Allegheny Power 2013 Annual Report Download - page 117

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7. INTANGIBLE ASSETS
As of December 31, 2013, intangible assets classified in Other Deferred Charges on FirstEnergy’s Consolidated Balance Sheet,
include the following:
Intangible Assets Amortization Expense
Actual Estimated
(In millions) Gross
Accumulated
Amortization Net 2013 2014 2015 2016 2017 2018 Thereafter
NUG contracts(1)(2) $ 124 $ 15 $ 109 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 84
OVEC(1) 54 5 49 2 2 2 2 2 2 39
Coal contracts(1)(3) 556 222 334 62 55 51 51 45 30 49
FES customer contracts 147 52 95 17 17 17 17 17 14 13
Energy contracts(1) 136 135 1 14 1 — — — — —
$ 1,017 $ 429 $ 588 $ 100 $ 80 $ 75 $ 75 $ 69 $ 51 $ 185
(1) Fair value measurements of intangible assets recorded in connection with the Allegheny merger (see Note 21, Merger).
(2) NUG contracts are subject to regulatory accounting and their amortization does not impact earnings.
(3) A gross amount of $102 million ($53 million, net) of the coal contracts was recorded with a regulatory offset and the amortization does not
impact earnings.
FES acquired certain customer contract rights which were capitalized as intangible assets. These rights allow FES to supply electric
generation to customers, and the recorded value is being amortized ratably over the term of the related contracts.
8. VARIABLE INTEREST ENTITIES
FirstEnergy performs qualitative analyses to determine whether a variable interest gives FirstEnergy a controlling financial interest
in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of
a VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could
potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
FirstEnergy consolidates a VIE when it is determined that it is the primary beneficiary.
VIEs included in FirstEnergy’s consolidated financial statements are: FEV's joint venture in the Signal Peak mining and coal
transportation operations, a portion of which was sold on October 18, 2011, and resulted in deconsolidation; the PNBV and
Shippingport capital trusts that were created to refinance debt originally issued in connection with sale and leaseback transactions;
wholly-owned limited liability companies of the Ohio Companies (as described below); wholly owned limited liability companies of
JCP&L created to sell transition bonds to securitize the recovery of JCP&L’s bondable stranded costs and special purpose limited
liability companies created to issue environmental control bonds that were used to construct environmental control facilities (see
Note 12, Capitalization for additional details).
The caption noncontrolling interest within the consolidated financial statements is used to reflect the portion of a VIE that FirstEnergy
consolidates, but does not own. The change in noncontrolling interest within the Consolidated Balance Sheets during the year
ended December 31, 2013, was primarily due to $7 million of distributions to owners. As of December 31, 2013, the caption
noncontrolling interest on the consolidated Balance Sheets was primarily related to PNBV.
In order to evaluate contracts for consolidation treatment and entities for which FirstEnergy has an interest, FirstEnergy aggregates
variable interests into the following categories based on similar risk characteristics and significance.
Ohio Securitization
In September 2012, the Ohio Companies formed CEI Funding LLC, OE Funding LLC and TE Funding LLC, respectively, as separate,
wholly-owned limited liability SPEs. Each SPE is a bankruptcy-remote, special purpose limited liability company that is restricted
to activities necessary to issue phase-in recovery bonds and perform other functions in connection with the bond issuance. Creditors
of FirstEnergy and the Ohio Companies have no recourse to any assets or revenues of the SPEs. The phase-in recovery bonds
issued by these SPEs are payable only from, and secured by, phase-in recovery property held by the SPEs (i.e. the right to impose,
charge and collect irrevocable non-bypassable usage-based charges payable by retail electric customers in the service territories
of the Ohio Companies) and the bondholder has no recourse to the general credit of FirstEnergy or any of the Ohio Companies.
The SPEs are considered VIEs and each one is consolidated into its applicable utility. In June 2013, the SPEs formed by the Ohio
Companies issued approximately $445 million of pass-through trust certificates supported by phase-in recovery bonds with a
weighted average coupon of 2.48% to securitize the recovery of certain all electric customer heating discounts, fuel and purchased
power regulatory assets. The phase-in recovery bonds were sold to a trust that concurrently sold a like aggregate amount of its
pass through trust certificates to public investors. The proceeds were primarily used to redeem $410 million in existing taxable
bonds of the Ohio Companies with a weighted average coupon of 5.71%, including $30 million of make-whole premiums. The