Allegheny Power 2013 Annual Report Download - page 150

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Bilateral agreements and derivative instruments entered into by FE and its subsidiaries have margining provisions that require
posting of collateral. Based on FES' power portfolio exposure as of December 31, 2013, FES has posted collateral of $142 million
and AE supply has posted collateral of $8 million. The Regulated Distribution segment has posted collateral of $11 million.
These credit-risk-related contingent features stipulate that if the subsidiary were to be downgraded or lose its investment grade
credit rating (based on its senior unsecured debt rating), it would be required to provide additional collateral. Depending on the
volume of forward contracts and future price movements, higher amounts for margining could be required.
Subsequent to the occurrence of a senior unsecured credit rating downgrade to below S&P's BBB- and Moody's Baa3, or a “material
adverse event,” the immediate posting of collateral or accelerated payments may be required of FE or its subsidiaries. The following
table discloses the additional credit contingent contractual obligations that may be required under certain events as of December 31,
2013:
Collateral Provisions FES AE Supply Utilities Total
(In millions)
Split Rating (One rating agency's rating below investment grade) $ 496 $ 6 $ 53 $ 555
BB+/Ba1 Credit Ratings $ 542 $ 6 $ 53 $ 601
Full impact of credit contingent contractual obligations $ 777 $ 58 $ 88 $ 923
Excluded from the preceding chart are the potential collateral obligations due to affiliate transactions between the Regulated
Distribution segment and Competitive Energy Services segment. As of December 31, 2013, neither FES nor AE Supply had any
collateral posted with their affiliates. In the event of a senior unsecured credit rating downgrade to below S&P's BB- or Moody's
Ba3, FES and AE Supply would be required to post $66 million and $2 million, respectively.
OTHER COMMITMENTS AND CONTINGENCIES
FirstEnergy is a guarantor under a syndicated three-year senior secured term loan facility due October 18, 2015, under which Global
Holding borrowed $350 million. Proceeds from the loan were used to repay Signal Peak's and Global Rail's maturing $350 million
syndicated two-year senior secured term loan facility. In addition to FirstEnergy, Signal Peak, Global Rail, Global Mining Group,
LLC and Global Coal Sales Group, LLC, each being a direct or indirect subsidiary of Global Holding, have also provided their joint
and several guaranties of the obligations of Global Holding under the new facility.
In connection with the current facility, 69.99% of Global Holding's direct and indirect membership interests in Signal Peak, Global
Rail and their affiliates along with FEV's and WMB Marketing Ventures, LLC's respective 33-1/3% membership interests in Global
Holding, are pledged to the lenders under the current facility as collateral.
FirstEnergy, FEV and the other two co-owners of Global Holding, Pinesdale LLC, a Gunvor Group, Ltd. subsidiary, and WMB
Marketing Ventures, LLC, have agreed to use their best efforts to refinance the new facility no later than July 20, 2015, which reflects
the terms of an amendment dated August 14, 2013, on a non-recourse basis so that FirstEnergy's guaranty can be terminated and/
or released. If that refinancing does not occur, FirstEnergy may require each co-owner to lend to Global Holding, on a pro rata
basis, funds sufficient to prepay the new facility in full. In lieu of providing such funding, the co-owners, at FirstEnergy's option, may
provide their several guaranties of Global Holding's obligations under the facility. FirstEnergy receives a fee for providing its guaranty,
payable semiannually, which accrued at a rate of 4% through December 31, 2012, and accrues at a rate of 5% from January 1,
2013 through October 18, 2015, which amends the rate in the prior agreement, in each case based upon the average daily outstanding
aggregate commitments under the facility for such semiannual period.
ENVIRONMENTAL MATTERS
Various federal, state and local authorities regulate FirstEnergy with regard to air and water quality and other environmental matters.
Compliance with environmental regulations could have a material adverse effect on FirstEnergy's earnings and competitive position
to the extent that FirstEnergy competes with companies that are not subject to such regulations and, therefore, do not bear the risk
of costs associated with compliance, or failure to comply, with such regulations.
CAA Compliance
FirstEnergy is required to meet federally-approved SO2 and NOx emissions regulations under the CAA. FirstEnergy complies with
SO2 and NOx reduction requirements under the CAA and SIP(s) by burning lower-sulfur fuel, utilizing combustion controls and post-
combustion controls, generating more electricity from lower or non-emitting plants and/or using emission allowances.
In July 2008, three complaints representing multiple plaintiffs were filed against FG in the U.S. District Court for the Western District
of Pennsylvania seeking damages based on air emissions from the coal-fired Bruce Mansfield Plant. Two of these complaints also
seek to enjoin the Bruce Mansfield Plant from operating except in a “safe, responsible, prudent and proper manner.” One complaint