Allegheny Power 2015 Annual Report Download - page 48

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•Fossiloperatingcostsdecreased$73millionprimarilyduetolowercontractor,laborandmaterialsandequipmentcosts
resultingfrompreviouslydeactivatedunitsandtheOctober2013Harrison/Pleasantsassettransfer.
•Nuclearoperatingcostsincreased$6millionasaresultofhigherlabor,contractor,materialsandequipmentcosts.There
weretworefuelingoutagesineachof2014and2013,however,thedurationoftheoutagesin2014exceededtheprioryear.
•Transmissionexpensesincreased$80millionprimarilyduetohigheroperatingreserveandmarketbasedancillarycosts
associatedwithmarketconditionsrelatedtoextremeweathereventsin2014.Additionally,effectiveJune1,2013,network
expensesassociatedwithPOLRsalesinPennsylvaniabecametheresponsibilityofsuppliers.
•Generaltaxesdecreased$31millionprimarilyduetolowergrossreceiptstaxesresultingfromreducedretailsalesvolumes,
lower payroll taxes as a result of lower labor costs noted above, lower property taxes due to the October 2013
Harrison/Pleasantsassettransfer,andreducedOhiopersonalpropertytaxes.
•Impairmentsoflonglivedassetsdecreased$473millionduetotheimpairmentoftwounregulated,coalfiredgenerating
plantsrecognizedin2013.
•Depreciation expense decreased $52 million primarily due to a reduction in the asset base as a result of the plant
deactivationsandtheOctober2013Harrison/Pleasantsassettransfernotedabove.
•PensionandOPEBmarktomarketadjustmentsincreased$434millionto$327million,primarilyreflectingalowerdiscount
rateandrevisionstomortalityassumptionsextendingtheexpectedlifeinkeydemographicsusedtomeasurerelated
obligationsin2014.
•Otheroperatingexpensesincreased$55millionprimarilyduetoanincreaseinmarktomarketexpensesoncommodity
contractpositions,andanimpairmentofdeferredadvertisingcostsof$23millionassociatedwiththeeliminationoffuture
sellingeffortsintheMassMarketandcertainDirectsaleschannels,partiallyoffsetbylowerretailandmarketingrelated
costs.
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OtherExpense—
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Totalotherexpensein2014decreased$209millioncomparedto2013duetotheabsenceofa$141millionlossondebtredemptions
inconnectionwithseniornotesthatwererepurchasedin2013,higherinvestmentincomeprimarilyontheNDTinvestments,lower
OTTIandlowernetinterestexpenseof$28millionduetodebtredemptions.
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IncomeTaxBenefits—
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CES'effectivetaxratewas34.8%and37.3%for2014and2013,respectively.Thedecreaseintheeffectivetaxrate,whichresulted
in a lower tax benefit on pretax losses, primarily resulted from changes in state apportionment factors and higher valuation
allowancesoncertainNOLcarryforwards.
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DiscontinuedOperations—
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Discontinuedoperationsincreased$69millionin2014comparedtothesameperiodoflastyearprimarilyduetoapretaxgainof
approximately$142million($78millionaftertax)associatedwiththesaleofhydroassetsinFebruary2014.
Corporate/Other—2014Comparedwith2013
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FinancialresultsfromCorporate/Otherresultedina$47millionincreaseinnetincomein2014comparedto2013primarilydueto
highertaxbenefits,partiallyoffsetby$17millionofgainsondebtredemptionsin2013.Thehighertaxbenefitsprimarilyresultedfrom
anIRSapprovedchangeinaccountingmethodthatincreasedthetaxbasisofcertainassetsresultinginhigherfuturetaxdeductions,
andtheresolutionofstatetaxbenefitsresultingfromtheexpirationofthestatuteoflimitationoncertainstatetaxpositions.Additional
incometaxbenefitsof$25millionwererecognizedin2014thatrelatetopriorperiods.Theoutofperiodadjustmentprimarilyrelated
tothecorrectionofamountsincludedonFirstEnergy'staxbasisbalancesheet.Managementhasdeterminedthattheseadjustments
arenotmaterialtothecurrentoranypriorperiod.The2013effectivetaxratebenefitedfromreductionstovaluationallowances
againststateNOLcarryforwards,aswellaschangesinstateapportionmentfactors,whichreduceddeferredtaxliabilities.
