Allegheny Power 2015 Annual Report Download - page 43

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RegulatedDistribution—2014Comparedwith2013
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RegulatedDistribution'snetincomedecreased$36millionin2014comparedto2013.RegulatedDistribution'sPensionandOPEB
marktomarketadjustmentincreased$655millionwhichwaspartiallyoffsetbyareductioninregulatoryassetimpairmentchargesof
$305millionandanimpairmentoflonglivedassetsof$322millionincurredin2013.Excludingtheimpactofthesecharges,year
overyearearningswereimpactedbyhigherdistributionoperatingandmaintenancecosts,includingtheimpactofhigherbenefit
costs,higherdepreciationandpropertytaxes,andhigherinterestexpensefromdebtissuances.Theseitemswerepartiallyoffsetby
slightlyhigherdistributiondeliveries,higherearningsassociatedwiththeOctober2013Harrison/Pleasantsassettransfer,andalower
effectivetaxrate.
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Revenues—
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The$382millionincreaseintotalrevenuesresultedfromthefollowingsources:
FortheYearsEnded
December31,Increase
RevenuesbyTypeofService 2014 2013 (Decrease)
(Inmillions)
Distributionservices $ 3,694
$ 3,762 $ (68)
Generationsales:
Retail4,043
3,959 84
Wholesale661
330 331
Totalgenerationsales 4,704
4,289 415
Transmissionsales:
Retail352
347 5
Wholesale148
101 47
Totaltransmissionsales 500
448 52
Other204
221 (17)
TotalRevenues $ 9,102
$ 8,720 $ 382
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ThedecreaseindistributionservicesrevenueisprimarilyrelatedtoadecreaseinrevenuesfromMEandPNNUGridersasaresult
oftheexpirationofcertainNUGcontractsin2013andariderratedecreaseassociatedwiththerecoveryofenergyefficiencyand
othercustomerprogramcostsforthePennsylvaniaCompanies.ThiswaspartiallyoffsetbyhigherelectricdistributionMWHdeliveries
of1.1%asdescribedbelow,rateincreasesfortheOhioCompaniesassociatedwithenergyefficiencyperformancesharedsavings
andtheRiderDCR,andhigherrevenuesforthePennsylvaniaCompaniesassociatedwiththerecoveryofSmartMeterprogram
costs.CertainOhioenergyefficiencyprogramspermittheOhioCompaniestobillandcollectsharedsavingsrevenuesifenergy
efficiencyprogramsmeetorexceedthestatemandates.Additionally,theRiderDCRprovidesforrecoveryofincrementaloperating
expensesandareturnonratebaseassociatedwithincrementaldistributionplantinvestmentsinOhio.Distributiondeliveriesby
customerclassaresummarizedinthefollowingtable:
FortheYearsEnded
December31,
ElectricDistributionMWHDeliveries20142013Increase
(Inthousands)
Residential54,766
54,479 0.5%
Commercial42,925
42,582 0.8%
Industrial51,276
50,243 2.1%
Other586
584 0.3%
TotalElectricDistributionMWHDeliveries 149,553
147,888 1.1%
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Higherdeliveriestoresidentialcustomersprimarilyreflectincreasedweatherrelatedusageresultingfromheatingdegreedaysthat
were7%above2013,and9%abovenormal,partiallyoffsetbycoolingdegreedaysthatwere15%below2013,and12%below
normal.IncreaseddeliveriestocommercialcustomersreflectimprovingeconomicconditionsacrossFirstEnergy'sserviceterritories.
Intheindustrialsector,increasedsalestosteel,automotiveandshalegascustomerswerepartiallyoffsetbylowersalestochemical
andpapercustomers.
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Thefollowingtablesummarizesthepriceandvolumefactorscontributingtothe$415millionincreaseingenerationrevenuesin2014
comparedto2013:
SourceofChangeinGenerationRevenues
Increase
(Inmillions)
Retail:
Effectofincreaseinsalesvolumes
$
14
Changeinprices
70
84
Wholesale:
Effectofincreaseinsalesvolumes
166
Changeinprices
79
Capacityrevenue
86
331
IncreaseinGenerationRevenues
$
415
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Theincreaseinretailgenerationsalesvolumewasprimarilyduetoweatherrelatedusage,asdescribedabove,andimproving
economicconditions,partiallyoffsetbyincreasedcustomershoppinginPennsylvania.Theincreaseinretailgenerationpricesreflects
higherPennsylvaniaPTCprices,thecompletionofmarginaltransmissionlossrefundstoMEandPNcustomersinthesecond
quarter of 2013 and a higher generation rate at WP, which includes the recovery of transmission costs effective June 2013.
Additionally,theimpactonretailgenerationpricesofMP'sTemporaryTransactionSurcharge(TTS)associatedwiththeOctober2013
Harrison/Pleasantsassettransferwasoffsetbyaratereductionassociatedwiththerecoveryofdeferredenergycosts.Aspartofthe
TTS,MPearnsareturnonandoftheHarrisonplantcosts.
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Theincreaseinwholesalegenerationrevenuesof$331millionin2014resultedfromincreasedvolumeandenergypricesassociated
withmarketconditionsrelatedtoextremeweathereventsinJanuary2014andincreasedcapacityrevenuerelatedtotheOctober
2013Harrison/PleasantsassettransferwherebyMPacquiredfromAESupply1,476MWsofnetcapacity.DuringJanuary2014,
unprecedentedcustomerdemandassociatedwithprolongedperiodsofbitterlycoldtemperaturesandunitunavailabilityacrossthe
PJMfootprintresultedinseveremarketpricevolatilityforelectricityandnaturalgasthroughoutPJM.Eightofthetenhighestwinter
demandsforelectricityonthePJMsystemoccurredinJanuary2014.Thedifferencebetweenwholesalegenerationrevenues,
primarilyassociatedwithMP'sregulatedgeneration,andcertainenergycostsaredeferredforfuturerecovery,withnomaterialimpact
toearnings.
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Theincreaseintransmissionrevenuesof$52millionreflectshigherPJMrevenuesatMPassociatedwithmarketconditionsrelatedto
extremeweathereventsdescribedaboveandanincreaseintheOhioCompanies'NMBtransmissionriderrevenues,partiallyoffset
bytheterminationofWP'snetworktransmissionridereffectiveJune2013asdiscussedabove.Networktransmissioncostsarenow
recoveredthroughWP'sgenerationrate.
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Otherrevenuesdecreased$17millionprimarilyduetolesscustomerrequestedworkin2014comparedto2013.
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OperatingExpenses—
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Totaloperatingexpensesincreasedby$428millionprimarilyduetothefollowing:
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•Fuelexpensewas$190millionhigherin2014primarilyrelatedtoincreasedgenerationasaresultoftheOctober2013
Harrison/Pleasantsassettransfer.
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•Purchasedpowercosts were$77millionhigherin2014primarilyduetoincreasedunitpricesandcapacityexpense
reflectinghigherauctionclearingprices,partiallyoffsetbyadecreaseinpurchasedvolumesrequired.