Allegheny Power 2011 Annual Report Download - page 42

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Operating Expenses —
Total operating expenses decreased by $1.6 billion due to the following:
• Purchased power costs were $1.3 billion lower in 2010, largely due to lower volume requirements. The decrease in volumes
from non-affiliates resulted principally from the termination of a third-party supply contract for Met-Ed and Penelec in
January 2010 and from the increase in customer shopping in the Ohio Companies’ service territories. The decrease in
purchases from FES also resulted from the increase in customer shopping in Ohio.
• An increase in purchased power unit costs from non-affiliates in 2010 resulted from higher capacity prices in the PJM
market for Met-Ed and Penelec. A decrease in unit costs for purchases from FES was principally due to the lower weighted
average unit price per MWH established under the May 2009 CBP auction for the Ohio Companies effective June 1, 2009.
Source of Change in Purchased Power
Purchases from non-affiliates:
Change due to increased unit costs
Change due to decreased volumes
Purchases from FES:
Change due to decreased unit costs
Change due to decreased volumes
Net Decrease in Purchased Power Costs
Increase
(Decrease)
(In millions)
$ 709
(1,489)
(780)
(257)
(250)
(507)
$ (1,287)
• Transmission expenses increased $70 million primarily due to higher PJM network transmission expenses and congestion
costs for Met-Ed and Penelec, partially offset by lower MISO network transmission expenses that are reflected in the
generation rate established under the May 2009 Ohio CBP. Met-Ed and Penelec defer or amortize the difference between
revenues from their transmission rider and transmission costs incurred, resulting in no material effect on current period
earnings.
• Energy efficiency program costs, which are also recovered through rates, increased $41 million in 2010 compared to 2009.
• Labor and employee benefit expenses decreased by $30 million due to lower payroll costs resulting from staffing reductions
implemented in 2009, and restructuring expenses recognized in 2009.
• Pensions and OPEB mark-to-market adjustment charges decreased by $84 million primarily resulting from lower net
actuarial losses.
• Expenses for economic development commitments related to the Ohio Companies’ ESP were lower by $11 million in 2010
compared to 2009.
• Depreciation expense increased $7 million due to property additions since 2009.
• Amortization of regulatory assets decreased $294 million due primarily to the absence of the $216 million impairment of
CEI’s regulatory assets in 2009, reduced net MISO and PJM transmission cost amortization and reduced CTC amortization
for Met-Ed and Penelec, partially offset by increased amortization associated with the accelerated recovery of deferred
distribution costs in Ohio and a $35 million regulatory asset impairment in 2010 associated with the Ohio Companies’ ESP
and the absence of CEI’s purchased power cost deferrals that ended in early 2009.
• General taxes increased $16 million principally due to a benefit relating to Ohio MWH excise taxes that was recognized
in 2009 and applicable to prior years.
Other Expense —
Other expense increased $60 million in 2010 compared to 2009 primarily due to lower investment income on OE's and TE's nuclear
decommissioning trusts ($37 million) and higher net interest expense associated with debt issuances during 2009 ($23 million).
Regulated Independent Transmission — 2010 Compared with 2009
Net income increased by $15 million in 2010 compared to 2009 due to increased revenues.