Allegheny Power 2010 Annual Report Download - page 44

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POSTRETIREMENT BENEFITS
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers substantially all of our
employees and non-qualified pension plans that cover certain employees. The plans provide defined benefits based on
years of service and compensation levels. We also provide health care benefits, which include certain employee
contributions, deductibles, and co-payments, upon retirement to employees hired prior to January 1, 2005, their
dependents, and under certain circumstances, their survivors. Benefit plan assets and obligations are remeasured
annually using a December 31 measurement date. Adverse market conditions during 2008 increased 2009 costs, which
were partially offset by the effects of a $500 million voluntary cash pension contribution and an OPEB plan amendment in
2009. Recovering market conditions and greater returns on higher asset levels decreased postretirement benefit
expense in 2010, partially offset by a full year of realization on the reduction in benefit liability resulting from the OPEB
plan amendment in 2009. Pension and OPEB expenses are included in various cost categories and have contributed to
cost increases discussed above for 2010. The following table reflects the portion of qualified and non-qualified pension
and OPEB costs that were charged to expense in the three years ended December 31, 2010:
Postretirement Benefits Expense (Credits) 2010 2009 2008
(In millions)
Pension $ 174 $ 185 $ (23 )
OPEB (90) (40) (37 )
Total $ 84 $ 145 $ (60 )
As of December 31, 2010, our pension plan was underfunded and we currently anticipate that an additional voluntary
cash contribution of $250 million will be made in 2011.
The overall actual investment result during 2010 was a gain of 10% compared to an assumed 8.5% return. Based on
discount rates of 5.50% for pension, 5.00% for OPEB and an estimated return on assets of 8.25%, our 2011 pre-tax net
periodic postretirement benefit expense is expected to be approximately $92 million.
SUPPLY PLAN
Regulated Commodity Sourcing
The Utilities have a default service obligation to provide power to non-shopping customers who have elected to continue
to receive service under regulated retail tariffs. The volume of these sales can vary depending on the level of shopping
that occurs. Supply plans vary by state and by service territory. JCP&L’s default service supply is secured through a
statewide competitive procurement process approved by the NJBPU. The Ohio Companies and Penn’s default service
supplies are provided through a competitive procurement process approved by the PUCO and PPUC, respectively. The
default service supply for Met-Ed and Penelec was secured through a FERC-approved agreement with FES through
2010, transitioning to a PPUC-approved competitive procurement process in 2011. If any supplier fails to deliver power to
any one of the Utilities’ service areas, the Utility serving that area may need to procure the required power in the market
in their role as a POLR.
Unregulated Commodity Sourcing
FES provides energy and energy related services, including the generation and sale of electricity and energy planning
and procurement through retail and wholesale competitive supply arrangements. FES controls 13,236 MW of installed
generating capacity. FES supplies the power requirements of its competitive load-serving obligations through a
combination of subsidiary-owned generation, non-affiliated contracts and spot market transactions.
FES has retail and wholesale competitive load-serving obligations in Ohio, Pennsylvania, Illinois, Maryland, Michigan and
New Jersey serving both affiliated and non-affiliated companies. FES provides energy products and services to
customers under various POLR, shopping, competitive-bid and non-affiliated contractual obligations. In 2010, FES’
generation was used to serve two primary obligations -- affiliated companies utilized approximately 43% of FES’ total
generation and retail customers utilized approximately 43% of FES' total generation. Geographically, approximately 60%
of FES’ obligation is located in the MISO market area and 40% is located in the PJM market area.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 2010, FirstEnergy had cash and cash equivalents of approximately $1 billion available to fund
investments, operations and capital expenditures. To fund liquidity and capital requirements for 2011 and beyond,
FirstEnergy may rely on internal and 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
issuances of debt and/or equity securities.