Allegheny Power 2010 Annual Report Download - page 54

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Comparison of Carrying Value to Fair Value
There- Fair
Y
ear of Maturit
y
2011 2012 2013 2014 2015 after Total Value
(In millions)
A
ssets
Investments Other Than
Cash and Cash Equivalents:
Fixed Income $ 80 $ 90 $ 101 $ 110 $ 76 $ 1,755 $ 2,212 $ 2,304
Average interest rate 8.4 % 8 % 8 % 8 % 8.1 % 5.7 % 6.2 %
Liabilities
Long-term Debt:
Fixed rate $ 437 $ 94 $ 551 $ 536 $ 629 $ 10,504 $ 12,751 $ 13,668
Average interest rate 5.7 % 7.8 % 5.8 % 5.4 % 5.2 % 6.3 % 6.1 %
Variable rate $ 350 $ 827 $ 1,177 $ 1,177
Average interest rate 2.5 % 0.3 % 1 %
Short-term Borrowings: $ 700 $ 700 $ 700
Average interest rate 0.7 % 0.7 %
Equity Price Risk
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers substantially all of its
employees and non-qualified pension plans that cover certain employees. The plan provides defined benefits based on
years of service and compensation levels. FirstEnergy also provides 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. The benefit plan assets and obligations are remeasured
annually using a December 31 measurement date or as significant triggering events occur. As of December 31, 2010,
approximately 28% of the pension plan assets are invested in equity securities, 50% invested in fixed income securities,
11% invested in absolute return strategies, 6% invested in real estate, 4% invested in private equity and 1% invested in
cash. The plan is 83% funded on an accumulated benefit obligation basis as of December 31, 2010. A decline in the
value of FirstEnergy’s pension plan assets could result in additional funding requirements. FirstEnergy intends to
voluntarily contribute $250 million to its pension plan in 2011.
Nuclear decommissioning trust funds have been established to satisfy NGC's and the Utilities' nuclear decommissioning
obligations. As of December 31, 2010, approximately 73% of the funds were invested in fixed income securities, 17% of
the funds were invested in equity securities and 10% were invested in short-term investments, with limitations related to
concentration and investment grade ratings. The investments are carried at their market values of approximately $1,454
million, $337 million and $189 million for fixed income securities, equity securities and short-term investments,
respectively, as of December 31, 2010. A hypothetical 10% decrease in prices quoted by stock exchanges would result
in a $34 million reduction in fair value as of December 31, 2010. The decommissioning trusts of JCP&L and the
Pennsylvania Companies are subject to regulatory accounting, with unrealized gains and losses recorded as regulatory
assets or liabilities, since the difference between investments held in trust and the decommissioning liabilities will be
recovered from or refunded to customers. NGC, OE and TE recognize in earnings the unrealized losses on available-for-
sale securities held in their nuclear decommissioning trusts as other-than-temporary impairments. A decline in the value
of FirstEnergy’s nuclear decommissioning trusts or a significant escalation in estimated decommissioning costs could
result in additional funding requirements. During 2010, $4 million was contributed to the OE and TE nuclear
decommissioning trusts to comply with requirements under certain sale-leaseback transactions in which OE and TE
continue as lessees, and $6 million was contributed to the JCP&L and Pennsylvania nuclear decommissioning trusts to
comply with regulatory requirements. FirstEnergy continues to evaluate the status of its funding obligations for the
decommissioning of these nuclear facilities.
CREDIT RISK
Credit risk is the risk of an obligor's failure to meet the terms of any investment contract, loan agreement or otherwise
perform as agreed. Credit risk arises from all activities in which success depends on issuer, borrower or counterparty
performance, whether reflected on or off the balance sheet. FirstEnergy engages in transactions for the purchase and
sale of commodities including gas, electricity, coal and emission allowances. These transactions are often with major
energy companies within the industry.