EXEMPT FACILITIES LOAN AGREEMENT

Exhibit 10.1

EXEMPT FACILITIES LOAN AGREEMENT

Between

PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY

and

ALLEGHENY ENERGY SUPPLY COMPANY, LLC

Dated as of July 1, 2009

Table of Contents

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EXEMPT FACILITIES LOAN AGREEMENT dated as of July 1, 2009 (the “Agreement”) between PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY (the “Issuer”) and ALLEGHENY ENERGY SUPPLY COMPANY, LLC (together with permitted successors and assigns, the “Company”).

I. Background, Definitions, Representations and Findings.

Section 1.1 Background Pursuant to the Pennsylvania Economic Development Financing Law (Act No. 102, approved August 23, 1967, P.L. 251, as amended) (the “Act”), the Greene County Industrial Development Authority has authorized and approved the Project Facilities (as defined herein) and the financing thereof by the Issuer through the issuance of the Issuer’s Exempt Facilities Revenue Bonds, Series 2009 (Allegheny Energy Supply Company, LLC Project) in the original aggregate principal amount of $235,000,000 (the “Bonds”). The Company proposes to construct certain emissions control facilities at the three-unit, 1,710-megawatt, coal-fired Hatfield’s Ferry Power Station (the “Plant”) in Greene County, Pennsylvania.

The Company has requested the Issuer to issue Bonds to finance a portion of the cost of certain “pollution control facilities” for purposes of the Act at the Plant, which facilities are more fully described in Exhibit A (the “Project Facilities”). The Project Facilities will be owned by the Company, a Delaware limited liability company. The Bonds will be issued under a Trust Indenture dated as of the date hereof (the “Indenture”) between the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Company and the Issuer are entering into this Agreement in order to provide for the issuance of the Bonds and the loan of the proceeds of the Bonds to the Company.

The obligation of the Company to repay the loan of the proceeds of the Bonds made pursuant hereto will be evidenced by the Company’s Exempt Facilities Note (Pennsylvania Economic Development Financing Authority) Series 2009 in the principal amount of $235,000,000 (the “Note”) issued to the Trustee as the assignee of the Issuer under the Indenture. Nothing herein shall require the Company to maintain any credit facility.

The Issuer and the Company intend that substantially all of the Project Facilities constitute or will constitute “pollution control facilities” for purposes of the Act and solid waste disposal facilities for the purposes of the Internal Revenue Code of 1986, as amended (the “Code”), so that interest on the Bonds will not be included in gross income of the holders thereof for federal income tax purposes under the Code (except for such holders who are “substantial users” of the Project Facilities or “related persons” as provided in Section 147(a) of the Code).

Section 1.2 Definitions . Terms used in this Agreement which are defined in the Indenture and are not otherwise defined in this Agreement shall have the meanings set forth in the Indenture unless the context or use clearly indicates another meaning or intent. In addition to the terms defined in the recital clauses of this Agreement, as used herein:

“Additional Payments” means the amounts required to be paid by the Company pursuant to Section 3.3.

“Agreement” means this Exempt Facilities Loan Agreement, as amended or supplemented from time to time.

“Authorized Representative” means, with respect to the Issuer, each person at the time designated to act on behalf of the Issuer by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Issuer by its Secretary or Assistant Secretary, and with respect to the Company, each person at the time designated to act on behalf of the Company by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Company by its President, Vice President, Treasurer, Secretary, Assistant Treasurer or Assistant Secretary.

“Completion Date” means the date that the Company certifies to the Trustee and the Issuer that the Project Facilities have been completed.

“Debt Service” means, for any period or payable at any time, the principal of, premium, if any, on and interest on the Bonds for that period or payable at the time whether due on an Interest Payment Date, at maturity or upon acceleration or redemption.

“Issue Date” means July 6, 2009.

“Issuer’s Fee” means an amount equal to 0.2% of the amount of the Loan.

“Loan” means the loan by the Issuer to the Company of the proceeds of the Bonds pursuant to Section 3.1 in the original principal amount of $235,000,000.

“Loan Payments” means the amounts required to be paid by the Company in repayment of the Loan pursuant to Section 3.2.

“Local Entity” means the Greene County Industrial Development Financing Authority.

“Misuse of Bond Proceeds” means the implementation or operation of the Project Facilities in a manner which would cause the Project Facilities to not be a “project” as defined in the Act or the use of the proceeds of the Bonds for any purpose materially different from the Project Facilities as described to and approved by the Issuer.

“Project Costs” means costs of the Project Facilities permitted under the Act, including, but not limited to, the following:

(a) Costs incurred in connection with the acquisition, construction, installation, equipment or improvement of the Project Facilities, including costs incurred in respect of the Project Facilities for preliminary planning and studies; architectural, engineering, accounting, consulting, legal and other professional fees and expenses; labor, services and materials;

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(b) Fees, charges and expenses incurred in connection with the authorization, sale, issuance and delivery of the Bonds, including without limitation bond discount, printing expense, title insurance, recording fees and the initial and first year annual fees and expenses of the Trustee, Issuer and Local Entity; provided that the amount of the proceeds of the Bonds used to finance issuance costs (but excluding the Issuer’s Fee) shall not exceed 2% of the aggregate face amount of the Bonds within the meaning of Section 147(g) of the Code;

(c) Payment of interest on the Bonds and fees and expenses of the Trustee accruing prior to the Completion Date; and

(d) Any other costs, expenses, fees and charges properly chargeable to the cost of acquisition, construction, installation, equipment or improvement of the Project Facilities.

“Rehabilitation Expenditure” shall mean a “rehabilitation expenditure” as such term is defined in Section 147(d)(3) of the Code, including, without limiting the generality of the foregoing, a capital expenditure incurred in connection with the rehabilitation of a building or structure which is part of the Project Facilities, if such expenditure is incurred by Company, the seller of such building to the Company (if incurred pursuant to the sales contract between such seller and the Company) or a successor to the Company; provided, that:

(1) if an integrated operation is contained in such building or structure before its acquisition by Company, expenditures incurred to rehabilitate existing equipment or to replace existing equipment with equipment having substantially the same function is treated as incurred in connection with the rehabilitation of such building or structure; and

(2) notwithstanding the foregoing, the term “Rehabilitation Expenditure” does not include any expenditure:

(a) with respect to which the method and period of depreciation is other than the straight line method over a period determined under Section 168(c) or (g) of the Code, unless the alternative depreciation system of Section 168(g) of the Code applies to such expenditure by reason of Section 168(g)(1)(B) or (C) of the Code;

(b) for the cost of acquiring any building or interest therein;

(c) attributable to enlargement of an existing building;

(d) attributable to the rehabilitation of a certified historic structure or a building in a registered historic district, unless either the rehabilitation is a certified rehabilitation or, with respect to a building other than a certified historic structure, the Secretary of the Interior has certified to the Secretary of the Treasury that the building is not of historic significance to the district (all terms used in this paragraph (d) have the meanings assigned in Section 47(c)(2)(B) of the Code);

(e) allocable to the portion of such building which is, or may reasonably be expected to be, tax-exempt use property within the meaning of Section 168(h) of the Code; or

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(f) by a lessee of such building.

“Related Person” shall have the meaning set forth in Section 144(a)(3) of the Code and shall include (to the extent there provided) any parent, subsidiary, affiliated corporation or unincorporated enterprise, majority shareholder and commonly owned entity.

“Resolutions” means the resolutions of the Issuer approving and authorizing the Bonds, the Indenture and this Agreement.

“Unassigned Issuer’s Rights” means all of the rights of the Issuer to receive Additional Payments under Section 3.3, to be held harmless and indemnified under Section 4.10, to be reimbursed for attorney’s fees and expenses under Section 6.4, and to give or withhold consent to or approval of amendments, modifications, termination or assignment of this Agreement, or sale, transfer, assignment, lease (or assignment of lease) or other disposal of the Project Facilities, under Section 4.1, Section 4.2, Section 4.4, Section 7.5 and Section 7.9.

Section 1.3 Company Representations . The Company represents as of the date hereof that:

(a) It is a limited liability company duly formed and validly existing under the laws of the State of Delaware, is duly qualified to do business in the Commonwealth of Pennsylvania, and has requisite power and legal right to enter into this Agreement and perform its obligations hereunder. The making and performance of this Agreement on the part of the Company have been duly authorized by all necessary corporate action.

(b) The Project Facilities will abate, reduce, remediate or aid in the prevention, control, collection, treatment, disposal or monitoring of solid waste and other pollutants and will facilitate compliance with the environmental requirements of federal, state or local agencies exercising jurisdiction thereover.

(c) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will conflict with or constitute a violation or breach of, or a default under, the Company’s certificate of formation or LLC operating agreement, or any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company is a party or by which it or any of its property is bound.

