Allegheny Power 2011 Annual Report Download - page 53

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Collateral Provisions
Credit rating downgrade to below investment grade (1)
Material adverse event (2)
Total
FES
(In millions)
$ 468
31
$ 499
AE Supply
$ 8
60
$ 68
Utilities
$ 57
12
$ 69
Total
$ 533
103
$ 636
(1) Includes $205 million and $47 million that are also considered accelerations of payment or funding obligations for FES and the Utilities,
respectively.
(2) Includes $31 million that is also considered an acceleration of payment or funding obligation at FES.
Certain bilateral non-affiliate contracts entered into by the Competitive Energy Services segment contain margining provisions that
require posting of collateral. Based on FES' and AE Supply's power portfolios exposure as of December 31, 2011, FES and AE
Supply have posted collateral of $88 million and $1 million, respectively. Depending on the volume of forward contracts and future
price movements, higher amounts for margining could be required.
Not included in the preceding information is potential collateral arising from the PSAs between FES or AE Supply and affiliated
utilities in the Regulated Distribution Segment. As of December 31, 2011, neither FES nor AE Supply had any collateral posted with
their affiliates. In the event of a senior unsecured credit rating downgrade to below S&P's BB- or Moody's Ba3, FES and AE Supply
would be required to post $49 million and $24 million, respectively.
FES' debt obligations are generally guaranteed by its subsidiaries, FGCO and NGC, and FES guarantees the debt obligations of
each of FGCO and NGC. Accordingly, present and future holders of indebtedness of FES, FGCO and NGC would have claims
against each of FES, FGCO and NGC, regardless of whether their primary obligor is FES, FGCO or NGC.
Signal Peak and Global Rail are borrowers under a $350 million syndicated two-year senior secured term loan facility due in October
2012. FirstEnergy, together with WMB Loan Ventures, LLC and WMB Loan Ventures II, LLC, the entities that previously shared
ownership in the borrowers with FEV, have provided a guaranty of the borrowers' obligations under the facility. On October 18,
2011, FEV sold a portion of its ownership interest in Signal Peak and Global Rail (see Note 8, Variable Interest Entities). Following
the sale, FirstEnergy, WMB Loan Ventures, LLC and WMB Loan Ventures II, LLC, together with Global Mining Group, LLC and
Global Holding will continue to guarantee the borrowers' obligations until either the facility is replaced with non-recourse financing
(no later than June 30, 2012) or replaced with appropriate recourse financing no earlier than September 4, 2012, that provides for
separate guarantees from each owner in proportion with each equity owner's percentage ownership in the joint venture. In addition,
FEV, Global Mining Group, LLC and Global Holding, the entities that own direct and indirect equity interests in the borrowers, have
pledged those interests to the lenders under the current facility as collateral.
OFF-BALANCE SHEET ARRANGEMENTS
FES and the Ohio Companies have obligations that are not included on their Consolidated Balance Sheets related to sale and
leaseback arrangements involving the Bruce Mansfield Plant, Perry Unit 1 and Beaver Valley Unit 2, which are satisfied through
operating lease payments. The total present value of these sale and leaseback operating lease commitments, net of trust investments,
was $1.6 billion as of December 31, 2011. See Note 6, Leases of the Combined Notes to the Consolidated Financial Statements
for further information on FirstEnergy's and the Registrants' leases.
MARKET RISK INFORMATION
FirstEnergy uses various market risk sensitive instruments, including derivative contracts, primarily to manage the risk of price and
interest rate fluctuations. FirstEnergy’s Risk Policy Committee, comprised of members of senior management, provides general
oversight for risk management activities throughout the company.
Commodity Price Risk
FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity prices, including prices for electricity,
natural gas, coal and energy transmission. FirstEnergy's Risk Management Committee is responsible for promoting the effective
design and implementation of sound risk management programs and oversees compliance with corporate risk management policies
and established risk management practice. FirstEnergy uses a variety of derivative instruments for risk management purposes
including forward contracts, options, futures contracts and swaps.
The valuation of derivative contracts is based on observable market information to the extent that such information is available. In
cases where such information is not available, FirstEnergy relies on model-based information. The model provides estimates of
future regional prices for electricity and an estimate of related price volatility. FirstEnergy uses these results to develop estimates
of fair value for financial reporting purposes and for internal management decision making (see Note 9, Fair Value Measurements
of the Combined Notes to the Consolidated Financial Statements). Sources of information for the valuation of commodity derivative
contracts assets and liabilities as of December 31, 2011 are summarized by year in the following table: