Allegheny Power 2015 Annual Report Download - page 146

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130
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.In aMay28,2015, InspectionReportregardingthe apparentcause evaluationoncrack
propagation,theNRCissuedanoncitedviolationforFENOC’sfailuretorequestandobtainalicenseamendmentforitsmethodof
evaluatingthesignificanceoftheshieldbuildingcracking.TheNRCalsoconcludedthattheshieldbuildingremainedcapableof
performingitsdesignsafetyfunctionsdespitetheidentifiedlaminarcrackingandthatthisissuewasofverylowsafetysignificance.
FENOCplanstosubmitalicenseamendmentapplicationrelatedtotheShieldBuildinganalysisin2016.
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FirstEnergy'snuclear
facilities.
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.
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.
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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,2015areasfollows:
FES
2015
2014
2013
(Inmillions)
Revenues:
Electricsalestoaffiliates
$
664
$
861
$
652
Other
6
6
6
Expenses:
Purchasedpowerfromaffiliates
353
271
486
Fuel
1
1
—
Supportservices
705
619
619
InvestmentIncome:
InterestincomefromFE
2
3
2
InterestExpense:
Interestexpensetoaffiliates
4
3
4
InterestexpensetoFE
3
4
6



131
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).