Allegheny Power 2014 Annual Report Download - page 24

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9
CES
FirstEnergy continues to focus on maintaining the value of its competitive business given continued challenging conditions within
the PJM market. The business is projected to be self-sustaining over the next several years, with positive cash-flow over the
2015-2018 period. While it cannot predict if or when a power price recovery may occur, FirstEnergy believes it has taken appropriate
action over the last several years to reposition this business for such a recovery. CES expects to sell its output through a combination
of retail and wholesale sales, while maintaining 10-20 million MWHs for spot wholesale sales in order to optimize risk management
and market upside opportunities.
In addition to the strategy of growing the Regulated Transmission and Regulated Distribution segments and repositioning the CES
segment, FirstEnergy is also focused on improving the balance sheet over time consistent with its business profile, maintaining
investment grade metrics at each business unit, and maintaining strong liquidity for an overall stable financial position.
The following represents a high level summary of assumptions and drivers that management expects will impact 2015 results of
operations:
• Increased CES capacity revenue resulting from higher capacity rates as well as decreased transmission expenses resulting
from lower retail sales volumes.
• Increased Regulated Transmission revenues resulting from a higher rate base and a forward-looking rate structure at
ATSI.
• Increased Regulated Distribution revenues from projected sales of approximately 151 million MWHs in 2015 versus 149.5
million MWHs in 2014 and expected base rate increases considering outcomes in the Pennsylvania and New Jersey
utilities assuming the final orders in the rate cases are consistent with settlement agreements or current expectations.
• Increased regulatory asset amortization for storm costs incurred by JCP&L in 2011 and 2012.
• Increased depreciation and property taxes as a result of a higher rate base for the Regulated Distribution and Regulated
Transmission businesses.
• Increased operation and maintenance expenses resulting from higher Regulated Distribution expenses and three planned
nuclear outages in 2015 verses two in 2014.
• Increased net financing costs related to certain 2014 financing activities including new debt issuances at the Regulated
Distribution and Regulated Transmission businesses and the refinancing of pollution control bonds at CES.
• Increased pension/OPEB expense primarily impacting the Regulated Distribution and CES segments due to lower
amortization of prior service credits and updated actuarial assumptions as of December 31, 2014.
• An effective corporate income tax rate of 37% to 38% in 2015.
RESULTS OF OPERATIONS
The financial results discussed below include revenues and expenses from transactions among FirstEnergy’s business segments.
A reconciliation of segment financial results is provided in Note 18. Segment Information, of the Combined Notes to Consolidated
Financial Statements. Certain prior year amounts have been reclassified to conform to the current year presentation. Net income
by business segment was as follows:
Increase (Decrease)
2014 2013 2012 2014 vs 2013 2013 vs 2012
(In millions, except per share amounts)
Net Income (Loss) By Business Segment:
Regulated Distribution $ 465 $ 501 $ 540 $ (36) $ (39)
Regulated Transmission 223 214 226 9 (12)
Competitive Energy Services (337) (220) 215 (117) (435)
Corporate/Other (1) (52) (103) (210) 51 107
Net Income $ 299 $ 392 $ 771 $ (93) $ (379)
Basic Earnings Per Share:
Continuing operations $ 0.51 $ 0.90 $ 1.81 $ (0.39) $ (0.91)
Discontinued operations (Note 19) 0.20 0.04 0.04 0.16 —
Earnings per basic share $ 0.71 $ 0.94 $ 1.85 $ (0.23) $ (0.91)
Diluted Earnings Per Share:
Continuing operations $ 0.51 $ 0.90 $ 1.80 $ (0.39) $ (0.90)
Discontinued operations (Note 19) 0.20 0.04 0.04 0.16 —
Earnings per diluted share $ 0.71 $ 0.94 $ 1.84 $ (0.23) $ (0.90)
(1) Consists primarily of interest on stand-alone holding company debt, none-core business related activity and corporate income taxes.