

In our opinion, the accompanying balance sheets and the related statements of operations, member’s equity and cash flows present fairly, in all material respects, the financial position of West Penn Funding LLC (the Company) at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

March 10, 2004

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None.

After Allegheny filed its quarterly report on Form 10-Q for the period ended June 30, 2002, Allegheny identified a miscalculation in its business segment information. Following the discovery of this miscalculation and in light of Allegheny’s prior restatements of reports filed with the SEC, Allegheny initiated a comprehensive review of its financial processes, records, and internal controls to ensure that its current and prior financial statements, including the financial statements of the Company, are fairly presented in accordance with generally accepted accounting principles. As a result, Allegheny and the Company identified numerous accounting errors, including certain accounting errors related to financial statements of the Company. For the Company, the errors predominantly related to the incorrect calculation of the amortization of ITP for fiscal years 2001, 2000, and years prior to 2000. The aggregate amount of the errors for the Company increased the 2002 net loss by $245,000 before income taxes ($164,000 after income taxes).

These accounting errors resulted principally from internal control deficiencies, which were identified by Allegheny and the Company during the course of the comprehensive financial review. See ITEM 9A CONTROLS AND PROCEDURES in the Annual Report on Form 10-K for Allegheny for additional information.

Due to the ongoing comprehensive financial review and accounting errors identified by Allegheny, the Company delayed the filing of its 2002 annual report, and the filing of its quarterly reports on Form 10-Q for the periods ended September 30, 2002, March 31, 2003, and June 30, 2003. Subsequently the quarterly report on Form 10-Q for the period ended September 30, 2003 was also delayed. All of these reports have now been filed and the Company is current on all SEC required filings.

Based on the results of its comprehensive financial review, management was able to determine that the Company’s financial statements for periods prior to 2002 do not require restatement as discussed in Note 2 to the financial statements. Allegheny, for itself and its subsidiaries, has implemented corrective actions to mitigate the risk that its internal control deficiencies could lead to material misstatements in the financial statements filed as part of this Form 10-K. Allegheny developed and implemented a plan to perform significant additional procedures designed to mitigate the effects of the deficiencies in internal controls and hired outside professional services firms to assist in the performance of the additional procedures.

To address the weaknesses identified in Allegheny’s and the Company’s internal controls and disclosure practices, Allegheny and the Company substantially augmented and revised their procedures in connection with the preparation of this annual report. These augmented procedures involved the creation of a formal drafting group to comprehensively review, revise, and update disclosure over an iterative process. This exercise also involved a heightened degree of direct involvement by senior officers, including the Principal Executive Officer of the Company. The principal elements of these augmented procedures have formed the basis for the Company’s written disclosure controls and procedures applicable to future periodic reports and certain public communications.

Allegheny and the Company have created a Disclosure Committee, which is chaired by Allegheny’s General Counsel and is currently comprised of executives, including Allegheny’s Chief Risk Officer, Vice President and Controller, Director of Audit Services, and Vice President, Corporate Communications, as well as the senior officers responsible for Allegheny’s segments. The Disclosure Committee establishes, maintains, monitors and evaluates Allegheny’s and its subsidiaries’ written disclosure controls and procedures and supervises and coordinates the preparation of their periodic reports and certain other public communications pursuant to formal written disclosure controls and procedures.

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The Disclosure Committee, with the participation of the Company’s management, including the Company’s Principal Executive and Chief Financial Officer, reviewed, in accordance with Exchange Act Rules 13a-15(f) and 15d-15(f), the augmented procedures implemented by Allegheny and the Company in connection with the preparation of this report as of December 31, 2003 and found them to be effective. However, until Allegheny completes actions to remedy internal control deficiencies, Allegheny and the Company intend to devote additional resources to ensure that its public disclosures are accurate.

PART III

Directors of the Registrant

The names, ages, and business experience during the past five years of directors of the registrant and term of office are set forth below.

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Executive Officers of the Registrant

The names of the executive officers of the Company, their ages as of December 31, 2003, the positions they hold and their business experience during the past five years appear below:

Executive Officers of the Registrant

Position and Period of Service (a)

Audit Committee Financial Expert

The Company’s Board of Directors has determined it does not have an audit committee financial expert. The Company believes that because it is is a special purpose entity, it is not necessary to retain the services of an audit committee financial expert on its Board of Directors.

