Allegheny Power 2013 Annual Report Download - page 115

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6. LEASES
FirstEnergy leases certain generating facilities, office space and other property and equipment under cancelable and noncancelable
leases.
In 1987, OE sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on
the portions sold for basic lease terms of approximately 29 years. In that same year, CEI and TE also sold portions of their ownership
interests in Beaver Valley Unit 2 and Bruce Mansfield Units 1, 2 and 3 and entered into similar operating leases for lease terms of
approximately 30 years. During the terms of their respective leases, OE, CEI and TE are responsible, to the extent of their leasehold
interests, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance,
nuclear fuel, property taxes and decommissioning. They have the right, at the expiration of the respective basic lease terms, to
renew their respective leases. They also have the right to purchase the facilities at the expiration of the basic lease term or any
renewal term at a price equal to the fair market value of the facilities. The basic rental payments are adjusted when applicable
federal tax law changes.
In 2007, FG completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1 and entered
into operating leases for basic lease terms of approximately 33 years. FES has unconditionally and irrevocably guaranteed all of
FG’s obligations under each of the leases.
During 2008, NG purchased 56.8 MW of lessor equity interests in the OE 1987 sale and leaseback of the Perry Plant and
approximately 43.5 MW of lessor equity interests in the OE 1987 sale and leaseback of Beaver Valley Unit 2. In addition, NG
purchased 158.5 MW of lessor equity interests in the TE and CEI 1987 sale and leaseback of Beaver Valley Unit 2. The Ohio
Companies continue to lease these MW under their respective sale and leaseback arrangements and the related lease debt remains
outstanding.
During 2012, NG repurchased 70.1 MW of lessor equity interests in OE's existing sale and leaseback of Beaver Valley Unit 2 for
$129 million and FG acquired 441.9 MW of certain equity and other lessor interests in connection with the 1987 Bruce Mansfield
Plant sale and leaseback transactions for approximately $262 million. In March of 2013, FG acquired the remaining lessor interests
in the Bruce Mansfield sale and leaseback transaction for approximately $221 million. During 2013, NG purchased 12.2 MW of
lessor equity interests in OE's existing sale and leaseback of Beaver Valley Unit 2 for $23 million. Additionally, in February 2014,
NG purchased 47.7 MW of lessor equity interests in OE's existing sale and leaseback of Beaver Valley Unit 2 for approximately
$94 million.
Established by OE in 1996, PNBV purchased a portion of the lease obligation bonds issued on behalf of lessors in OE’s Perry Unit
1 and Beaver Valley Unit 2 sale and leaseback transactions. Similarly, CEI and TE established Shippingport in 1997 to purchase
the lease obligation bonds issued on behalf of lessors in their Bruce Mansfield Units 1, 2 and 3 sale and leaseback transactions.
During 2013, the investments held at Shippingport were liquidated. The PNBV arrangements effectively reduce lease costs related
to those transactions (see Note 8, Variable Interest Entities).
As of December 31, 2013, FirstEnergy's leasehold interest was 8.11% of Perry Unit 1 and 93.83% of Bruce Mansfield Unit 1. After
NG's purchase in February 2014, as discussed above, FirstEnergy's leasehold interest was 2.60% of Beaver Valley Unit 2.
Operating lease expense for 2013, 2012 and 2011, is summarized as follows:
(In millions) 2013 2012 2011
FirstEnergy $ 224 $ 291 $ 319
FES 97 140 154