Allegheny Power 2015 Annual Report Download - page 26

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10
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FINANCIALOVERVIEW
FortheYearsEndedDecember31,
Increase(Decrease)
(Inmillions,exceptpershareamounts)
2015
2014
2013
2015vs2014
2014vs2013
REVENUES:
$
15,026
$
15,049
$
14,892
$
(23
)
—
%
$
157
1
%
OPERATINGEXPENSES:
Fuel
1,855
2,280
2,496
(425
)
(19
)%
(216
)
(9
)%
Purchasedpower
4,318
4,716
3,963
(398
)
(8
)%
753
19
%
Otheroperatingexpenses
3,749
3,962
3,593
(213
)
(5
)%
369
10
%
PensionandOPEBmarktomarketadjustment
242
835
(256
)
(593
)
(71
)%
1,091
(426
)%
Provisionfordepreciation
1,282
1,220
1,202
62
5
%
18
1
%
Amortizationofregulatoryassets,net
268
12
539
256
2,133
%
(527
)
(98
)%
Generaltaxes
978
962
978
16
2
%
(16
)
(2
)%
Impairmentoflonglivedassets
42
—
795
42
—
%
(795
)
(100
)%
Totaloperatingexpenses
12,734
13,987
13,310
(1,253
)
(9
)%
677
5
%
OPERATINGINCOME
2,292
1,062
1,582
1,230
116
%
(520
)
(33
)%
OTHERINCOME(EXPENSE):
Lossondebtredemptions
—
(8
)
(132
)
8
(100
)%
124
(94
)%
Investmentincome(loss)
(22
)
72
33
(94
)
(131
)%
39
118
%
Impairmentofequitymethodinvestment
(362
)
—
—
(362
)
—
%
—
—
%
Interestexpense
(1,132
)
(1,073
)
(1,016
)
(59
)
5
%
(57
)
6
%
Capitalizedfinancingcosts
117
118
103
(1
)
(1
)%
15
15
%
Totalotherexpense
(1,399
)
(891
)
(1,012
)
(508
)
57
%
121
(12
)%
INCOMEFROMCONTINUINGOPERATIONS
BEFOREINCOMETAXES(BENEFITS)
893
171
570
722
422
%
(399
)
(70
)%
INCOMETAXES(BENEFITS)
315
(42
)
195
357
(850
)%
(237
)
(122
)%
INCOMEFROMCONTINUINGOPERATIONS
578
213
375
365
171
%
(162
)
(43
)%
Discontinuedoperations(netofincometaxesof
$0,$69and$9,respectively)(Note19)
—
86
17
(86
)
(100
)%
69
406
%

NETINCOME
$
578
$
299
$
392
$
279
93
%
$
(93
)
(24
)%
EARNINGSPERSHAREOFCOMMON
STOCK:
BasicContinuingOperations
$
1.37
$
0.51
$
0.90
$
0.86
169
%
$
(0.39
)
(43
)%
BasicDiscontinuedOperations(Note19)
—
0.20
0.04
(0.20
)
(100
)%
0.16
400
%
BasicNetIncome
$
1.37
$
0.71
$
0.94
$
0.66
93
%
$
(0.23
)
(24
)%
DilutedContinuingOperations
$
1.37
$
0.51
$
0.90
$
0.86
169
%
$
(0.39
)
(43
)%
DilutedDiscontinuedOperations(Note19)
—
0.20
0.04
(0.20
)
(100
)%
0.16
400
%
DilutedNetIncome
$
1.37
$
0.71
$
0.94
$
0.66
93
%
$
(0.23
)
(24
)%

FirstEnergy’snetincomein2015was$578million,orbasicanddilutedearningsof$1.37pershareofcommonstock,comparedwith
$299million,orbasicanddilutedearningsof$0.71pershareofcommonstockin2014,and$392million,orbasicanddiluted
earningsof$0.94pershareofcommonstockin2013.Highlightsofthekeychangesinyearoveryearfinancialresultsareincluded
below:

2015comparedwith2014

Asfurtherdiscussedbelow,FirstEnergy’s2015incomefromcontinuingoperationsincreased$365millionascomparedto2014,
resultingfromayearoveryearimprovementof$506millionatCES,$153millionatRegulatedDistributionand$75millionat
RegulatedTransmission,partiallyoffsetbya$369milliondecreaseatCorporate/Other.

In2015,FirstEnergy’srevenuesdecreased$23millionascomparedto2014,primarilyresultingfroma$905milliondecreaseatCES
partiallyoffsetbya$523millionincreaseatRegulatedDistributionanda$242millionincreaseatRegulatedTransmission.
• ThedecreaseinrevenueatCESresultedfroma31millionMWHsdeclineincontractsales,inlinewithCES’strategy
discussedabove,partiallyoffsetbyhigherwholesalesales,includingincreasedcapacityrevenueassociatedwithhigher
capacityauctionprices.
• TheincreaseinrevenueatRegulatedDistributionresultedfromtheimplementationofnewratesatcertainoperating
companiesaswellasayearoveryearincreaseinretailgenerationrevenue,resultingfromalowernumberofcustomers
shopping with an alternative generation supplier and higher retail transmission revenue, which is recovering higher
transmissionrelatedexpenses.Distributiondeliveriesdecreased0.8%,or1.1millionMWHs,asweatheradjustedsales
declinedasaresultofenergyefficiencymandatesandproductsanddecreasesincertainindustrialsectors,partiallyoffset
byanincreaseinweatherrelatedsales.


