EXHIBIT H
H Form of Notice
1. News Digest
ALLEGHENY ENERGY, INC., ET AL. A notice has been issued
giving interested persons until December __, 2000, to request a
hearing on a proposal by The Potomac Edison Company a wholly owned
public utility electric subsidiary of Allegheny Energy, Inc., a
registered public utility holding company, to enter into a
leaseback agreement with Allegheny Energy Supply Company, LLC, a
wholly owned non-utility subsidiary of Allegheny Energy, Inc.
(Rel. 35-27____).
2. Notice
Allegheny Energy, Inc. et al. (70-1______)
Allegheny Energy, Inc. ("Allegheny"), a registered holding
company, and Allegheny Energy Service Company, a service
subsidiary of Allegheny, and the Potomac Edison Company ("Potomac
Edison"), a wholly owned public utility electric subsidiary of
Allegheny, all located at 10435 Downsville Pike, Hagerstown, MD
21740-1766, and Allegheny Energy Supply Company, LLC ("Genco"), a
wholly owned non-utility subsidiary of Allegheny located at R.R.
12, P.O. Box 1000, Roseytown, Pennsylvania 15601, (collectively,
"Applicants"), have filed a post effective amendment to an
application-declaration under sections 9(a), 10 and 12(b) of the
Act and rule 54 under the Act.
In Holding Company Act Release No. 27205, Order Authorizing
Formation of Subsidiary Companies; Transfer of Assets and
Liabilities to Associate Generation Company; Issuance of Notes;
Payment of Dividends; Intrasystem Service Agreements; Reservation
of Jurisdiction (July 31, 2000) ("Transfer Order") the Commission
authorized Potomac Edison to transfer its undivided ownership
interests in certain jointly held generating facilities, certain
wholly owned generating facilities, related fixed assets, other
interests, and certain generating related liabilities to
Allegheny's wholly owned generation company - Genco. Pursuant to
the terms and conditions set forth above, Potomac and Genco now
propose to enter into a leaseback agreement to resolve state
regulatory concerns related to taxation of generation and
distribution.
Potomac Edison holds undivided ownership interests in:
electric generating stations ("Generating Assets").<F1> Potomac
Edison's undivided ownership interests in Generating Assets
consist of: a 25% interest in the Fort Martin Power station
located in Maidsville, West Virginia; a 33% interest in the
Albright Power Station located in Albright, West Virginia; a
32.76% interest in the Harrison Power Station located in
Shinnston, West Virginia; a 20% interest in the Hatfield's Ferry
Power Station located in Masontown, Pennsylvania; a 30% interest
in the Pleasants Power Station, located in Saint Mary's, West
Virginia; a 100% interest in the R. Paul Smith Station and R. Paul
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<F1> The term "Generating Assets" does not include Potomac Edison's
100% interest in the Luray, Newport, Shenandoah, and Warren
hydroelectric generating stations located in Virginia ("Virginia
Hydros") or the Riverton property, which together represent less
than 1% of the total net book value.
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Smith Ash Basin both located in Williamsport, Maryland; and a 100%
interest in the Millville, Dam #4 and Dam #5 hydro stations in
located in West Virginia.<F2>
Potomac Edison and Genco propose to enter into a leaseback
agreement to allow Potomac Edison to offset its 29% West Virginia
distribution tax base and to comply with the requirements of the
West Virginia State Tax Department to eliminate the potential for
the imposition of a $380,000 per month distribution tax on both
Potomac Edison and Genco. The amounts payable by Potomac Edison
under the lease described in this section will be computed in
accordance with Rules 90 and 91 under the Act and other applicable
rules and regulations. During the lease, Genco will operate that
portion of the Generating Assets leased to Potomac Edison pursuant
to operating agreements previously approved by this Commission in
Holding Company Act Release No. 27205.
In section 11-13-1, West Virginia imposes two taxes upon
corporations in the business of selling electricity in the state:
(1) a tax is imposed on businesses generating or producing
electricity using generating units in the state that are leased or
owned; and (2) a tax is imposed on businesses that sell
electricity not generated or produced in the state. See West
Virginia Code section 11-13-1(b)(1) and (2). Section 11-13-
1(b)(2) provides for a credit for any taxes paid on power
generated or produced in state. As determined by the West
Virginia Chief Administer for Revenue Operations [See Exhibit B-
13], the leasing of generating capacity by Potomac Edison falls
within the statutory requirement for generation that offsets
distribution by an owner or lessor of the generating unit.
Therefore, under the leaseback agreement, Potomac Edison as a
seller can offset the tax imposed under Section 11-131-(b)(2). The
leaseback agreement will eliminate the tax on Potomac Edison,
allow Potomac Edison to fulfill its regulatory obligations in West
Virginia, and allow the Allegheny system to avoid double taxation
on the generation and distribution of energy in West Virginia and
resulting in a monthly savings of $380,000.
<F2> The jurisdictional allocation is calculated as follows, for
example using Maryland - the value of Potomac Edison's undivided
interest in the Fort Martin Power Station would be calculated by
multiplying the 56.34% Maryland allocation by the dollar value of
Potomac Edison's 25% undivided interest in Fort Martin on June 30,
2000.
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