Allegheny Power 2013 Annual Report Download - page 92

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77
FirstEnergy provides for depreciation on a straight-line basis at various rates over the estimated lives of property included in plant
in service. The respective annual composite rates for FirstEnergy's and FES' electric plant in 2013, 2012 and 2011 are shown in
the following table:
Annual Composite Depreciation Rate
2013 2012 2011
FirstEnergy 2.6% 2.5% 2.4%
FES 3.1% 3.1% 3.1%
Jointly Owned Plants
FE, through its subsidiary, AGC, owns an undivided 40% interest (1,200 MWs) in a 3,000 MW pumped storage, hydroelectric station
in Bath County, Virginia, operated by the 60% owner, Virginia Electric and Power Company, a non-affiliated utility. Net Property,
Plant and Equipment includes $672 million, excluding $28 million of CWIP, representing AGC's share in this facility as of December 31,
2013. AGC is obligated to pay its share of the costs of this jointly-owned facility in the same proportion as its ownership interest
using its own financing. AGC's share of direct expenses of the joint plant is included in FE's operating expenses on the Consolidated
Statement of Income.
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. AROs as of December 31, 2013, are described further in Note 14, Asset Retirement Obligations.
ASSET IMPAIRMENTS
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, an 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. FirstEnergy utilizes the income
approach, based upon discounted cash flows to estimate fair value. Impairments of long-lived assets recognized for the year ended
December 31, 2013, are described further in Note 11, Impairment of Long-Lived Assets.
Goodwill
In a business combination, the excess of the purchase price over the estimated fair values of the assets acquired and liabilities
assumed is recognized as goodwill. FirstEnergy evaluates goodwill for impairment annually on July 31 and more frequently if
indicators of impairment arise. In evaluating goodwill for impairment, FirstEnergy first assesses qualitative factors to determine
whether it is more likely than not (that is, likelihood of more than 50 percent) that the fair value of a reporting unit is less than its
carrying value (including goodwill). If FirstEnergy concludes that it is not more likely than not that the fair value of a reporting unit
is less than its carrying value, then no further testing is required. However, if FirstEnergy concludes that it is more likely than not
that the fair value of a reporting unit is less than its carrying value, then the two-step goodwill impairment test is performed to identify
a potential goodwill impairment and measure the amount of impairment to be recognized, if any.
FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution, Regulated
Transmission, Competitive Energy Services and Other/Corporate. Goodwill is allocated to these reportable segments based on the
original purchase price allocation of acquisitions. Total goodwill recognized by segment in FirstEnergy's Consolidated Balance Sheet
is as follows: