Allegheny Power 2013 Annual Report Download - page 25

10
Company Area Served
Customers
Served
OE Central and Northeastern Ohio 1,034
Penn Western Pennsylvania 161
CEI Northeastern Ohio 745
TE Northwestern Ohio 308
JCP&L Northern, Western and East Central New Jersey 1,098
ME Eastern Pennsylvania 556
PN Western Pennsylvania 590
WP Southwest, South Central and Northern Pennsylvania 720
MP Northern, Central and Southeastern West Virginia 388
PE Western Maryland and Eastern West Virginia 393
5,993
The Regulated Transmission segment transmits electricity through transmission facilities owned and operated by ATSI, TrAIL, and
certain of FirstEnergy's utilities (JCP&L, ME, PN, MP, PE and WP) and the regulatory asset associated with the abandoned PATH
project. The segment's revenues are primarily derived from rates that recover costs and provide a return on transmission capital
investment. Except for the recovery of the PATH abandoned project regulatory asset, these revenues are derived from transmission
services provided pursuant to the PJM open access transmission tariff to LSEs. Its results also reflect the net transmission expenses
related to the delivery of electricity on FirstEnergy's transmission facilities.
The Competitive Energy Services segment, through FES and AE Supply, supplies electricity to end-use customers through retail
and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Michigan,
New Jersey and Maryland, and the provision of partial POLR and default service for some utilities in Ohio, Pennsylvania and
Maryland, including the Utilities. This business segment currently controls approximately 14,000 MWs of capacity, including 885
MWs of capacity subject to RMR arrangements with PJM and excluding 1,476 MWs of generation capacity transferred to Regulated
Distribution in connection with the Harrison and Pleasants asset swap that occurred on October 9, 2013. This segment also purchases
electricity to meet sales obligations. The segment’s net income is primarily derived from electric generation sales less the related
costs of electricity generation, including fuel, purchased power and net transmission (including congestion) and ancillary costs
charged by PJM to deliver energy to the segment’s customers.
The Competitive Energy Services segment derives its revenues from the sale of generation to direct and governmental aggregation,
POLR and wholesale customers. The segment is exposed to various market and financial risks, including the risk of price fluctuations
in the wholesale power markets. Wholesale power prices may be impacted by the prices of other commodities, including coal and
natural gas, and energy efficiency and demand response programs, as well as regulatory and legislative actions, such as MATS
among other factors. The segment attempts to mitigate the market risk inherent in its energy position by economically hedging its
exposure and continuously monitoring various risk measurement metrics to ensure compliance with its risk management policies.
The Competitive Energy Services segment economically hedges exposure to price risk on a ratable basis, which is intended to
reduce the near-term financial impact of market price volatility. As of December 31, 2013, the percentage of expected physical sales
economically hedged was 91% for 2014 (out of a 99 million MWH target). As of December 31, 2013, committed sales for 2015 and
2016 are approximately 49 million MWHs and 27 million MWHs, respectively.
Other and Reconciling Adjustments contains corporate items and other businesses that are below the quantifiable threshold for
separate disclosure as a reportable segment as well as reconciling adjustments for the elimination of intersegment transactions.
See Note 19, Segment Information, of the Combined Notes to Consolidated Financial Statements for further information on
FirstEnergy's reportable operating segments.
FirstEnergy considers a variety of factors, including wholesale power prices, in its decision to operate, or not operate, a generating
plant. If wholesale power prices represent a lower cost option, FirstEnergy may elect to fulfill its load obligation through purchasing
electricity in the wholesale market as opposed to operating a generating unit. The effect of this decision on its results of operations
would be to displace higher per unit fuel expense with lower per unit purchased power.
FirstEnergy engages in discussions with various commodity vendors, from time to time, regarding the impact that these and other
actions may have on certain of its long-term agreements and FirstEnergy cannot provide assurance that these discussions will be
satisfactorily resolved.
STRATEGY AND OUTLOOK
FirstEnergy has taken a series of actions across the company to position itself for future growth. This includes repositioning its
asset mix to reflect a more regulated business profile.