ML18026A240

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Allegheny Electric Cooperative,Inc 1990 Annual Rept. W/ 910617 Ltr
ML18026A240
Person / Time
Site: Susquehanna  Talen Energy icon.png
Issue date: 12/31/1990
From: KEISER H W
ALLEGHENY ELECTRIC COOPERATIVE, INC.
To: MURLEY T E
Office of Nuclear Reactor Regulation
References
PLA-3587, NUDOCS 9106240001
Download: ML18026A240 (47)
v • d • e


Text

ACCELERATED DISTRJBUTIO&!-

DEMONSTPWTION SYSTEM~'4>'4REGULATORY INFORMATION DISTRIBUTION SYSTEM(RIDS)ACCESSION NBR:9106240001

'OC.DATE:

90/12/31NOTARIZED:

NODOCKETFACIL:50-387 Susquehanna SteamElectricStation,Unit1,Pennsylva 0500038750-388'Susquehanna SteamElectricStation,Unit,2,Pennsylva 05000388AUTH.NAMEAUTHORAFFILIATION KEISER,H.W.

Allegheny ElectricCooperative, Inc.RECIP.NAME RECIPIENT AFFILIATION RMURLEY,T.E.

OfficeofNuclearReactorRegulation, Director(Post870411W/NOTES:LPDR 1cyTranscripts.

LPDR1cyTranscripts.

~/af.R~+4RECIPIENT IDCODE/NAME PD1-2PDCOPIESLTTRENCL11RECIPIENT IDCODE/NAME RALEIGH,J COPIESLTTRENCL10

SUBJECT:

"Allegheny ElectricCooperative,Inc 1990AnnualRept."910617ltr.DISTRIBUTION CODE:M004DCOPIESRECEIVED:LTR ENCLSIZE:TITLE:50.71(b)AnnualFinancial ReportD/0500038705000388ADDINTERNAL:

AEOD/DOAEXTERNAL:

NRCPDRNOTES:111122G-I-LE11DNOTETOALL"RIDS"RECIPIENTS:

PLEASEHELPUSTOREDUCEWASTE!CONTACTTHEDOCUMENTCONTROLDESK,ROOMPl-37(EXT.20079)TOELIMINATE YOURNAMEFROMDISTRIBUTION LISTSFORDOCUMENTS YOUDON'TNEED!TOTALNUMBEROFCOPIESREQUIRED:

LTTR7ENCL6DD 1Pennsylvania Power&LightCompanyTwoNorthNinthStreet~Allentown, PA18101-1179

~215/774-5151 HaroldW.KeiserSeniorVicePresident-Nuclear 215/774-4194 JUNI7399)Dr.ThomasE.HurleyOfficeofNuclearReactorRegulation

,'.S.NuclearRegulatory Commission Washington, DC20555SUSQUEHANNA STEAMELECTRICSTATIONALLEGHENY ELECTRICCOOPERATION ANNUALFINANCIAL REPORTPLA-3587FILER41-2A

Reference:

PLA-3577, H.W.KeisertoUSNRC,"AnnualFinancial Report",datedHay1,1990

DearDr.Hurley:

Inaccordance with10CFR50.71(b),

enclosedisthe1990AnnualReportforAllegheny ElectricCooperative, Inc.Previously, theAllegheny AnnualFinancial Reportincluding certified financial statements wassenttoyousincetheenclosed1990AnnualReportwasunavailable.

Verytrulyyours,H.W.KeiserEnclosure cc:~NRC3)ocument Control:Desk (original.)~

NRCRegionIHr.G.ScottBarber,NRCSr.ResidentInspector Hr.J.R.Raleigh,NRCProjectManager9l0624000i 90i23iPDR'DOCK05000387I*'DR(qO(

TableofContentsAMessage.~~~~~~~2AlleghenyElectncCooperative, Inc.........................................................4 PowerSupply....

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o6ProjectReview..10Financial Review.MemberRevenueandRates.18oardofDirectors

.......~...

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~..~.............................20 BDoc',(et8P~-~wAcccseloot wucz+o~~in~~r.A AMessagefromPresident JesseC.TiltonIIIandChairmanDavidF..TurnerExploring alternatives andturningchallenges intoopportunities.

Thischaracterized Allegheny ElectricCooperative, Inc.,in1990.Thankstocontinued aggressive problemsolving,Allegheny experienced ratestability forthefourthstraightyear.Between1987and1990,Allegheny's netpowerratesactuallybilledtoour14membercooperatives roseanaverageofonly0.66percentayear.Whenadjustedforinflation, thecosttomemberco-opsactuallyfellbyanaverage4.82percentperyearthroughtheperiod.Thatlidonrateincreases isadramaticchangecomparedtothenineyearsfrom1978to1987inwhichratesroseatanaverageof11.4percentayear.Thispositivedevelop-ment,coupledwithaspateofre-tailrateincreases soughtbyinvestor-owned powercompanies, improvesourpositioncomparedtoourprivately-held competitors.

Inaddition, federalcleanairlegislation signedintolawin1990willforceprivateutilities dependent oncoal-fired generating plantstofurtherraiseratestocomplywiththelaw'requirements.

Fortunately, thetougherCleanAirActwillhaveminimalimpactonAllegheny since74percentofthepowerwedelivertoourmembersisproducedbytechnologies-hydroelectric andnuclear-thatdonotcausetheairpollution theActisdesignedtocleanup.BothofAllegheny's generating facilities

-theSusquehanna SteamElectricStation,anuclearpowerplant,andtheRaystownHydroelectric Project-performed instrongfashionin1990,producing electricity aheadofbudgetedgoals.Theco-opalsoworkedsuccessfully duringtheyeartooptimizeourresourcebasethroughbulkpowertransactions.

Theyearalsobroughtunprecedented attacksagainsttheruralelectricprogram.Political ideologues attheWhiteHouseOfficeofManagement andBudget(OMB),whohaveforyearsadvocated phasingouttheRuralElectrification Administration (REA),publiclyquestioned thefinancial stability ofruralelectriccooperatives nationwide andtheloanprogramsadministered byREA.ThegenesisoftheOMBbroadside wastheirphilosophical opposition tonon-profit, consumer-owned cooperatives.

Allegheny responded toOMB'sinaccurate andhackneyed attacksastheysurfaced.

AsproofofAllegheny's strongfinancial footing,Moody'sInvestors Serviceaffirmedthecooperative's Prime-2ratingforcommercial paperasthe1990fiscalyeardawned.Allegheny wasagainactiveinfightingforequityintransmission access.SuchaccesswouldprovideAllegheny withalevelplayingfieldtoobtaineconomical powerandtobecomeafullparticipant inthebulk lleghenyElectricCooperative, Inc.Allegheny ElectricCooperative, Inc.President JesseC.TiltonIII,ClminnanDavidE.Tnrner.powermarket.Allegheny's callsforbettertransmission accesswerepickedupintheNationalEnergyStrategysubmitted toCongressbyPresident GeorgeBush.AmajorgoalofAllegheny isensuringtheeconomichealthofourmembercooperatives'ervice areas.Duringtheyear,thecooperative initiated neweffortstohelpitsmembersretainexistingbusinesses andindustries andattractnewemployers.

Theseeconomicdevelopment activities notonlyhelpprovidejobopportunities, butalsostabilize theeconomicbaseofruralPennsylvania andNewJersey.Thedecadeofthe1990slooksbrightforAllegheny.

Ratestability shouldcontinue; our10percentshareofSusquehanna powerwillgrowinvalueasMid-Atlanticpowermarketstighten;ourdemand-side management effortswillcontinuetoprovidebenefitswellintothe21stCentury.In1990,realprogresswasmadetowardstheorganization's primarylong-term goal:providing ruralelectriccooperative consumer-members withadequateandreliablesuppliesofreasonably-priced electricservice.

Allegheny ElectricCooperative, Inc.Allegheny ElectricCooperative, Inc.,basedinHarrisburg, Pennsylvania, isanelectricgeneration andtransmission (G&T)cooperative ownedandoperatedbythe14ruralelectriccooperatives inPennsylvania andNewJersey.Allegheny istheexclusive wholesale powersupplierforthesedistribution systems.Throughthem,itservesmorethan600,000ruralresidents andbusinesses.

Allegheny's 14-member boardofdirectors

-onedirectorelectedfromeachofitsmemberelectriccooperatives'oards ofdirectors

-conductsAllegheny's businesstobestservetheconsumer-members oftheco-ops.Itishardtofathomtoday,butinthe1930s,only6outofevery100ruralresidents inAmericahadelectricservice.Thereason-established privatepowercompanies simplyrefusedtoserveruralareas.Theinvestment necessary torunlinesintothecountryside, thepowercompanies claimed,wasnoteconomically feasible.

Federalhelpwasneededtoelectrify ruralAmerica.WiththecreationoftheRuralElectrification Administration (REA)byPresidential orderin1935,thingsbegantochange.Armedwithlowinterestloansandtechnical advicefromREA,ruralpeoplesetthemselves tothetaskignoredbytheprivatepowercompanies.

Ruralelectriccoopera-tivesbeganspringing up,asruralresidents bandedtogethertosetpolesandstringwiretobringelectricity totheirhomes,farmsandbusinesses.

Butoncethepoleswereset,ruralpeoplestillneededasourceofpower.Thatsourcewasthesameprivatepowercompanies whoserefusaltoserveruralAmericapromptedformation oftheco-ops.By1944,leadersofPennsylvania's buddingruralelectriccooperatives realizedthat,assmallindividual groups,theywerestillatthemercyofthelargeprivatepowercompanies inbuyingelectricity.

AnREAreportthatyearnotedPennsylvania's ruralresidents servedbyco-opswerepayingelectricrateshigherthanthoseenjoyedbymostco-opsacrossthenation.Something hadtobedone.Asaresult,Pennsyl-vania'scooperatives in1945formedAllegheny ElectricCooperative, Inc.toserveastheirwholesale powersupplier.

Withthebargaining powerofallthecooperatives behindit,Allegheny wasabletonegotiate wholesale ratesthatimmediately savedtheco-ops20percentontheirpowerbills.Byachieving acompetitive rateforpoweronashort-term basis,thememberco-opsofAllegheny couldnowcontinuetheirexpansion, bringingthebenefitsofelectricity tothe75,000ruralfamiliesstillwithoutelectricservice.Intheearlyyears,long-rangepowersupplywasnotapriorityfortherelatively newcooperatives.