(d) This Agreement and the Note have been duly authorized, executed and delivered by the Company and are valid instruments legally binding upon the Company (except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting the enforcement of creditors’ rights generally, by general equitable proceedings (whether considered in a proceeding in equity or at law) and by an implied covenant of good faith, fair dealing and reasonableness).

(e) The Company is not a Disqualified Contractor.

(f) The Project Facilities will promote the public purposes of the Act and will not cause, directly or indirectly, the removal, either in whole or in part, of a plant, facility or establishment from one area of the Commonwealth of Pennsylvania to another. The Project Facilities are located within the boundaries of the county, city, town, borough or township which organized the Local Entity

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(or within the boundaries of the county in which such city, town, borough or township is located or in which such Local Entity is certified by the Pennsylvania Industrial Development Authority to act as an industrial development agency as defined in the Act).

(g) The Company has acquired or will acquire before they are needed all permits and licenses including, without limitation, all required environmental permits or approvals, and has satisfied or will satisfy other requirements necessary, for the acquisition, construction, installation and/or operation of the Project Facilities. The Project Facilities are a project within the meaning of the Act and will be operated as such.

(h) The Company presently intends to use or operate or cause to be used or operated the Project Facilities in a manner consistent with the Act until the date on which the Bonds have been fully paid and knows of no reason why the Project Facilities will not be so used or operated.

(i) The information furnished by the Company and used by the Issuer in preparing the arbitrage certificate pursuant to Section 148 of the Code and information statement pursuant to Section 149(e) of the Code is accurate and complete as of the Issue Date.

(j) The proceeds of the Bonds will not exceed the Project Costs.

(k) The costs of issuance financed with proceeds of the Bonds, including any bond discount on the sale of the Bonds will not exceed 2% of the proceeds of the Bonds.

(l) No costs of the Project Facilities to be financed with the proceeds of the Bonds, except for certain preliminary costs such as architectural, engineering, surveying, soil testing and similar costs incurred before the start of construction of the Project Facilities, have been paid by or on behalf of the Company, the Affiliates or any Related Person more than 60 days prior to the date of the Project Facilities Approval.

Section 1.4 Issuer Findings and Representations . The Issuer hereby confirms its findings and represents that:

(a) The Issuer is a public body corporate and politic established in the Commonwealth of Pennsylvania pursuant to the laws of the Commonwealth of Pennsylvania (including the Act). Under the Act, the Issuer has the power to enter into the Indenture, the Purchase Agreement and this Agreement and to carry out its obligations thereunder and to issue the Bonds to finance the Project Facilities.

(b) By adoption of the Resolutions at one or more duly convened meetings of the Issuer at which a quorum was present and acting throughout, the Issuer has duly authorized the execution and delivery of the Indenture, the Purchase Agreement and this Agreement and performance of its obligations thereunder and the issuance of the Bonds. Simultaneously with the execution and delivery of this Agreement, the Issuer has duly executed and delivered the Indenture and issued and sold the Bonds.

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(c) Based on representations and information furnished to the Issuer by or on behalf of the Company and the Local Entity, the Issuer has found that the Company is qualified to be a beneficiary of financing provided by the Issuer pursuant to the Act.

(d) Based on representations and information furnished to the Issuer by or on behalf of the Company, the Issuer has found that the Project Facilities (i) will promote the public purposes of the Act, (ii) are located within the boundaries of the Commonwealth of Pennsylvania and within the boundaries of the county, city, town, borough or township which organized the Local Entity (or within the boundaries of the county in which such city, town, borough or township is located or in which such Local Entity is certified by The Pennsylvania Industrial Development Authority to act as an industrial development agency as defined in the Act), and (iii) will constitute a project within the meaning of the Act.

(e) The Issuer has filed a Preliminary Allocation Request (“PAR”) for purposes of receiving an allocation of the tax-exempt bond authority of the Commonwealth of Pennsylvania and has received approval of the PAR from the Pennsylvania Department of Community and Economic Development (the “Department”), certifying approval of such allocation for the Project Facilities as required by Section 146 of the Code. The Issuer will simultaneously with the issuance of the Bonds deliver a Final Allocation Request to the Department to obtain a final confirmation of such allocation.

