Allegheny Power 2015 Annual Report Download - page 35



18
SourceofChangeinPurchasedPower
Increase
(Decrease)
(Inmillions)
Purchasesfromnonaffiliates:
Changeduetoincreasedunitcosts $ 66
Changeduetoincreasedvolumes185
251
Purchasesfromaffiliates:
Changeduetodecreasedunitcosts(21)
Changeduetodecreasedvolumes(113)
(134)
Capacityexpense36
Amortizationofdeferredcosts10
IncreaseinPurchasedPowerCosts $ 163

•Otheroperatingexpensesincreased$161millionprimarilydueto:

•Highertransmissionexpensesof$73millionprimarilyduetoanincreaseinnetworktransmissionexpensesatthe
OhioCompanies,partiallyoffsetbylowercongestionexpensesatMP.Thedifferencesbetweencurrentretail
transmissionrevenuesandtransmissioncostsincurredaredeferredforfuturerecovery,resultinginnomaterial
impactoncurrentperiodearnings.

•Increasedregulatedgenerationoperatingandmaintenanceexpensesof$7million,reflectinghigherplanned
outageexpensesin2015comparedto2014.

•Higherretirementbenefitcostsof$22million,reflectinghighernetbenefitcostsbeforethepensionandOPEB
marktomarketadjustmentdescribedbelow.

• Higherdistributionoperatingandmaintenanceexpensesof$54million,reflectingincreasedreliabilitymaintenance
inNewJerseyandthePennsylvaniacompaniesandotheremployeebenefitcosts,partiallyoffsetbylowerstorm
restorationcosts.

•PensionandOPEBmarktomarketadjustmentdecreased$327millionto$179million,whichwasimpactedbylowerthan
expectedassetreturns,partiallyoffsetbyanincreaseinthediscountrateusedtomeasurebenefitobligations.

•Depreciationexpenseincreased$14millionduetoahigherassetbase,partiallyoffsetbylowerdepreciationratesatJCP&L
effectivewiththeimplementationofnewratesfromitsdistributionbaseratecaseaswellaslowerdepreciationratesin
PennsylvaniabasedonupdatedassetlifestudiesapprovedbythePPUC.

•Netregulatoryassetamortizationincreased$260millionprimarilydueto:

•RecoveryofstormcostsinNewJersey,Pennsylvania,andWestVirginiaeffectivewiththeimplementationofnew
ratesasdiscussedabove($66million),
•Higherenergyefficiencyprogramcostrecovery($66million),
•LowerdeferralofTTScostsinWestVirginia($37million),
•HigheramortizationsofabovemarketNUGcostsinPennsylvaniaandNewJersey($36million),
•LowerdeferralofWestVirginiavegetationmanagementexpenses($31million),
•Higherdefaultgenerationservicecostamortization($28million),and
•RecoveryofPennsylvanialegacymetercosts($22million)partiallyoffsetby
•HighercostdeferralofOhionetworktransmissionexpenses($33million).

•Generaltaxesincreased$10millionprimarilyduetohigherrevenuerelatedtaxesinPennsylvania,partiallyoffsetbylower
propertytaxesinOhio.





19
OtherExpense—

Otherexpensewasflatin2015ascomparedto2014,aslowerinvestmentincomewasoffsetbylowerinterestexpenseandhigher
capitalizedfinancingcosts.

IncomeTaxes—

RegulatedDistribution’seffectivetaxratewas35.6%and32.8%for2015and2014,respectively.Theincreaseintheeffectivetax
rateresultedfromchangesinstateapportionmentfactorsandrealizedtaxbenefitsrecognizedin2014.

RegulatedTransmission—2015Comparedwith2014

Netincomeincreased$75millionin2015comparedto2014.HigherTransmissionrevenuesassociatedwithATSI's"forwardlooking"
rateandhigherratebasewerepartiallyoffsetbyhigherinterestexpenseandlowercapitalizedfinancingcosts.

Revenues—

Totalrevenuesincreased$242millionprincipallyatATSIandTrAIL,reflectingrecoveryofincrementaloperatingexpensesanda
higherratebase.EffectiveJanuary1,2015,ATSI'sformularatecalculationtransitionedtoa"forwardlooking"approach,where
transmissionrevenuesarebasedonactualcosts.

Revenuesbytransmissionassetownerareshowninthefollowingtable:
FortheYearsEnded
December31,
RevenuesbyTransmissionAssetOwner
2015
2014
Increase
(Inmillions)
ATSI
$
446
$

242
$
204
TrAIL
252
214
38
PATH
13
13
—
Utilities
300
300
—
TotalRevenues
$
1,011
$

769
$
242

OperatingExpenses—

Totaloperatingexpensesincreased$73millionprincipallyduetohigheroperatingandmaintenanceexpenses,depreciation,and
propertytaxesatATSI,whicharerecoveredthroughATSI's"forwardlooking"rate.

OtherExpenses—

Otherexpensesincreased$41millionduetoincreasedinterestexpenseresultingfromdebtissuancesof$1.0billionatFETand
$400millionatATSI,theproceedsofwhich,inpart,paidoffshorttermborrowingsaswellaslowercapitalizedfinancingcosts.

IncomeTaxes—

RegulatedTransmission’seffectivetaxratewas36.9%and35.2%for2015and2014,respectively.Theincreaseintheeffectivetax
rateresultedfromchangesinstateapportionmentfactorsandrealizedtaxbenefitsrecognizedin2014.
CES—2015Comparedwith2014

Operatingresultsincreased$420millionin2015comparedto2014,primarilyfromhighercapacityrevenuesandtheabsenceofthe
impactofthehighmarketpricesassociatedwithextremeweathereventsandunplannedoutagesin2014thatresultedinhigher
purchasedpowerandtransmissioncosts,partiallyoffsetbylowercontractsalesvolumes.Additionally,changesinyearoveryear
operatingresultswereimpactedbylowerPensionandOPEBmarktomarketadjustments,lowersettlementandterminationcosts
relatedtocoalandtransportationcontracts,andtheabsenceofa$78millionaftertaxgainonthesaleofcertainhydroelectric
facilitiesrecognizedinFebruary2014.

Revenues—

Totalrevenuesdecreased$905millionin2015,comparedto2014,primarilyduetodecreasedsalesvolumesinlinewithCES'
strategytomoreeffectivelyhedgeitsgeneration.Revenueswerealsoimpactedbyhigherunitpricescomparedto2014asaresultof
increasedchannelpricingaswellashighercapacityrevenues,asfurtherdescribedbelow.