However,asrural lleghenyElectricCooperative, Inc.areasgrew,sodidtheneedtobetterinsureanadequatepowersupplynotdependent onpurchases fromprivatepowercompanies.

In1966,Allegheny tookamajorstridetowardthisgoalwhen,havingachievedstatusasapreference

customer, itbeganpurchasing hydroelectric powergenerated atthepublicly-owned NiagaraPowerProjectofthePowerAuthority oftheStateofNewYork(PASNY).Todate,thisextremely low-costhydropower hassavedAllegheny morethan$207millioncomparedtothecostofpoweritwouldhaveneededtobuyfromprivateutilities.

In1977,Allegheny contracted topurchase10percentownership intheSusquehanna SteamElectricStation(SSES),a2,100megawatt, two-unitnuclearpowerplantlocatednearBerwick,Pa.In1990,thefacilitysupplied56percentofAllegheny's energyneeds.Allegheny officially enteredaneweraonJune15,1988,whentheRaystownHydroelectric Project,WilliamF.MatsonGenerating Station,wasdeclaredincommercial operation.

Namedforthefirstpresident ofAllegheny, MatsonStationisthecooperative's firstwhollydeveloped andoperatedgenerating plant.Itsupplies4.5percentoftheenergydelivered byAllegheny, enoughforabout8/00averageruralhomes.ThankstoPASNY,SSESandRaystown, afull74percentoftheenergyAllegheny suppliestoitsmembercooperatives todaydoesnotpollutetheair.Additionally, thispowerisgenerated withouttheuseofoil,thuslessening America'dependence onforeignoil.Bypursuingabalancedpowersupplyprogram,Allegheny isachieving thegoalitsetin1945:toprovideruralelectriccooperative consumers withanadequateandreliablesupplyofenergyatthelowestpossiblecost.Thepublicly-owned NiagaraPowerProjectofthePowerAuthority oftheStateofNewYork(PASNY).-

PowerSupplyTosupplypowertoits14memberdistribution cooperatives, Allegheny usesablendofitsowngenerating facilities, supplemented bypur-chasedpower.PowerproducedattheSusquehanna SteamElectricStation(ofwhichAllegheny owns10percent)andtheWilliamF.MatsonGenerating Station(Raystown Hydroelectric Project),

issupplemented withpowerpurchased fromthePowerAuthority oftheStateofNewYorkandfiveprivatepowercompanies.

Susquehanna SteamElectricStation(SSES)This2,100-megawatt, twounit,nuclearplantinLuzerneCounty,Pa.,addedtoitsalreadyexceptional operating andsafetyperformance in1990.Allegheny owns10percentofSSESaswellas100percentofapproximately 42milesofrelated500-kilovolt transmission facilities.

Pennsylvania Power&LightCompany(PP&L),aprivatepowercompanybasedinAllentown, Pa.,istheoperatorand90percentowneroftheboilingwaterreactorfacility.

Duringayearinwhichbothunitsexperienced plannedrefueling andinspection outages,SSESstillbrokeitsall-timeoperating records.TheannualcapacityfactorforUnit1was81.3percent;forUnit2,81.0percent.Whencombined, thisresultedinacomposite capacityfactorof81.2percent.Thisfigurewaswellabovebudgetexpectations.

Incomparison, theaveragecapacityfactorforboilingwaterreactornuclearplantsintheUnitedStatesin1989was60.5percent,according totheU.S.CouncilforEnergyAwareness.

Bytheendoffiscalyear1990,SSEShadprovided1.1billionkilowatt-hours ofelectricity tomeettheneedsofAllegheny's memberdistribution cooperatives.

Thisrepresents 56.4percentofAllegheny's totalsystemenergyrequirements.

Onceagain,theNuclearRegulatory Commission rankedSSESamongthebestoperatednuclearpowerplantsinthenation.InitsSystematic Assessment ofLicenseePerformance report,coveringtheperiodAugust1,1989throughNovember30,1990,theNRCgaveSSESthehighestpossibleratinginfiveoutofsevencategories-emergency preparedness, plantSSESANNUALGENERATION TOTALSYSTEMREQUIREMENTS OR100I50NOVOECJANFEBMARAPRMAYJUNJULAUGSEPOCTPSSES5640%pRaystown.........4.03%

~PASNY...........13.22%

PPenetec............8.t9%

PMet-Ed.............5.43%

pWestPenn.......9.30%

PJCP&L.............2.57%

~PP&L..................86%

lleghenyElectricCooperative, Inc.MatsonStationPerformance operations, maintenance/

surveillance, securityandsafeguards andsafetyassessment/quality verification.

Intheremaining twocategories

-radiological controlsandengineering support-thefacilityreceivedthesecondhighestmark,aCategory2.SSEShasneverreceivedaratingbelowCategory2inthisfive-category ratingsystem.TheNationalVoluntary Laboratory Accreditation Program(NVLAP)assessment oftheThermalLuminescent Dosimeter Processing ProgramatSSESwascompleted inApril1990.Theassessoridentified noadversefindingsorobservations andstatedthatPP&L'sprogramshouldbeusedasabenchmark forNVLAPassessors.

InJuly,theCowanesque Reservoir projectwascompleted anddeclaredin-service.

Thisprojectwillassuresufficient riverwaterforSSEStosupporttwo-unitoperation ifdroughtconditions developinthisportionoftheSusquehanna Riverbasin.OPERATION

&MAINTENANCE MANHOURSRaystownHydroelectric ProjectC3Operation

...................54/o 0PowerHouseMaint....31

/oITransmission Maint.....2/o C3Rec.Facilities Malnt.....7/o QIntake/funnel Malnt.....6/o WilliamF.MatsonGenerating StationTheWilliamF.MatsonGenerating Station(Raystown Hydroelectric Project)isa21-megawatt, run-of-river hydroelectric plantlicensedbytheFederalEnergyRegulatory Commission.

ThefacilityislocatedattheRaystownLakeandDaminHuntingdon County,Pa.andgenerates about4.5percentoftheenergysuppliedbyAllegheny.

Allegheny operatestheplantinclosecooperation withtheU.S.ArmyCorpsofPLANTAVAILABILITY RaystownHydroelectric ProjectQGeneration

............60.1'/o QStandby................36.0/o gForcedOutages......2.3/o QPlannedOutages....1.64/o Engineers, whichcontrolswaterreleasesfromRaystownLake,thelargestlakeinPennsylvania.

MatsonStationcompleted itssecondfullyearofoperation in1990,producing 88millionkilowatt-hours ofelectricity.

Thatwas3percentaheadofbudgetedgoals,basedonaveragehydrologic conditions.

In1990,overallplantavailability was96.1percent-abovetheaverageforsmallhydroelectric plantsnationwide.

PozoerSupply(continued)

Amajoraccomplishment wasimprovement ofunattended operation duringtheyear-upto72percent-duetocomputeralarmsystemmodifications.

Astheyearended,theCorpsbeganthesecondphaseofastudytoinvestigate thereleaseoflakewaterduringextremedroughtconditions.

Asthestudyprogresses, Allegheny willassessitsimpactonplantoperation.

PowerAuthorihg oftheStateofNewYorkForthesecondyearinarow,Allegheny receivedgoodnewsregarding itsallocation ofpowerproducedattheNiagaraPowerProjectbythePowerAuthority oftheStateofNewYork(PASNY).OnJanuary12,1990,NewYorkGovernorMarioCuomosignedalong-term contractbetweenAllegheny andPASNY.ItextendsAllegheny's rightstoPASNYpowerthroughJune20,2001.Inaddition, thecontractpermits,bymutualconsent,anextension ofservicethroughOctober31,2003.InlateDecember, theU.S.CourtofAppealsfortheSecondCircuitrejectedappealsby"paper"municipal electricsystemsinNewYorkandtheVermontDepartment ofPublicServicethattheyshouldbeeligibletoreceivepreference inallocation ofpowergenerated atthepublicly-owned NiagaraPowerProjectinNewYork.(Thesystemswereconsidered "paper"agenciessincetheydidnotowngeneration ordistribution facilities, butsimplyfrontedaspreference customers toturnpowerovertofor-profit, investor-ownedutilities.)

Asaresult,Allegheny's righttoanadditional 7,700kilowatts ofNiagarapower-whichthecooperative hasbeenreceiving whiletheappealprocessplayedout-remainsintact.Allegheny's totalshareofPASNYpowerstandsat43.9megawatts.

Theappealscourtconcurred withaJuly1989FederalEnergyRegulatory TheRaystownHydroelectric Project,Allegheny's firstwhollydeveloped andoperatedgenerating fncility.

lleghenyElectricCooperative, Inc.Commission decisionthattheNewYorkpapermunicipals wereineligible forpreference powerbecausetheydidnotsellanddistribute powerdirectlytoconsumers.

Vermont's appealwasrejectedbecauseitwasincapable ofsellinganddistributing powerdirectlytoelectricconsumers attheretaillevel.Thecourt'srulingalsoreaffirms provisions inthefederalNiagaraRedevelopment Actthatnon-profit ruralelectriccooperatives andlegitimate municipal electricsystems-withineconomical transmission distance-havefirstright,orpreference, to50percentoftheelectricpowerproducedattheNiagaraPowerProject.TheNiagaraprojectproduceselectricity atalowcost;infact,itisamongtheleastexpensive intheU.S.SinceAllegheny beganbuyingitin1966,PASNYpowerhassavedthecooperative morethan$207million,comparedtothecostofpurchasing thesameamountofelectricity fromprivatepowercompanies.

In1990,Allegheny's PASNYsavingsamountedto$7'i'!jrye.million.Theextra7.7megawattallocation aloneshavesAllegheny's purchased powercosts$1.6millionannually, basedoncurrentrates.Supplemental powerpurchases Allegheny supplements itswholesale powersupplywithpurchases fromfiveprivatepowercompanies.

In1990,purchases weremadefromthePennsylvania ElectricCompany,WestPennPowerCompany,Metropolitan EdisonCompany,JerseyCentralPower&LightCompanyandPennsylvania Power&LightCompany.Allegheny's Principal

engineer, Rates&Forecasting JosephZnllo.PowerSalesOnJune22,theAllegheny boardapprovedashort-term bulkpowersaletoBaltimore Gas&ElectricCompany.ThesaleallowedAllegheny tomarketitsprojected excesssummerenergyfromtheSusquehanna SteamElectricStationandprovidenetbenefitstoAllegheny's members.Moreimportantly, however,thesalefirmlyestablished Allegheny asaplayerinthewholesale powermarket.InlateAugust,Allegheny extendedthesalesagreement throughMay1991,withadditional anticipated savings.

