Allegheny Power 2014 Annual Report Download - page 143

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FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an obligation for such costs and can
reasonably estimate the amount of such costs. In cases where FirstEnergy determines that it is not probable, but reasonably possible
that it has a material obligation, it discloses such obligations and the possible loss or range of loss if such estimate can be made.
If it were ultimately determined that FirstEnergy or its subsidiaries have legal liability or are otherwise made subject to liability based
on any of the matters referenced above, it could have a material adverse effect on FirstEnergy's or its subsidiaries' financial condition,
results of operations and cash flows.
16. TRANSACTIONS WITH AFFILIATED COMPANIES
FES’ operating revenues, operating expenses, investment income and interest expenses include transactions with affiliated
companies. These affiliated company transactions include affiliated company power sales agreements between FirstEnergy's
competitive and regulated companies, support service billings, interest on affiliated company notes including the money pools and
other transactions.
FirstEnergy's competitive companies at times provide power through affiliated company power sales to meet a portion of the Utilities'
POLR and default service requirements. The primary affiliated company transactions for FES during the three years ended
December 31, 2014 are as follows:
FES 2014 2013 2012
(In millions)
Revenues:
Electric sales to affiliates $ 861 $ 652 $ 515
Other 6 6 16
Expenses:
Purchased power from affiliates 271 486 451
Fuel 1 — 2
Support services 619 619 570
Investment Income:
Interest income from FE 3 2 2
Interest Expense:
Interest expense to affiliates 3 4 10
Interest expense to FE 4 6 1
FirstEnergy does not bill directly or allocate any of its costs to any subsidiary company. Costs are allocated to FES and the Utilities
from FESC and FENOC. The majority of costs are directly billed or assigned at no more than cost. The remaining costs are for
services that are provided on behalf of more than one company, or costs that cannot be precisely identified and are allocated using
formulas developed by FESC and FENOC. The current allocation or assignment formulas used and their bases include multiple
factor formulas: each company’s proportionate amount of FirstEnergy’s aggregate direct payroll, number of employees, asset
balances, revenues, number of customers, other factors and specific departmental charge ratios. Management believes that these
allocation methods are reasonable. Intercompany transactions are generally settled under commercial terms within thirty days. FES
purchases the entire output of the generation facilities owned by FG and NG, and may purchase the uncommitted output of AE
Supply, as well as the output relating to leasehold interests of OE and TE in certain of those facilities that are subject to sale and
leaseback arrangements, and pursuant to full output, cost-of-service PSAs.
FES and the Utilities are parties to an intercompany income tax allocation agreement with FirstEnergy and its other subsidiaries
that provides for the allocation of consolidated tax liabilities. Net tax benefits attributable to FirstEnergy are generally reallocated
to the subsidiaries of FirstEnergy that have taxable income. That allocation is accounted for as a capital contribution to the company
receiving the tax benefit (see Note 5, Taxes).