Allegheny Power 2013 Annual Report Download - page 89

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary
of Terms.
FirstEnergy Corp. was organized under the laws of the State of Ohio in 1996. FirstEnergy’s principal business is the holding, directly
or indirectly, of all of the outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of
OE), JCP&L, ME, PN, FES and its principal subsidiaries (FG and NG), FESC and during 2013, AE and its principal subsidiaries
(AE Supply, AGC, MP, PE, WP, FET and its principal subsidiaries (ATSI, TrAIL and PATH), and AESC). In addition, FirstEnergy
holds all of the outstanding common stock of other direct subsidiaries including: FirstEnergy Properties, Inc., FEV, FENOC, FELHC,
Inc., and GPU Nuclear, Inc. As of January 1, 2014, AE merged with and into FirstEnergy Corp., therefore, AE's direct subsidiaries,
AE Supply, MP, PE, WP and FET, became direct subsidiaries of FirstEnergy Corp.
FirstEnergy follows GAAP and complies with the related regulations, orders, policies and practices prescribed by the SEC, FERC,
and, as applicable, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The preparation of
financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results could
differ from these estimates. The reported results of operations are not indicative of results of operations for any future period. FE
and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial
statements were issued.
FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities
for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation unless
certain regulatory restrictions and rules apply. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary
beneficiary (see Note 8, Variable Interest Entities). Investments in affiliates over which FE and its subsidiaries have the ability to
exercise significant influence, but with respect to which they are not the primary beneficiary and do not exercise control, follow the
equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated
Balance Sheets and the percentage share of the entity’s earnings is reported in the Consolidated Statements of Income and
Comprehensive Income. These Notes to the Consolidated Financial Statements are combined for FirstEnergy and FES.
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications include, but
are not limited to, the classification of discontinued operations associated with our sale of hydro assets discussed in additional detail
in Note 20, Discontinued Operations and Assets Held for Sale. Additionally, amounts collected in rates above actual charges related
to asset removal have been reclassified as a regulatory liability which resulted in an increase to total assets and noncurrent liabilities
of approximately $88 million.
ACCOUNTING FOR THE EFFECTS OF REGULATION
FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities, ATSI, PATH and
TrAIL since their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-based
and can be charged to and collected from customers.
FirstEnergy records regulatory assets and liabilities that result from the regulated rate-making process that would not be recorded
under GAAP for non-regulated entities. These assets and liabilities are amortized in the Consolidated Statements of Income
concurrent with the recovery or refund through customer rates. FirstEnergy believes that it is probable that its regulatory assets
and liabilities will be recovered and settled, respectively, through future rates. FirstEnergy and the Utilities net their regulatory assets
and liabilities based on federal and state jurisdictions.
The following table provides information about the composition of net regulatory assets as of December 31, 2013 and December 31,
2012, and the changes during the year ended December 31, 2013: