Allegheny Power 2014 Annual Report Download - page 106

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8. VARIABLE INTEREST ENTITIES
FirstEnergy performs qualitative analyses based on powers and benefits to determine whether a variable interest gives FirstEnergy
a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both power
and benefits, such that an entity has (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic
performance, and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive
benefits from the entity that could potentially be significant to the VIE. FirstEnergy consolidates a VIE when it is determined that it
is the primary beneficiary.
VIEs included in FirstEnergy’s consolidated financial statements are: the PNBV and Shippingport capital trusts that were created
to refinance debt originally issued in connection with sale and leaseback transactions; wholly-owned limited liability companies of
the Ohio Companies (as described below); wholly owned limited liability companies of JCP&L created to sell transition bonds to
securitize the recovery of JCP&L’s bondable stranded costs and special purpose limited liability companies at MP and PE created
to issue environmental control bonds that were used to construct environmental control facilities (see Note 11, Capitalization for
additional details).
The caption noncontrolling interest within the consolidated financial statements is used to reflect the portion of a VIE that FirstEnergy
consolidates, but does not own.
In order to evaluate contracts for consolidation treatment and entities for which FirstEnergy has an interest, FirstEnergy aggregates
variable interests into the following categories based on similar risk characteristics and significance.
Ohio Securitization
In September 2012, the Ohio Companies formed CEI Funding LLC, OE Funding LLC and TE Funding LLC, respectively, as separate,
wholly-owned limited liability SPEs. The phase-in recovery bonds issued by these SPEs are payable only from, and secured by,
phase-in recovery property owned by the SPEs (i.e. the right to impose, charge and collect irrevocable non-bypassable usage-
based charges payable by retail electric customers in the service territories of the Ohio Companies) and the bondholder has no
recourse to the general credit of FirstEnergy or any of the Ohio Companies. Each of the Ohio Companies, as servicer of its respective
SPE, manages and administers the phase-in recovery property including the billing, collection and remittance of usage-based
charges payable by retail electric customers. In the aggregate, the Ohio Companies are entitled to annual servicing fees of $445
thousand that are recoverable through the usage-based charges. The SPEs are considered VIEs and each one is consolidated
into its applicable utility.
Mining Operations
FEV holds a 33-1/3% equity ownership in Global Holding, the holding company for a joint venture in the Signal Peak mining and
coal transportation operations with coal sales in U.S. and international markets. FEV is not the primary beneficiary of the joint
venture, as it does not have control over the significant activities affecting the joint venture's economic performance. FEV's ownership
interest is subject to the equity method of accounting.
Previously FEV held a 50% equity ownership in Global Holding, of which a 16.7% interest was sold in 2011. In conjunction with the
2011 sale, a subsidiary of Global Holding was given the right to put up to 2 million tons annually from the Signal Peak mine to FG
through 2024. Such subsidiary did not exercise their right under the put for 2014 or 2015.
Trusts
FirstEnergy's consolidated financial statements include PNBV and Shippingport. FirstEnergy used debt and available funds to
purchase the notes issued by PNBV and Shippingport for the purchase of lease obligation bonds. Ownership of PNBV includes a
3% equity interest by an unaffiliated third party and a 3% equity interest held by OES Ventures, a wholly owned subsidiary of OE.
During 2013, the investments held at Shippingport were liquidated.
PATH-WV
PATH is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties
regarding specified property and the series profits and losses associated with such property. A subsidiary of FE owns 100% of the
Allegheny Series (PATH-Allegheny) and 50% of the West Virginia Series (PATH-WV), which is a joint venture with a subsidiary of
AEP. FirstEnergy is not the primary beneficiary of PATH-WV, as it does not have control over the significant activities affecting the
economics of the portion of the PATH project that was to be constructed by PATH-WV. FirstEnergy's ownership interest in PATH-
WV is subject to the equity method of accounting.
On August 24, 2012, PJM removed the PATH project from its long-range expansion plans. See Note 14, Regulatory Matters, for
additional information on the abandonment of PATH.