ProjectReviewIn1990,Allegheny continued toimplement andex-pandprogramsdesignedtomanageelectricuse,increasekilowatt-hour salesandensurereliabletransmission systems,aswellasexplorepotential gener-atingprojects.

Loadmanagement Byshiftingelectrical useofresidential waterheaters,electricthermalstorageanddual-fuelhomeheatingsystemsfrompeakdemandperiodstotimesoflesserdemand,theCoordinated LoadManagement Systemimprovessystemefficiency, lessensthecostlydemandchargesAllegheny mustpayforpurchased powerandreducestheneedfornewgenerating capacity.

Allegheny anditsmembercooperatives launchedtheCoordinated LoadManagement Systeminlate1986,usingloadmanagement equip-menttoreducepeakdemandatindividual substations.

Currently, 100substations areconnected tothesystem.Bytheendof1990,morethan21,000loadcontrolreceivers (whichswitchofftheheatingelementinwaterheatersduringpeakhours)hadbeeninstalled inthehomesofvolunteer consumer-members.

Participating cooperatives reportedgrosspowercostsavingsof$1.8millionduringtheyear.Loadmanagement coordinating systemcomputers wereinstalled inAllegheny headquarters inOctober1989.Thecoordinating systemreceiveselectricuseandclimatedatafromcooperative membersystems.Allegheny technicians usethisdataforloadforecasting andsystemwide loadcontrol.Marketing andresearchAllegheny continued itsrebateprogramandprovidedassistance onresearch, promotion; ratedesignandcomputermodelingservicestoitsmemberco-ops.Severalenergysurveysofnon-residential members'acilities wereconducted, withenergyandload-saving recommendations made.Aspartofitsresearchcommitment, Allegheny participated infundingresearchaspartofitsmembership inthePennsylvania ElectricEnergyResearchCouncil(PEERC).Resultsofthisresearchwillimproveenvironmental quality,improvetheefficiency ofexistinggeneration plantsandbroadenthewiseuseofelectricity.

PEERCalreadyhasanongoingprojecttoprotectsteamboilertubesincoal-Picturedtotheright,theCoordinated LoadManagement systemimprovessystemefficiency, lessenscostlydemandchargesforpurchased powerandreducestheneedfornewgenerating capacity.

10 lleghenyElectricCooperative, Inc.burningplantsbythedevelopment oftubecoatings.

Projectsarealsounderwaytostudypowerqualityeffectsofenergy-conserving variablespeeddrivesandtodevelopanindustrial heatpumpcapableofconcentrating industrial wasteformoreefficient disposal.

In1990,Allegheny continued awardingrebatestomembercooperatives whichofferload-building incentive programstotheirconsumer-members.

Thispolicyencourages increased electricwaterheatingandtheinstallation ofelectricthermalstorage(ETS)unitsandenergy-efficient heatpumps.Thecooperatives partic-ipatingintherebateprogramreceivedatotalof$57,000.Theirinitiatives resultedintheinstallation of1,417waterheaters,1,103kilowatts ofETSand95heatpumps.Virtually allthewaterheatersareorcanbeload-controlled.

Thisprovidesthedoublebenefitofasubstantial increasein,orretainage of,energysales,withnocontribution tobillingdemand.Allegheny's membercooperatives reportedspending$230/24onallformsofmarketing incentives in1990.Transmission ProjectsAllegheny markedamajormilestone onJuly10withtheenergization oftheFairfield-MillCreektransmission lineand ProjectRevieur(continued) substation ineast-central LycomingCounty,Pa.Theprojectwasthefirsttransmission linebuiltandownedbyAllegheny andwillremedyservicedif-ficulties previously experienced byabout2,000consumer-membersofSullivanCountyRuralElectricCooperative, anAllegheny member.Thenew5.5mile,69-kilo-volttransmission linereplacesalongerPennsylvania ElectricCompanytransmission linethatranthroughruggedterrain.ThenewAllegheny lineinterconnects withPennsylvania Power&LightCompanyfacilities.

Intheplanningandprocurement stageistheDonegal-SevenSpringsTransmission ProjectinFayetteCounty,Pa.,whichwillprovideadditional servicetoSomersetRuralElectricCooperative.

Adequacyofpowerfromcurrenttransmission facilities, coupledwithrapidgrowthintheSevenSpringsMountainResortarea,necessitated theproject.Effortsincludeconstruction of7.4milesof138-kilovolt transmission lineandastep-down substation.

Asthefiscalyearwoundtoaclose,Allegheny wasalsoreviewing requeststoprovideadditional transmission servicestomembercooperatives.

Allegheny RiverLocksandDamsNo.8andNo.9Hydroelectric ProjectsDuring1990,Allegheny received$1.4millionfromSitheEnergiesU.S.A.asthethirdandfinalpaymentforthetransferofdevelopment rightsfortheproposedAllegheny RiverLocksandDams8and9Hydroelectric Prolects.

InJuly1987,aftercarefulstudyoftheprojectbyco-opstaffandprivateconsultants, theAllegheny boardofdirectors votedtotransferthedevelopment rightstoSithe.Thesalesagree-mentprovidedforAllegheny toreceivethreepaymentstotalling

$2.5millionandgivesthecooperative therighttopartic-ipateactivelyinallmajordevelopment decisions.

Allegheny alsohastheoptiontobuythehydroelectric plantsfor$1intheyear2030.Theprojectsbegangen-eratingpowerinOctober1990.PicturedtotherightistheFairfi'eld-MillCreektransmission lineandsubstation, Allegheny's firstwholly-ownedanddeveloped transmission project.

~~lleghenyElectricCooperative, Inc.~t~,ghII11hI,tCJ,1~'r~cIt-.lcÃ>&A'~gg~i-k'g~IKRM+I/~h1 Financial ReviewAsthefiscalyear1990dawned,Allegheny wastherecipient ofmostwelcomenews.Moody'sInvestors Service,oneofWallStreet'smajorbond-rating firms,confirmed Allegheny's Prime-2ratingforcommercial paper.Theratingconfirmation followedMoody'sreviewofthecreditrisksofninegeneration andtransmission (G&T)cooperatives.

Allegheny wasoneofonlytwoG&Tstosuccessfully passMoody'sreview.According toMoody's,Allegheny's Prime-2ratingissupported bythecooperative's manageable capitalandrateincreaserequirements duringthenextseveralyears,anadequatepowersupplyandstrongliquidity.

Moody'swasimpressed thatAllegheny requirednodrasticrateincreases forphasingintheremainder ofitsSusquehanna SteamElectricStation(SSES)capacity.

AlsocitedasapluswastheAllegheny boardofdirector's solutiontotheFinancial Accounting Standards Board'sStatement No.92,theaccounting procedures whichaffectthewaythecooperative depreciates itsSSESinvestment.

Inaddition, Moody'spraisedAllegheny's workingrelationship withmemberco-opsanditssensitivity tomemberneedstokeepretailratescompetitive withotherutilities.

DuringFebruary, Allegheny's boardvotedtonameMellonBankastrusteeandNationalInvestment ServicesofAmerica,Inc.,asmanagerofthecooperative's nucleardecommissioning reservefund.ThiscameinresponsetoaNuclearRegulatory Commission (NRC)mandatethatlicensees ofnuclearpowerplantsensuresufficient fundsareavailable todecommission thefacilities attheendoftheirusefullives.Allegheny submitted aplantocoverits10percentshareofSSESdecommissioning coststotheNRCinJune1990.MarginsIn1987,theFinancial Accounting Standards Board(FASB)issuedStatement No.92,whichestablished newaccounting rulesrelativetocostphase-inplansofutilities, suchasAllegheny's modifiedsinkingfunddepreciation methodusedoncertainSSESassets.FASB92requiresAllegheny tochangethemethodofdepreciation usedonSSEStoastraightlinemethodbytheyear2000.Inaddition, Allegheny hastorecognize depreciation expensethatweredeferredthrough1989.Thiswasdonein1990byaone-timelumpsumwrite-off of$31,057495.

Netyear-endmarginspriortotheFASB92write-off were$8,997,913.

Ofthis,$6,416,815 willflowbacktomembercooperatives in1991throughAllegheny's marginstabilization plan.Theremaining pre-write-off marginof$2,581,098 metAllegheny's TimesInterestEarnedRatio(TIER)goalfor1991of1.06.Financing ThelargestsingleexpenseitemforAllegheny isinterestpayments, accounting formorethan32percentofitstotalexpenses.

Since1978,thecooperative hasborrowedatotalof$555millionfromREA,repaid$73millionandpaidatotalof$482millionininterest.

Tocontrolinterestcosts,Allegheny makeseveryefforttousethelowest-cost financing vehiclesavailable.

Infiscal1990, lleghenyElectricCooperative, Inc.theseincludedpollution controlbonds,commercial paper,linesofcredit,REAguaranteed andinsuredloans,plusaleveraged lease.Pollution controlbonds:Useoftax-exempt var-iableratebondstofinancesomeofthepollution controlfacilities atSSEShaveallowedAllegheny tonetveryattractive interestrates.In1990,theaverageyieldonthebonds,whichbearinterestatweeklyandmonthlyvariablerates,wasunder6.2percent.IssuedthroughtheLehighCountyIndustrial Development Authority, thebondsarebackedbyirrevocable lettersofcredit.Commercial paper:Allegheny maintains a$52millioncommercial paperprogram.Whenneeded,commer-cialpaperisusedtosupplement short-term projectfinancing.

Allegheny didnotneedtoutilizethecommercial paperprogramduring1990.Linesofcredit:Allegheny hasseveralbanklinesofcredit,witha$23millionlimitavailable.

Thecoop-erativedidnotdrawonthesefundsin1990.REAguaranteed andinsuredloans:Ablendoftraditional REA-guaranteed andREA-insuredloanscontinued asthemainstayofAllegheny's debtportfolio.

Allegheny usedREAguaranteed loansissuedbytheFederalFinancing Bank(FFB)fortheSusquehanna SteamElectricStationandkeptapproximately 18.7percentofitsdebtonashort-termbasiswithFFB.At5percentinterest, REAinsuredloansarethelowest-cost loansavailable andAllegheny usedtheminpartforitstrans-missionandloadmanagement

.projects.

