Allegheny Power 2013 Annual Report Download - page 58

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Guarantees and Other Assurances
Maximum
Exposure
(In millions)
FirstEnergy Guarantees on Behalf of its Subsidiaries
Energy and Energy-Related Contracts(1) $ 269
LOC (long-term debt) - interest coverage(2) 5
OVEC obligations 300
Deferred compensation arrangements 478
Other(3) 323
1,375
Subsidiaries’ Guarantees
Energy and Energy-Related Contracts 66
LOC (long-term debt) - interest coverage(2) 3
FES’ guarantee of NG’s nuclear property insurance 88
FES’ guarantee of FG’s sale and leaseback obligations 2,030
Other 10
2,197
Global Holding facility 350
Surety Bonds 264
LOCs(4) 128
742
Total Guarantees and Other Assurances $ 4,314
(1) Issued for open-ended terms, with a 10-day termination right by FirstEnergy.
(2) Reflects the interest coverage portion of LOCs issued in support of floating rate PCRBs with various maturities. The principal amount of floating-
rate PCRBs of $809 million is reflected in currently payable long-term debt on FirstEnergy's consolidated balance sheets.
(3) Primarily includes guarantees of $125 million and $11 million for nuclear decommissioning funding assurances and $161 million supporting
OE’s sale and leaseback arrangement, and $20 million for railcar leases.
(4) Includes $7 million issued for various terms pursuant to LOC capacity available under FirstEnergy’s revolving credit facilities, $96 million
pledged in connection with the sale and leaseback of Beaver Valley Unit 2 by OE and $25 million pledged in connection with the sale and
leaseback of Perry by OE.
FES' debt obligations are generally guaranteed by its subsidiaries, FG and NG, and FES guarantees the debt obligations of each
of FG and NG. Accordingly, present and future holders of indebtedness of FES, FG, and NG would have claims against each of
FES, FG, and NG, regardless of whether their primary obligor is FES, FG, or NG.
Collateral and Contingent-Related Features
In the normal course of business, FE and its subsidiaries routinely enter into physical or financially settled contracts for the sale
and purchase of electric capacity, energy, fuel, and emission allowances. Certain bilateral agreements and derivative instruments
contain provisions that require FE or its subsidiaries to post collateral. This collateral may be posted in the form of cash or credit
support with thresholds contingent upon FE's or its subsidiaries' credit rating from each of the major credit rating agencies. The
collateral and credit support requirements vary by contract and by counterparty. The incremental collateral requirement allows for
the offsetting of assets and liabilities with the same counterparty, where the contractual right of offset exists under applicable master
netting agreements.
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: