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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
ALLEGHENY POWER SYSTEM, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
ALLEGHENY POWER SYSTEM, INC.
[APS LOGO]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
AND PROXY STATEMENT
<PAGE> 3
[APS LOGO] ALLEGHENY POWER SYSTEM, INC.
10435 Downsville Pike
Hagerstown, Maryland 21740
April 4, 1997
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ALLEGHENY
POWER SYSTEM, INC. will be held on the third floor of 270 Park Avenue, between
47th and 48th Streets, New York, N.Y., on Thursday, May 8, 1997, at 10:30 a.m.,
New York time, for the following purposes:
(1) To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are duly chosen and qualified;
(2) To approve the appointment of independent accountants;
(3) If presented, to consider and vote upon a shareholder proposal
regarding pensions or other retirement benefits for independent directors;
(4) If presented, to consider and vote upon a shareholder proposal to
require the Board to have 90% of its directors independent; and
(5) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of record at the close of business on March 31, 1997 will be
entitled to vote at the meeting.
By Order of the Board of Directors.
EILEEN M. BECK
Secretary
<PAGE> 4
PROXY STATEMENT
Proxies in the form enclosed are solicited by the Board of Directors of
Allegheny Power System, Inc. (the Company), 10435 Downsville Pike, Hagerstown,
Maryland 21740, for the Annual Meeting of Stockholders to be held on May 8,
1997. The proxy card provided each stockholder by the Company covers the total
number of shares registered in his or her name and, in the case of participants
in the Company's Dividend Reinvestment and Stock Purchase Plan, the shares held
for his or her account under the Plan. A proxy may be revoked at any time prior
to its exercise by written notice to the Company, by submission of another proxy
bearing a later date or by voting in person at the meeting.
At the close of business on March 31, 1997, there were outstanding
122,111,567 shares of Common Stock each entitled to one vote. In elections of
directors, each holder entitled to vote is entitled to as many votes as shall
equal the number of shares held multiplied by the number of directors to be
elected and may cast all of such votes for a single director or may distribute
them among the number of directors to be elected or any two or more of them.
There are no conditions precedent to the exercise of such cumulative voting
rights.
The presence in person or by proxy of the holders of record of a majority
of the outstanding shares of Common Stock entitled to vote constitutes a quorum.
The affirmative vote of a majority of all the votes entitled to be cast is
required for the election of each director and for approval of the appointment
of Price Waterhouse LLP as independent accountants. Abstentions are counted only
for purposes of determining whether a quorum is present. Broker non-votes are
not treated as votes nor are they calculated in determining the existence of a
quorum.
The approximate date on which the proxy statement and form of proxy are
first being sent or given to stockholders is April 4, 1997. The Annual Report
for 1996 has already been mailed to stockholders.
ELECTION OF DIRECTORS
Edward H. Malone, a director since 1985, reached the mandatory retirement
age for directors of 72, and will not stand for re-election. Klaus Bergman,
Chairman of the Board, a director since 1985, and former President and Chief
Executive Officer of the Company, has elected to retire as Chairman of the Board
as of May 8, 1997, the date of the Annual Meeting and not stand for re-election.
The Board has elected Alan J. Noia, President and Chief Executive Officer of the
Company, to succeed Mr. Bergman as Chairman. The Board reduced the number of
directors to nine as provided for in the By-Laws of the Company.
At the meeting nine directors are to be elected to hold office until the
next Annual Meeting of Stockholders and until their respective successors are
duly chosen and qualified. The proxies received, unless marked to the contrary,
will be voted for the election of the following persons, all of whom are now
directors of the Company and are the nominees of the Board of Directors at this
election, or, if considered desirable, cumulative voting rights will be
exercised by the proxy holders to elect as many of such nominees as possible.
The Board of Directors does not expect that any of the nominees will become
unable to serve as a director, but if that should occur for any reason prior to
the meeting, the proxy holders reserve the right to name another person of their
choice.
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DIRECTORS, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1996 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
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ELEANOR BAUM (3) (4) 56 1988
Dean of The Albert Nerken School of Engineering of The Cooper Union for the
Advancement of Science and Art. Director of Avnet, Inc. and United States
Trust Company, Commissioner of the Engineering Manpower Commission, a
fellow of the Institute of Electrical and Electronic Engineers, member of
Board of Governors, New York Academy of Sciences, and President of
Accreditation Board for Engineering and Technology. Formerly, President,
American Society of Engineering Education
Attendance: 21 of 22
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1
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTORS, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1996 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
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<S> <C> <C>
WILLIAM L. BENNETT (1) (5c) (6) 47 1991
Chairman, HealthPlan Services Corporation, a leading managed health care
services company. Formerly, Chairman and Chief Executive Officer of Noel
Group, Inc. Director of Belding Hemingway Company, Inc., Noel Group, Inc.,
and Sylvan, Inc.
Attendance: 18 of 20
WENDELL F. HOLLAND (1) 45 1994
Vice President, American Water Works Service Company, Inc. Formerly, Of
Counsel, Law Firm of Reed, Smith, Shaw & McClay, Partner, Law Firm of
LeBoeuf, Lamb, Greene & MacRae, and Commissioner of the Pennsylvania Public
Utility Commission.
Attendance: 13 of 13
PHILLIP E. LINT (1c) (3) (5) (6) 67 1989
Retired. Formerly partner, Price Waterhouse.
Attendance: 24 of 24
FRANK A. METZ, JR. (2) (3) (4c) (6c) 62 1984
Retired. Formerly Senior Vice President, Finance and Planning, and Director
of International Business Machines Corporation, a manufacturer and
distributor of information systems equipment and services. Director of
Monsanto Company and Norrell Corporation.
