Allegheny Power 2011 Annual Report Download - page 128
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113
PENELEC
Assets
Corporate debt securities
Derivative assets — commodity contracts
Derivative assets — NUG contracts(1)
Equity securities(2)
U.S. government debt securities
U.S. state debt securities
Other(3)
Total assets
Liabilities
Derivative liabilities — NUG contracts(1)
Total liabilities
Net assets (liabilities)(4)
December 31, 2011
Level 1
(In millions)
$ —
—
—
26
—
—
—
$ 26
$ —
$ —
$ 26
Level 2
$ 104
—
—
—
2
90
39
$ 235
$ —
$ —
$ 235
Level 3
$ —
—
3
—
—
—
—
$ 3
$ (123)
$ (123)
$ (120)
Total
$ 104
—
3
26
2
90
39
$ 264
$ (123)
$ (123)
$ 141
December 31, 2010
Level 1
$ —
—
—
81
—
—
—
$ 81
$ —
$ —
$ 81
Level 2
$ 8
2
—
—
9
133
5
$ 157
$ —
$ —
$ 157
Level 3
$ —
—
4
—
—
—
—
$ 4
$ (117)
$ (117)
$ (113)
Total
$ 8
2
4
81
9
133
5
$ 242
$ (117)
$ (117)
$ 125
(1) NUG contracts are subject to regulatory accounting and do not impact earnings.
(2) NDT funds hold equity portfolios whose performance is benchmarked against the Alerian MLP Index.
(3) Primarily consists of short-term cash investments.
(4) Excludes $1 million and $(3) million as of December 31, 2011 and 2010, respectively, of receivables, payables, taxes and accrued income
associated with the financial instruments reflected within the fair value table.
Rollforward of Level 3 Measurements
The following table provides a reconciliation of changes in the fair value of NUG contracts held by Penelec and classified as Level
3 in the fair value hierarchy for the years ending December 31, 2011 and 2010:
December 31, 2009 Balance
Realized gain (loss)
Unrealized gain (loss)
Purchases
Issuances
Sales
Settlements
Transfers in (out) of Level 3
December 31, 2010 Balance
Realized gain (loss)
Unrealized gain (loss)
Purchases
Issuances
Sales
Settlements
Transfers in (out) of Level 3
December 31, 2011 Balance
Derivative Asset
NUG Contracts(1)
(In millions)
$ 16
—
(11)
—
—
—
(1)
—
$ 4
—
—
—
—
—
(1)
—
$ 3
Derivative Liability
NUG Contracts(1)
$ (101)
—
(108)
—
—
—
92
—
$ (117)
—
(103)
—
—
—
97
—
$ (123)
Net
NUG Contracts(1)
$ (85)
—
(119)
—
—
—
91
—
$ (113)
—
(103)
—
—
—
96
—
$ (120)
(1) Changes in the fair value of NUG contracts are subject to regulatory accounting and do not impact earnings.
During 2011, FirstEnergy received approximately $130 million from assigning a substantially below-market, long-term fossil fuel
contract to a third party. As a result, FirstEnergy entered into a new long-term contract with another supplier for replacement fuel
based on current market prices. The new contract runs for nine years, which is the remaining term of the assigned contract. The
transaction reduced fuel costs during the year by approximately $123 million.