Allegheny Power 2010 Annual Report Download - page 80

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FirstEnergy provides for depreciation on a straight-line basis at various rates over the estimated lives of property included
in plant in service. The respective annual composite rates for FirstEnergy’s subsidiaries’ electric plant in 2010, 2009 and
2008 are shown in the following table:
Annual Composite
Depreciation Rate
2010 2009 2008
OE 2.9 % 3.1% 3.1%
CEI 3.2 3.3 3.5
TE 3.3 3.3 3.6
Penn 2.2 2.4 2.4
JCP&L 2.4 2.4 2.3
Met-Ed 2.5 2.5 2.3
Penelec 2.5 2.6 2.5
FGCO 4.0 4.6 4.7
NGC 3.1 3.0 2.8
Asset Retirement Obligations
FirstEnergy recognizes an ARO for the future decommissioning of its nuclear power plants and future remediation of
other environmental liabilities associated with all of its long-lived assets. The ARO liability represents an estimate of the
fair value of FirstEnergy’s current obligation related to nuclear decommissioning and the retirement or remediation of
environmental liabilities of other assets. A fair value measurement inherently involves uncertainty in the amount and
timing of settlement of the liability. FirstEnergy uses an expected cash flow approach to measure the fair value of the
nuclear decommissioning and environmental remediation ARO. This approach applies probability weighting to
discounted future cash flow scenarios that reflect a range of possible outcomes. The scenarios consider settlement of the
ARO at the expiration of the nuclear power plant’s current license, settlement based on an extended license term and
expected remediation dates. The fair value of an ARO is recognized in the period in which it is incurred. The associated
asset retirement costs are capitalized as part of the carrying value of the long-lived asset and are depreciated over the
life of the related asset, as described further in Note 12.
(E) ASSET IMPAIRMENTS
Long-lived Assets
FirstEnergy reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of such an asset may not be recoverable. The recoverability of the long-lived asset is measured by
comparing the long-lived asset’s carrying value to the sum of undiscounted future cash flows expected to result from the
use and eventual disposition of the asset. If the carrying value is greater than the undiscounted future cash flows of the
long-lived asset, impairment exists and a loss is recognized for the amount by which the carrying value of the long-lived
asset exceeds its estimated fair value. Impairments of long-lived assets recognized for the year ended December 31,
2010, are described further in Note 19.
Goodwill
In a business combination, the excess of the purchase price over the estimated fair values of the assets acquired and
liabilities assumed is recognized as goodwill. Goodwill is evaluated for impairment at least annually and more frequently
if indicators of impairment arise. In accordance with the accounting standards, if the fair value of a reporting unit is less
than its carrying value (including goodwill), the goodwill is tested for impairment. Impairment is indicated and a loss is
recognized if the implied fair value of a reporting unit's goodwill is less than the carrying value of its goodwill.
FirstEnergy’s goodwill primarily relates to its energy delivery services segment. FirstEnergy’s aggregated reporting units
are consistent with its operating segments -- energy delivery services and competitive energy. Goodwill is allocated to
these operating segments based on the original purchase price allocation for acquisitions within the various reporting
units. The goodwill allocated to competitive energy is insignificant to that segment and to FirstEnergy.
Annual impairment testing is conducted during the third quarter of each year and for 2010, 2009 and 2008 the analysis
indicated no impairment of goodwill. For purposes of annual testing the estimated fair values of energy delivery services
and the utilities were determined using a discounted cash flow approach.