Attendance: 25 of 25
ALAN J. NOIA (2) (3) (5) 50 1994
Chairman of the Board (effective May 8, 1997), President and Chief
Executive Officer of the Company and Chairman, President and Chief
Executive Officer of Allegheny Power Service Corporation. Chairman and
Chief Executive Officer of the Company's other principal subsidiaries.
Formerly, President and Chief Operating Officer of the Company, and
President of The Potomac Edison Company.
Attendance: 19 of 19
STEVEN H. RICE (2) (3c) (4) (6) 53 1986
Bank and real estate consultant and attorney-at-law. Director and Vice
Chairman of the Board of Stamford Federal Savings Bank. Formerly, President
and Director of The Seamen's Bank for Savings and Director of Royal Group,
Inc.
Attendance: 25 of 25
GUNNAR E. SARSTEN (4) (5) (6) 60 1992
Chairman and Chief Executive Officer of MK International. Formerly,
President and Chief Operating Officer of Morrison Knudsen Corporation,
President and Chief Executive Officer of United Engineers & Constructors
International, Inc., (now Raytheon Engineers & Constructors, Inc.), and
Deputy Chairman of the Third District Federal Reserve Bank in Philadelphia.
Attendance: 23 of 23
PETER L. SHEA (1) (5) 64 1993
Managing Member of Temblor Petroleum Company L.L.C., a privately owned oil
and gas exploration and production company and Individual General Partner
of Panther Partners, L.P., a closed-end non-diversified management company.
Formerly, Managing Director of Hydrocarbon Energy, Inc.
Attendance: 18 of 18
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(1) Member of Audit Committee.
(2) Member of Executive Committee.
(3) Member of Finance Committee.
(4) Member of Management Review Committee.
(5) Member of New Business Committee.
(6) Strategic Affairs Committee.
(c) Current committee Chairman.
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<PAGE> 6
COMPENSATION OF DIRECTORS
Each of the directors is also a director of the following subsidiaries of
the Company: Monongahela Power Company, The Potomac Edison Company, West Penn
Power Company, and Allegheny Power Service Corporation (System or System
companies). In 1996, directors who were not officers or employees (outside
directors) received for all services to the Company and System companies (a)
$16,000 in retainer fees, (b) $800 for each committee meeting attended, except
Executive Committee meetings for which such fees are $200, and (c) $250 for
attendance at each Board meeting of the Company, Monongahela, Potomac Edison,
and West Penn. Subsequent to June 1, 1996, Mr Bergman has received a fixed fee
at the annual rate of $100,000 for services in all capacities to the Company and
its subsidiaries. Under an unfunded deferred compensation plan, a director may
elect to defer receipt of all or part of his or her director's fees for
succeeding calendar years to be payable with accumulated interest when the
director ceases to be such, in equal annual installments, or, upon authorization
by the Board of Directors, in a lump sum. In addition to the foregoing
compensation, (a) the Chairperson of each committee other than the Executive
Committee receives an additional fee of $4,000 per year and (b) outside
directors of the Company receive 200 shares of Common Stock pursuant to the
Allegheny Power System, Inc. Restricted Stock Plan for Outside Directors. Under
the Allegheny Power System Board of Directors Retirement Plan, which was
eliminated in March 1997, outside directors were entitled to receive an annual
pension equal to the retainer fee paid to them at the time of their retirement,
provided the director had at least five years of service and, except under
special circumstances, served until age 65. In March 1997, the Directors
Retirement Plan was replaced with a Deferred Stock Unit Plan for Outside
Directors. The new plan provides for a lump sum payment (payable in one or more
installments, including interest thereon equivalent to the dividend yield, at
the director's election) to directors calculated by reference to the price of
the Company's common stock. Directors who serve at least five years on the Board
and leave on or after age 65, or upon death or disability, or as otherwise
directed by the Board will receive such payments. The present value of the
accrued benefits under the Directors Retirement Plan was credited to each
director's opening account balance under the new plan in the form of deferred
stock units. In addition, to maintain a competitive level of compensation and
further align the interest of outside directors with stockholders, each year the
Company will credit each outside director's account with 275 deferred stock
units.
BOARD OF DIRECTORS AND CERTAIN COMMITTEE MATTERS
The Board of Directors has Audit, Finance, Management Review, New Business,
and Strategic Affairs Committees. The Audit Committee makes recommendations to
the Board with respect to auditing matters, including the employment of
independent accountants and the handling of the annual audit of the books and
accounts of the Company and its subsidiaries. It met four times in 1996. The
Management Review Committee, which is made up of outside directors only, makes
recommendations to the Board on certain matters concerning directors and
officers, including compensation and management succession. This Committee
serves also as the nominating committee for directors and considers
recommendations sent by shareholders to the Company that are accompanied by a
comprehensive written resume of the proposed nominee's experience and background
and a written consent of such person to serve as a director if nominated and
elected. It met nine times in 1996. The total number of Board meetings held in
1996 was nine.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Price Waterhouse LLP as independent accountants for the Company to
audit its consolidated financial statements for 1997 and to perform other audit
related services. Such services include: review of the Company's quarterly
interim financial information; review of periodic reports and registration
statements filed by the Company with the Securities and Exchange Commission;
issuance of special purpose reports covering such matters as employee benefit
plans and submissions to various governmental agencies; and consultation in
connection with various accounting and financial reporting matters. Price
Waterhouse also performs non-audit services for the Company. Fees for the 1996
audit and fees for audit services paid during the year aggregated $637,000, and
3
<PAGE> 7
there were no non-audit services performed in 1996. The Board has directed that
the appointment of Price Waterhouse be submitted to the stockholders for
approval. If the stockholders should not approve, the Audit Committee and the
Board would reconsider the appointment. Representatives of Price Waterhouse will
be present at the annual meeting to make a statement if they wish and to answer
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS AND WILL SO VOTE
PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
SHAREHOLDER PROPOSAL
John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, who
is the owner of 2,893 shares of common stock of the Company, has advised the
Company that he plans to introduce the following resolution at the Annual
Meeting:
RESOLVED:
"The shareholders of Allegheny Power direct the Board to amend the By-Laws
on the day of the 1997 shareholder meeting, to refrain from providing pensions
or other retirement benefits to independent Directors, including the initiation
of other 'ingratiating' pay to influence the objectivity of Directors.
"The unwelcome highlight for Shareholders of this highly successful
resolution was the arrogance of Management in non-response. This Resolution is
being adopted by an increasing number of profitable Fortune 1000 companies.
Management refused to respond in writing to letters about adopting this
resolution, following the impressive Shareholder support."
SUPPORTING STATEMENT:
"Certain business or financial relationships can adversely affect the
ability of Directors to function in their management oversight role. This is
especially critical for independent or outside Directors, who should bring
arms-length objectivity to Board deliberations. Allegheny Power now gives a
lucrative pension to independent Directors.
"While independent Directors are entitled to reasonable pay for their
expertise and time, additional layers of pay, like Director pensions which are
100% of Director base pay, have the pernicious effect of compromising their
independence and impartiality. Such generous and unnecessary extra pay for
independent Directors is management's way to insure Director's unquestioning
loyalty and acquiescence to whatever policy Management wants.
"Accordingly, retirement pay becomes another device to enhance and entrench
Management's control over corporate policy, while being accountable only to
themselves, and not the Shareholders or Directors. This additional layer of pay
to Directors may influence their ability to exercise independence from
Management which is critical to the proper functioning of the Board.
"The long-term best interest of Shareholders and Allegheny Power is not
served by retirement pay. The Allegheny Power Directors do not need another
retirement plan. Directors as a group, will or have received in excess of $1
Million in pay at or upon retirement. Directors do not need 'double' and
'triple-dip' pensions at Allegheny Power.
"Pensions influence Directors to be sympathetic to Management and not
Shareholders. With pensions, Directors tend to placate management, so Directors
can stick around long enough to collect Director pensions.
"To support unity of interest between Directors, Shareholders and
Management, it will also benefit Allegheny Power to adopt the following:
- Directors may not be members of more than 3 Boards of Directors,
including their Allegheny Power Board membership.
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<PAGE> 8
- Directors must not currently work or consult with the Allegheny Power nor
have done so in the past.
- Pay 50 percent of Director's compensation in stock and require it be held
3 years.
- Link Director's pay to corporate performance.
- Adopt confidential shareholder voting, beneficial to protect shareholders
from management pressure to change their votes before ballots are
counted.
"Pensions for Directors (with as little as 500 total hours of service in a
5-year stretch), sends a negative message to productive, dedicated and loyal
Allegheny Power employees. Many senior Allegheny Power employees find that after
20,000 hours of service in 10 years, they are abruptly terminated shortly before
reaching important pension vesting milestones.
"The pension shortfall for the Allegheny Power 'rank and file' tells
college graduates: Making a career at Allegheny Power is not a good choice,
especially for the more qualified Allegheny Power employees that can find jobs
at Competing Utilities.
"Vote yes to eliminate Double-Dip Director Pensions. Deleting pensions will
result in a creative, objective and independent oversight for management that
will improve Allegheny Power profits and the image of Board leadership to
Allegheny Power employees.
"Vote yes to eliminate Directors' pensions to increase profits through
objective Director oversight of Allegheny Power Management.
"Vote yes for this resolution, in preference to management's Deferred Stock
Plan. The Deferred Stock Plan has significant resemblance to the old retirement
plan."
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL AND WILL SO
VOTE PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
SHAREHOLDERS SHOULD BE AWARE THAT THE ADDITIONAL MATTERS INCORPORATED BY
THE PROPONENT IN HIS SUPPORTING STATEMENT are not part of his proposal and are
not subject to a vote at this time.
The Board of Directors believes that it continues to be in the best
interest of the Company and its shareholders to attract and retain the most
qualified individuals to serve as directors. To accomplish this task, the
Company must have the flexibility to offer a compensation package that is
competitive with the compensation packages offered to directors by other major
companies. A competitive mix of retainer and meeting fees, annual stock awards,
and deferred stock units provides an incentive to join the Board and to remain
long enough to gain experience and knowledge of the Company's business, and
recognizes the ever increasing time commitment, diligence, and risks associated
with Board service.
The retirement plan for outside directors that is the subject of the
foregoing proposal was eliminated by the Board of Directors effective March 6,
1997, and was replaced by the Deferred Stock Unit Plan described under
"Compensation of Directors" on page 3. The Deferred Stock Unit Plan is intended
to create a strong economic alignment between the interests of the outside
directors and the shareholders of the Company. Payments under the new plan will
be calculated on the basis of deferred stock units, and are therefore tied
directly to the market price of the Company's common stock. The Board believes
that the new plan is an important element of the Company's director compensation
package.
Because the Deferred Stock Unit Plan provides a lump sum benefit based on
the Company's stock price performance over the director's tenure, the Deferred
Stock Unit Plan is, in fact, substantially different than the plan it replaced.
In the opinion of the Board of Directors, the new Deferred Stock Unit Plan
aligns the interests of the directors with those of the shareholders and is
competitive.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSED
RESOLUTION.
5
<PAGE> 9
SHAREHOLDER PROPOSAL
Richard Kelvin, M.D., 21 7th Place, Long Beach, CA 90802, who is the owner
of 400 shares of common stock of the Company, has advised the Company that he
plans to introduce the following resolution at the Annual Meeting:
RESOLVED:
"Allegheny Power shareholders direct the Board to amend the By-Laws on the
day of the 1997 shareholder meeting, for the Board to have 90% of its Directors
independent.
"Shareholders recommend the Board of Directors take the necessary steps to
ensure that Board members are independent and the necessary time in their
professional careers to be independent. This will give the Directors and
Shareholders an independent viewpoint to challenge management to greater
accomplishments in profitability and growth.
"Independent Directors are particularly important during this new era of
Electric Utility deregulation."
REASON:
"Based on criteria from CalPERS and the Florida Retirement System Trust
Fund (Two major public pension funds that seek to maximize stock values),
independent Directors are:
- Not employed by Allegheny Power or an affiliate, as an executive, within
the last 5 years.
- Is not and was not employed by Allegheny Power's paid advisors or
consultants, for instance, law and accounting firms.
- Not employed by a customer, supplier or provider of professional services
to Allegheny Power.
- Has no personal services contract with the Allegheny Power.
- Is not employed by a foundation or university that receives over $10,000
annually in grants or endowments from Allegheny Power.
- Is not a relative of the management of the Allegheny Power.
- Is not an officer or Board member of a company on which the Company's
Chairman or CEO is also a Board member.
"Independent Directors will encouraged clear and objective decision making
in the best long-term interest of shareholders.
"This is particularly important during this new era of Electric Utility
deregulation. Directors must formulate corporate policies and monitor management
in implementing those policies. Due to the critical importance of these
functions, it is in the best interest of all stockholders that most of Directors
be independent. The employment, business and family relationship of Directors
has the potential to raise conflicts of interest that may limit the vigilance
and diligence of the Board.
"Implicit in the definition of an independent Director, is the fact that
the Directors must have the professional time to devote to Allegheny Power.
Directors with full time jobs should be limited to a maximum of 3 Directorships,
including Allegheny Power. The term Directorships includes trustee, committee
member and other related responsibilities typically listed in Who's Who
biographies.
"Vote yes for independent Directors to ensure long-term profitability and
growth for Allegheny Power."
6
<PAGE> 10
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL AND WILL SO
VOTE PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
The Company has always placed great importance on having a Board of
Directors that is primarily composed of independent directors. For more than 20
years the Board has never had more than two "inside" directors, and usually only
one, the Chief Executive Officer of the Company.
However, it is not in the Company's best interest to adopt rigid formulas
which could only serve to limit the Board's ability to choose the best available
candidates to serve as directors. The shareholder's proposal would be
exceptionally restrictive.
The directors place great importance on maintaining a strong and
independent Board. A generally accepted measure of a director's independence is
whether the individual is free of any material business relationship with the
corporation and personal financial interest in the Board's decisions, other than
as a stockholder. By this measure, all of the directors standing for
re-election, except Mr. Noia, are independent.
The Board believes that the criteria espoused by the proponent are unduly
restrictive and not applicable to Allegheny Power's Board.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSED
RESOLUTION.
MANAGEMENT REVIEW COMMITTEE REPORT
GENERAL
The compensation program for executive officers of the Company and its
subsidiaries is directed by the Management Review Committee of the Company's
Board of Directors. The Committee recommends the annual compensation program for
each year to the Board of Directors of the Company and of each subsidiary for
its approval.
The Committee believes that with the advent of competition to this industry
a larger portion of compensation should be included in incentive plans. For
1997, compensation will include more pay "at risk."
The executive compensation program is intended to meet three objectives:
- Create a strong link between executive compensation and total return to
stockholders, reliable and economical service to customers which assures
customer satisfaction, environmental stewardship, and System financial
stability, integrity, and overall performance.
- Offer compensation opportunities that are competitive above the median
level of opportunity in the marketplace, at expected levels of
performance.
- Ensure internal compensation equity -- maintaining a reasonable
relationship between compensation and the duties and responsibilities of
each executive position.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program has three components: salary
and short-term and long-term incentive awards.
The Company's executive compensation is both market- and performance-based.
The Committee believes that it is necessary to use both market- and
performance-based compensation to meet the challenges of intensifying
competitive, economic, and regulatory pressures.
To ensure that the System's salary structure and total compensation
continue to be competitive, they are compared each year through an annual
compensation survey with those of comparable electric utilities -- 20 or more in
recent years. The survey companies are either similar in type and size to the
System, contiguous to our geographic territory, or have a similar fuel mix.
In 1996, over 80% of these survey companies are included in the Dow Jones
Electric Index to which the Company's performance is compared on page 14 of this
proxy statement. This comparison, conducted by a national compensation
consulting firm, involves matching System positions, including the Chief
Executive Officer (CEO), with those in the survey companies that have comparable
duties and responsibilities. For
7
<PAGE> 11
1996, the survey indicated that the System's executive salary structure was
slightly below the median. This survey data became the basis for the consulting
firm's recommendations as to market prices for each position and total
compensation in line with the survey average for comparable positions.
Base salary:
The base salaries of all executive officers, including the CEO, are
reviewed annually by the Committee, which makes recommendations to the
Board of Directors. In recommending base salary levels, the Committee gives
most weight to the performance of each executive. The Committee receives a
report from the CEO including (a) the performance evaluation of each
executive (other than himself) based on that executive's position-specific
responsibilities and performance evaluation by his or her supervisor, and
(b) a specific salary recommendation for each. In determining its
recommendations to the Board, the Committee also takes into consideration
operating performance, including such factors as safety, efficiency,
competitive position, customer satisfaction, and financial results,
including such things as total return, earnings per share, quality of
earnings, dividends paid, and dividend payout ratio.
Annual Performance Incentive Plan:
The Allegheny Power System Annual Performance Incentive Plan (the
Incentive Plan) is designed to supplement base salaries and provide cash
incentive compensation opportunities to attract, retain, and motivate a
senior group of managers of Allegheny Power including executive officers
selected by the Management Review Committee. The Incentive Plan provides
for establishment of individual incentive awards based on meeting specific
predetermined corporate performance targets. The performance targets are
based on net income available to common shareholders, achieved shareholder
return, overall corporate financial results (changes in earnings per share,
quality of earnings, dividends paid per share and dividend payout ratios),
cost of service to customers and System performance, including competitive
position. In addition, personal performance goals as to operating factors
such as efficiency and safety are set on a position specific basis for
participants.
