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TheheldtomaturitydebtsecuritiescontractuallymaturebyJune30,2017.Investmentsinemployeebenefittrustsandequitymethod
investmentstotaling$255millionasofDecember31,2015and$626millionasofDecember31,2014,areexcludedfromthe
amountsreportedabove.
LONGTERMDEBTANDOTHERLONGTERMOBLIGATIONS
AllborrowingswithinitialmaturitiesoflessthanoneyeararedefinedasshorttermfinancialinstrumentsunderGAAPandare
reportedasShorttermborrowingsontheConsolidatedBalanceSheetsatcost.Sincetheseborrowingsareshortterminnature,
FirstEnergybelievesthattheircostsapproximatetheirfairmarketvalue.Thefollowingtableprovidestheapproximatefairvalueand
relatedcarryingamountsoflongtermdebtandotherlongtermobligations,excludingcapitalleaseobligationsandnetunamortized
premiumsanddiscounts:
December31,2015 December31,2014
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(Inmillions)
FirstEnergy $ 20,244
$ 21,519
$ 19,828
$ 21,733
FES3,027
3,121
3,097
3,241
Thefairvaluesoflongtermdebtandotherlongtermobligationsreflectthepresentvalueofthecashoutflowsrelatingtothose
securitiesbasedon thecurrentcall price,theyieldtomaturityortheyieldtocall,as deemedappropriateatthe endofeach
respectiveperiod.Theyieldsassumedwerebasedonsecuritieswithsimilarcharacteristicsofferedbycorporationswithcreditratings
similartothoseofFirstEnergyanditssubsidiaries.FirstEnergyclassifiedshorttermborrowings,longtermdebtandotherlongterm
obligationsasLevel2inthefairvaluehierarchyasofDecember31,2015andDecember31,2014.
10.DERIVATIVEINSTRUMENTS
FirstEnergyisexposedtofinancialrisksresultingfromfluctuatinginterestratesandcommodityprices,includingpricesforelectricity,
naturalgas,coalandenergytransmission.Tomanagethevolatilityrelatedtotheseexposures,FirstEnergy’sRiskPolicyCommittee,
comprisedofseniormanagement,providesgeneralmanagementoversightforriskmanagementactivitiesthroughoutFirstEnergy.
TheRiskPolicyCommitteeisresponsibleforpromotingtheeffectivedesignandimplementationofsoundriskmanagementprograms
andoverseescompliancewithcorporateriskmanagementpoliciesandestablishedriskmanagementpractice.FirstEnergyalsouses
avarietyofderivativeinstrumentsforriskmanagementpurposesincludingforwardcontracts,options,futurescontractsandswaps.
FirstEnergyaccountsforderivativeinstrumentsonitsConsolidatedBalanceSheetsatfairvalue(unlesstheymeetthenormal
purchasesandnormalsalescriteria)asfollows:
•Changesinthefairvalueofderivativeinstrumentsthataredesignatedandqualifyascashflowhedgesarerecordedto
AOCIwithsubsequentreclassificationtoearningsintheperiodduringwhichthehedgedforecastedtransactionaffects
earnings.
•Changesinthefairvalueofderivativeinstrumentsthataredesignatedandqualifyasfairvaluehedgesarerecordedasan
adjustmenttotheitembeinghedged.Whenfairvaluehedgesarediscontinued,theadjustmentrecordedtotheitembeing
hedgedisamortizedintoearnings.
•Changesinthefairvalueofderivativeinstrumentsthatarenotdesignatedinahedgingrelationshiparerecordedin
earningsonamarktomarketbasis,unlessotherwisenoted.
Derivativeinstrumentsmeetingthenormalpurchasesandnormalsalescriteriaareaccountedforundertheaccrualmethodof
accountingwiththeireffectsincludedinearningsatthetimeofcontractperformance.
FirstEnergyhascontractualderivativeagreementsthrough2020.
CashFlowHedges
FirstEnergyhasusedcashflowhedgesforriskmanagementpurposestomanagethevolatilityrelatedtoexposuresassociatedwith
fluctuatingcommoditypricesandinterestrates.
TotalpretaxnetunamortizedlossesincludedinAOCIassociatedwithinstrumentspreviouslydesignatedascashflowhedgestotaled
$11millionand$8millionasofDecember31,2015andDecember31,2014,respectively.Sincetheforecastedtransactionsremain
probableofoccurring,theseamountswillbeamortizedintoearningsoverthelifeofthehedginginstruments.Approximately$1million
ofnetunamortizedlossesisexpectedtobeamortizedtoincomeduringthenexttwelvemonths.
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FirstEnergyhasusedforward startinginterestrateswapagreements tohedge a portionof theconsolidatedinterestraterisk
associatedwithanticipatedissuancesoffixedrate,longtermdebtsecuritiesofitssubsidiaries.Thesederivativesweredesignatedas
cashflowhedges,protectingagainsttheriskofchangesinfutureinterestpaymentsresultingfromchangesinbenchmarkU.S.
Treasuryratesbetweenthedateofhedgeinceptionandthedateofthedebtissuance.Totalpretaxunamortizedlossesincludedin
AOCI associated with prior interest rate cash flow hedges totaled $42 million and $50 million as of December31, 2015 and
December31,2014,respectively.Basedoncurrentestimates,approximately$9millionoftheseunamortizedlossesisexpectedto
beamortizedtointerestexpenseduringthenexttwelvemonths.
RefertoNote2,AccumulatedOtherComprehensiveIncome,forreclassificationsfromAOCIduringtheyearsendedDecember31,
2015and2014.
AsofDecember31,2015andDecember31,2014,nocommodityorinterestratederivativesweredesignatedascashflowhedges.
FairValueHedges
FirstEnergyhasusedfixedforfloatinginterestrateswapagreementstohedgeaportionofthe consolidatedinterestraterisk
associatedwiththedebtportfolioofitssubsidiaries.AsofDecember31,2015andDecember31,2014,nofixedforfloatinginterest
rateswapagreementswereoutstanding.
Unamortizedgainsincludedinlongtermdebtassociatedwithpriorfixedforfloatinginterestrateswapagreementstotaled$20million
and$32millionasofDecember31,2015andDecember31,2014,respectively.Duringthenexttwelvemonths,approximately$10
millionofunamortizedgainsisexpectedtobeamortizedtointerestexpense.Amortizationofunamortizedgainsincludedinlongterm
debttotaledapproximately$12millionduringtheyearsendedDecember31,2015and2014.
AsofDecember31,2015andDecember31,2014,nocommodityorinterestratederivativesweredesignatedasfairvaluehedges.
CommodityDerivatives
FirstEnergy uses both physically and financially settled derivatives to manage its exposure to volatility in commodity prices.
Commodityderivativesareusedforriskmanagementpurposestohedgeexposureswhenitmakeseconomicsensetodoso,
includingcircumstanceswherethehedgingrelationshipdoesnotqualifyforhedgeaccounting.
Electricityforwardsareusedtobalanceexpectedsaleswithexpectedgenerationandpurchasedpower.Naturalgasfuturesare
enteredintobasedonexpectedconsumptionofnaturalgasprimarilyforuseinFirstEnergy’scombustionturbineunits.Derivative
instrumentsarenotusedinquantitiesgreaterthanforecastedneeds.
AsofDecember31,2015,FirstEnergy'snetassetpositionundercommodityderivativecontractswas$97million,whichrelatedto
FESpositions.Underthesecommodityderivativecontracts,FESposted$26millionofcollateral.Certaincommodityderivative
contractsincludecreditriskrelatedcontingentfeaturesthatwouldrequireFEStopost$3millionofadditionalcollateralifthecredit
ratingforitsdebtweretofallbelowinvestmentgrade.
BasedonderivativecontractsheldasofDecember31,2015,anincreaseincommoditypricesof10%woulddecreasenetincomeby
approximately$30millionduringthenexttwelvemonths.
InterestRateSwaps
AsofDecember31,2015and2014,nointerestrateswapswereoutstanding.
NUGs
AsofDecember31,2015,FirstEnergy'snetliabilitypositionunderNUGcontractswas$136millionrepresentingcontractsheldat
JCP&L,MEandPN.NUGcontractsrepresentpurchasedpoweragreementswiththirdpartynonutilitygeneratorsthataretransacted
tosatisfycertainobligationsunderPURPA.ChangesinthefairvalueofNUGcontractsaresubjecttoregulatoryaccountingtreatment
anddonotimpactearnings.
FTRs
AsofDecember31,2015,FirstEnergy'sandFES'netliabilitypositionunderFTRswas$5millionand$6million,respectivelyand
FESposted$6millionofcollateral.FirstEnergyholdsFTRsthatgenerallyrepresentaneconomichedgeoffuturecongestioncharges
thatwillbeincurredinconnectionwithFirstEnergy’sloadobligations.FirstEnergyacquiresthemajorityofitsFTRsinanannual
auctionthroughaselfschedulingprocessinvolvingtheuseofARRsallocatedtomembersof anRTOthathaveloadserving
obligationsandthroughthedirectallocationofFTRsfromPJM.PJMhasarulethatallowsdirectlyallocatedFTRstobegrantedto
LSEsinzonesthathavenewlyenteredPJM.Forthefirsttwoplanningyears,PJMpermitstheLSEstorequestadirectallocationof
FTRsinthesenewzonesatnocostasopposedtoreceivingARRs.ThedirectlyallocatedFTRsdifferfromtraditionalFTRsinthatthe
ownershipofallorpartoftheFTRsmayshifttoanotherLSEifcustomerschoosetoshopwiththeotherLSE.