Atotalof$13,943,000 inREAguaranteed andinsuredloanswereadvancedtothecooperative in1990.Leveraged Lease:Execution ofaleveraged leaseontheRaystownHydroelectric Projectin1988allowedAllegheny toimmediate-lymakethecostofpowerfromOPERATING EXPENSESFINANCING SOURCES0SSES----------.

63.07%QRaystown................1.92%

QPurchased Power..24.08%

QWheeling.......,.........6.94%

QAdministration

........3.99%

soo2005QIIhRgm15 Financial Reviezo(conan'ued) theplanttoitsmembercooperatives lowerthanthepurchased poweritreplaced.

Comparedtotraditional financing, theleaseisexpectedtoyieldsignificant savingsoverthelifeoftheproject.Underthesale/leaseback arrangement, Allegheny transferred itsinterestintheplanttoafirmabletoutilizetheavailable taxadvantages.

Thecooperative thenusedtheproceedstorepayconstruction debt.Allegheny willmakesemiannual paymentsthroughout thetermofthe30-yearleaseandhastheoptiontorepurchase theprojectatacappedmarketpricewhentheleaseexpires.Allegheny retainsalloperating andmaintenance responsibility undertheagreement.

Thearrangement alsoallowsthecooperative toreducefinancing costsoverthelifetimeoftheprojectandaccelerate benefitstotheearlyyears.CFC:Inadditiontoalineofcredit,theNationalRuralUtilities Cooperative FinanceCorporation (CFC)providedaconcurrent loanof$693,000fortheloadmanagement project,aswellasfinancing forAllegheny's headquarters

-theLocustCourtBuilding.

TaxabiliterAllegheny hasaprivateletterrulingfromtheInternalRevenueServiceproviding forthecooperative toremaintaxableuntilanapplication ismadetobecomeatax-exempt organization again.Allegheny expectstohavetaxlossestocarryforwardtooffsetestimated taxliability fortheforeseeable future.Operations Regulation Unlikefor-profit, investor-ownedutilities, Allegheny anditsmembercooperatives areconsumer-owned andnon-profit.

Theyareregulated bytheirconsumer-members actingthroughamember-elected boardofdirectors andarenotunderthejurisdiction ofthePennsylvania PublicUtilityCommission ortheNewJerseyBoardofPublicUtilities.

However,REAdoesapprovethecooperative's rate'Imakingandreviewsoperating practices.

Allegheny's boardofdirectors isdemocratically elected.OnedirectorisselectedfromeachofAllegheny's membercooperatives.

Theboardgovernsallpolicies, including theestablishment ofrates.Boardreviewoftherate-making processandapprovalofeachratechangeassuresthemembercooperatives thatthepricetheypayforelectricity isfairandreasonable.

All-Requirements ContractEachofthe14coopera-tivesservedbyAllegheny hasenteredintoaWholesale PowerandPowerCostPoolingContract, commonlyreferredtoasanAll-Requirements Contract.

Asacondition forapprovalofloanstoAllegheny, REArequiredAllegheny's memberstoexecutethesecontracts.

Allgeneration andtransmission cooperatives borrowing moneyfromREAarerequiredtohavesubstantially similarcontracts signedbytheirmemberdistribution cooperatives.

lleghenyElectricCooperative, Inc.MeetingoftheAllegheny ElectncCooperative boardofdirectors.

Bysigningthiscontract, Allegheny's memberdistribution cooperatives agreetopurchasealltheirpowersupplyneedsfromAllegheny.

TheyalsoagreetoadjusttheirretailratestomeetallcostsandTIERrequirements.

InJanuary1977,eachofAllegheny's membercooperatives executedanamendment totheoriginal1965contracttocoverAllegheny's purchaseof10percentoftheSusquehanna SteamElectricStation.Theamendment extendedthecontracttoDecember31,2025tocoverthelifeoftheplant.Territorial Integrity TheUnincorporated AreaCertified Territory Lawof1990,originally signedintolawinJuly1975andcodifiedin1990,assignsexclusive territories forallofPennsylvania's ruralelectriccoop-erativesandprivatepowercompanies.

Thelawstatesthateachelectricsupplierhastheexclusive rightanddutytoprovideservicewithinitsownterritory.

Thislawhelpsavoidcost-lyduplication offacilities, wasteofmaterials andnaturalresources, plusitimprovesefficiency.

Italsoallowscooperatives toretainlargeloadssuchasbusinesses, factories andretailcentersthatmoveintoco-opterritory.

Theseadditional loadshelpthecooperatives, whichprimarily servesparsely-populated areas,tomoderateratesbyspreading theircostsovergreatersales.17 MemberRevenueandRatesAllegheny's totalwhole-salerevenuefrompowersalestoits14membercooperatives in1990was$115.1million.Thisisaftera$6.4millionreduction fortheCostofServiceBillingAdjustment tobereturnedtothememberco-opsduringfiscal1991.The$115.1millionrepresents arevenueincreaseof$0.7million,or0.61percent,overthatof1989.Themajorityofthisincreasewasduetotheadditionof10megawatts ofSusquehanna SteamElectricStation(SSES)capacitytoAllegheny's ratebaseasplannedundertheAllegheny/

Pennsylvania Power&Light(PP&L)buybackagreement.

Theremaining partoftherevenueboostwasduetonormalsystemloadgrowth.Onanaveragecostbasis,withthe1990and1989CostofServiceBillingAdjustments considered, Allegheny's ratetoitsmembersactuallydecreased by1.05millsor1.8percent.Evenwithoutthebillingadjustments, theaverageratedecreased by0.35mills,or0.59percent.Bycomparison, Pennsyl-vaniaElectricCompany,Metropolitan EdisonandPP&Lincreased theirenergycostratesin1990,whichtranslate intoretailrateincreases of1.8,4.8and2.8percent,respectively.

WestPennPowerfiledforabaseretailrateincreaseof10.8percentandwaseventually granteda6.7percentboost;DuquesnePowerandLightimplemented a9.2percentrateincrease.

InDecember1990,theNewJerseyBoardofPublicUtilities approvedasettlement whichincreases JerseyCentralPower&LightCompany's retailelectricratesby6.1percent.Membercooperatives hadmorereasonstosmileatyear'endaswell.For1991,Allegheny's projected wholesale billingratetoitsmemberscallsfora0.78percentreduction comparedto1990.Whenexpressed onanaveragecostbasis,theratedecreaseamountsto0.46millsperkilowatt-hour tothemember'ooperatives.

Thisdecreasecomesdespitesignificant expectedincreases inthecostofsupplemental powerpurchased fromJerseyCentralPower&LightandMetropolitan Edison.Theexcellent operation ofbothSSESandtheWilliamF.MatsonGenerating Stationduring1990,coupledwiththeimplementation ofanextendedbulkpowersalewithBaltimore Gas&ElectricCompany,greatlycontributed tothecontrolofratesforecastfor1991.SSESproduced1.123billionkilowatt-hours ofelectricity in1990-1.6percentaheadofbudget.MatsonStationprovided88millionkilowatt-hours-3percentaboveprojections.

Asaresult,membercooperatives beganreceiving monthlycreditsonAllegheny's powerbillingsearlyinfiscal1991.TheseCostofServiceBillingAdjustment creditstomembercooperatives

-whichtotal$6.4,million-followthe$4.9millionreturnedin1990.Non-member revenueAllegheny's non-member revenuehasbeenhistorically generated byitsSSESbuy-backagreement withPennsylvania Power&LightCompany(PP&L)andfromthesaleofPASNYhydropower toeight'municipal electricsystemsandfourprivatepowercompanies.

Underthetermsoftheagreement withPP&L,eachyearPP&L"buysback"aportionofSSESpowertowhichAllegheny isentitled.

Takingpowerinincre-Allegheny ElectricCooperative, Inc.BoardofDirectors BoardofDirectors k,(~,HaroldHinesNorthwestern RuralElectricCooperative Assoc.DavidTurnerWarrenElectricCooerativeAlstonTeeterTri-County RuralElectricCooperative DonaldJ.SongerUnitedElectricCooperative, Inc.WinstonDonaldson CentralElectricCooperative DonaldStreamsSouthwest CentralRuralElectricCooperative Corp.HaroldRiteheyValleyRuralElectricCooperative

'gLowellFriedline RalphFischerJohnRiteheySomersetRuralBedfordRuralElectricNewEnterprise RuralElectricCooerativeCooerative.ElectricCooperative lleglteny ElectricCooperative, Inc.JohnAnstadtSullivanCountyRuralElectricCooperative JohnB.DrakeClaverack RuralElectricCooperative JamesHenderson SusserRuralElectricCooperative JohnLooserAdamsElectricCooperative lleghenyElectricCooperative, Inc.mentshasallowedAllegheny tolargelyavoidtherateshockmanyotherutilities havefacedwhenanewgenerating facilitycomesonline.Theagreement endsinFebruary1991,whenAllegheny willretain210megawatts, itsfull10percentshareofSSES.In1990,Allegheny's recapture ofSSESUnit2roseto90megawatts.

TheUnit1sellbackwascompleted inJune1989.Allegheny's secondsourceofnon-member revenuecomesfromitsroleasPennsylvania bargaining agenttothePowerAuthority oftheStateofNewYork(PASNY),operators oftheNiagaraandSt.Lawrencepowerprojects.

Allegheny wasappointed PASNYbargaining agentbytheGovernorofPennsylvania.

Since1985,Allegheny haspurchased PASNYpowerandwheelingservicesfortheeightmunicipal electricsystemsandfourprivatepowercompanies thatreceivepartofPASNY'sallocation.

During1990,athirdsourceofnon-member revenuewasobtainedfromashort-term bulkpowersale.Allegheny alsocontinued toemphasize itscashmanage-mentprogram.Throughout theyear,thecooperative keptitsfundsworkinginordertooptimizetheuseofeachavailable dollar.Allegheny's interestincomein1990was$4.6million,ascomparedto$4.3millionin1989-anincreaseof7.1percent.EnergysalesAllegheny's totalsystemenergysalesforfiscal1990were1,991gigawatt-hours, whilepeakdemandreachedarecordhighof450megawatts inJanuary.Whencomparedto1989,energysalesincreased by47millionkilowatt-hours,or2.4percent,withpeakdemandrisingby17.7megawatts or4.1percent.Theincreaseintotalsystemenergysalesresultedprimarily fromnormal(fore-casted)residential loadgrowth,althoughtherecordhighpeakdemandresultedfromextremely coldweatherduringthelasttwoweeksofDecember1989.TOTALALLEGHENY POWERREQUIRMENTS PEAKDEMANDENERGYSALESOlg55gyIg59~Q$EVi1500CIII1000'81'82'83'84'85'86'87'88'89'90'81'82'83'88'8586'87'88'89'9019 Financial Pages AuditedFinancial Statements andQtherFinancial Information AuditedFinancial Statements Five-Year Financial Statement

..Five-Year Statement ofRevenue&Expenses.alanceSheets...~.....