Specific operating, management, or financial areas to be emphasized,
as well as performance targets, are determined each year by the Committee
with the recommendations of the CEO. If the corporate performance targets
are not met, no awards are paid. The target awards under the 1996 Incentive
Plan were determined by the Committee, and participants could earn up to
1 1/2 times the target award. For the 1996 Incentive Plan the targets were
$175,000 for Mr. Noia and from $50,000 to $125,000 for the other named
officers. Targets for other participants ranged from $50,000 to
approximately 25% or less of 1996 base salary. Incentive Plan awards earned
are paid in the year after the year for which they are earned. Awards
earned for performance in 1994, 1995, and 1996 are set forth in the Summary
Compensation Table for those years under the column "Incentive Award" for
the individuals named therein.
Performance Share Plan:
The Allegheny Power System Performance Share Plan (the Performance
Plan) is designed as an aid in attracting and retaining individuals of
outstanding ability and in rewarding them for total shareholder return and
continuous provision of economical service to customers by the Company.
Nine executive officers of the Company were selected by the Management
Review Committee to participate in Cycle I (1994-1996); seven in Cycle II
(1995-1997); eleven in Cycle III (1996-1998); and twelve in Cycle IV
(1997-1999) of the Performance Plan. The Performance Plan provides for the
establishment of corporate incentive awards based on meeting specific
stockholder and customer performance rankings (total stockholder return
ranking in the Dow Jones Electric Utility Index and cost of customer
service versus nine other utilities).
The Cycle I target awards under the Performance Plan ranged from
$30,000 for the named officers to $75,000 for Mr. Noia and $170,000 for Mr.
Bergman. These amounts would equate to 1,132 to 6,415 shares under the
Plan. The actual award calculated under the Plan equaled 125% of the target
amount. The dollar value of such shares calculated as of December 31, 1996,
including reinvested dividends, is included in the compensation table on
page 10.
8
<PAGE> 12
The Cycle II target awards range from $25,000 to $100,000 for Mr.
Noia. These amounts equate to 1,149 to 4,598 targeted shares of stock as of
January 1, 1995, the start of the performance cycle. The Cycle III target
awards range from $25,000 to $175,000 for Mr. Noia, which equate to 873 to
6,114 shares under the Plan at January 1, 1996. The fourth cycle became
effective January 1, 1997, and provides target awards ranging from $30,000
to $230,000 for Mr. Noia or 988 to 7,572 shares.
The actual payouts will be determined in 1998 for Cycle II, in 1999
for Cycle III, and in 2000 for Cycle IV, after completion of each cycle and
determination of the actual stockholder and customer rankings. The actual
awards will be paid in Company stock and can range from 0 to 200% of the
targeted shares noted above, before including reinvested dividends.
The target opportunity and the corresponding number of equivalent
performance shares allocated to each named executive officer for Cycle III
are listed in the Performance Share Plan Table on page 12.
For Mr. Noia, the Management Review Committee developed salary and
incentive award recommendations for the Board's consideration. The base salary
recommendation was based upon the Committee's evaluation of his performance as
Chief Operating Officer through May 1996 and as CEO for the balance of the year,
and of his responsibilities in the context of the Company's overall financial
and operating performance, including the factors described in the next sentence,
and the quality and cost of service rendered to its customers. The incentive
award recommendation was based primarily on 1996 corporate financial results,
including total shareholder return, changes in earnings per share, quality of
earnings, dividends paid per share, and dividend payout ratios. The overall
quality and cost of service rendered to customers and overall Allegheny Power
performance, including competitive position, were also considered. Mr. Noia's
1996 total compensation reflected the Committee's evaluation of his performance
as Chief Operating Officer and then as CEO, and the described 1996 overall
results.
The executive compensation program, which is annually reviewed by the
Committee and the Board, is intended to reward the individual performance of
each executive relative to the overall financial performance of the Company, the
service provided to customers, and its cost. The program is further intended to
provide competitive compensation to help the Company attract, motivate, and
retain the executives needed to ensure continued stockholder return and reliable
and economical electric service to customers.
Section 162(m) of the Internal Revenue Code generally limits to $1 million
the corporate deduction for compensation paid to executive officers named in the
Proxy Statement, unless certain requirements are met. This Committee has
carefully considered the effect of this tax code provision on the current
executive compensation program. At this time, Allegheny's deduction for officer
compensation is not limited by the provisions of Section 162(m). The Committee
intends to take such actions with respect to the executive compensation program,
if necessary, to preserve the corporate tax deduction for executive compensation
paid.
No current member of the Management Review Committee is or ever was an
employee of the Company or any of its subsidiaries.
Frank A. Metz, Jr., Chairman
Eleanor Baum
Steven H. Rice
Gunnar E. Sarsten
9
<PAGE> 13
EXECUTIVE COMPENSATION
During 1996, and for 1995 and 1994, the annual compensation paid by the
Company and its subsidiaries directly or indirectly to the Chief Executive
Officer and each of the four most highly paid executive officers of the Company
whose cash compensation exceeded $100,000 for services in all capacities to the
Company and its subsidiaries was as follows:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION PERFORMANCE
- - ------------------------------------------------------- INCENTIVE SHARE PLAN ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY AWARD (A) PAYOUT (B) COMPENSATION (C)
- - ------------------------------------- ---- -------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
ALAN J. NOIA
President, Chief Executive Officer 1996 $360,000 $ 253,750 $ 131,071 $ 92,769
and Director of the Company and 1995 305,000 120,000 48,983
Allegheny Power Service 1994 236,336 57,000 47,867
Corporation. Chairman of the Board
of the Company's other principal
subsidiaries.
