Allegheny Power 2013 Annual Report Download - page 59

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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.
OFF-BALANCE SHEET ARRANGEMENTS
FES and certain of the Ohio Companies have obligations that are not included on their Consolidated Balance Sheets related to the
Perry Unit 1, Beaver Valley Unit 2, and 2007 Bruce Mansfield Plant sale and leaseback arrangements, which are satisfied through
operating lease payments. The total present value of these sale and leaseback operating lease commitments, net of trust investments,
was approximately $1.1 billion as of December 31, 2013, of which approximately $1 billion relates to the 2007 Bruce Mansfield sale
and leaseback arrangement expiring in 2040, and approximately $75 million relates to the Perry Unit 1 and Beaver Valley Unit 2
sale and leaseback arrangements expiring in 2016 and 2017, respectively. From time to time FirstEnergy and these companies
enter into discussions with certain parties to the arrangements regarding acquisition of owner participant and other interests.
However, FirstEnergy cannot provide assurance that any such acquisitions will occur on satisfactory terms or at all.
During the second quarter of 2013, in connection with the Perry sale and leaseback arrangement, OE provided notice to return the
leased interests in the plant to the owner participants (representing an aggregate of approximately 103 MWs of the 1,268 MWs of
total capacity of the Perry Plant) at the expiration of the lease (May 2016) in lieu of extending the lease or buying the interest at the
then appraised FMV. During 2013, NG purchased lessor equity interests in OE's existing sale and leaseback of Beaver Valley Unit
2 for $23 million. Additionally, in February 2014, NG purchased lessor equity interests in OE's existing sale and leaseback of Beaver
Valley Unit 2 for approximately $94 million.
MARKET RISK INFORMATION
FirstEnergy uses various market risk sensitive instruments, including derivative contracts, primarily to manage the risk of price and
interest rate fluctuations. FirstEnergy’s Risk Policy Committee, comprised of members of senior management, provides general
oversight for risk management activities throughout the company.
Commodity Price Risk
FirstEnergy is exposed to financial risks resulting from fluctuating commodity prices, including prices for electricity, natural gas, coal
and energy transmission. FirstEnergy's Risk Management Committee is responsible for promoting the effective design and
implementation of sound risk management programs and oversees compliance with corporate risk management policies and