Allegheny Power 2014 Annual Report Download - page 34

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CES PJM BRA Capacity Revenue by Zone ($ Millions)
2014 2015 2016 2017
ATSI $180 $645 $480 $175
RTO $150 $235 $145 $145
MAAC $5 $5 $5 $5
EMAAC $5 $5 $5 $5
CES * $340 $890 $635 $330
* Revenue associated with FES is approximately $245, $743, $545, and $245 in 2014 - 2017, respectively. Additionally CES (and FES)
have available capacity that can be offered into future incremental auctions of 2,765 MW and 2,455 MW for the 2016/2017 and 2017/2018
PJM planning years, respectively.
Transmission revenue increased $76 million due to higher congestion revenue driven by market conditions related to extreme
weather events in the first quarter 2014, as discussed above.
Other revenue increased $3 million in 2014 as compared to 2013 as higher lease revenues from additional repurchased equity
interests in affiliated sale and leasebacks since 2013 was partially offset by a $17 million pre-tax gain recognized in 2013 on the
sale of property to a regulated affiliate. CES earns lease revenue associated with the equity interests it has purchased.
Operating Expenses —
Total operating expenses increased $265 million in 2014 due to the following:
• Fuel costs decreased $406 million primarily due to lower generation volumes resulting from the October 2013 Harrison/
Pleasants asset transfer, the deactivation of certain power plants in 2013 and increased outages as compared to the same
period of 2013. Higher unit prices, primarily driven by increased peaking generation, was partially offset by the suspension
of the DOE nuclear disposal fee, which was effective May 2014. Additionally, fuel costs were impacted by an increase in
settlement and termination costs related to coal and transportation contracts. Terminations and settlements associated
with damages on coal and transportation contracts were approximately $166 million and $128 million in 2014 and 2013,
respectively. Excluding the impact of termination and settlement costs, if any, which cannot be estimated, unit prices are
expected to decrease in 2015 as a result of lower expected peaking generation and a full-year benefit of the suspended
DOE spent nuclear fuel fee.
• Purchased power costs increased $725 million due to higher volumes ($252 million), increased unit prices ($565 million)
and higher capacity expenses ($311 million), partially offset by lower losses on financially settled contracts ($403 million).
Higher purchased volumes were primarily due to lower available generation due to outages, the October 2013 Harrison/
Pleasants asset transfer and the deactivation of certain power plants in 2013, partially offset by lower contract sales as
described above. The increase in unit prices was primarily a result of market conditions related to extreme weather events
in January 2014, partially offset by lower losses on financially settled contracts. The increase in capacity expense, which
is a component of the segment 's retail price, was primarily the result of higher capacity rates associated with the segment's
retail sales obligations. Due to the change in CES' selling efforts resulting in lower expected MWH sales, purchased power
volumes are expected to decrease in future periods. However, while lower MWH sales in 2015 will reduce capacity expense,
higher capacity prices will result in higher capacity expense in 2015.
• Fossil operating costs decreased $73 million primarily due to lower contractor, labor and materials and equipment costs
resulting from previously deactivated units and the October 2013 Harrison/Pleasants asset transfer. Fossil operating
expenses are expected to decrease primarily as a result of the scheduled deactivation of certain units by April 2015.
• Nuclear operating costs increased $6 million as a result of higher labor, contractor, materials and equipment costs. There
were two refueling outages in each of 2014 and 2013, however, the duration of the outages in 2014 exceeded the prior
year. Nuclear operating costs are expected to increase in 2015 as a result of three planned refueling outages.
• Transmission expenses increased $80 million primarily due to higher operating reserve and market-based ancillary costs
associated with market conditions related to extreme weather events in January 2014, of which a portion were passed
through to commercial and industrial customers, as discussed above. Additionally, effective June 1, 2013, network expenses
associated with POLR sales in Pennsylvania became the responsibility of suppliers. Transmission expenses are expected
to continue to decrease as a result of the change in selling efforts discussed above.
• General taxes decreased $31 million primarily due to lower gross receipts taxes resulting from reduced retail sales volumes,
lower payroll taxes as a result of lower labor costs noted above, lower property taxes due to the October 2013 Harrison/
Pleasants asset transfer, and reduced Ohio personal property taxes.
• Impairments of long-lived assets decreased $473 million due to the impairment of two unregulated, coal-fired generating
plants in the second quarter of 2013. The units were deactivated in October of 2013.