KLAUS BERGMAN(d)
Chairman of the Board of the 1996 $220,835 $ -0-(d) $ 239,327 $119,258(e)
Company and director of the 1995 515,000 187,500 63,677
Company's principal subsidiaries. 1994 485,004 120,000 91,458
Prior to June 1, 1996, Chairman of
the Board and Chief Executive
Officer of the Company, Allegheny
Power Service Corporation, and of
the Company's principal
subsidiaries.
PETER J. SKRGIC
Senior Vice President of the 1996 $245,000 $ 176,300 $ 96,119 $ 24,830
Company and Allegheny Power Service 1995 238,000 73,800 37,830
Corporation. Vice President and 1994 213,336 50,000 57,253
Director of the Company's other
principal subsidiaries.
JAY S. PIFER
Senior Vice President of the 1996 $230,000 $ 112,000 $ 87,381 $ 30,949
Company and Allegheny Power Service 1995 220,000 72,600 34,098
Corporation. President and Director 1994 189,996 39,000 50,630
of the Company's other principal
subsidiaries.
RICHARD J. GAGLIARDI
Vice President of the Company and 1996 $175,008 $ 100,800 $ 52,429 $ 17,898
Allegheny Power Service Corporation 1995 160,008 48,400 18,769
and of certain of the Company's 1994 142,008 32,500 19,655
other subsidiaries.
KENNETH M. JONES
Vice President of the Company and 1996 $175,500 $ 62,000 $ 52,429 $ 25,688
Allegheny Power Service Corporation 1995 168,000 43,200 28,217
and of certain of the Company's 1994 160,008 31,000 30,026
other subsidiaries
</TABLE>
- - ---------------
(a) Incentive awards are based upon performance in the year in which the figure
appears but are paid in the first or second quarter of the following year.
The incentive award plan will be continued for 1997.
(b) In 1994, the Board of Directors of the Company implemented a Performance
Share Plan (the "Plan") for senior officers of the Company and its
subsidiaries which was approved by the shareholders of the Company at the
annual meeting in May 1994. The first Plan cycle began on January 1, 1994
and ended
10
<PAGE> 14
on December 31, 1996. The figure shown represents the dollar value to be
paid to each of the named executive officers who participated in Cycle I. A
second cycle began on January 1, 1995 and will end on December 31, 1997. A
third cycle began on January 1, 1996 and will end on December 31, 1998. A
fourth cycle began on January 1, 1997 and will end on December 31, 1999.
After completion of each cycle, Company stock or a combination of stock and
cash may be paid if performance criteria have been met.
(c) The figures in this column include the present value of the executives'
cash value at retirement attributable to the current year's premium
payment for both the Executive Life Insurance and Secured Benefit Plans
(based upon the premium, future valued to retirement, using the policy
internal rate of return minus the corporation's premium payment), as well
as the premium paid for the basic group life insurance program plan and
the contribution for the Employee Stock Ownership and Savings Plan (ESOSP)
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.
Effective January 1, 1992, the basic group life insurance provided
employees was reduced from two times salary during employment, which
reduced to one times salary after five years in retirement, to a new plan
which provides one times salary until retirement and $25,000 thereafter.
Some executive officers and other senior managers remain under the prior
plan. In order to pay for this insurance for these executives, during 1992
insurance was purchased on the lives of each of them. Effective January 1,
1993, the Company started to provide funds to pay for the future benefits
due under the supplemental retirement plan (Secured Benefit Plan). To do
this, the Company purchased, during 1993, life insurance on the lives of
the covered executives. The premium costs of both policies plus a factor
for the use of the money are returned to the Company at the earlier of (a)
death of the insured or (b) the later of age 65 or 10 years from the date
of the policy's inception. Under the ESOSP for 1996, all eligible employees
may elect to have from 2% to 7% of their compensation contributed to the
Plan as pre-tax contributions and an additional 1% to 6% as post-tax
contributions. Employees direct the investment of these contributions into
one or more of seven available funds. Fifty percent of the pre-tax
contributions up to 6% of compensation are matched with common stock of the
Company. Effective January 1, 1994 the maximum amount of any employee's
compensation that may be used in these computations is $150,000. Employees'
interests in the ESOSP vest immediately. Their pre-tax contributions may be
withdrawn only upon meeting certain financial hardship requirements or upon
termination of employment. For 1996, the figure shown includes amounts
representing (a) the aggregate of life insurance premiums and dollar value
of the benefit to the executive officer of the remainder of the premium
paid on the Group Life Insurance program and the Executive Life Insurance
and Secured Benefit Plans, and (b) ESOSP contributions respectively, as
follows: Mr. Noia $88,269 and $4,500; Mr. Bergman $58,700 and $4,500; Mr.
Skrgic $20,330 and $4,500; Mr. Pifer $26,449 and $4,500; Mr. Gagliardi
$13,398 and $4,500; and Mr. Jones $21,188 and $4,500, respectively.
(d) Mr. Bergman retired June 1, 1996 from his position as Chief Executive
Officer of the Company and each subsidiary. Mr. Bergman did not receive an
incentive award for 1996 because six months of service is required before
an award may be granted. He is retiring as Chairman effective May 8, 1997.
(e) Included in this amount is $56,058 representing accrued vacation for which
he was paid.
