Allegheny Power 2015 Annual Report Download - page 47

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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.
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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)%
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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.