~~....~.~...~....

~..~~~~..~..~..~......

~.~..~..~.~....~.~~.BEquitiesandLiabilities.

Statements ofOperations tatements ofEquities~.~......S24.25~~~~~~~~~~~~~~~~~~o262728~~~~~~~~~~~~~~~~~o29tatements ofCashFlows.............................................................................30 SFinancial NotesNotestoFinancial Statements ReportofIndependent Auditors.

SummaryofOperations

-Allegheny MemberSystems...............

~~~~~~~32.41.....42 Five-1'earFinancial Statement AssetsGeneralplantConstruction workinprogressTotalplantAccumulated provision fordepreciation

&amortization NetPlantNon-utility property-netCapitalcredits-NRUCFCInvestm'ents inassociated organizations Otherinvestments Cash-generalfundsCash-construdion fundTemporary investments SpecialfundsNotesreceivable Accountsreceivable Prepayments Othercurrent&accruedassetsDeferreddebitsTotalassetsLiabilities Memberships Patronage capitalDonatedcapitalLong-term debt-REALong-term debt-otherNotespayableAccountspayableCostofserviceadjustment AccruedtaxesAccruedinterestOthercurrent&accruedliabilities DeferredcreditsTotalliabilities MemberrevenuesAdamsBedfordCentralChverackNewEnterprises Northwestern SomersetSouthwest CentralSullivanSussexTri~untyUnitedValleyWarrenTotalmemberrevenues241990633,120,217 5,903~1639P23~137P81%7501~1214,970~296,1673+79~14,012,303 48712,10347P19,705 1,901,112 4,148,632 1IP49+901,113,921 57~.499/00581+18+98 2/003~50,730S,715P56526310+77 15/45~26/16+15545+743~011683@3219@41@85581+18+98 199016,920P11 4,948@3211,170@$28,739,960

~4+1810+23,184 8,737@3714+25~4~5,9526+12,9067,199~7~1810~,7593P84,646115,137,651 1989616,987/94 9/40/32626/27~88,725,714 537~1,912 5P55,9713~1+635P78$141,903/2313,734~1P52P28342P281/50,929599,76512/0038,941/10 S0,7304P10/9252?+11/95 4@87,7074/93/35551~3@48/15664/0820@2@25599,7651198916~~4,934P8411,123~8/78,7632,183+210/75,739 8,7748614~,7092@44,1986@33/507,194~77P14$9S10~~93,114P60114~,1951988609,034,277 6,938~4615,972/51 70/28,954 54S,143P97 SPBP43344,1333/11,1531/96/72251~39~,7232P71,95214+11P351P30P83333478848/ii614/93,944 2~36~~50,730S011,15330/18,791 5,180P008/01,704SP30~346/213m.17912,75122P4,732614/03,994 198815~/244,717/7410,795,933 8~~2P66/959,994,179 8~1~'14P05~2,193@276P043496/87/057,709+$9,955,957 3P51398~109~2@081987602,287,851 26,11~71SSW1N2572,738,790 5$D1,7053330/103P10P55543,9901PN~18~2,173/1011,915r$66988,752109+121396~621,728P76 24834,174/53 492502/82/63 30~$7819$00P008,923~~$73513@003~~85,97119~9/16621,728P76 198713,940P70 4~,95210$39P087,971,779 1,994/469,721/377~$9613'~2,105~5~,9346~,9777~9,177@312,974,793 103~$951986578,747,706 23/66/27602P14~563/63@79 5~318323/923/10P55-91@81P00515152,782+110~$97203,77322P672@97/11594,727/10 2/0029/90+4349N2499,991/17 30/64,736 2P46,0007/67/72564/633,965r61133,17920$11$37594,727/10 198613P44~14/62~9~/227%7m1/60/829/25,7037/19,1541~,7521,994~SP82,1486,195/847,137,799 8~9@282,74181097,170@75 Tive-YearStatement OfRevenue&Expenses19901989198819871986Electricenergysales:MembersNon-members 115,108,723 14,138+82 114,434,195 109/32/08 16,057,630 24/47,984 103,425395 31,974501 97,170375 42,411,238 Totalreceipts129,247,605 130,491,825 133,880,792 135399g96 139/81,613 CostofpowerWheelingRaystown:

Generation Operation

&Maintenance InterestTransmission TaxesOtherprojects:

Operation

&maintenance Transmission Depreciation 32,085,914 9,249,841 2,560,147 183,55019@85123,66324,052466,1902+46,261200+2116,884736,696116,97033+58,887 40,119,659 8+45,7737,441,025 41,231,647 6,668+1743+42+735,786,049 SSES:Generation Operation

&maintenance FuelDepreciation TaxesTransmission Maintenance Depreciation InterestInterestchargedtoConstruction

-CreditGeneral&administrative 18,024,408 9,512,667 9,034,865 3,437,242 216,007804,90743,018,285

-909,1465,315,694 18+18,905 9,413,177 9+76,1443,429,845 317,266804,76842,724,066

-1,233,918 5,153,748 19,490,190 8,634@418,694,096 3,608,751 207,431804,47744,147,039

-2+18+733,980,637 14,987,966 10@20,233 7+76,6803+90,699194+45800,45045,839,094

-2,407,405 4,421@4116,257,078 7,874,925 6,284+113,140,926 200,626780,19151389,042

-3+80,029 4,251,885 Totaloperation expense133,167,671 132.772327 135,662,439 133,023567 136,128,077 Depreciation TaxesOtherdeductions 131+97136,14330817,247 134,988109,750-701,433120/33102,094472@83113%297,266~,21492,26495,054412,172TotalexpensesOperating marginsInterestincomeOther-profit/(loss) netOthercapitalcredits163+52,458

-34,604+53 4,636,182 1+62,26129,912132@15,632

-1$23gV4/28,04028,94021,184135+12,683

-1$31$912,924/6859639823/25132,601,451 2,798~51/22,193245,60417,668135,903,223 3,678/901/98~0-76,18655,254Netmargins-28,476+98 2~~72313,2004/83,9105,155,988 BalanceSheetsOctober3119901989(InThousands)

ASSETSElectricUtilityPlant-NoteCInservice-NoteBConstruction workinprocessNuclearfuelinprocessLessaccumulated depreciation andamortization

$624,8805,9038,240639,023,,

137,581501,442'$61030810,2746,679627,26188,725538,536OTHERASSETSANDINVESTMENTS Nonutility

property, atcost(netofaccumulated depreciation of$1,483in1990and$1@23in1989)Investments inassociated organizations

-NoteDOtherinvestments

-NoteAOthernoncurrent assets4,9714,2505,8121,35216,3855,0564,2771,80088912,022CURRENTASSETSCashandshort-term investments of$47,288in1990and$35,144in1989Accountsreceivable frommembersOtheraccountsreceivable Othercurrentassets47,03111,0454,65386263,59134,73593295,06973849,871$581,418$600,42926

~~EquitiesandLiabilities October3119901989(InThousands)

EQUITIESMemberships DonatedcapitalPatronage capitalOthermarginsandequities-NoteKUnrealized lossonmarketable equitysecurities LONG-TERM DEBT,lesscurrentportion-NoteF3$5138,574(28,476)(177)9,975495,03135138,94038,994489,919CURRENTLIABILITIES Notespayable-NoteECurrentportionoflong-term debt-NoteFAccountspayableandaccruedexpensesAccountspayabletomembersDEFERREDCREDITSDeferredincometaxbenefitsfromsafeharborlease-NoteGOtherdeferredcredits27,4009,69513,4356,54057,07012,1667,17619@4227,8008,8039,4075,00351,01312,942756120/03$581,418$600,429Seenotestofinancial statements.

27 Statements ofQperations YearEndedOctober3119901989(InThousands)

Operating revenue,including salestomembersof$115,138in1990and$114,434in1989$129,277$130,492Operating expenses:

Purchased powerTransmission Production FuelDepreciation TaxesAdministrative andgeneralOPERATING MARGINBEFOREINTERESTANDOTHERDEDUCTIONS Interestandotherdeductions:

InterestexpenseAllowance forfundsusedduringconstruction Otherdeductions (credits),

netOPERATING MARGIN(DEFICIT) 32,0869,64620,6129,51310,4373,4845+9691+7437,903'3,018(909)5242,161(4,258)333598,86420,8659,41310,3163,4545,25691/2738,96542,724(1,234)(9)41,481(2/16)Nonoperating margins:Netnonoperating rentalincome(loss)InterestincomeOther24,6021,4606,064(23)4,29352MARGINBEFOREINCOMETAXESANDCUMULATIVE EFFECTOFCHANGEINACCOUNTING PRINCIPLE Deferredincometaxbenefitsfromsafeharborlease1,8061,806747MARGINBEFORECUMULATIVE EFFECT'FCHANGEINACCOUNTING PRINCIPLE Cumulative effectofchangeinaccounting principle

-NoteK2,582(31,058)2/53Seenotestofinancial statements.

NETMARGIN(DEFICIT)

$(28,478)$2+5328

~~Statements ofEquitiesDonatedPatronage Memberships CapitalCapitalOtherMarginsandEquitiesUnrealized LossonMarketable EquitySecurities Total(InThousands)

BalanceatNovember1,1988Netmargin255324533$51$36@87$-$-$36,441BalanceatOctober31,1989Changeinunrealized lossonmarketable equitysecurities Netmargin(deficit)

Retirement ofcapitalcredits5138,940(366)(28,476)(177)38,994(177)(28,476)(366)BALANCEATOCTOBER3L3990$3$51$38,574$(28,476)$(177)$9,975Seenotestofinancial statements.

29 Statements ofCashFlowsYearEndedOctober3119901989(InThousands)

OPERATING ACTIVITIES Netmargin(deficit)

Adjustments toreconcile netmargin(deficit) tonetcashprovidedbyoperating activities:

Depreciation andfuelamortization Amortization ofgainonsaleofelectricutilityplantDeferredincometaxbenefitsfromsafeharborleaseCumulative effectofchangeinaccounting principle Changesinoperating assetsandliabilities:

(Increase) decreaseinoperating assets:Noncurrent assetsAccountsreceivable frommembersOtheraccountsreceivable OthercurrentassetsIncrease(decrease) inoperating liabilities:

AccountspayableandaccruedexpensesAccountspayabletomembersOtherdeferredcreditsNETCASHPROVIDEDBYOPERATING ACTIVITIES 18,628(58)(776)31,05818,480(44)(747)(463)(1,716)416(124)4,0281,537(327)23.7272300(65)78(88)(3,258)(400)(1301)17508$(28,476)$2853INVESTING ACTIVITIES Additions toelectricutilityplant(Increase) reduction ininvestments inassociated organizations Purchaseofotherinvestments Proceedsfromsaleofotherinvestments Proceedsfromsalesofutilityandnonutility propertyNETCASHUSEDININVESTING ACTIVITIES (12,565)27(13,191)9,00258(16,669)(11,876)(30)32(11,874)FINANCING ACTIVITIES Proceedsfromlong-term debtPaymentsonnotespayableandlong-term debtRetirement ofcapitalcredits13,944(8,340)(366)2,259(12,837)NETCASHPROVIDEDBY(USEDIN)FINANCING ACTIVITIES INCREASE(DECREASE)

