Allegheny Power 2014 Annual Report Download - page 104

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6. LEASES
FirstEnergy leases certain generating facilities, office space and other property and equipment under cancelable and noncancelable
leases.
In 1987, OE sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on
the portions sold for basic lease terms of approximately 29 years, expiring in 2016. In that same year, CEI and TE also sold portions
of their ownership interests in Beaver Valley Unit 2 and Bruce Mansfield Units 1, 2 and 3 and entered into similar operating leases
for lease terms of approximately 30 years expiring in 2017. During the terms of their respective leases, OE, CEI and TE are
responsible, to the extent of their leasehold interests, for costs associated with the units including construction expenditures,
operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. They have the right, at the
expiration of the respective basic lease terms, to renew their respective leases. They also have the right to purchase the facilities
at the expiration of the basic lease term or any renewal term at a price equal to the fair market value of the facilities. The basic
rental payments are adjusted when applicable federal tax law changes.
In 2007, FG completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1 and entered
into operating leases for basic lease terms of approximately 33 years, expiring in 2040. FES has unconditionally and irrevocably
guaranteed all of FG’s obligations under each of the leases. In 2013, FG acquired the remaining lessor interests in Bruce Mansfield
Units 1, 2 and 3, which were part of the leases entered into by CEI and TE in 1987.
In February 2014, NG purchased 47.7 MW of lessor equity interests in OE's existing sale and leaseback of Beaver Valley Unit 2
for approximately $94 million. On June 24, 2014, OE exercised its irrevocable right to repurchase from the remaining owner
participants the lessors' interests in Beaver Valley Unit 2 at the end of the lease term (June 1, 2017), which right to repurchase was
assigned to NG. Additionally, on June 24, 2014, NG entered into a purchase agreement with an owner participant to purchase its
lessor equity interests of the remaining non-affiliated leasehold interest in Perry Unit 1 on May 23, 2016, which is just prior to the
end of the lease term. In November 2014, NG repurchased 55.3 MW of lessor equity interests in OE's existing sale and leaseback
of Perry Unit 1 for approximately $87 million. OE and TE continue to lease these MW under their respective sale and leaseback
arrangements and the related lease debt remains outstanding.
Established by OE in 1996, PNBV purchased a portion of the lease obligation bonds issued on behalf of lessors in OE’s Perry Unit
1 and Beaver Valley Unit 2 sale and leaseback transactions. Similarly, CEI and TE established Shippingport in 1997 to purchase
the lease obligation bonds issued on behalf of lessors in their Bruce Mansfield Units 1, 2 and 3 sale and leaseback transactions.
During 2013, the investments held at Shippingport were liquidated. The PNBV arrangements effectively reduce lease costs related
to those transactions (see Note 8, Variable Interest Entities).
As of December 31, 2014, FirstEnergy's leasehold interest was 3.75% of Perry Unit 1, 93.83% of Bruce Mansfield Unit 1 and 2.60%
of Beaver Valley Unit 2.
Operating lease expense for 2014, 2013 and 2012, is summarized as follows:
(In millions) 2014 2013 2012
FirstEnergy 199 224 291
FES 95 97 140
The future minimum capital lease payments as of December 31, 2014 are as follows:
Capital leases FirstEnergy FES
(In millions)
2015 $ 39 $ 6
2016 35 6
2017 30 5
2018 23 2
2019 18 —
Years thereafter 40 —
Total minimum lease payments 185 19
Interest portion (25) (1)
Present value of net minimum lease payments 160 18
Less current portion 34 5
Noncurrent portion $ 126 $ 13