Allegheny Power 2015 Annual Report Download - page 27

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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)%
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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:
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2015comparedwith2014
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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.
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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.
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• 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