(f) The Project Facilities have been approved (1) by the Local Entity, as required by the Act, (2) by the Pennsylvania Secretary of Community and Economic Development, as required by the Act, (3) by the Governor or Lieutenant Governor of the Commonwealth of Pennsylvania as the “applicable elected representative”, as that term is defined under the Code, after a public hearing held upon reasonable notice, as required by the Code, and (4) by the Issuer by adoption of the Resolutions, as required by the Act.

(g) The Issuer has not and will not pledge the income and revenues derived from this Agreement other than pursuant to and as set forth in the Indenture.

II. The Project Facilities.

Section 2.1 Acquisition of Project Facilities . The Company (a) has or will have acquired, constructed, installed and equipped the Project Facilities substantially in all material respects in accordance with the description thereof in Exhibit A attached hereto and applicable law, (b) has procured or caused to be procured or will procure or cause to be procured all permits and licenses necessary for the prosecution of any and all work on the Project Facilities, and (c) has paid or will pay when due all costs and expenses incurred in connection with such acquisition, construction, installation, equipping and improvement from funds made available therefor in accordance with this Agreement or otherwise. It is understood the Company owns or will own or leases or will lease the Project Facilities and that any contracts made by the Company with respect thereto and any work to be done by the Company on the Project Facilities are made or done by the Company, as applicable, on its own behalf and not as agent or contractor for the Issuer.

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Section 2.2 Additions and Changes to Project Facilities . Subject to the provisions of Section 4.11 and Section 4.12, the Company may, at its option and at its own cost and expense, at any time and from time to time, revise the description of the Project Facilities in Exhibit A attached hereto and/or make such additions, deletions and changes to the Project Facilities as it, in its discretion, may deem to be desirable for its uses and purposes, provided that (i) any such additions and changes shall, when made, constitute part of the Project Facilities for purposes of this Agreement, (ii) the Company shall supplement the information contained in Exhibit A attached hereto by filing with the Issuer and the Trustee such supplemental information as is necessary to reflect such additions, deletions and changes so that the Issuer will be reasonably able to ascertain the nature and cost of the facilities included in the Project Facilities and covered by this Agreement, (iii) such additions, deletions and changes will not result in a Misuse of Bond Proceeds, and (iv) if an addition, deletion or change is substantial in relation to the Project Facilities, the Company shall have first obtained and filed with the Issuer and the Trustee an opinion of Bond Counsel to the effect that such addition, deletion or change is authorized or permitted under the Act and will not adversely affect the exclusion from gross income of interest on the Bonds under the Code. In any case, the Company shall obtain the Issuer’s approval of the addition to the Project Facilities of any material changes to the proposed facilities or any other material changes not generally described or contemplated in Exhibit A attached hereto on the date of delivery of this Agreement, which approval shall not be unreasonably withheld, and the Company shall delete any facilities from the Project Facilities if such deletion is necessary to avoid a Misuse of Bond Proceeds or to maintain the exclusion from gross income of interest on the Bonds under the Code.

Section 2.3 Issuance of Bonds; Application of Proceeds . To provide funds to make the Loan for purposes of paying Project Costs, the Issuer will issue the Bonds in the aggregate principal amount of $235,000,000. The Bonds will be issued pursuant to the Indenture and will bear interest, mature and be subject to redemption all as set forth therein. The Company hereby approves the terms and conditions of the Indenture and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered.

The proceeds from the sale of the Bonds (including any bond discount) shall be loaned to the Company pursuant to Section 3.1 and such proceeds (net of any bond discount) shall be paid over to the Trustee for deposit in the Project Fund as provided in the Indenture. Pending disbursement pursuant to Section 2.4, the proceeds of the Bonds so deposited in the Project Fund, together with any investment earnings thereon, shall constitute a part of the Trust Estate and shall be subject to the lien of the Indenture pursuant to the granting clauses therein as security for the obligations described in such granting clauses, and to such end the Company hereby grants to the Trustee as security for such obligations a security interest in all of the Company’s right, title and interest in and to the Project Fund.

Section 2.4 Disbursements from Project Fund . Subject to the provisions below, disbursements from the Project Fund shall be made to reimburse or pay the Company, another Affiliate or any Person designated by the Company, for Project Costs. The Company agrees that the sums so disbursed from the Project Fund will be used only for the payment of Project Costs, and will not be used for any other purpose.

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Any disbursements from the Project Fund for the payment of the Project Costs shall be made by the Trustee only upon the written order of an Authorized Representative of the Company delivered to the Trustee. Each such written order shall be substantially in the form of the disbursement request attached hereto as Exhibit B and shall be consecutively numbered and accompanied by a statement in reasonable detail listing the Project Costs to be paid to any contractors, materialmen or suppliers or incurred by the Company for which it is to be reimbursed. Any disbursement for any item which is inconsistent with the information statement filed by the Issuer in connection with the issuance of the Bonds as required by Section 149(e) of the Code, shall be accompanied by an opinion of a Bond Counsel to the effect that such disbursement will not result in the interest on the Bonds becoming included in the gross income of the holders thereof for federal income tax purposes. In case any contract provides for the retention by the Company of a portion of the contract price, there shall be paid from the Project Fund only the net amount remaining after deduction of any such portion, and only when that retained amount is due and payable, may it be paid from the Project Fund.

Section 2.5 Company Required to Pay Costs in Event Project Fund Insufficient . If moneys in the Project Fund are not sufficient to reimburse the Company for all Project Costs, the Company will not be entitled to any reimbursement for excess expense from the Issuer, the Trustee or any Bondholder; nor shall the Company be entitled to any abatement, diminution or postponement of the Loan Payments.

Section 2.6 Completion . When the Company certifies to the Trustee and the Issuer that the Project Facilities have been completed, any amount then remaining in the Project Fund shall be reduced to cash and delivered by the Trustee in accordance with the provisions of the Indenture.

Section 2.7 Investment and Use of Fund Moneys . At the written request of an Authorized Representative of the Company, any moneys held as part of the Bond Fund (except moneys representing principal of, or premium, if any, or interest on, any Bonds which are deemed paid under Section 16.01 of the Indenture) or the Project Fund shall be invested or reinvested by the Trustee as provided in Section 8.02 of the Indenture. The Issuer and the Company each hereby covenants that it will restrict that investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary, after taking into account reasonable expectations at the time of delivery of and payment for the Bonds, so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code.

Any Authorized Representative of the Issuer having responsibility for issuing the Bonds is authorized and directed, alone or in conjunction with an Authorized Representative of the Company and/or any other officer, partner, employee or agent of or consultant to the Issuer or the Company, to give an appropriate certificate of the Issuer pursuant to Section 148 of the Code, for inclusion in the transcript of proceedings for the issuance of the Bonds, setting forth the reasonable expectations of the Issuer regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which those expectations are based, all as of the Issue Date. The Company shall provide the Issuer with, and the Issuer’s certificate may be based on, a certificate of the Authorized Representative of the Company or other appropriate officer, partner, employee or agent of or consultant to the Company setting forth the reasonable expectations of the Company on the Issue Date regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which they are based.

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Section 2.8 Rebate Fund . The Company agrees to make such payments to the Trustee as are required of the Company under Section 6.05 of the Indenture. The obligation of the Company to make such payments shall remain in effect and be binding upon the Company notwithstanding the release and discharge of the Indenture.

III. Loan By Issuer; Loan Payments; Other Payments

Section 3.1 Loan by Issuer . Upon the terms and conditions of this Agreement, the Issuer will make the Loan to the Company on the Issue Date in a principal amount equal to the aggregate principal amount of the Bonds. The Loan shall be deemed fully advanced upon deposit of the proceeds of the Bonds (net of any bond discount) in the Bond Fund and the Project Fund pursuant to Section 2.3.

Section 3.2 Loan Payments . In consideration of the issuance, sale and delivery of the Bonds by the Issuer, the Company hereby agrees to pay to the Trustee for the account of the Issuer Loan Payments in such amounts and manner so as to enable the Trustee to make payment of the principal of, premium, if any, on and accrued interest on the Bonds as the same shall become due and payable whether by acceleration, redemption or otherwise in accordance with the terms of the Indenture; provided, however, that the obligation of the Company to make any Loan Payments hereunder shall be reduced by the amount of any reduction under the Indenture of the amount of the corresponding payment required to be made by the Issuer thereunder in respect of the principal of or premium or interest on the Bonds and shall be reduced to the extent that other moneys on deposit with the Trustee are available for such purpose and a credit in respect thereof has been granted pursuant to the Indenture. Pursuant to the Indenture, the Issuer directs the Trustee to apply such Loan Payments in the manner provided in the Indenture. Whenever payment or provision for payment has been made in respect of the principal or redemption price of and interest on all of the Bonds, the Loan Payments shall be deemed paid in full.

The obligation of the Company to make the Loan Payments directly to the Trustee, as the assignee of the Issue