Allegheny Power 2013 Annual Report Download - page 26

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The strength of FirstEnergy is based on the diversity and scale of its operations. The following describes each operating segment's
plans to pursue growth initiatives in spite of the downward pressures, such as declining energy prices, a multi-year recession and
flat load growth, over the past several years.
Regulated Distribution
While customer demand is expected to grow only modestly over the next several years, FirstEnergy believes early indications of
a sustained recovery, and the recent signs of growth in industrial sales are encouraging. In 2014, overall load growth is expected
to be 0.6%, with the majority of the increase in the industrial sector. Since FirstEnergy's utility footprint overlays the Marcellus and
Utica shale territories, it expects to benefit from the manufacturing expansion related to shale gas activity and has already seen
210 MWs of demand from new industrial projects placed in service, with an additional 430 MW of expected demand from planned
expansions at customer facilities. These projects are expected to result in nearly 4 percent industrial load growth over the next two
years.
From a regulatory perspective, FirstEnergy intends to be more active over the next several years in rate filings for its distribution
utilities than it has in the past as it looks to modernize and improve the efficiency of its utility distribution system in order to continue
to provide solid reliability to customers. For example, JCP&L has a pending rate case in New Jersey and MP plans to file a rate
case in West Virginia in April 2014. In addition, Penn expects to seek approval to accelerate smart meter deployment beginning
later this year, and one or more of the Pennsylvania Companies are expected to file rate cases later this year in Pennsylvania.
Regulated Transmission
FirstEnergy currently expects approximately $4.2 billion in transmission investments in 2014 through 2017 focused on improving
system reliability and customer service along with addressing reliability requirements associated with plant deactivations or as
required by NERC and PJM. These investments will initially focus on ATSI's 69kV system in Ohio and on TrAIL, both of which
receive formula rate recovery, and then move across the entire FirstEnergy footprint over time.
Competitive Energy Services
Over the past two years, FirstEnergy has taken deliberate actions to change the character of its competitive generation fleet and
to stabilize this business for the future. FirstEnergy has reduced the size of the fleet and changed the mix of assets. With the
deactivations of the Hatfield and Mitchell power plants, the completion of the Harrison and Pleasants asset transfer in West Virginia,
the sale of certain hydro assets and eventual deactivation of units currently operating under RMR arrangements with PJM,
FirstEnergy’s competitive generating portfolio will consist of more than 13,000 MWs of diversified capacity, down from approximately
18,000 MWs at the beginning of 2013.
FirstEnergy also has significantly reduced projected capital expenditures for this segment by approximately $1 billion over the next
four years. Competitive Energy Services segment spending for MATS is expected to be approximately $240 million, and the majority
of the remaining capital investments will be focused on projects to extend the life of FirstEnergy's nuclear assets, including the
planned installation of new steam generators at Davis-Besse in 2014, and new steam generators and a new reactor head at Beaver
Valley Unit 2 in 2017.
Over the next several years FirstEnergy is targeting annual retail sales of approximately 100 million MWH, primarily supported by
its competitive generation assets. FirstEnergy's competitive generation portfolio, excluding RMR units, is comprised of 38%
supercritical coal, 10% subcritical coal, 31% nuclear, 12% gas and oil, and 9% renewables. In total, these generating assets make
up one of the cleanest, lowest-cost generation fleets in the U.S. and are expected to generate between 75 and 80 million MWHs
annually.
Overall, FirstEnergy's actions are expected to place its competitive operations in a much stronger position to manage through the
current power market cycle, while also retaining upside potential if and when markets improve and limiting downside risk from
continued depressed conditions associated with capacity prices and forward energy prices.
Financial Outlook
FirstEnergy endeavors to manage operating and capital costs in order to achieve its financial goals, including strengthening its
balance sheet, improving liquidity, improving its credit metrics and maintaining investment grade metrics for the operating companies
in its Regulated Distribution, Regulated Transmission and Competitive Energy Services segments.
In January 2014, FirstEnergy’s Board of Directors declared a revised quarterly dividend of $0.36 per share of outstanding common
stock. The dividend is payable March 1, 2014, to shareholders of record at the close of business on February 7, 2014. This revised
dividend equates to an indicated annual dividend of $1.44 per share, reduced from the $0.55 per share quarterly dividend ($2.20
per share annually) that FirstEnergy had paid since 2008.