Allegheny Power 2013 Annual Report Download - page 93

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Goodwill
Regulated
Distribution
Regulated
Transmission
Competitive
Energy
Services
Other/
Corporate Consolidated
(In millions)
Balance as of December 31, 2012 $ 5,025 $ 526 $ 896 $ — $ 6,447
Classification to Assets Held for Sale(1) — — (29) — (29)
West Virginia asset transfer 67 — (67) — —
Balance as of December 31, 2013 $ 5,092 $ 526 $ 800 $ — $ 6,418
(1) See Note 20, Discontinued Operations and Assets Held for Sale.
As of December 31, 2013 and 2012, total goodwill recognized by FES was $23 million and $24 million, respectively. Neither
FirstEnergy nor FES has accumulated impairment charges as of December 31, 2013.
Annual impairment testing is conducted as of July 31 of each year and for 2013, 2012 and 2011, the analysis indicated no impairment
of goodwill. FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission segments
as of July 31, 2013. FirstEnergy assessed economic, industry and market considerations in addition to overall financial performance
of its Regulated Distribution and Regulated Transmission segments. It was determined that the fair values of these segments were,
more likely than not, greater than their carrying values.
Due to excess generation supply in the region, which has caused a period of protracted low power and capacity prices impacting
Competitive operations, FirstEnergy performed a quantitative assessment of the Competitive Energy Services segment as of July
31, 2013. The fair value of the Competitive Energy Services segment was calculated using a discounted cash flow analysis which
included the effects of the potential sale of certain hydroelectric power stations and the West Virginia asset transfer. Assumptions
used in the analysis include discount rates, market performance, projected operating and capital cash flows and the fair value of
debt. The estimated fair value of the Competitive Energy Services segment exceeded its carrying amount (including goodwill) as
of July 31, 2013. Continued weak economic conditions, lower than forecasted power and capacity prices, and revised environmental
requirements could have a negative impact on future goodwill assessments.
In October of 2013, in connection with the closing of the West Virginia asset transfer, as discussed in Note 15, Regulatory Matters,
FirstEnergy transferred approximately $67 million of goodwill, net from the Competitive Energy Services segment to the Regulated
Distribution segment based on the relative fair value of the generating plants to the fair value of the respective segment.
Investments
At the end of each reporting period, FirstEnergy evaluates its investments for OTTI. Investments classified as AFS securities are
evaluated to determine whether a decline in fair value below the cost basis is other than temporary. FirstEnergy first considers its
intent and ability to hold an equity security until recovery and then considers, among other factors, the duration and the extent to
which the security's fair value has been less than its cost and the near-term financial prospects of the security issuer when evaluating
an investment for impairment. For debt securities, FirstEnergy considers its intent to hold the securities, the likelihood that it will be
required to sell the securities before recovery of its cost basis and the likelihood of recovery of the securities' entire amortized cost
basis. If the decline in fair value is determined to be other than temporary, the cost basis of the securities is written down to fair
value.
Unrealized gains and losses on AFS securities are recognized in AOCI. However, unrealized losses held in the NDTs of FES, OE
and TE are recognized in earnings since the trust arrangements, as they are currently defined, do not meet the required ability and
intent to hold criteria in consideration of OTTI. In 2013, 2012 and 2011, FirstEnergy recognized $90 million, $16 million and $19
million, respectively, of OTTI. During the same periods, FES recognized OTTI of $79 million, $14 million and $17 million, respectively.
The fair values of FirstEnergy’s investments are disclosed in Note 9, Fair Value Measurements.
INVENTORY
Materials and supplies inventory includes fuel inventory and the distribution, transmission and generation plant materials, net of
reserve for excess and obsolete inventory. Materials are generally charged to inventory at weighted average cost when purchased
and expensed or capitalized, as appropriate, when used or installed. Fuel inventory is accounted for at weighted average cost when
purchased, and recorded to fuel expense when consumed.
NEW ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements not yet effective are not expected to have a material effect on the financial statements of FE or
its subsidiaries.