Allegheny Power 2014 Annual Report Download - page 69

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54
decommissioning funding for Beaver Valley Unit 1 and Perry to the NRC for approval. FE and FES have also entered into a total
of $23 million in parental guaranties in support of the decommissioning of the spent fuel storage facilities located at the nuclear
facilities. As required by the NRC, FirstEnergy annually recalculates and adjusts the amount of its parental guaranties, as appropriate.
In August 2010, FENOC submitted an application to the NRC for renewal of the Davis-Besse operating license for an additional
twenty years, until 2037. An NRC ASLB granted an opportunity for a hearing on the Davis-Besse license renewal application to a
group of Intervenors, subject to admissible contentions. On September 29, 2014, the Intervenors filed a petition, accompanied by
a request to admit a new contention, to suspend the final licensing decision on Davis-Besse license renewal. These filings argue
that the NRC's Continued Storage Rule failed to make necessary safety findings regarding the technical feasibility of spent fuel
disposal and the adequacy of future repository capacity required by the Atomic Energy Act. On October 31, 2014, FENOC and the
NRC Staff filed their opposition to these requests.
As part of routine inspections of the concrete shield building at Davis-Besse in 2013, FENOC identified changes to the subsurface
laminar cracking condition originally discovered in 2011. These inspections revealed that the cracking condition had propagated a
small amount in select areas. FENOC's analysis confirms that the building continues to maintain its structural integrity, and its ability
to safely perform all of its functions. On September 2, 2014, the Intervenors in the Davis-Besse license renewal proceeding requested
that the ASLB introduce issues based on FENOC's plans to manage the subsurface laminar cracking in the Davis-Besse shield
building. On January 15, 2015, the ASLB denied this request. The NRC continues to evaluate FENOC's analysis of the shield
building.
On March 12, 2012, the NRC issued orders requiring safety enhancements at U.S. reactors based on recommendations from the
lessons learned Task Force review of the accident at Japan's Fukushima Daiichi nuclear power plant. These orders require additional
mitigation strategies for beyond-design-basis external events, and enhanced equipment for monitoring water levels in spent fuel
pools. The NRC also requested that licensees including FENOC: re-analyze earthquake and flooding risks using the latest information
available; conduct earthquake and flooding hazard walkdowns at their nuclear plants; assess the ability of current communications
systems and equipment to perform under a prolonged loss of onsite and offsite electrical power; and assess plant staffing levels
needed to fill emergency positions. These and other NRC requirements adopted as a result of the accident at Fukushima Daiichi
are likely to result in additional material costs from plant modifications and upgrades at FENOC's nuclear facilities.
ICG Litigation
On December 28, 2006, AE Supply and MP filed a complaint in the Court of Common Pleas of Allegheny County, Pennsylvania
against ICG, Anker WV, and Anker Coal for failure to supply coal required by a long term CSA. A non-jury trial was held from January
10, 2011 through February 1, 2011 regarding past and future damages incurred by AE Supply and MP as a result of the shortfall.
On May 2, 2011, the court entered a verdict in favor of AE Supply and MP for $104 million ($90 million in future damages and $14
million for past damages/interest) and on August 25, 2011, the verdict became final. On August 26, 2011, ICG filed a Notice of
Appeal with the Superior Court. On August 13, 2012, the Superior Court affirmed the $14 million past damages award against ICG
but vacated the $90 million future damages award. While the Superior Court found that defendants still owed future damages, it
remanded the calculation of those damages back to the trial court. Efforts by AE Supply and MP to have the Superior Court reconsider
this decision or challenge it at the Pennsylvania Supreme Court were denied. In the second quarter of 2013 the final past damage
award of $15.5 million (including interest) was recognized and the case was sent back to the trial court to recalculate future damages
only. A multi-day damages hearing was held and, on February 13, 2015, the trial court awarded AE Supply and MP approximately
$11.3 million in future damages and prejudgment interest. AE Supply and MP are evaluating the court’s decision and a possible
appeal. In a related proceeding before the same court, ICG appealed a ruling that prohibited their reliance on a price re-opener
clause to limit future damages. On January 30, 2015, the ICG appeal was denied and ICG has moved for reconsideration on this
ruling.
Other Legal Matters
There are various lawsuits, claims (including claims for asbestos exposure) and proceedings related to FirstEnergy's normal business
operations pending against FirstEnergy and its subsidiaries. The loss or range of loss in these matters is not expected to be material
to FirstEnergy or its subsidiaries. The other potentially material items not otherwise discussed above are described under Note 14,
Regulatory Matters of the Combined Notes to Consolidated Financial Statements.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
FirstEnergy prepares consolidated financial statements in accordance with GAAP. Application of these principles often requires a
high degree of judgment, estimates and assumptions that affect financial results. FirstEnergy's accounting policies require significant