INCASHANDCASHEQUIVALENTS 5,238(10+78)12,296(4,944)Cashandcashequivalents atbeginning ofyear34,73539,679CASHANDCASHEQUIVALENTS ATENDOFYEAR$47,031$34,735Seenotestofinancial statements.

30 Financial

¹tes

¹testoFinancial Statements NOTEA-SUMMARYOFSIGNIFICANT ACCOUNTING POLICIESAllegheny ElectricCooperative, Inc.(Allegheny) isaruralelectriccooperative utilityestablished underthelawsoftheCommonwealth ofPennsylvania.

Financing assistance isprovidedbytheU.S.Department ofAgriculture, RuralElectrification Administration (REA)and,therefore, Allegheny issubjecttocertainrulesandregulations promulgated forruralelectricborrowers byREA.Allegheny isagenera-tionandtransmission cooperative, providing powersupplytofourteenowner/memberswhoareruralelectricdistribution cooperative utilities providing electricpowertoconsumers incertainareasofPennsylvania andNewJersey.Allegheny maintains itsaccounting recordsinaccordance withtheFederalEnergyRegulatory Commission's chartofaccountsasmodifiedandadoptedbyREA.ElectricUtilityPlantandDepreciation:

Electricutilityplantisstatedatcost,whichincludesanallowance forfundsusedduringconstruction.

Depreciation fornuclearutilityplantproduction assetsisprovidedonthemodifiedsinkingfundmethodundertheamendedphase-inplanadoptedtoconformtoFinancial Accounting Standards Board(FASB)Statement No.92for1990,and,for1989,onthemodifiedsinkingfundmethodundertheoriginalphase-inplanadoptedpriortoapplication ofFASBStatement No.92(seeNoteK).Thestraight-line methodisusedforallotherassets,exceptnuclearfuel.Thecostofunitsofpropertyretiredorreplacedisre-movedfromutilityplantaccountsandchargedtoaccumulated depreciation.

NuclearFuel:Nuclearfuelusageischargedtofuelexpensebasedonthequantityofheatproducedforelectricgeneration.

UndertheNuclearWastePolicyActof1982,theU.S.Department ofEnergy(DOE)isresponsible forthepermanent storageanddisposalofspentnuclearfuelremovedfromnuclearreactors.

Allegheny currently paystoPennsylvania Power&LightCompany(PP&L),co-ownerofSusquehanna SteamElectricStation(SSES),itsportionofDOEfeesforsuchfuturedisposalservices.

CostofDecommissioning NuclearPlant:Allegheny's portionoftheestimated decommissioning costsofSSESischargedtooperating expensesovertheestimated usefullifeoftheplant.AsrequiredbytheNuclearRegulatory Commission, in1990Allegheny established aDecommissioning TrustFund(Trust)whichisrestricted forusetoultimately decommission SSES.NopaymentswererequiredtobemadetotheTrustin1990.Includedinotherinvestments is$4.1millionoffundswhich,Allegheny's BoardofDirectors hasrestricted forfuturepaymentstotheTrust.32

~~ANOTEA-(continued)

Alloroance forFundsUsedDuring'onstruction:

Allowance forfundsusedduringconstruction represents thecostofdirectlyrelatedborrowedfundsusedforconstruction oforadditions toanelectricutilityplant.Theallowance iscapitalized asacomponent ofthecostofelectricutilityplantwhileunderconstruction.

Investments inAssociated Organizations:

Investments inassociated organizations arecarriedatcost.Preliminary Surveys:Costsofpreliminary surveysforpotential development projectsarerecordedasdeferredchargesinothernoncurrent assets.Ifconstruction ofaprojectresultsfromsuchsurveys,thedeferredchargesaretransferred tothecostofthefacilities.

Ifapreliminary surveyisabandoned, thecostsincurredarewrittenoff.CashEquivalents:

Forpurposesofthestatements ofcashflows,Allegheny consid-ersallhighlyliquidinvestments withamaturityofthreemonthsorlesswhenpurchased tobecashequivalents.

Short-Tenn Investments:

Short-term investments arecarriedatcost,plusaccruedinterest, whichapproximates marketvalue.OtherInvestments:

Otherinvestments includeUnitedStatesgovernment obliga-tions,corporate obligations, andCommonStocks(marketable equitysecurities).

TheU.S.government andcorporate obligations arestatedatcostwhichapproxi-matesmarketvalue.Marketable equitysecurities arecarriedattheloweroftheiraggregate costormarketvalue.AsofOctober31,1990,theircostwas$984,000andtheirmarketvaluewas$807,000.Changesinnetunrealized lossesonnoncurrent marketable equitysecurities arerecordeddirectlyinaseparateequities'ccount andarenotincludedinthedetermination ofnetmargin.Thechangeinnetunreal-izedlossreflected intheequitiessectionfortheyearendedOctober31,1990is$177,000.IncomeTaxes:Investment taxcredits,otherthanthosesoldthroughthesafeharborleasearrangement, areaccounted forundertheflow-through methodwherebycreditsarerecognized asareduction ofincometaxexpenseintheyearinwhichthecreditisutilizedfortaxpurposes.

Variations inthecustomary relationship betweenpretaxaccounting incomeandincometaxexpensearetheresultofpatronage dividends.

Netoperating lossesforfinancial andtaxreporting purposesdifferasaresultoftimingdifferences relatingprimarily todepreciation.

33

¹testoFinancial Statements (continued)

NOTEA-(continued)

MarginStabilization Plan:Allegheny hasestablished amarginstabilization planwhichhasbeenapprovedbyREA.Undertheprovisions oftheplan,Allegheny developsabudgetedmargineachyearbasedonatargetedTimesInterestEarnedRatio(TIER)of1.06.IftheactualmarginrealizedisinexcessoftheTIER,Allegh-enyrecordsthedifference asareduction ofthecurrentyear'soperating revenuesandasaliability toitsmembers.Conversely, iftheactualmarginrealizedislessthantheTIER,Allegheny recordsthedifference asanadditiontothecurrentyear'operating revenuesandasareceivable fromitsmembers.Theliability orreceivable lrecordedattheendofeachyearisincorporated intoAllegheny's ratestructure forthefollowing yearthroughacost-of-service billingadjustment madebyAllegheny toitsmembers.DuringtheyearsendedOctober31,1990and1989,operating revenueswerereducedby$6.4millionand$4.9million,respectively, duetoactualmarginsexceeding theTIER.TheseamountsareincludedinaccountspayabletomembersatOctober31,1990and1989.Theaforementioned marginstablization planwillremainineffectthroughOctober31,1991.Reclassification:

The$1.8millionofinvestments includedinothernoncurrent assetsinthe1989financial statements hasbeenreclassified tootherinvestments toconformwiththe1990presentation.

NOTEB-ELECTRICUTILITYPLANTINSERVICEElectricutilityplantinserviceconsistsofthefollowing:

Depreciation/

Amortization, Lives/Rates October3119901989(InThousands)

NuclearUtilityPlant:Production Transmission GeneralplantNuclearfuel39years$513,4082.75%32,2013%-12.5%825Heatproduction 71,921$509,46930,19182668,388Non-Nuclear UtilityPlant3%-33%6/251,434'OTAL

$636,880$610,308 NOTEC-SUSQUEHANNA STEAMELECTRICS'FATIONIAllegheny ownsa10%undivided interestinSSES.PP&Lownstheremaining 90%.Bothparticipants providetheirownfinancing.

Allegheny's portionofcostsassoci-atedwiththestationtotalled$629millionand$618millionatOctober31,1990and1989,respectively.

Allegheny's shareofanticipated costsforongoingconstruction andnuclearfuelforSSESisestimated tobeapproximately

$60millionoverthenextfiveyears.Allegheny receivesaportionofthetotalstationoutputequaltoitspercentage ownership.

Thestatement ofoperations reflectsAllegheny's shareof,fuelandotheroperating costsassociated withthestation.NOTED-INVESTMENTS INASSOCIATED ORGANIZATIONS Investments inassociated organizations consistprimarily ofNationalRuralUtili-tiesCooperative FinanceCorporation (CFC)patronage capital,"CapitalTermCertificates" and"Subordinate TermCertificates,"

andNationalBankforCoopera-tives(CoBank)"C"stockand"E"stock.Certificates bearinterestat3%and4%andbeginmaturingin2014.Allegheny isrequiredtomaintaintheseinvestments pursuanttocertainloanandguarantee agreements.

NOTEE-NOTESPAYABLEAllegheny hasashort-term lineofcreditavailable withCFCof$21.4million.Therewerenoamountsoutstanding atOctober31,1990or1989.Theinterestrateisgenerally atprimeplus1%.Restrictions areimposedunderthelineofcreditarrangement including, amongotherthings,maintenance ofratiorequirements underexistinglong-term debtarrangements andlimitation oftotalshort-term indebtedness outstanding toanamountnottoexceedtheremaining unadvanced portionofcertainexistingREAlong-term loancommitments

($43.0millionatOctober31,1990).NotespayableatOctober31,1990and1989consistofPollution ControlRevenueBondsissuedbyanIndustrial Development Authority onAllegheny's behalf.Thebondsaresubjecttopurchaseondemandoftheholderandremarketing ona"bestefforts"basis.Sinkingfundredemption isscheduled invaryingamountsthrough2014,andinterestisduemonthlyatvariablerates(5.5%to7.1%for1990and5.9%to8.0%for1989).Thebondsareconvertible toafixedinterestrateandfixedtermatAllegheny's option.$1.8millionofinvestments includedinotherinvestments atbothOctober31,1990and1989relatetoadebtservicereservefundrequiredunderthebondindenture.

35 NotestoFinancial Statements (continued)

NOTEF-LONG-TERM DEBTLong-term debtconsistsprincipally ofmortgagenotespayableforelectricutilityplanttoREAandtotheUnitedStatesofAmericaactingthroughtheFederalFinancing Bank(FFB)andguaranteed byREA.Substantially alltheassetsofAllegheny arepledgedascollateral.

Long-term debtconsistsofthefollowing:

MortgagenotespayabletoFFBatinterestratesvaryingfrom7.338%to13.820%in1990and7.329%to13.820%in1989,dueinvaryingamountsthrough2021October3119901989(InThousands)

$493,860$491,942MortgageloanpayabletoCFC,payableinvariousquarterly installments, including interestthroughJanuary2015.Variableratesrangedfrom9.125%to9.75%in1990and9.25%to11.00%in1989$2,004$2,033NotespayabletoCFC,payableinvariousquarterly installments, including interestthroughOctober2019.Variableratesrangedfrom9.125%to9.75%in1990and9.5%to11.00%in1989$3,123$6935%mortgagenotespayabletoREAdueinvaryingamountsthrough2019OtherLesscurrentportion$5,719$4,015$20$39$504,726$498,7229,6958,803$495,031$489,919Allegheny hastheoptiononFFBpromissory noteadvancestoelect(subjecttoREAapproval) aninterimmaturitydateoftwoyearsafterthedateoftheadvance.Atthedateoftheadvanceoronthematurityofaninterimadvance,Allegheny mayalsodesignate thatitdesiresalong-term maturityuptoamaximumof34yearsfromtheendofthecalendaryearinwhichthenotewasissued.AtOctober31,1990,Allegheny had$25.8millionofadvancesmaturingwithinoneyearwhichit,intendstoconverttolong-term obligations, eitherbyrollingthemoverforaddi-tionaltwo-yearperiodsorextending themtofacilitylife-time financing, inaccor-dancewiththemortgageagreement.

36

.~'~~,~NOTEF-(continued)

Aggregate maturities oflong-term debtforthefouryearssubsequent toOctober31,1991areasfollows(inthousands):

1992199319941995$10,91211,66112,10212,496Theabovematurityschedulereflectsmanagement's intenttoconvertFFBadvanceswithinterimmaturitydatestolong-term debt.Allegheny hasusedaninterestrateitestimates tobeanappropriate long-term rate,basedontheOctober31,1990interestrate,tocomputetheannualprincipal requirements.

Allegheny isrequiredbymortgagecovenants tomaintaincertainlevelsofinterestcoverageandannualdebtservicecoverage.

Allegheny wasincompliance withsuchrequirements atOctober31,1990.During1990and1989,Allegheny incurredinterestcostsof$43.0millionand$42.7million,respectively.

Interestpaid,netofamountscapitalized, was$41.9millionand$41.7million,respectively.

NOTEG-INCOMETAXESAtOctober31,1990,Allegheny hadavailable nonmember netoperating losscarryforwards of$16.9millionforfinancial reporting purposesand$158.5millionfortaxreporting purposesexpiringthrough2005andinvestment taxcreditcarryforwards ofapproximately

$33.8millionforbothfinancial andtaxreporting

purposes, expiringthrough2003.Allegheny alsohadoperating losscarryforwards attributable tomemberactivities of$19.2millionforfinancial reporting purposesand$155;0millionfortaxreporting purposeswhichmaybecarriedforwardindefinitely.

UndertheTaxReformActof1986,theamountofinvestment taxcreditallowable asaresultofacarryforward mustbereducedby35%.In1983,Allegheny soldcertaininvestment andenergytaxcreditsanddepreciation deductions pursuanttoasafeharborlease.Theproceedsfromthesale,including interestearnedthereon,havebeendeferredandarebeingrecognized overthetermofthelease(30years).ThenetproceedsandrelatedinterestwererequiredbyREAtobeusedtoretireoutstanding FFBdebt.Underthetermofthesafeharborlease,Allegheny iscontingently liableinvaryingamountsintheeventthelessor'staxbenefitsaredisallowed andintheeventofcertainotheroccurrences.

ThemaximumamountforwhichAllegheny wascontingently liableapproximated

$20millionatOctober31,1990.Paymentofthiscontingent liability hasbeenguaranteed byCFC.37 NotestoFinancial Statements (continued)

NOTEH-RELATEDPARTYTRANSACTIONS Allegheny hasanarrangement withanassociated organization, Pennsylvania RuralElectricAssociation (PREA),underwhichPREAprovidesAllegheny withcertainmanagement, general,andadministrative servicesonacostreimbursement basis.TotalcostsfortheservicesprovidedfortheyearsendedOcotober31,1990and1989were$3.1millionand$2.6million,respectively.

NOTEI-COMMITMENTS ANDCONTINGENCIES Allegheny andPP&Laremembersofcertaininsurance programswhichprovidecoverageforpropertydamagetomembers'uclear generating plants.Allegheny's portionofthefacilities atSSESisinsuredagainstpropertydamagelossesupto$218.5millionundertheseprograms.

Allegheny isalsoamemberofaninsurance programwhichprovidescoverageforthecostofreplacement powerduringprolonged outagesofnuclearunitscausedbycertainspecified conditions.

Underthepropertyandreplacement powerinsurance

programs, Allegheny couldbeassessedretrospective premiumsintheeventtheinsurers'osses exceedtheirreserves.

ThemaximumamountAllegheny couldbeassessedunderthesepro-gramsduringthecurrentpolicyyearis$.7million.Allegheny's publicliability forclaimsresulting fro'manuclearincidentiscurrently limitedto$780.7millionunderprovisions ofthePrice-Anderson Amendments Actof1988(Act),whichextendedthePrice-Anderson ActtoAugust1,2002.Allegheny isprotected againstthispotential liability byacombination ofcommercial insur-anceandanindustryretrospective assessment program.Intheeventofanuclearincidentatanyofthefacilities ownedbyothersandcoveredby'heAct,Allegheny couldbeassessedupto$12.6millionperincident, butnotmorethan$2millioninacalendaryear.Allegheny iscurrently constructing atransmission facilitywhichisestimated tocostatotalof$2million.Financing isbeingprovidedbyREA($1.4million)andCFC($.6million).

NOTEJ-SALE/LEASEBACK ARRANGEMENT OnJune30,1988,Allegheny completed thesaleandsimultaneous leaseback ofits'ydroelectric generation facilityattheRaystownDam(theFacility).

TheFacilitywassoldtoatrusteebankrepresenting FordMotorCreditCompany(Ford)for$32millionincash.Undertermsofthearrangement, Allegheny isleasingtheFacility'romFord'strusteeforaninitialtermof30years.Paymentsundertheleasearedueinsemiannual installments whichcommenced January10,1989.Attheend'ofthe30-yearterm,Allegheny willhavetheoptiontopurchasetheFacilityforanam'ountequaltotheFacility's fairmarketvalue.38 NOTEJ-(continued)

Allegheny alsohastheoptiontorenewtheleaseforafive-year fixedraterenewalandthreefairmarketrenewalperiods,eachofwhichmaynotbeforatermoflessthantwoyears.Paymentsduringthefixedraterenewalperiodare30%oftheaveragesemiannual installments duringtheinitialleaseterm.Allegheny willretainco-licensee statusfortheFacilitythroughout thetermofthelease.Thegainof$1.9millionrelatedtothesaleisbeingrecognized overtheleaseterminthesameproportion thattheannualrentalpaymentsrelatetototalrentalpayments.

ThepaymentsbyAllegheny underthisleaseweredetermined inpartontheassumption thatFordwillbeentitledtocertainincometaxbenefitsasaresultofthesaleandleaseback oftheFacility.

IntheeventthatFordweretolosealloranyportionofsuchtaxbenefits, Allegheny wouldberequiredtoindemnify Fordfortheamountoftheadditional federalincometaxpayablebyFordasaresultofanysuchloss.Theleaseback oftheFacilityisaccounted forasanoperating leasebyAllegheny.

AsofOctober31,1990,futureminimumleasepaymentsunderthislease,whichcanvarybasedontheinterestpaidonthedebtusedbyFordtofinancethetransac-tion,areestimated asfollows(inthousands):

19911992199319941995Thereafter

$1,9321,9322@6123612@6155,052TotalMinimumLeasePayments$65,999Thefutureminimumleasepaymentsshownabovearefortheinitialleasetermandthefive-year renewalperiod.Thesepaymentsarebasedonanassumedinterestrateof8.8%andmayfluctuate basedondifferences betweenthefutureinterestrateandtheassumedinterestrate.Rentalexpenseforthisleasetotalled$2.1millionfortheyearendedOctober31,1990and$2.0millionfortheyearendedOctober31,1989.NOTEK-CHANGEINACCOUNTING PRINCIPLE Effective November1,1989,Allegheny adoptedStatement ofFinancial Accounting Standards No.92,"Regulated Enterprises

-Accounting forPhase-inPlans."UnderStatement No.92,autilitymaycapitalize onitsbalancesheetthecostsdeferredunderaratephase-inplaniftheplanmeetsspecificcriteriaincluding therequire-mentthatsuchcostsarerecovered within10yearsofthedatethedeferrals began.Otherwise, thedeferredcostsmustbechargedtoexpenseintheperiodincurred.

39 NotestoFinancial Statements (continued)

NOTEK-(continued)

Underthemethodofdepreciation usedbyAllegheny fornuclearutilityplantproduction assetspriortoNovember1,1989,whichwaspreviously approvedbyREA,theamountofdepreciation includedinelectricratesduringthefirst10yearsoftherelatedassets'ives wassubstantially lessthantheamountthatwouldhavebeenincludedusingstraight-line depreciation.