Code of Ethics

In early 2004, a Code of Ethics was adopted for Allegheny and its subsidiaries and affiliates, including the Company, in order to promote honest and ethical conduct and compliance with the laws and governmental rules and regulations to which Allegheny is subject. All directors, officers and employees of Allegheny are expected to be familiar with the Code of Ethics and to adhere to its principles and procedures. The Code of Ethics is available on AE’s website, www.alleghenyenergy.com, in the Corporate Governance section of the Financial home page.

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Certain of the executive compensation described in this section relates to compensation plans and other compensation arrangements implemented by Allegheny for itself and its subsidiaries. It is included in this report to the extent that the Company’s named executive officers, Michael P. Morrell and Regis F. Binder, received compensation under such plans or arrangements in 2003, although none of the compensation is paid by, or is attributable to, the Company. Mr. Morrell is in the Allegheny Annual Report on Form 10-K for 2003 as a named executive officer, and as such the executive compensation he received from Allegheny as disclosed in Allegheny’s Annual Report on Form 10-K for 2003 is included here. Mr. Morrell retired from the Company, effective September 1, 2003. Regis F. Binder was named President of the Company, as of June 2003. Mr. Binder received no compensation from the Company during 2003, 2002, or 2001.

During 2003, and for 2002 and 2001, the annual compensation paid directly or indirectly to the named executive officers of the Company is set forth below.

SUMMARY COMPENSATION TABLE

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plan. In addition, amounts in this column include the Company’s contribution for the Employee Stock Option and Savings Plan (ESOSP). For 2003, the figures shown include amounts representing (1) the life insurance premiums on the Basic Group Life Insurance plan and (2) ESOSP contributions, respectively, as follows: Mr. Morrell, $1,879 and $6,000; and Mr. Binder, $1,409 and $5,160.

Basic Group Life Insurance Plan

Allegheny provides life insurance to all employees, subject to meeting eligibility requirements, including the named executive officers under a basic group life insurance plan that pays a death benefit equal to the insured’s base salary, excluding bonuses, during employment and $25,000 during retirement.

ESOSP

The ESOSP was established as a non-contributory stock ownership plan for all eligible employees, effective January 1, 1976, and amended in 1984 to include a savings program. All of Allegheny’s employees, subject to meeting eligibility requirements, may elect to participate in the ESOSP. Under the ESOSP, each eligible employee can elect to have from two to twelve percent of his or her compensation contributed to the ESOSP on a pre-tax basis, and an additional one to six percent on a post-tax basis. Participants direct the investment of contributions to specified mutual funds. Fifty percent of pre-tax contributions, up to six percent of an employee’s compensation, is matched by Allegheny with common stock of AE. For 2003, the maximum amount of compensation to be factored into these calculations was $200,000. Pre-tax contributions may be withdrawn only if financial hardship requirements are met or employment is terminated. Since October 25, 2002, employees have not been able to purchase AE common stock under the ESOSP.

Retirement Plan

Allegheny maintains a retirement plan covering substantially all employees (Retirement Plan). The Retirement Plan is a noncontributory, trusteed pension plan designed to meet the requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the Code). Each covered employee is eligible for retirement at normal retirement date (age 65), with early retirement permitted.

Allegheny also maintains a SERP for executive officers and other senior managers. Messrs. Morrell and Binder are participants in the SERP. An officer will be eligible to receive benefits under the SERP only if he or she has been credited with at least 10 years of service with Allegheny and has reached his or her 55th birthday. Under the SERP, an eligible participant will receive a supplemental retirement benefit equal to his or her Average Compensation multiplied by the sum of: (1) two percent for each year of service up to 25; (2) one percent for each year of service from 25 to 30; and (3) one-half percent for each year of service from 30 to 40, less benefits paid under the Retirement Plan and less two percent for each year that a participant retires prior to his or her 60th birthday. The Plan also provides for use of Average Compensation in excess of the Code maximums.

A participant’s benefits are capped at 60 percent of Average Compensation (including for this purpose retirement benefits paid under the Retirement Plan and benefits payable from other employers), less two percent for each year the participant retires prior to reaching age 60.

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The SERP defines Average Compensation as 12 times the average monthly earnings, including overtime and other salary payments actually earned, whether or not payment is deferred, for the 36 consecutive calendar months constituting the period of highest average monthly salary, together with 100 percent of the actual award paid under the Annual Incentive Plan.

A participant may elect to receive the plan benefit in such form as those available under the Retirement Plan.

