Allegheny Power 2013 Annual Report Download - page 79

64
Postemployment Benefits Expense (Credits) 2013 2012 2011
(In millions)
Pensions $ (134) $ 596 $ 555
OPEB (196) (34) (112)
Total $ (330) $ 562 $ 443
Health care cost trends continue to increase and will affect future OPEB costs. The 2013 composite health care trend rate assumptions
were approximately 7.25-7.75%, compared to 7.5-8.0% in 2012, gradually decreasing to 5% in later years. In determining
FirstEnergy’s trend rate assumptions, included are the specific provisions of FirstEnergy’s health care plans, the demographics and
utilization rates of plan participants, actual cost increases experienced in FirstEnergy’s health care plans, and projections of future
medical trend rates. The effect on the pension and OPEB costs from changes in key assumptions are as follows:
Increase in Net Periodic Benefit Costs from Adverse Changes in Key Assumptions
Assumption Adverse Change Pensions OPEB Total
(In millions)
Discount rate Decrease by .25% 250 19 $ 269
Long-term return on assets Decrease by .25% 15 1 $ 16
Health care trend rate Increase by 1.0% N/A 24 $ 24
Please see Note 3, Pensions and Other Postemployment Benefits for additional information
Long-Lived Assets
FirstEnergy reviews long-lived assets, including regulatory assets, for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. The recoverability of a long-lived asset is measured by
comparing its carrying value to the sum of undiscounted future cash flows expected to result from the use and eventual disposition
of the asset. If the carrying value is greater than the undiscounted cash flows, impairment exists and a loss is recognized for the
amount by which the carrying value of the long-lived asset exceeds its estimated fair value. See Note 11, Impairment of Long-Lived
Assets for additional information.
Asset Retirement Obligations
FE recognizes an ARO for the future decommissioning of its nuclear power plants and future remediation of other environmental
liabilities associated with all of its long-lived assets. The ARO liability represents an estimate of the fair value of FE's current obligation
related to nuclear decommissioning and the retirement or remediation of environmental liabilities of other assets. A fair value
measurement inherently involves uncertainty in the amount and timing of settlement of the liability. FE uses an expected cash flow
approach to measure the fair value of the nuclear decommissioning and environmental remediation ARO. This approach applies
probability weighting to discounted future cash flow scenarios that reflect a range of possible outcomes. The scenarios consider
settlement of the ARO at the expiration of the nuclear power plant's current license, settlement based on an extended license term
and expected remediation dates. The fair value of an ARO is recognized in the period in which it is incurred. The associated asset
retirement costs are capitalized as part of the carrying value of the long-lived asset and are depreciated over the life of the related
asset. ARO's as of December 31, 2013, are described further in Note 14, Asset Retirement Obligations.
Income Taxes
FirstEnergy records income taxes in accordance with the liability method of accounting. Deferred income taxes reflect the net tax
effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts recognized for tax purposes. Investment tax credits, which were deferred when utilized, are being amortized over the
recovery period of the related property. Deferred income tax liabilities related to temporary tax and accounting basis differences
and tax credit carryforward items are recognized at the statutory income tax rates in effect when the liabilities are expected to be
paid. Deferred tax assets are recognized based on income tax rates expected to be in effect when they are settled.
FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements. We account for uncertain income tax
positions using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement
attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized
upon settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded.
Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition
threshold. The Company recognizes interest expense or income related to uncertain tax positions. That amount is computed by
applying the applicable statutory interest rate to the difference between the tax position recognized and the amount previously taken
or expected to be taken on the tax return. FirstEnergy includes net interest and penalties in the provision for income taxes. See
Note 5, Taxes for additional information.