Allegheny Power 2013 Annual Report Download - page 37

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Source of Change in Revenues
Increase (Decrease)
MWH Sales Channel:
Sales
Volumes Prices
Gain on
Settled
Contracts
Capacity
Revenue Total
(In millions)
Direct $ 87 $ (108) $ — $ — $ (21)
Governmental Aggregation 213 (57) — — 156
Mass Market 105 (9) — — 96
POLR and Structured Sales 130 (116) — — 14
Wholesale(1) (74) 4 (204) (136) (410)
(1) Excludes wholesale sales classified as Discontinued Operations.
The decrease in Direct revenues of $21 million resulted from lower unit prices, partially offset by higher sales volumes due to the
acquisition of new larger customers in central and southern Ohio. The increase in Governmental Aggregation of $156 million resulted
from the acquisition of new customers primarily in Illinois, partially offset by lower unit prices. The increase in Mass Market of $96
million resulted from the acquisition of new customers primarily in Ohio, Illinois and Pennsylvania, partially offset by lower unit
prices. The Direct, Governmental Aggregation and Mass Market customer base increased to 2.7 million customers as of December
31, 2013, as compared to 2.6 million as of December 31, 2012.
The increase in POLR and structured revenues of $14 million was due to higher structured sales, partially offset by lower prices
and lower POLR sales. The decline in POLR sales is in line with FES' strategy to realign its sales portfolio.
Wholesale revenues decreased $410 million due to a $204 million reduction in gains on financially settled contracts, a $136 million
decrease in capacity revenues primarily from lower capacity prices, and a $70 million decrease in short-term (net hourly positions)
transactions. The decrease in wholesale sales volumes was due to lower generation available for sale primarily as a result of the
asset transfer between MP and AE Supply, plants that were deactivated in 2012 and 2013, and those under RMR arrangements,
and higher retail sales volumes.
Transmission revenue decreased $16 million due primarily to lower congestion and ancillary revenue.
Other revenue increased $37 million due primarily to an $17 million pre-tax gain on the sale of property to a regulated affiliate and
a $19 million increase in income from FEV's equity method investment in Global Holding.
Operating Expenses —
Total operating expenses increased by $370 million in 2013 due to the following:
• Fuel costs decreased $89 million primarily due to lower volumes associated with plants that were deactivated in 2013 and
2012, those under RMR arrangements, the asset transfer between MP and AE Supply and lower unit prices associated
with new and restructured contracts, partially offset by settlements associated with past damages on transportation
contracts.
• Purchased power costs increased $118 million due to higher volumes ($402 million) and increased prices ($81 million),
partially offset by reduced losses on financially settled contracts ($239 million) and lower capacity expenses ($126 million).
The increase in rate primarily resulted from higher on-peak prices compared to 2012. The increase in purchased power
volumes relates to the overall increase in sales volumes and decrease in fossil generation.
• Fossil operating costs decreased by $25 million due primarily to lower labor costs resulting from previously deactivated
units and lower compensation and benefit expenses associated with plan changes.
• Nuclear operating costs decreased by $21 million due primarily to lower labor costs and lower compensation and benefit
expenses associated with plan changes.
• Transmission expenses increased $101 million due primarily to higher retail load and higher network costs associated
with POLR sales in Pennsylvania, partially offset by lower congestion costs as well as credits received in 2013 for previously
incurred PJM transmission costs associated with RMR units in the ATSI zone. Effective June 1, 2013, network transmission
costs became the responsibility of suppliers of POLR sales in Pennsylvania.
• Impairments of long-lived assets increased $473 million due to the decision to deactivate the Hatfield and Mitchell generating
plants. The plants were deactivated on October 9, 2013.