Allegheny Power 2011 Annual Report Download - page 75

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Long-Lived Assets
FirstEnergy reviews long-lived assets, including regulatory 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, 2011, are described further in Note 11,
Impairment of Long-Lived Assets.
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.
Income Taxes
FirstEnergy records income taxes in accordance with the liability method of accounting. Deferred income taxes reflect the net tax
effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts recognized for tax purposes. Investment tax credits, which were deferred when utilized, are being amortized over the
recovery period of the related property. Deferred income tax liabilities related to temporary tax and accounting basis differences
and tax credit carryforward items are recognized at the statutory income tax rates in effect when the liabilities are expected to be
paid. Deferred tax assets are recognized based on income tax rates expected to be in effect when they are settled.
FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements. We account for uncertain income tax
positions using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement
attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized
upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be
recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met
the recognition threshold. The Company recognizes interest expense or income related to uncertain tax positions. That amount is
computed by applying the applicable statutory interest rate to the difference between the tax position recognized and the amount
previously taken or expected to be taken on the tax return. FirstEnergy includes net interest and penalties in the provision for income
taxes.
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 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.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1, Organization, Basis of Presentation and Significant Accounting Policies for discussion of new accounting
pronouncements.