Accordingly, thismethodofdepre-ciationusedforsuchassetswasconsidered tobeaphase-inplanunderFASBStatement No.92thatdidnotmeetthe10-yearrecoveryperiodestablished byFASBStatement No.92.InordertocomplywithFASBStatement No.92,Allegheny amendeditsphase-inplan.Undertheamendedphase-inplan,whichhasreceivedREAapproval, depreciation ofnuclearutilityplantproduction assetsisbasedonemodifiedsinkingfundmethodovera10-yearperiodcommencing with1990andendingin1999.Themodifiedsinkingfundmethodwillresultinthecumulative depreciation forthe10-yearperiodbeingequaltostraight-line depreciation overthesame10-yearperiod.Commencing intheyear2000,thestraight-line methodwillbeusedbyAllegheny fortheremaining lifeoftheassets.ThenetamountofcostsdeferredatOctober31,1990underthephase-inplanamendedtocomplywithFASBStatement No.92was$4.5million.Allegheny wasalsorequiredtorecordachargeagainstincomein1990forthecumulative effectofachangeinaccounting principle intheamountof$31.1millionrepresenting thedifference indepreciation fornuclearutilityplantproduction assetsusedbyAllegheny underitspreviousphase-inplanandthestraight-line methodofdepreciation.

Thischargeagainstincomehasbeenrecordedasadefi-ciencyinanunallocated equityaccountasofOctober31,1990,sincetheamountisnotallocable toAllegheny's members.Beginning in1990,allmarginsrecognized byAllegheny arerequiredtobeusedtoreducethisdeficiency.

Inaddition, thecurrentyear,marginstabilization adjustment (seeNoteA)wascalculated priortothecumulative effectadjustment.

TheadoptionofFASBStatement No.92resultedinanincreaseinthe1990marginbeforecumulative effectofchangeinaccounting principle of$1.1million.Proformaamountsofoperations for1989,asifFASBStatement No.92wouldhavebeenadoptedin1989,approximate theactualoperating resultsreportedfor1989.40 H~ERNsTdkVoUNc0300LocustCourt212LocustStreetHarrisburg, Pennsylvania 171010Phone:7172327575 ReportofIndependent AuditorsBoardofDirectors Allegheny ElectricCooperative, Inc.Wehaveauditedtheaccompanying balancesheetsofAllegheny.

ElectricCooperative, Inc.asofOctober31,1990and1989,andtherelatedstatements ofoperations,

equities, andcashflowsfortheyearsthenended.Thesefinancial statements aretheresponsibility ofmanage-ment.Ourresponsibility istoexpressanopiniononthesefinancial statements basedonouraudits.Weconducted ourauditsinaccordance withgenerally acceptedauditingstandards.

Those"standards requirethatweplanandperformtheaudittoobtainreasonable assurance aboutwhetherthefinancial statements arefreeofmaterialmisstatement.

Anauditincludesexam-ining,onatestbasis,evidencesupporting theamountsanddisclosures inthefinancial statements.

Anauditalsoincludesassessing theaccounting principles usedandsignificant estimates madebymanagement, aswellasevaluating theoverallfinancial statement presentation.

Webelievethatourauditsprovideareasonable basisforouropinion.Inouropinion,thefinancial statements referredtoabovepresentfairly,inallmaterialrespects, thefinancial positionofAllegheny ElectricCooperative, Inc.atOctober31,1990and1989,andtheresultsofitsoperations anditscashflowsfortheyearsthenendedinconformity withgenerally acceptedaccounting principles.

Asdiscussed inNoteKtothefinancial statements, in1990Allegheny ElectricCooperative, Inc.adoptedFinancial Accounting Standards BoardStatement No.92,"Regulated Enterprises

-Accounting forPhase-inPlans."January11,1991 SummaryofQperations

-Allegheny MemberSystemsAdamsEC,Inc.DavidJ.CowanPresident 8edfordREC,Inc.RalphW.FischerPresident CentralEC,Inc.WilliamEYerwilliger President Claverack REC,Inc.AlbertJ.WydaPresident NewEnterprise REC,Inc.JohnW.RitcheyPresident Northwestern RECA,Inc.HaroldHinesPresident SUMMARYOFOPERATIONS Operating RevenueOPERATING EXPENSES$26,035,688

$7@65+60$18,170,446

$14,718,600

$2,958,010

$17,277,659 Purchased powerOperations

&maintenance Depreciation TaxesInterestCostofelectricserviceOperating marginsNon-operating margins&capitalcreditsNetmarginsASSETS$17,159,192

$4+62,783$1,476,499

$209,776$1+12,887$25,221,136

$814/51$661,161$1,475,712

$5,013,184

$1538,676$336+11$63+15$332,473$7,284,659

$80,700$251,610$332+10$11,180,716

$4,189~2$883,963$136557$1,089,880

$17,480,498

$689,948$505,697$1,195,645

$8W5,985$3~,931$962,027$203,011$848,874$14+24,828

$293,772$313,690$607,462$2,244,871

$785+20$162,000$22/83$0$3,214,774

($256,763)$51,909($204,854)$11,160,167

$3+92,215$837,901$219,288$819,171$16,928,742

$348,917$402,615$751~2TotalutilityplantLessaccumulated depredation NetutilityplantOtherproperty&investments Current&accruedassetsDeferreddebitsTotalassetsLIABILITIES

$46,893,466

$10,823+60

$36,069,605

$7/15@90$7,280,919

$142,968$51,008+82

$13/99,826

$4,260,435

$9,139+91$2,281,104

$2,255,977

'$71,145$13,747,616

$33~9,864$8,890/85$24,659,279

$5@36,436$4,967,988

$37/87$35,001,290

$31,752,111

$7+74,973$23,877,138

$4,086,846

$1,020,060

$118+22$29,102/66

$3,187,689

$1,772+93$1,415,096

$750,600$284,823$0$2,450818$31,183,630

$8,802,884

$22380,745

$5,766,719

$2370555$478,784$30,996,804 Margins&equitiesLong-term debtCurrent&accruedliabilities Othercredits&reservesTotalliabilities OTHERSTATISTICS

$19,117,760

$29',754$2,042@68$12,000$51,008,882

$6~9,177$6,165,409

$756,011$277,019$13,747,616

$14,150,087

$18,678,850

$1,956/95$215,758$35,001,290

$11,019,618

$15g27+18$2,197/24$58,106$29,102@66

$2,271,780

$0$178,738$0$2,450+18$14,012,080

$15303,106

$1,678,152

$3,467$30,996,804 MilesoflineConsumers servedConsumers permileKwhsoldperconsumerMwhsalesAnnualrevenueperconsumerPlantinvestment perconsumerRevenuepermileofline422,435213838.812,990279,055.8

$1,212$1,679$10,6921.1337,6286.710,43879,621.6$966$1,198$65002,91121,7197.58,151177,038.4

$837$1,135$6,2422+7814,8696.39,267137,7913$990$1,606$6,1893232,8668.91'1,68833,498.7$1,032$494$9,158233216,0746.910,625170,784.5

$1,075$1+92$7,409 SomersetREC,Inc.DaltonB.WalkerPresident Southwest CentralRECCDonaldStreamsPresident SullivanCountyREC,Inc.WayneGavittPresident SussexRECJamesLHenderson President TritontyREC,Inc.AlstonA.TeeterPresident UnitedEC,Inc.JamesR.YoungPresident ValleyREC,Inc.HaroldE.RitcheyPresident WarrenEC,Inc.DaveTurnerPresident TOTAL$12,133,277

$20,146,011

$3,776,838

$12,083,769

$12,722,087

$13,086/57

$15+48+52$5,1S3,249

$8/18,299$1,934/51$538,269$133,629$693,100$11,817,848

$315,429$443,145$758874$1S,029,625

$2498,095$865,788$131,878$1,019/32$19,644,718

$501,293$471,784$973,077$2,438,903

$755~0$231/31$36,436$225,612$3,688+22$88/15$102,136$190,651$6393,898$2355,246$705+14$1,406,412

$757,234$11,618,604

$465,165$312,697$777+62$7@44,427$3,146,990

$808,778$135,909$1,035,215

$12,471/19

$250,768$341,857$592,625$7,757,247

$2,837,163

$867,776$82,986$1,166,724

$12,711,896

$374,961$403,125$778,086$10,778,094

$2,911/19$916~9$140,036$683,020$15,429,218

$419333$496+98$915,931$3,123,740

$1,071,168

$293,684$46,849$146/23$4,682,263

$470,986$134/86$605/72$116,998+49

$36,433,779

$9,887@89$2,968,964

$10@30@45$176,618,826

$4857,576$4,892,610

$9,750,186

$21458,449

$4,845,244

$16,713@05

$4,203@00$4+31,858$6,051$25,254,414

$32+19/95$5+75,046$26,944~9$6,173,098

$1+42,160$59,404$35,019@11

$8/63,183$2/20,069$5,743,113

$1,231,722

$461,625$14,680$7,451,140

$21,268,119

$4,734,210

$16+33,909

$2,683,247

$3~,134$167,010$22W8P00$31,827,143

$7,994/36$23+32,607

$3,696,995

$3,624,714

($15,012)$31,139/04

$32,945,989

$8,737/91$24,208,098

$4,488,936

$2555,205$130,293$31@82/32$33,122/04

$9,234,254

$23',950$4,654,702

$3~9,123$22+27$31,954,102

$10,798,660

$3,627,498

$7,171,162

$1,608,688

$1,003,638

$480,021$10,263/08

$352@69,926

$89,794,079

$262+75,848

$54477782$38,892,779

$1,713,579

$357,659,988

$10,644,913

$13,479,889

$976,093$153/19$25,254,414

$16/64,143

$16,904,441

$1,471,081

$79~6$35,019,211

$2,839,467

$4/21,764$289,463$446$7,451,140

$7+50,794$12,779,734

$2,434,727

$123,045$22,888300

$11,188/87

$19,109,667

$754,650$86,400$31,139304

$10,617,834

$19,624+78

$1,139,848

$272$31382532$17,180,687

$12,462,001

$1,953588$357+27$31,954,102

$6584,833$3,268,067

$158,628$251,980$10,263508

$150,291,761

$187,761,578

$17,987,266

$1,619@84$357,659,988 1/3010,9366.012,629138,113.4

$1,109$1/28$6,6302,41619,2698.012,007231@55.4$1,046$1/98$8$397874,8816.27/2036,703.7$774$1,177$4,7986049,73416.110,473101,948.7

$1,241$1,699$20,0002~'15,669S.56/92107,991.2

$812$1+21$4,4892,60515,8136.17,296115/64.4$828$1+31$5,023235617,2887.39,738168@50.2$917$1,382$6,7271,0098,4378.45,65647,718.5$611$850$S,10825,953186,6667.29,7791,825@36.0

$972$1,407$6,99243 0S

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