-----------------------------
11
<PAGE> 15
ALLEGHENY POWER SYSTEM PERFORMANCE SHARE PLAN
UNITS AWARDED IN LAST FISCAL YEAR
(CYCLE III)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE ----------------------------------------
PERIOD THRESHOLD TARGET MAXIMUM
NUMBER OF UNTIL NUMBER OF NUMBER OF NUMBER OF
NAME SHARES PAYOUT SHARES SHARES SHARES
- - ------------------------ --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Alan J. Noia............ 6,114 1996-98 3,668 6,114 12,228
Chief Executive Officer
Peter J. Skrgic......... 4,367 1996-98 2,620 4,367 8,734
Senior Vice President
Jay S. Pifer............ 2,795 1996-98 1,677 2,795 5,590
Senior Vice President
Richard J. Gagliardi.... 2,445 1996-98 1,467 2,445 4,890
Vice President
Kenneth M. Jones........ 1,747 1996-98 1,048 1,747 3,494
Vice President
</TABLE>
The named executives were awarded the above number of shares for Cycle III.
Such number of shares are only targets. As described below, no payouts will be
made unless certain criteria are met. Each executive's 1996-1998 target
long-term incentive opportunity was converted into performance shares equal to
an equivalent number of shares of the Company's common stock based on the price
of such stock on December 31, 1995. 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 the Company's common stock on December 31, 1998 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 the Company prior to the end of the
three-year period, the executive may still receive an award based on the number
of months worked during the period. However, an executive must work at least
eighteen months during the three-year period to be eligible for an award payout.
The final value of an executive's account, if any, will be paid to the executive
in stock or a combination of stock and cash in early 1999.
The actual payout of an executive's award may range form 0 to 200% of the
target amount, before dividend reinvestment. The payout is based upon customer
and stockholder performance factors and the Company's rankings versus the peer
group. The combined customer and stockholder rating is then compared to a
pre-established percentile ranking chart to determine the payout percentage of
target. A ranking below 30% results in a 0% payout. The minimum payout begins at
the 30% ranking, which results in a payout of 60% of target, ranging up to a
payout of 200% of target if there is a 90% or higher ranking.
RETIREMENT PLAN
The Company maintains a Retirement Plan covering substantially all
employees. 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. In
addition, executive officers and other senior managers participate in a
supplemental executive retirement plan (Secured Benefit Plan).
Pursuant to the Secured Benefit Plan senior executives of System companies
who retire at age 60 or over with 40 or more years of service are entitled to a
supplemental retirement benefit in an amount that, together with the benefits
under the basic plan and from other employment, will equal 60% of the
executive's highest average monthly earnings for any 36 consecutive months. The
earnings include 50% of the actual annual incentive award paid effective
February 1, 1996. The supplemental benefit is reduced for less than 40 years
service and for retirement age from 60 to 55. It is included in the amounts
shown where applicable. To provide funds to pay such benefits, beginning January
1, 1993 the Company purchased insurance on the lives of the
12
<PAGE> 16
participants in the Secured Benefit Plan. If the assumption made as to mortality
experience, policy dividends, and other factors are realized, the Company will
recover all premium payments, plus a factor for the use of the Company's money.
The portion of the premiums for this insurance required to be deemed
"compensation" by the Securities and Exchange Commission is included in the "All
Other Compensation" column on page 10 of this proxy statement. All executive
officers are participants in the Secured Benefit Plan. It also provides for use
of Average Compensation in excess of Code maximums.
The following table shows estimated maximum annual benefits payable
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 (defined as average total earnings during the
highest-paid 36 consecutive calendar months or, if smaller, the member's highest
rate of pay as of any July 1st), retirement at age 65 and without consideration
of any effect of various options which may be elected prior to retirement. The
benefits listed in the Pension Plan Table are not subject to any deduction for
Social Security or any other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE -------------------------------------------------------------------------
COMPENSATION(A) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- - ------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000............... $ 60,000 $ 80,000 $100,000 $110,000 $115,000 $120,000
250,000............... 75,000 100,000 125,000 137,500 143,750 150,000
300,000............... 90,000 120,000 150,000 165,000 172,500 180,000
350,000............... 105,000 140,000 175,000 192,500 201,250 210,000
400,000............... 120,000 160,000 200,000 220,000 230,000 240,000
450,000............... 135,000 180,000 225,000 247,500 258,750 270,000
500,000............... 150,000 200,000 250,000 275,000 287,500 300,000
550,000............... 165,000 220,000 275,000 302,500 316,250 330,000
600,000............... 180,000 240,000 300,000 330,000 345,000 360,000
</TABLE>
- - ---------------
(a) The earnings of Messrs. Noia, Skrgic, Pifer, Gagliardi and Jones covered by
the plan correspond substantially to such amounts shown for them in the
summary compensation table. As of December 31, 1996, they had accrued 27,
32, 32, 18 and 26 years of credited service, respectively, under the
Retirement Plan. Mr. Bergman retired June 1, 1996 and receives an annual
pension benefit of $302,000.
The Company has entered into Change in Control contracts with the named and
certain other executive officers (Agreements). Each Agreement sets forth (i) the
severance benefits that will be provided to the employee in the event the
employee is terminated subsequent to a Change in Control of the Company (as
defined in the Agreements) and (ii) the employee's obligation to continue his
employment after the occurrence of certain circumstances that could lead to a
Change in Control. The Agreements provide generally that unless employment is
terminated by the Company for Cause, Disability or Retirement or by the employee
for Good Reason (each as defined in the Agreements), severance benefits will
consist of a cash payment equal to 2.99 times the employee's annualized
compensation together with the Company maintaining existing benefits for the
employee and the employee's dependents for a period of three years. Each
Agreement initially expires on December 31, 1998 but will be automatically
extended for one year periods thereafter unless either the Company or the
employee gives notice otherwise. Notwithstanding the delivery of such notice,
the Agreements will continue in effect for thirty-six months after a Change in
Control.
13
<PAGE> 17
PERFORMANCE GRAPH
The graph set forth below compares the Company's cumulative total
shareholder return on its Common Stock with the Dow Jones Electric Utility Index
and the Standard & Poor's Midcap 400 Index at each December 31 during the period
beginning December 31, 1991 and ending December 31, 1996, and assumes the
investment of $100 in each on December 31, 1991 and the reinvestment of all
dividends.
COMPARISON OF ALLEGHENY POWER SYSTEM, INC.'S 5-YEAR CUMULATIVE
TOTAL RETURN VS. DOW JONES ELECTRIC UTILITY INDEX AND S&P MIDCAP 400
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DOW JONES
(FISCAL YEAR COVERED) ALLEGHENY POWER ELECTRIC S&P MIDCAP 400
<S> <C> <C> <C>
1991 100 100 100
1992 115 107 112
1993 136 119 128
1994 120 105 123
1995 169 138 161
1996 190 139 192
</TABLE>
14
<PAGE> 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows the number of shares of Common Stock that are
beneficially owned, directly or indirectly, by each director and each named
executive officer of the Company, and by all directors and executive officers of
the Company as a group as of March 1, 1997. To the best of the knowledge of the
Company, there is no person who is a beneficial owner of more than 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF
APS, INC. PERCENT
NAME COMMON STOCK OF CLASS
------------------------------------------------------ ------------ ---------------
<S> <C> <C>
Eleanor Baum.......................................... 2,600 Less than .02%
William L. Bennett.................................... 3,250 "
Klaus Bergman......................................... 12,207 "
Richard J. Gagliardi.................................. 4,852 "
Wendell F. Holland.................................... 773 "
Kenneth M. Jones...................................... 5,470 "
Phillip E. Lint....................................... 1,233 "
Edward H. Malone...................................... 2,068 "
Frank A. Metz, Jr. ................................... 2,817 "
Alan J. Noia.......................................... 13,263 "
Jay S. Pifer.......................................... 9,215 "
Steven H. Rice........................................ 3,068 "
Gunnar E. Sarsten..................................... 6,600 "
Peter L. Shea......................................... 2,300 "
Peter J. Skrgic....................................... 6,714 "
All directors and executive officers of the Company
and its subsidiaries as a group (20 persons)........ 88,259 Less than .07%
</TABLE>
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers and directors to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission and
the New York Stock Exchange. No director or officer failed to file such reports
on a timely basis in 1996.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come
before the meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the proxy to vote the proxy thereon in
accordance with their judgment.
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mails, proxies may be solicited by officers, directors, and
regular employees of the Company and its subsidiaries personally, by telephone,
or telegraph, and the Company may reimburse persons holding stock in their names
or in the names of their nominees for their expenses in sending soliciting
material to their principals. Although there are no plans to do so, the Company
may also obtain the services of additional persons in soliciting proxies. The
cost of any such additional solicitation, if undertaken, is not expected to
exceed $40,000.
It is important that proxies be returned promptly. Stockholders are,
therefore, urged to mark, date, sign and return the proxy immediately. No
postage need be affixed if mailed in the enclosed envelope in the United States.
DEADLINE FOR SHAREHOLDER PROPOSALS
The date by which shareholder proposals must be received by the Company for
inclusion in the proxy materials relating to the next annual meeting is December
5, 1997.
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IMMEDIATELY. NO POSTAGE IS
NECESSARY IF MAILED IN THE ENCLOSED ENVELOPE IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, WE SHALL BE GLAD TO RETURN IT TO YOU, SO THAT YOU MAY VOTE IN
PERSON.
15
<PAGE> 19
PROXY
[ALLEGHENY POWER SYSTEM, INC. LOGO]
10435 DOWNSVILLE PIKE
HAGERSTOWN, MARYLAND 21740
PROXY FOR USE AT ANNUAL MEETING OF STOCKHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby appoints Alan J. Noia, Thomas K.
Henderson and Eileen M. Beck, and each of them, Proxies, with full power of
substitution, to vote all shares the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Allegheny Power System, Inc. to be held on
the 3rd Floor of 270 Park Avenue, between 47th and 48th Streets, New York, New
York, on May 8, 1997, at 10:30 a.m., New York time, and at any adjournments
thereof, with all the powers the undersigned would possess if personally
present, as hereinafter specified by the undersigned on the proposals listed on
the reverse side hereof and in their discretion on such matters as may properly
come before the meeting.
WHEN PROPERLY EXECUTED AND RETURNED, THIS PROXY WILL BE VOTED AS
SPECIFIED BY THE UNDERSIGNED STOCKHOLDER. IF NO VOTING SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1, "FOR" ITEM 2 AND
"AGAINST" ITEMS 3 AND 4.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROPERLY.
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 20
[LOGO] 10435 Downsville Pike
Allegheny Power System, Inc. Hagerstown, Maryland 21740
WITHHOLD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL FOR ALL
"FOR ALL NOMINEES" IN ITEM 1. NOMINEES NOMINEES
/ / / /
Item 1 - Election of the following nominees
as Directors: Eleanor Baum, William L.
Bennett, Wendell F. Holland, Phillip E.
Lint, Frank A. Metz, Jr., Alan J. Noia,
Steven H. Rice, Gunnar E. Sarsten and
Peter L. Shea.
To Withhold authority to vote for any nominee,
write the name on the line below.
- - ---------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2.
FOR AGAINST ABSTAIN
Item 2 - Approval of appointment of Price Waterhouse / / / / / /
LLP as independent accountants.
PLEASE MARK / X /
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST"
ITEM 3.
FOR AGAINST ABSTAIN
Item 3 - Shareholder proposal that in the future the / / / / / /
Board refrain from providing pensions or
other retirement benefits to independent
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST"
ITEM 4.
FOR AGAINST ABSTAIN
Item 4 - Shareholder proposal that 90% of the / / / / / /
directors be independent.
Signature(s) ______________________________________________ Date __________ 1997
(Please sign your name(s) exactly as shown above).
- - --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
