Allegheny Power 2014 Annual Report Download - page 35

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• Depreciation expense decreased $52 million primarily due to a reduction in the asset base as a result of the plant
deactivations and the October 2013 Harrison/Pleasants asset transfer noted above. Although depreciation expense
decreased in 2014, it is expected to increase in future periods as a result of higher capital expenditures for projects such
as MATS compliance and the Davis-Besse steam generator replacement completed in mid-2014.
• Pension and OPEB mark-to-market adjustments increased $434 million primarily reflecting a lower discount rate and
revisions to mortality assumptions extending the expected life in key demographics used to measure related obligations
in 2014.
• Other operating expenses increased $55 million primarily due to an increase in mark-to-market expenses on commodity
contract positions, and an impairment of deferred advertising costs of $23 million associated with the elimination of future
selling efforts in the Mass Market and certain Direct sales channels, partially offset by lower retail and marketing related
costs. Retail and marketing related costs are expected to continue to decrease as a result of the change in selling efforts,
as discussed above.
Other Expense —
Total other expense in 2014 decreased $203 million compared to 2013 due to the absence of a $141 million loss on debt redemptions
in connection with senior notes that were repurchased in 2013, higher investment income primarily on the NDT investments, lower
OTTI and lower net interest expense of $28 million due to debt redemptions.
Income Tax Benefits —
CES' effective tax rate was 34.8% and 37.3% for 2014 and 2013, respectively. The decrease in the effective tax rate, which resulted
in a lower tax benefit on pre-tax losses, primarily resulted from changes in state apportionment factors and higher valuation
allowances on certain NOL carryforwards. In 2015, CES anticipates an effective tax rate of approximately 37% to 38%.
Discontinued Operations —
Discontinued operations increased $69 million in 2014 compared to the same period of last year primarily due to a pre-tax gain of
approximately $142 million ($78 million after-tax) associated with the sale of hydro assets in February 2014.
Corporate/Other — 2014 Compared with 2013
Financial results from Corporate/Other resulted in a $51 million increase in net income in 2014 compared to 2013 primarily due to
higher tax benefits, partially offset by $17 million of gains on debt redemptions in 2013. The higher tax benefits primarily resulted
from an IRS approved change in accounting method that increased the tax basis of certain assets resulting in higher future tax
deductions, and the resolution of state tax benefits resulting from the expiration of the statute of limitation on certain state tax
positions. Additional income tax benefits of $24.5 million were recognized in 2014 that relate to prior periods. The out-of-period
adjustment primarily related to the correction of amounts included on FirstEnergy's tax basis balance sheet. Management has
determined that these adjustments are not material to the current or any prior period. The 2013 effective tax rate benefited from
reductions to valuation allowances against state NOL carryforwards, as well as changes in state apportionment factors, which
reduced deferred tax liabilities. FirstEnergy anticipates a tax rate of approximately 36% to 37% in 2015.