Allegheny Power 2013 Annual Report Download - page 118

103
securitization effectively allows for the recovery of the make-whole premiums and transactional costs through the imposition of non-
bypassable phase-in recovery charges on retail electric customers of the Ohio Companies pursuant to Ohio law. The $410 million
of redemption consisted of original maturities of $225 million due 2013, $150 million due 2015 and $35 million due 2020. The make-
whole premiums paid are included in cash flows from operating activities in the Consolidated Statement of Cash Flows.
Mining Operations
In 2008, FEV entered into a joint venture in the Signal Peak mining and coal transportation operations near Roundup, Montana.
FEV made equity investments totaling $134 million in exchange for a 50% economic interest in the joint venture. On October 18,
2011, Pinesdale LLC, a subsidiary of Gunvor Group, Ltd., purchased a one-third interest in the Signal Peak joint venture in which
FEV held a 50% interest. As part of the transaction, FirstEnergy received $258 million in proceeds and retained a 33-1/3% equity
ownership in Global Holding, the holding company for the joint venture. The sale resulted in a pre-tax gain of approximately $569
million ($370 million after-tax), which included $379 million from the remeasurement of FEV's retained investment. The gain attributed
to the retained investment remeasurement is being amortized as coal is extracted from the mine on a units of production method.
Prior to the sale, FirstEnergy consolidated this joint venture since FEV was determined to be the primary beneficiary of the VIE. As
a result of the sale, FEV was no longer determined to be the primary beneficiary and its retained 33-1/3%% interest is subject to
the equity method of accounting.
Trusts
FirstEnergy's consolidated financial statements include PNBV and Shippingport. FirstEnergy used debt and available funds to
purchase the notes issued by PNBV and Shippingport for the purchase of lease obligation bonds. Ownership of PNBV includes a
3% equity interest by an unaffiliated third party and a 3% equity interest held by OES Ventures, a wholly owned subsidiary of OE.
During 2013, the investments held at Shippingport were liquidated.
PATH-WV
PATH is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties
regarding specified property and the series profits and losses associated with such property. A subsidiary of AE owns 100% of the
Allegheny Series (PATH-Allegheny) and 50% of the West Virginia Series (PATH-WV), which is a joint venture with a subsidiary of
AEP. FirstEnergy is not the primary beneficiary of PATH-WV, as it does not have control over the significant activities affecting the
economics of the portion of the PATH project that was to be constructed by PATH-WV.
On August 24, 2012, PJM removed the PATH project from its long-range expansion plans. See Note 15, Regulatory Matters, for
additional information on the abandonment of PATH.
Power Purchase Agreements
FirstEnergy evaluated its power purchase agreements and determined that certain NUG entities may be VIEs to the extent that
they own a plant that sells substantially all of its output to the applicable utilities and the contract price for power is correlated with
the plant’s variable costs of production. FirstEnergy maintains 21 long-term power purchase agreements with NUG entities that
were entered into pursuant to PURPA. FirstEnergy was not involved in the creation of, and has no equity or debt invested in, any
of these entities.
FirstEnergy has determined that for all but two of these NUG entities, it does not have variable interests in the entities or the entities
do not meet the criteria to be considered a VIE. FirstEnergy may hold variable interests in the remaining two entities; however, it
applied the scope exception that exempts enterprises unable to obtain the necessary information to evaluate entities.
Because FirstEnergy has no equity or debt interests in the NUG entities, its maximum exposure to loss relates primarily to the
above-market costs incurred for power. FirstEnergy expects any above-market costs incurred to be recovered from customers.
Purchased power costs related to the contracts that may contain a variable interest were $185 million and $253 million during the
years ended December 31, 2013 and 2012, respectively.
In 1998 the PPUC issued an order approving a transition plan for WP that disallowed certain costs, including an estimated amount
for an adverse power purchase commitment related to the NUG entity wherein WP may hold a variable interest, for which WP has
taken the scope exception. On November 20, 2012, WP entered into an agreement to terminate the adverse power purchase
commitment and accrued a pre-tax loss of $17 million. WP terminated the adverse commitment on January 1, 2013. WP's liability
for this adverse purchase power commitment was $60 million, which included the $17 million accrual and was paid in January 2013.