11
TheincreaseatRegulatedTransmissionprimarilyreflectedahigherratebaseandrecoveryofincrementaloperating
expensesaswellasATSI’stransitiontoaforwardlookingrate,effectiveJanuary1,2015.Theseincreaseswerepartially
offsetbyalowerROEatATSIinthelastsixmonthsof2015aspartoftheFERCapprovedsettlementdiscussedabove.
Operatingexpensesdecreased$1,253millionin2015ascomparedto2014,includinga$593milliondecreaseintheCompany’s
pensionandOPEBmarktomarketadjustment,reflectingadecreaseatCESof$1,747million,partiallyoffsetbyincreasesat
RegulatedDistributionandRegulatedTransmissionof$255millionand$73million,respectively.
Changesincertainoperatingexpensesincludethefollowing:
Fuelexpensedeclined$425million,primarilyatCES,resultingfromlowerfossilgenerationassociatedwithlowenergy
prices,lowerunitcosts,andlowersettlementandterminationchargesonfuelandtransportationcontracts.
Purchasedpowerdecreased$398million,primarilyreflectinglowervolumesatCES,resultingfromlowercontractsales,
partiallyoffsetbyhighervolumesatRegulatedDistributionduetolowercustomershoppingasdiscussedabove,andhigher
capacityexpenseassociatedwithhighercapacityrates.
Otheroperatingexpensesdecreased$213million,primarilyreflectingadecreaseatCESassociatedwithlowerPJM
transmission,marktomarketandretailrelatedcostspartiallyoffsetbyhighernuclearplannedoutagecosts,partiallyoffset
byanincreaseatRegulatedDistribution,resultingfromhighernetworktransmissionexpenses,whicharerecoveredthrough
transmission rates as discussed above, and higher operating and maintenance expenses associated with reliability
improvements.
Amortizationofregulatoryassets,netincreased$256millionprimarilyreflectingtherecoveryofdeferredcosts,including
stormcosts,associatedwiththeimplementationofnewratesdiscussedabove.
FirstEnergy'sotherexpensesincreased$508million,or57%,yearoveryear,primarilyresultingfroma$362millionpretax,noncash
impairmentchargeassociatedwithFEV’sinvestmentinGlobalHolding,lowerinvestmentincome,includinga$65millionincreasein
OTTI,andhigherinterestexpenseassociatedwithhigheraveragedebtlevels.
FirstEnergy’seffectivetaxrateonincomefromcontinuingoperationswas35.3%in2015comparedto(24.6)%in2014.Theincrease
intheeffectivetaxratewasattributabletotaxplanninginitiativesexecutedduring2014,includingtaxbenefitsassociatedwitha
changeinaccountingmethodwiththeIRSforcostsassociatedwiththerefurbishmentofmetersandtransformersandtheexpiration
ofthestatuteoflimitationsonuncertainstatetaxpositions.Additionally,during2014,FirstEnergyrecognizedareductioninincome
taxexpenseof$25millionthatrelatedtopriorperiodsresultingfromadjustmentstoitstaxbasisbalancesheet.

2014comparedwith2013

FirstEnergy’s2014incomefromcontinuingoperationsdecreased$162millionascomparedto2013resultingfromayearoveryear
decline of $182 million at CES and $36 million at Regulated Distribution, partially offset by a yearoveryear improvement at
RegulatedTransmissionof$9millionand$47millionatCorporate/Other.
In2014,FirstEnergy’srevenueincreased$157millioncomparedto2013.Theincreaseresultedfroma$382millionincreaseat
RegulatedDistributionanda$38millionincreaseatRegulatedTransmission,partiallyoffsetbyadecreaseinCESrevenuesof$209
million.
TheincreaseinrevenueatRegulatedDistributionresultedfromhigherwholesalegenerationsalesassociatedwiththe
Harrison/PleasantsassettransferwherebyMPacquired1,476MWsofgenerationfromAESupply.
TheincreaseatRegulatedTransmissionprimarilyreflectedahigherratebaseandrecoveryofincrementaloperating
expenses.
ThedecreaseatCESresultedfromlowercontractsalesasin2014,CESbegantoreduceitsexposuretoweathersensitive
loadtomoreeffectivelyhedgeitsgeneration,targetingannualcontractsalesof65to75millionMWHsascomparedtothe
109millionMWHssoldin2013.Thischangeinstrategyresultedina9%decreaseinMWHsalesin2014ascomparedto
2013.
Operatingexpensesincreased$677millionin2014comparedto2013,includinga$1,091millionincreaseinFirstEnergy’sPension
andOPEBmarktomarketadjustment,primarilyreflectinganincreaseatRegulatedDistributionof$428million,CESof$265million
andRegulatedTransmissionof$40million.

Changesincertainoperatingexpensesincludethefollowing:
Lowerfuelexpenseof$216million,primarilyreflectedthedeactivationofpowerplantsin2013andincreasedoutages.Fuel
expenseatCESandRegulatedDistributionwasfurtherimpactedbytheOctober2013Harrison/Pleasantsassettransfer.
Purchasedpowerincreased$753million,primarilyreflectinghigherCESpurchasesresultingfromplantdeactivations,
increasedoutagesandthe assettransferdiscussed aboveaswellashigher unitpricingand capacityexpense.The
increaseinunitpricingprimarilyresultedfrommarketconditionsassociatedwiththeextremeweathereventsinthefirst
quarterof2014,whichincludedthepolarvortex
Otheroperatingexpensesincreased$369millionprimarilyresultingfromhighercostsatRegulatedDistributionassociated
withnetworktransmissionexpenses,increasedvegetationmanagementexpensesinWestVirginia,aswellashigher
operatingandmaintenanceassociatedwithreliabilityimprovements,stormrestorationcostsandtheHarrison/Pleasants