Allegheny Power 2014 Annual Report Download - page 71

56
and OPEB plans. The impact of using the RP2000 mortality table with projection scale BB2D resulted in an increase to the projected
benefit obligation of $373 million and $21 million for the pension and OPEB plans, respectively, and was included in the 2014
pension and OPEB mark-to-market adjustment.
Based on discount rates of 4.25% for pension, 4.00% for OPEB and an estimated return on assets of 7.75%, FirstEnergy expects
its 2015 pre-tax net periodic postemployment benefit credits (including amounts capitalized) to be approximately $8 million (excluding
any actuarial mark-to-market adjustments that would be recognized in 2015). The following table reflects the portion of pension
and OPEB costs that were charged to expense, including any pension and OPEB mark-to-market adjustments, in the three years
ended December 31, 2014.
Postemployment Benefits Expense (Credits) 2014 2013 2012
(In millions)
Pension $ 939 $ (134) $ 596
OPEB (101) (196) (34)
Total $ 838 $ (330) $ 562
Health care cost trends continue to increase and will affect future OPEB costs. The 2014 composite health care trend rate assumptions
were approximately 7.0-7.5%, compared to 7.25-7.75% in 2013, gradually decreasing to 4.5% in later years. In determining
FirstEnergy’s trend rate assumptions, included are the specific provisions of FirstEnergy’s health care plans, the demographics and
utilization rates of plan participants, actual cost increases experienced in FirstEnergy’s health care plans, and projections of future
medical trend rates. The effect on the pension and OPEB costs from changes in key assumptions are as follows:
Increase in Net Periodic Benefit Costs from Adverse Changes in Key Assumptions
Assumption Adverse Change Pension OPEB Total
(In millions)
Discount rate Decrease by .25% 289 20 $ 309
Long-term return on assets Decrease by .25% 14 1 $ 15
Health care trend rate Increase by 1.0% N/A 22 $ 22
Please see Note 3, Pension and Other Postemployment Benefits for additional information
Long-Lived Assets
FirstEnergy reviews long-lived assets, including regulatory assets, for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. The recoverability of a long-lived asset is measured by
comparing its carrying value to the sum of undiscounted future cash flows expected to result from the use and eventual disposition
of the asset. If the carrying value is greater than the undiscounted cash flows, an impairment exists and a loss is recognized for
the amount by which the carrying value of the long-lived asset exceeds its estimated fair value. FirstEnergy utilizes the income
approach, based upon discounted cash flows to estimate fair value. See Note 1, Organization and Basis of Presentation.
FirstEnergy reviews the probability of recovery of regulatory assets at each balance sheet date and whenever new events occur.
Similarly, FirstEnergy records regulatory liabilities when a determination is made that a refund is probable or when ordered by a
commission. Factors that may affect probability include changes in the regulatory environment, issuance of a regulatory commission
order or passage of new legislation. If recovery of a regulatory asset is no longer probable, FirstEnergy will write off that regulatory
asset as a charge against earnings.
Asset Retirement Obligations
FE recognizes an ARO for the future decommissioning of its nuclear power plants and future remediation of other environmental
liabilities associated with all of its long-lived assets. The ARO liability represents an estimate of the fair value of FE's current obligation
related to nuclear decommissioning and the retirement or remediation of environmental liabilities of other assets. A fair value
measurement inherently involves uncertainty in the amount and timing of settlement of the liability. FE uses an expected cash flow
approach to measure the fair value of the nuclear decommissioning and environmental remediation ARO. This approach applies
probability weighting to discounted future cash flow scenarios that reflect a range of possible outcomes. The scenarios consider
settlement of the ARO at the expiration of the nuclear power plant's current license, settlement based on an extended license term
and expected remediation dates. The fair value of an ARO is recognized in the period in which it is incurred. The associated asset
retirement costs are capitalized as part of the carrying value of the long-lived asset and are depreciated over the life of the related
asset.
Conditional retirement obligations associated with tangible long-lived assets are recognized at fair value in the period in which they
are incurred if a reasonable estimate can be made, even though there may be uncertainty about timing or method of settlement.