Allegheny Power 2014 Annual Report Download - page 153

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18. SEGMENT INFORMATION
FirstEnergy's reportable segments are as follows: Regulated Distribution, Regulated Transmission and CES.
Financial information for each of FirstEnergy’s reportable segments is presented in the tables below. FES does not have separate
reportable operating segments.
The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving
approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and
New York, and purchases power for its POLR, SOS, SSO and default service requirements in Ohio, Pennsylvania, New Jersey and
Maryland. This segment also includes regulated electric generation facilities located primarily in West Virginia, Virginia and New
Jersey that MP and JCP&L, respectively, own or contractually control. The segment's results reflect the commodity costs of securing
electric generation and the deferral and amortization of certain fuel costs. This business segment currently controls approximately
3,790 MWs of generation capacity.
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 primarily from transmission
services provided pursuant to the PJM Tariff to LSEs. The segment's results also reflect the net transmission expenses related to
the delivery of electricity on FirstEnergy's transmission facilities.
The CES segment, through FES and AE Supply, primarily 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 14,068 MWs of capacity, including 885 MWs of capacity
scheduled to be deactivated by April 2015. 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
and capacity costs charged by PJM to deliver energy to the segment’s customers.
In 2014, the CES segment began to reduce its exposure to weather-sensitive loads, including maintaining competitive generation
in excess of committed sales, eliminating load obligations that do not adequately cover risk premiums, pursuing more certain revenue
streams, and modifying its hedging strategy to optimize risk management and market upside opportunities. As part of this, the CES
segment eliminated future selling efforts in certain sales channels, such as Mass Market, medium commercial-industrial and select
large commercial-industrial (Direct), to focus on a selective mix of retail sales channels, wholesale sales that hedge generation
more effectively, and maintain a small open position to take advantage of market upside opportunities resulting from volatility such
as that experienced in the first quarter of 2014. Going forward, the CES segment will target 65 to 75 million MWHs of sales annually
with a target portfolio mix of approximately 10 to 15 million MWHs in Governmental Aggregation sales, 0 to 10 million MWHs of
POLR sales, 0 to 20 million MWHs in large commercial and industrial sales (Direct), 10 to 20 million MWHs in block wholesale
sales, including Structured Sales, and 10 to 20 million MWHs of spot wholesale sales. Support for current customers in the channels
to be exited will remain through their respective contract terms.
Corporate/Other contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure
as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. As of December
31, 2014, Corporate/Other had $4.2 billion of stand-alone holding company long-term debt, of which 28% was subject to variable-
interest rates and $1.7 billion was borrowed under the FE revolving credit facility. Reconciling adjustments for the elimination of
inter-segment transactions are shown separately in the accompanying table.