This excerpt taken from the POM DEF 14A filed Mar 30, 2006.
Conectiv Energy Gross Margin
Management believes that gross margin is a better comparative measurement of the primary activities of Conectiv Energy than Revenue and Fuel and Purchased Energy by themselves. Gross margin is a more stable comparative measurement and it is used extensively by management in internal reporting. The following is a summary of gross margins by activity type (Millions of dollars):
The higher Generation gross margin in 2004 was due to the addition of new more efficient combined cycle generation at Bethlehem (which lowered fuel cost and increased Mwhs sold), unit flexibility (which increased margin by providing quick standard controls over unit running time), increased fuel switching (which generated fuel savings) and nuclear unit outages during the 4th quarter of 2004 (which increased output and price for power in eastern PJM). The higher margins were partially offset by cooler than normal summer weather which resulted in lower unit output in 2004. Conectiv Energys power plants achieved a substantial portion of the increase ($18.9 million) during the month of December 2004 due to unplanned nuclear outages in the region.
The lower Full Requirements Load Service gross margin resulted from the termination of various full requirements load contracts and related power hedges in 2003 which contained favorable margins. This was partially offset by higher POLR rates in 2004 and lower cost of sales.
Other Power, Oil and Gas Marketing margins increased primarily because 2003 results included proprietary trading losses totaling $44 million. In addition, 2004 contained a substantial coal contract gain.