To provide funds to pay these benefits, beginning January 1, 1993, Allegheny purchased insurance policies on the lives of some of the participants in the SERP, including Messrs. Morrell and Binder. The insurance policy, for Mr. Morrell was surrendered at the time of his retirement and the proceeds were used to purchase an individual annuity contracts to secure his accrued benefit under the SERP. Insurance contracts for actively employed executives, including Mr. Binder, had not matured as of December 31, 2003 and were surrendered with the proceeds from each covered participant’s policy used to secure all or a portion of their accrued benefit under the SERP. The portion of the premiums required to be deemed compensation by the SEC for this insurance is included in the All Other Compensation column of the Executive Compensation chart.

The following table shows estimated maximum annual benefits payable to participants in the SERP following retirement (assuming payments on a normal life annuity basis and not including any survivor benefit) to an employee in specified remuneration and years of credited service classifications. These amounts are based on an estimated Average Compensation, retirement at age 65, and without consideration of any effect of various options which may be elected prior to retirement. The benefits under the SERP are not subject to any deduction for Social Security or any other offset amounts.

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PENSION PLAN TABLE

Early Retirement Option Program

During August of 2002, and subsequently in March and April of 2003, Allegheny offered a voluntary Early Retirement Option (ERO) to the named and other executive officers who would be age 50 or older as of October 1, 2003. The ERO provides Allegheny with the right to designate a retirement date for each electing employee. The retirement date may not be prior to June 1, 2003, or after January 1, 2005. Employees who have elected to participate in the ERO may rescind their elections at any time prior to the designated retirement effective date.

The provisions of the ERO are as follows:

As of the date of this report, Michael P. Morrell has retired following his election to participate in the ERO. In addition, Regis F. Binder elected the ERO and will retire effective April 1, 2004. As part of the provisions of the ERO, although the Company is bound to allow an executive to retire pursuant to the ERO up until the date designated for his or her retirement, the executive may elect to not retire.

Long-Term Incentive Plan

The Board of Directors and shareholders of AE approved the 1998 Long-Term Incentive Plan (LTIP) to assist Allegheny in attracting and retaining key employees and directors and motivating performance. The LTIP is administered by the Management Compensation and Development Committee (the Committee), which may delegate to an executive officer the power to determine the employees (other than himself or herself) eligible to receive awards. The Committee may from time to time designate key employees and directors to participate in the LTIP for a particular year. The number of shares of AE common stock authorized for issuance under the LTIP is

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10 million, subject to adjustments for recapitalizations or other changes to AE’s common shares. No participant in the LTIP may be granted more than 600,000 shares (or rights or options in respect of more than 600,000 shares) in any calendar year. For purposes of this limit, shares subject to an award that is to be earned over a period of more than one calendar year will be allocated to the first calendar year in which such shares may be earned. On March 4, 2004, the LTIP was amended to terminate on May 14, 2008.

Stock Option Awards

The LTIP permits awards of options to purchase AE common stock on terms and conditions as determined by the Committee. Stock options are issued at strike prices equal to the fair market value (as defined in the LTIP) of AE common stock as of the date of the option grant. The terms of option awards are set forth in option award agreements. The Committee may award non-qualified stock options or incentive stock options (each as defined in the LTIP). No participant in the LTIP may receive incentive stock option awards under the LTIP or any other Allegheny compensation plan that would result in incentive stock options to purchase shares of AE common stock with an aggregate fair market value of more than $100,000 first becoming exercisable by such participant in any one calendar year.

Options awarded under the LTIP will terminate upon the first to occur of: (i) the option’s expiration under the terms of the related option award agreement; (ii) termination of the award following termination of the participant’s employment under the rules described in the next paragraph; and (iii) 10 years after the date of the option grant. The Committee may accelerate the exercise period of awarded options, and may extend the exercise period of options granted to employees who have been terminated.

In the event of the termination of employment of a participant in the LTIP, options not exercisable at the time of the termination will expire as of the date of the termination and exercisable options will expire 90 days from the date of termination. In the event of termination of a participant’s employment due to retirement or disability, options not exercisable will expire as of the date of termination and exercisable options will expire one year after the date of termination. In the event of the death of a participant in the LTIP, all options not exercisable at the time of death will expire, and exercisable options will remain exercisable by the participant’s beneficiary until the first to occur of one year from the time of death or, if applicable, one year from the date of the termination of such participant’s employment due to retirement or disability.

The Committee may establish dividend equivalent accounts with respect to awarded options. A participant’s dividend equivalent account will be credited with notional amounts equal to dividends that would be payable on the shares for which the participant’s options are exercisable, assuming that such shares were issued to the participant. The participant or other holder of the option will be entitled to receive cash from the dividend equivalent account at such time or times and subject to such terms and conditions as the Committee determines and provides in the applicable option award agreement. If an option terminates or expires prior to exercise, the dividend equivalent account related to the option will be concurrently eliminated and no payment in respect of the account will be made.

The Committee may permit the exercise of options or the payment of applicable withholding taxes through tender of previously acquired shares of AE common stock or through reduction in the number of shares issuable upon option exercise. The Committee may grant reload options to participants in the event that participants pay option exercise prices or withholding taxes by such methods.

In the event of a change of control of Allegheny (as defined in the LTIP), unless provided to the contrary in the applicable option award agreement, all options outstanding on the date of the change in control will become immediately and fully exercisable.

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Restricted Share Awards

The Committee may grant shares of common stock on terms, conditions and restrictions as the Committee may determine. Restrictions, terms, and conditions may be based on performance standards, period of service, share ownership, or other criteria. Performance based awards will be subject to the same performance targets as described under “Performance Awards” below. The terms of restricted stock awards will be set forth in award agreements.

Performance Awards

The Committee may grant performance awards, which will consist of a right to receive a payment that is either measured by the fair market value of a specified number of shares of AE common stock, increases in the fair market value of AE common stock during an award period and/or consists of a fixed cash amount. Performance awards may be made in conjunction with or in addition to restricted stock awards. Award periods will be two or more years or other annual periods as determined by the Committee. The Committee may permit newly eligible participants to receive performance awards after an award period has commenced.

The Committee establishes performance targets in connection with performance awards. In the case of awards intended to be deductible for federal income tax purposes, performance targets will relate to operating income, return on investment, return on shareholders’ equity, stock price appreciation, earnings before interest, taxes and depreciation/amortization, earnings per share, and/or growth in earnings per share. The Committee prescribes formulas to determine the percentage of the awards to be earned based on the degree of attainment of award targets. Allegheny may make payments in respect of performance awards in the form of cash or shares of AE common stock, or a combination of both.

In the event of a participant’s retirement during an award period, the participant will not receive a performance award unless otherwise determined by the Committee, in which case the participant will be entitled to a prorated portion of the award. In the event of the death or disability of a participant during an award period, the participant or his or her representative will be entitled to a prorated portion of the performance award. A participant will not be entitled to a performance award if his or her employment terminates prior to the conclusion of an award period, provided that the Committee may determine in its discretion to pay performance awards, including full (i.e., non-prorated) awards, to any participant whose employment is terminated. In the event of a change of control of Allegheny, all performance awards for all award periods will immediately become payable to all participants and will be paid within 30 days after the change in control.

The Committee may, unless the relevant award agreement otherwise specifies, cancel, rescind, or suspend an award in the event that the LTIP participant engages in competitive activity, discloses confidential information, solicits employees, customers, partners or suppliers of Allegheny, or undertakes any other action determined by the Committee to be detrimental to Allegheny.

Termination of Certain Provisions

The LTIP contains provisions intended to ensure that certain restricted share awards and performance awards to “covered employees” under Section 162(m) of the Internal Revenue Code are exempt from the $1 million deduction limit contained in that Section of the Code. Those exemptive provisions, by their terms and under the applicable IRS regulations, expired as of May 14, 2003. Any pending, but unvested, awards issued under such provisions are unaffected by the provisions’ expiration, but any future restricted stock or performance awards to covered employees will not be eligible for the exemption from the Section 162(m) limit unless the provisions are reapproved by the shareholders. AE may seek stockholder reauthorization of the LTIP with respect to such provisions, but has no present intention to do so. Allegheny may choose alternative methods to compensate covered employees who would have received compensation under the terminated provisions of the LTIP had such provisions not terminated.

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ALLEGHENY ENERGY, INC. LONG-TERM INCENTIVE PLAN

SHARES AWARDED IN 2003 (CYCLE X)

The named executives were awarded the above number of performance shares for Cycle X under the LTIP. Such number of shares is only a target. Each executive’s 2003-2005 target long-term incentive opportunity was converted into performance shares equal to an equivalent number of shares of AE common stock, based on the price of such stock on December 31, 2002. The plan provides that at the end of this three-year performance period, the performance shares attributed to the calculated award will be valued based on the price of AE common stock on December 31, 2005, and will reflect dividends that would have been paid on such stock during the performance period as if they were reinvested on the date paid. If an executive retires, dies, or otherwise leaves the employment of Allegheny prior to the end of the three-year period, the executive may nevertheless receive an award based on the number of months worked during the period. The final value of an executive’s account, if any, will be paid in the form of 50% cash and 50% AE common stock to the executive in early 2006.

