Allegheny Power 2014 Annual Report Download - page 81

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66
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary
of Terms.
FirstEnergy Corp. was organized under the laws of the State of Ohio in 1996. FE’s principal business is the holding, directly or
indirectly, of all of the outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE),
JCP&L, ME, PN, FESC, FES and its principal subsidiaries (FG and NG), AE Supply, MP, PE, WP, FET and its principal subsidiaries
(ATSI and TrAIL), and AESC. In addition, FE holds all of the outstanding common stock of other direct subsidiaries including:
FirstEnergy Properties, Inc., FEV, FENOC, FELHC, Inc., GPU Nuclear, Inc., and AE Ventures, Inc.
FirstEnergy follows GAAP and complies with the related regulations, orders, policies and practices prescribed by the SEC, FERC,
and, as applicable, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The preparation of
financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results could
differ from these estimates. The reported results of operations are not necessarily indicative of results of operations for any future
period. FE and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the
financial statements were issued.
FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities
for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation unless
certain regulatory restrictions and rules apply. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary
beneficiary (see Note 8, Variable Interest Entities). Investments in affiliates over which FE and its subsidiaries have the ability to
exercise significant influence, but with respect to which they are not the primary beneficiary and do not exercise control, follow the
equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated
Balance Sheets and the percentage share of the entity’s earnings is reported in the Consolidated Statements of Income and
Comprehensive Income. These Notes to the Consolidated Financial Statements are combined for FirstEnergy and FES.
For the years ended December 31, 2014, 2013 and 2012, capitalized financing costs on FirstEnergy's Consolidated Statements of
Income include $49 million, $28 million and $18 million, respectively, of allowance for equity funds used during construction and
$69 million, $75 million and $72 million, respectively, of capitalized interest.
Certain prior year amounts have been reclassified to conform to the current year presentation.
ACCOUNTING FOR THE EFFECTS OF REGULATION
FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities, AGC, ATSI, PATH
and TrAIL since their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-
based and can be charged to and collected from customers.
FirstEnergy records regulatory assets and liabilities that result from the regulated rate-making process that would not be recorded
under GAAP for non-regulated entities. These assets and liabilities are amortized in the Consolidated Statements of Income
concurrent with the recovery or refund through customer rates. FirstEnergy believes that it is probable that its regulatory assets
and liabilities will be recovered and settled, respectively, through future rates. FirstEnergy and the Utilities net their regulatory assets
and liabilities based on federal and state jurisdictions.