Allegheny Power 2011 Annual Report Download - page 86

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FGCO
NGC
OE
CEI
TE
JCP&L
Met-Ed
Penelec
ATSI
Penn
AE Supply
MP
PE
WP
TrAIL
Annual Composite Depreciation Rate
2011
3.1%
3.2%
2.9%
3.2%
3.2%
2.8%
2.5%
2.3%
2.4%
2.2%
3.4%
2.5%
2.8%
2.5%
2.7%
2010
4.0%
3.1%
2.9%
3.2%
3.3%
2.4%
2.5%
2.5%
2.4%
2.2%
2009
4.6%
3.0%
3.1%
3.3%
3.3%
2.4%
2.5%
2.6%
2.4%
2.4%
Jointly Owned Plants
FirstEnergy, through its subsidiary, AGC, owns an undivided 40% interest (1,109 MWs) in a 2,773 MW pumped storage, hydroelectric
station in Bath County, Virginia, operated by the 60% owner, Virginia Electric and Power Company, a non-affiliated utility. Net
Property, Plant and Equipment includes $468 million relating to this facility as of December 31, 2011.
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.
ASSET IMPAIRMENTS
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.
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.
With the completion of the AE merger in the first quarter of 2011, FirstEnergy reorganized its management structure, which resulted
in changes to its operating segments (see Note 19, Segment Information). FirstEnergy's goodwill from the merger of $866 million
was assigned to the Competitive Energy Services segment based on expected synergies from the merger. FirstEnergy's reporting