Allegheny Power 2015 Annual Report Download - page 46

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30
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Revenues—
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Totalrevenuesdecreased$209millionin2014,comparedto2013,primarilyduetodecreasedsalesvolumesintheDirectand
GovernmentalAggregationsaleschannels,partiallyoffsetbyhighervolumeintheStructuredSaleschannel.Revenueswerealso
impactedbyhigherunitpricesasaresultofincreasedchannelpricingandhighercapacityrevenues,asdescribedbelow.

Thedecrease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)
ContractSales:
Direct
$
2,359
$
2,913
$
(554
)
GovernmentalAggregation
1,184
1,185
(1
)
MassMarket
452
448
4
POLR
902
858
44
StructuredSales
522
421
101
TotalContractSales
5,419
5,825
(406
)
Wholesale
461
343
118

Transmission
220
144
76
Other
189
186
3
TotalRevenues
$
6,289
$
6,498
$
(209
)

FortheYearsEnded
December31,
Increase
MWHSalesbyChannel
2014
2013
(Decrease)
(Inthousands)
ContractSales:
Direct
44,012
56,145
(21.6
)%

GovernmentalAggregation
19,569
20,859
(6.2
)%

MassMarket
6,773
6,761
0.2
%

POLR
15,708
15,758
(0.3
)%

StructuredSales
12,814
9,047
41.6
%

TotalContractSales
98,876
108,570
(8.9
)%
Wholesale
680
1,250
(45.6
)%

TotalMWHSales
99,556
109,820
(9.3
)%



31
Thefollowingtablessummarizethepriceandvolumefactorscontributingtochangesinrevenues:
SourceofChangeinRevenues
Increase(Decrease)
MWHSalesChannel:
Sales
VolumesPrices
Gainon
Settled
Contracts
Capacity
RevenueTotal
(Inmillions)
Direct $ (629) $ 75 $ — $ — $ (554)
GovernmentalAggregation(73) 72 — — (1)
MassMarket 1 3 — — 4
POLR(3) 47 — — 44
StructuredSales176(75) — — 101
Wholesale(17) — (21) 156118

LowersalesvolumesintheDirect,GovernmentalAggregationandMassMarketsaleschannelsprimarilyreflectsCES'effortstomore
effectivelyhedgeitsgenerationbyreducingexposuretoweathersensitiveload.Additionally,althoughunitpricingwashigheryear
overyearintheDirect,GovernmentalAggregationandMassMarketchannelsnotedabove,theincreasewasprimarilyattributableto
highercapacityexpenseasdiscussedbelow,whichisacomponentoftheretailprice.Theincreaseinpricesassociatedwithcapacity
waspartiallyoffsetbylowerenergypricingbuiltintotheretailproductatthetimecustomerswereacquiredfor2014sales.Beginning
inthefourthquarterof2011,whentherewasasignificantdeclineinenergyprices,CES’2014retailsalespositionwasapproximately
30%committed,whereasits2013retailsalespositionwasapproximately60%committed,resultinginagreaterproportionof2014
salesandunitpricesbeingimpactedbythedeclineintheenergyprices.

TheincreaseinPOLRrevenuesof$44millionwasduetohigherratesassociatedwiththecapacityexpensecomponentoftherate
discussedabove,partiallyoffsetbylowersalesvolumes.TheincreaseinStructuredSalesrevenuesof$101millionwasduetohigher
salesvolumes,partiallyoffsetbylowerunitpricesprimarilyduetomarketconditionsrelatedtoextremeweathereventsin2014that
reducedthegainsonvariousstructuredfinancialsalescontracts.

Wholesalerevenuesincreased$118millionprimarilyduetoanincreaseincapacityrevenuefromhighercapacityprices,partially
offsetbyadecreaseinshortterm(nethourlypositions)transactions.ThedecreaseinWholesalesalesvolumeswasduetolower
generationavailabletosellprimarilyasaresultoftheHarrison/Pleasantsassettransferandthedeactivationofcertainpowerplants
in2013.

Transmissionrevenueincreased$76millionduetohighercongestionrevenuedrivenbymarketconditionsrelatedtoextreme
weathereventsin2014,asdiscussedabove.

Otherrevenueincreased$3millionin2014ascomparedto2013ashigherleaserevenuesfromadditionalrepurchasedequity
interestsinaffiliatedsaleandleasebackssince2013,partiallyoffsetbya$17millionpretaxgainrecognizedin2013onthesaleof
propertytoaregulatedaffiliate.CESearnsleaserevenueassociatedwiththeequityinterestsithaspurchased.

OperatingExpenses—

Totaloperatingexpensesincreased$265millionin2014duetothefollowing:

•Fuel costs decreased $406 million primarily due to lower generation volumes resulting from the October 2013
Harrison/Pleasantsassettransfer,thedeactivationofcertainpowerplantsin2013andincreasedoutagesascomparedto
thesameperiodof2013.Higherunitprices,primarilydrivenbyincreasedpeakinggeneration,waspartiallyoffsetbythe
suspensionoftheDOEnucleardisposalfee,whichwaseffectiveMay2014.Additionally,fuelcostswereimpactedbyan
increaseinsettlementandterminationcostsrelatedtocoalandtransportationcontracts.Terminationsandsettlements
associatedwithdamagesoncoalandtransportationcontractswereapproximately$166millionand$128millionin2014
and2013,respectively.

•Purchasedpowercostsincreased$725millionduetohighervolumes($252million),increasedunitprices($565million)
andhighercapacityexpenses($311million),partiallyoffsetbylowerlossesonfinanciallysettledcontracts($403million).
Higher purchased volumes were primarily due to lower available generation due to outages, the October 2013
Harrison/Pleasantsassettransferandthedeactivationofcertainpowerplantsin2013,partiallyoffsetbylowercontract
salesasdescribedabove.Theincreaseinunitpriceswasprimarilyaresultofmarketconditionsrelatedtoextremeweather
eventsinJanuary2014,partiallyoffsetbylowerlossesonfinanciallysettledcontracts.Theincreaseincapacityexpense,
whichisacomponentofthesegment'sretailprice,wasprimarilytheresultofhighercapacityratesassociatedwiththe
segment'sretailsalesobligations.