RegulatoryAssets
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Regulatoryassetsrepresentincurredcoststhathavebeendeferredbecauseoftheirprobablefuturerecoveryfromcustomers
throughregulatedrates.Regulatoryliabilitiesrepresentamountsthatareexpectedtobecreditedtocustomersthroughfuture
regulatedratesoramountscollectedfromcustomersforcostsnotyetincurred.FirstEnergyandtheUtilitiesnettheirregulatory
assetsandliabilitiesbasedonfederalandstatejurisdictions.Thefollowingtableprovidesinformationaboutthecompositionofnet
regulatoryassetsasofDecember31,2015andDecember31,2014,andthechangesduringtheyearendedDecember31,2015:
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RegulatoryAssets(Liabilities)bySource
December31,
2015
December31,
2014
Increase
(Decrease)
(Inmillions)
Regulatorytransitioncosts $ 185 $ 240 $ (55)
Customerreceivablesforfutureincometaxes355370(15)
Nucleardecommissioningandspentfueldisposalcosts(272) (305) 33
Assetremovalcosts(372) (254) (118)
Deferredtransmissioncosts1159025
Deferredgenerationcosts243281(38)
Deferreddistributioncosts335182153
Contractvaluations18615333
Stormrelatedcosts403465(62)
Other170189(19)
NetRegulatoryAssetsincludedontheConsolidatedBalanceSheets $ 1,348 $ 1,411 $ (63)
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Regulatoryassetsthatdonotearnacurrentreturntotaledapproximately$148millionand$488millionasofDecember31,2015and
2014 respectively, primarilyrelatedtostormdamagecosts.JCP&L'sregulatoryassetrelatedto2011and2012stormdamagecosts
beganearningareturnonApril1,2015.EffectivewiththeapprovedsettlementonApril9,2015,associatedwiththeirgeneralbase
ratecase,thePennsylvaniaCompaniestransferredthenetbookvalueoflegacymetersfromplantinservicetoregulatoryassets,
whichisbeingrecoveredoverfiveyears.
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AsofDecember31,2015 andDecember31,2014,FirstEnergyhadapproximately$116millionand$243million ofnetregulatory
liabilitiesthatareprimarilyrelatedtoassetremovalcosts.Netregulatoryliabilitiesareclassifiedwithinothernoncurrentliabilitieson
theConsolidatedBalanceSheets.
CAPITALRESOURCESANDLIQUIDITY
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FirstEnergyexpectsitsexistingsourcesofliquiditytoremainsufficienttomeetitsanticipatedobligationsandthoseofitssubsidiaries.
FirstEnergy’sbusinessiscapitalintensive,requiringsignificantresourcestofundoperatingexpenses,constructionexpenditures,
scheduleddebtmaturitiesandinterestpayments,dividendpayments,andcontributionstoitspensionplan.During2015,FirstEnergy
received$630millionofcashdividendsandcapitalreturnedfromitssubsidiariesandpaid$607millionincashdividendstocommon
shareholders.Inadditiontointernalsourcestofundliquidityandcapitalrequirementsfor2016andbeyond,FirstEnergyexpectsto
relyonexternalsourcesoffunds.Shorttermcashrequirementsnotmetbycashprovidedfromoperationsaregenerallysatisfied
throughshorttermborrowings.Longtermcashneedsmaybemetthroughtheissuanceoflongtermdebtand/orequity.FirstEnergy
expectsthatborrowingcapacityundercreditfacilitieswillcontinuetobeavailabletomanageworkingcapitalrequirementsalongwith
continuedaccesstolongtermcapitalmarkets.Additionally,FirstEnergyalsoexpectstoissuelongtermdebtatcertainUtilitiesand
certainothersubsidiariesto,amongotherthings,refinanceshorttermandmaturingdebtintheordinarycourse,subjecttomarketand
otherconditions.
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Additionallyin2016,FirstEnergyhasminimumrequiredfundingobligationsof $381milliontoitsqualifiedpensionplan,ofwhich$160
millionhasbeencontributedtodate.FirstEnergyexpectstomakefuturecontributionstothequalifiedpensionplanin2016withcash,
equityoracombinationthereof,dependingon,amongotherthings,marketconditions.
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FirstEnergy'slongertermstrategicoutlookforitsregulatedandcompetitivebusinesseswillbedeterminedfollowingresolutionofthe
OhioCompanies'ESPIV, includingthe proposedPPA between FESand the OhioCompanies. OncetheESPIV isfinalized,
FirstEnergyexpectstobeinapositiontomorefullyunderstandthelongertermoutlookofitscompetitivebusinessesandthelonger
termgrowthrateofitsregulatedbusinesses,includingplannedcapitalinvestmentsandanyadditionalequitytofundgrowthinits
regulatedbusinesses.WiththeexceptionofRegulatedTransmission's2016projectedcapitalexpendituresdiscussedbelow,planned
capital expenditures for 2016 for Regulated Distribution, CES, and Corporate/Other will depend on the outcome of the Ohio
Companies'ESPIVandremainsubjecttoBoardapproval.
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FirstEnergy's strategy is to focus on investments in its regulated operations. The centerpiece of this strategy is a $4.2 billion
EnergizingtheFutureinvestmentplanthatbeganin2014andwillcontinuethrough2017toupgradeandexpandFirstEnergy's
transmissionsystem.Thisprogramisfocusedonprojectsthatenhancesystemperformance,physicalsecurityandaddoperating
flexibilityandcapacitystartingwiththeATSIsystemandmovingeastacrossFirstEnergy'sserviceterritoryovertime.Through2015,
FirstEnergy'scapitalexpendituresunderthisplanwere$2.4billionandin2016capitalexpendituresunderthisplanarecurrently
projectedtobeapproximately$1billion.Intotal,FirstEnergyhasidentifiedatleast$15billionintransmissioninvestmentopportunities
acrossthe24,000miletransmissionsystem,makingthisacontinuingplatformforinvestmentintheyearsbeyond2017.
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