The actual payout of an executive’s award may range from zero to 200 percent of the target amount before dividend reinvestment. The payout is based upon stockholder performance versus the peer group. Target performance is defined as AE achieving a three-year total shareholder return that is twice that of the peer group. Achievement of less than one times the performance of the peer group results in zero payout. Achievement of between one times and four times the performance of the peer group results in payouts ranging from 50% of target to 200% of target.

Incentive Plans and Awards

Allegheny has previously established annual incentive plans (the short-term incentive plans) for the purpose of attracting and retaining quality managerial talent and to reward attainment of performance goals. Under these plans, the Management Compensation and Development Committee of AE’s Board of Directors determines award levels, based upon the recommendation of AE’s Chief Executive Officer and subject to full Board approval. The short-term incentive plan for 2003 was terminated by the Board in December 2003 and no awards were granted.

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Retirement Agreement

Mr. Morrell elected to retire under the ERO, effective September 1, 2003. Under the terms of the ERO, Mr. Morrell was credited with three additional years of service under the SERP. Mr. Morrell also entered into an agreement with Allegheny under which Allegheny agreed to waive the requirement that Mr. Morrell serve ten years with Allegheny in order to be credited with eight additional years of service for purposes of the SERP. Mr. Morrell’s retirement under the agreement effected the termination of his Employment Agreement and Change in Control Contract with Allegheny. The agreement also subjects Mr. Morrell to certain confidentiality, non-competition and non-solicitation covenants. Mr. Morrell has agreed to cooperate with Allegheny with respect to ongoing or future litigation and proceedings.

Compensation Committee Interlocks and Insider Participation

The Company does not have a compensation committee of the Board. There were no officers or employees of the Company who, during the last completed fiscal year, participated in deliberations of the Board concerning executive officer compensation since none of the compensation for officers of the Company is paid by or attributable to the Company. There were no interlocking directorships in 2003.

Compensation of Directors

The Company has a contract with its two independent directors (Beth L. Peoples and Michael G. Morgan), whereby the Company retains the directors to perform the duties of independent director in consideration of $1,250 per year. The base fee will be increased in the event of an increase in the cost of living. None of the other directors receive compensation for their services as a director for the Company.

West Penn Funding Corporation is a 100 percent holder of the membership interests in the Company. There are no equity compensation plans.

West Penn, as Servicer, currently provides various services to the Company, including financial, collection, servicing, and other administrative support.

The Company has no employees. Certain services to the Company are provided by West Penn Funding Corporation. The cost of services provided by West Penn Funding Corporation have been directly charged to the Company at cost or allocated to the Company using methods the Company believes are reasonable.

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Set forth below are fees paid to PricewaterhouseCoopers LLP (PwC) in respect of services rendered in 2003 and 2002. All services provided to the Company by PwC require the prior review and approval by the Audit Committee of Allegheny Energy, Inc.

AUDIT FEES

The audit fees and expenses associated with West Penn Funding LLC were $50,000 for 2003 and 2002, respectively.

AUDIT-RELATED FEES

Fees and expenses from audit-related services were $8,500 for 2002. These fees are for certain agreed upon procedures which are required by the Indenture for $600 million of Bonds, Series 1999-A, Class A-1 through Class A-4, issued in November 1999.

TAX FEES

There were no fees and expenses paid for tax advisory, planning, and compliance services for 2003 and 2002.

ALL OTHER FEES

There were no fees and expenses paid for other services for 2003 or 2002.

PART IV

Report of Independent Auditors.

Statements of Operations for each of the years ended December 31, 2003, 2002, and 2001.

Statements of Member’s Equity for each of the years ended December 31, 2003, 2002, and 2001.

Statements of Cash Flows for each of the years ended December 31, 2003, 2002, and 2001.

Balance Sheets at December 31, 2003, and 2002.

None.

See Exhibit Index, which appears following the Signature page to this report.

None.

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT

No Annual Report or proxy materials have been sent to security holders for West Penn Funding LLC.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 11, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.

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INDEX TO EXHIBITS