The Potomac Edison Company

January 9, 2008

Jeffrey P. Trout, Esquire

The Potomac Edison Company

d/b/a Allegheny Power

800 Cabin Hill Drive

Greensburg, Pennsylvania15601-1689

Dear Mr. Trout:

On September 26, 2007, the Public Service Commission (“Commission”) authorized The Potomac Edison Company d/b/a Allegheny Power (“AP” or “Company”) to implement two “fast track” Energy Star conservation and energy efficiency programs: (1) a compact fluorescent lighting program (“CFL Program”); and, (2) a residential awareness campaign (“Education Campaign”). Additionally, the Commission approved a surcharge to be assessed on AP’s residential customers to permit the Company to recover the costs associated with these two programs.

The Commission has received a high volume of complaints from AP customers regarding the CFL Program. The timing of these calls – which began on Monday, January 7, 2008 – and the nature of the complaints the Commission is receiving, suggest that AP did not implement the programs in accordance with the representations made to the Commission prior to the Commission’s action on the programs and the cost recovery surcharge. Accordingly, the Company is directed to have appropriate representatives appear at the Commission’s January 16, 2008 Administrative Meeting to make a presentation to the Commission of the actions that AP took in implementing the programs in a timely and cost-effective manner and in conformance with the representations made to the Commission. The Company also should be prepared to demonstrate that the requested cost recovery surcharge remains appropriate and that the Company received the value for any monies expended on the programs with its vendors.

In asking the Commission to approve these programs, the Company made representations in its filing to the Commission dated September 14, 2007 (Mail Log # 107498) and at the September 26, 2007 Administrative Meeting regarding the manner in which the programs would be implemented and the costs of the programs. Based on AP’s representations, both the Office of People’s Counsel and the Maryland Energy Administration supported approval of the programs. The Commission, after questioning the Company’s representatives about the implementation and cost of the programs, approved the programs as well as the requested cost recovery surcharge. Jeffrey P. Trout, Esquire January 9, 2008 Page 2

As you may recall, the Commission questioned the Company on certain costs of the program, particularly the costs associated with the CFL Program and the Education Campaign, including notice to the customers about the program prior to the bulbs being delivered. The Company represented that part of the cost of the CFL Program included the cost of the CFL bulbs from the vendor as well as the cost of sending the bulbs to each customer via Federal Express. Moreover, the Company assured the Commission that the customers would be provided sufficient notice of the CFL Program and its associated cost, and that there would be literature accompanying the CFL bulbs to ensure that residential customers understood the benefits of the CFL bulbs and the savings that would be provided to the customers if they were to use the bulbs as advised. Enclosed is a summary of the AP proposal as the Commission understood it at the time of approval of the programs and cost recovery surcharge.

On or about January 7, 2008, the Commission’s Office of External Relations began receiving a high volume of complaints from AP customers about the CFL Program and the assessment of the cost recovery surcharge associated with the two programs. The Commission also is aware that there were a number of newspaper articles that addressed the manner in which the CFL Program was implemented and questioned the assessment of the cost recovery surcharge. Based on these customer complaints and the newspaper articles, the Commission questions whether AP implemented the two programs in conformance with the representations made by AP to the Commission and whether AP is entitled to recovery for the costs for these programs as implemented.

Accordingly, the Commission directs the Company to appear before the Commission at the Administrative Meeting on January 16, 2008. No later than noon on Monday, January 14, 2008, the Company shall file the following:

1. A copy of the contract with the vendor(s) that developed and implemented the CFL Program and Education Program;

2. Any correspondence or other written documentation of instructions or direction given the vendor(s) to implement the program or any modifications made to the statement of work (or time requirements) to implement and deploy the programs;

3. A copy of all bill inserts or notices sent to the residential customers on or after September 26, 2007 relating to the CFL Program. The Commission is particularly interested in how AP communicated to its customers the fact that they would be receiving CFL bulbs, the purpose of the bulbs, and the cost and savings associated with the CFL Program. AP’s filing shall include the dates on which the bill inserts or notices were sent.

4. A copy of all newspaper advertisements and the script of any radio, TV or other media advertisements as to the CFL Program;

5. A copy of any documentation on AP’s website notifying residential customers of the CFL Program;

6. A copy of the literature that accompanied the CFL bulb mailing, including proof that a customer service telephone line to answer customer calls relating to the CFL bulbs was included;

7. A copy of any script or memoranda sent to AP’s customer service personnel relating to the CFL Program, and when notification to such personnel regarding the CFL Program was first made; and

8. A list of all promotional events for the CFL Program in which AP or its agent participated.

The Company shall ensure that it has the appropriate personnel at the Administrative Meeting to respond to Commission inquiries regarding the steps the Company took to implement the programs as proposed, why the CFL bulbs were mailed rather than sent via Federal Express, whether AP’s customer service department was ready to respond to customers’ questions about the CFL Program, why such calls were directed to the Commission, and any other questions relevant to the implementation of the two programs. The Company also shall be prepared to address the question of whether the surcharge approved on September 26, 2007 remains appropriate or whether it should be reduced or eliminated, and whether the Commission can and should take any other action in response to customers’ complaints.

By Direction of the Commission,

T. J. Romine

Terry J. Romine

Executive Secretary

Enclosure

cc: Charles Kruft

SUMMARY OF ALLEGHENY POWER

CFL PROGRAM AND EDUCATION COMPAIGN

• Each of the company’s 220,000 residential customers would be receive, via Federal Express delivery, two 13-watt CFL bulbs to install in their homes in October/November 2007.

• The distribution of the packages would be performed by a third-party administrator.

• Customers would receive notifications of the CFL program through customer bill inserts and advertisements coordinated around the Nation Energy Star “Change a Light” campaign using the Education Campaign funds.

• The third-party administrator would insert a CFL Fact Sheet and a product description/instruction sheet, as well as an energy efficient information piece provided by Allegheny Power into the packages.

• The third-party administrator would provide a customer service phone line to answer customer calls relating specifically to product information or questions about installation.

• The aggregate proposed budget for both programs was approximately $2.5 million dollars, which included the costs for the outside services for the CFL Program of approximately $2.4 million and administration costs of $30,600 and for the Education Campaign for outside service $60,000 and $36,000 in administration costs.

• The amount of the requested surcharge was $0.96 per month for a one year period per residential customer account, with a potential saving of $30 or more in electricity costs over the lifetime of each bulb (based on 7-year life assumption).

WILLIAM DONALD SCHAEFER TOWER  6 ST. PAUL STREET  BALTIMORE, MARYLAND21202-6806

410-767-8000 Toll Free: 1-800-492-0474 FAX: 410-333-6495

MDRS: 1-800-735-2258 (TTY/Voice)  Website: