Allegheny Power 2014 Annual Report Download - page 107

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Power Purchase Agreements
FirstEnergy evaluated its power purchase agreements and determined that certain NUG entities may be VIEs to the extent that
they own a plant that sells substantially all of its output to the applicable utilities and the contract price for power is correlated with
the plant’s variable costs of production. FirstEnergy maintains 17 long-term power purchase agreements with NUG entities that
were entered into pursuant to PURPA. FirstEnergy was not involved in the creation of, and has no equity or debt invested in, any
of these entities.
FirstEnergy has determined that for all but two of these NUG entities, it does not have variable interests in the entities or the entities
do not meet the criteria to be considered a VIE. FirstEnergy may hold a variable interest in the remaining two entities; however, it
applied the scope exception that exempts enterprises unable to obtain the necessary information to evaluate entities.
Because FirstEnergy has no equity or debt interests in the NUG entities, its maximum exposure to loss relates primarily to the
above-market costs incurred for power. FirstEnergy expects any above-market costs incurred to be recovered from customers.
Purchased power costs related to the contracts that may contain a variable interest were $185 million during the years ended
December 31, 2014 and 2013.
In 1998 the PPUC issued an order approving a transition plan for WP that disallowed certain costs, including an estimated amount
for an adverse power purchase commitment related to the NUG entity wherein WP may hold a variable interest, for which WP has
taken the scope exception. On November 20, 2012, WP entered into an agreement to terminate the adverse power purchase
commitment and accrued a pre-tax loss of $17 million. WP terminated the adverse commitment on January 1, 2013 and settled its
liability.
Sale and Leaseback
FirstEnergy has variable interests in certain sale and leaseback transactions. FirstEnergy is not the primary beneficiary of these
interests as it does not have control over the significant activities affecting the economics of the arrangements. See Note 6, Leases
for additional details.
FirstEnergy and FES are exposed to losses under their applicable sale and leaseback agreements upon the occurrence of certain
contingent events. The maximum exposure under these provisions represents the amount of casualty value payments due to the
lessor, by FirstEnergy and FES, upon the occurrence of specified casualty events. Net discounted lease payments to the lessor
would not be payable if the casualty loss payments were made. The following table discloses each company’s net exposure to loss
based upon the casualty value provisions as of December 31, 2014:
Maximum
Exposure Discounted Lease Payments, net Net Exposure
(In millions)
FirstEnergy $ 1,308 $ 1,050 $ 258
FES $ 1,217 $ 1,003 $ 214