Allegheny Power 2015 Annual Report Download - page 57

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FirstEnergyintendstomaintaininsuranceagainstnuclearrisksasdescribedaboveaslongasitisavailable.Totheextentthat
replacementpower,propertydamage,decontamination,decommissioning,repairandreplacementcostsandothersuchcostsarising
fromanuclearincidentatanyofFirstEnergy’splantsexceedthepolicylimitsoftheinsuranceineffectwithrespecttothatplant,to
theextentanuclearincidentisdeterminednottobecoveredbyFirstEnergy’sinsurancepolicies,ortotheextentsuchinsurance
becomesunavailableinthefuture,FirstEnergywouldremainatriskforsuchcosts.
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TheNRCrequiresnuclearpowerplantlicenseestoobtainminimumpropertyinsurancecoverageof$1.06billionortheamount
generallyavailablefromprivatesources,whicheverisless.Theproceedsofthisinsurancearerequiredtobeusedfirsttoensurethat
thelicensedreactorisinasafeandstableconditionandcanbemaintainedinthatconditionsoastopreventanysignificantriskto
thepublichealthandsafety.Within30daysofstabilization,thelicenseeisrequiredtoprepareandsubmittotheNRCacleanupplan
forapproval.Theplanisrequiredtoidentifyallcleanupoperationsnecessarytodecontaminatethereactorsufficientlytopermitthe
resumptionofoperationsortocommencedecommissioning.Anypropertyinsuranceproceedsnotalreadyexpendedtoplacethe
reactorinasafeandstableconditionmustbeusedfirsttocompletethosedecontaminationoperationsthatareorderedbytheNRC.
FirstEnergyisunabletopredictwhateffecttheserequirementsmayhaveontheavailabilityofinsuranceproceeds.
GUARANTEESANDOTHERASSURANCES
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FirstEnergyhasvariousfinancialand performanceguaranteesandindemnificationswhichareissuedinthe normalcourseof
business. These contracts include performance guarantees, standby letters of credit, debt guarantees, surety bonds and
indemnifications.FirstEnergyentersintothesearrangementstofacilitatecommercialtransactionswiththirdpartiesbyenhancingthe
valueofthetransactiontothethirdparty.ThemaximumpotentialamountoffuturepaymentsFirstEnergycouldberequiredtomake
undertheseguaranteesasofDecember31,2015,wasapproximately$3.7billion,assummarizedbelow:

GuaranteesandOtherAssurances
Maximum
Exposure
(Inmillions)
FE'sGuaranteesonBehalfofitsSubsidiaries
EnergyandEnergyRelatedContracts(1) $ 33
Deferredcompensationarrangements 533
Other(2) 17
583
Subsidiaries’Guarantees
EnergyandEnergyRelatedContracts(3) 251
FES’guaranteeofNG’snuclearpropertyinsurance 98
FES'guaranteeofnucleardecommissioningcosts 21
FES’guaranteeofFG’ssaleandleasebackobligations 1,767
2,137
FE'sGuaranteesonBehalfofBusinessVentures
GlobalHoldingFacility 300
OtherAssurances
SuretyBondsWhollyOwnedSubsidiaries 398
SuretyBonds 22
FES'LOC(longtermtaxexemptdebt)(4) 93
LOCs(5) 154
667
TotalGuaranteesandOtherAssurances$ 3,687
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(1)Issuedforopenendedterms,witha10dayterminationrightbyFirstEnergy.
(2)Includesguaranteesof$4millionfornucleardecommissioningfundingassurances,$7millionforrailcarleases,and$6millionforvariousleases.
(3)IncludesenergyandenergyrelatedcontractsassociatedwithFESofapproximately$248million.
(4)Reflectsthe$1millionofinterestcoverageportionofLOCsissuedinsupportoffloatingratePCRBswithvariousmaturitiesandtheprincipal
amountoffloatingratePCRBsof$92million,allofwhichisreflectedincurrentlypayablelongtermdebtonFirstEnergy'sconsolidatedbalance
sheets.
(5)Includes$54millionissuedforvarioustermspursuanttoLOCcapacityavailableunderFirstEnergy'srevolvingcreditfacilities,$88millionissued
inconnectionwithenergyandenergyrelatedcontracts,$2millionissuedinconnectionwithrailcarleases,$7millionpledgedinconnectionwith
thesaleandleasebackoftheBeaverValleyUnit2byOEand$3millionpledgedinconnectionwiththesaleandleasebackofPerrybyOE.
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FES'debtobligationsaregenerallyguaranteedbyitssubsidiaries,FGandNG,andFESguaranteesthedebtobligationsofeachof
FGandNG.Accordingly,presentandfutureholdersofindebtednessofFES,FG,andNGwouldhaveclaimsagainsteachofFES,
FG,andNG,regardlessofwhethertheirprimaryobligorisFES,FG,orNG.
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CollateralandContingentRelatedFeatures
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Inthenormalcourseofbusiness,FEanditssubsidiariesroutinelyenterintophysicalorfinanciallysettledcontractsforthesaleand
purchaseofelectriccapacity,energy,fuelandemissionallowances.Certainbilateralagreementsandderivativeinstrumentscontain
provisionsthatrequireFEoritssubsidiariestopostcollateral.Thiscollateralmaybepostedintheformofcashorcreditsupportwith
thresholdscontingentuponFE'soritssubsidiaries'creditratingfromeachofthemajorcreditratingagencies.Thecollateraland
creditsupportrequirementsvarybycontractandbycounterparty.Theincrementalcollateralrequirementallowsfortheoffsettingof
assets and liabilities with the same counterparty, where the contractual right of offset exists under applicable master netting
agreements.
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BilateralagreementsandderivativeinstrumentsenteredintobyFEanditssubsidiarieshavemarginingprovisionsthatrequireposting
ofcollateral.BasedonFES'powerportfolioexposureasofDecember31,2015,FEShaspostedcollateralof$188millionandAE
Supplyhaspostednocollateral.TheRegulatedDistributionsegmenthaspostedcollateralof$1million.
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Thesecreditriskrelatedcontingentfeaturesstipulatethatifthesubsidiaryweretobedowngradedorloseitsinvestmentgradecredit
rating(basedonitsseniorunsecureddebtrating),itwouldberequiredtoprovideadditionalcollateral.Dependingonthevolumeof
forwardcontractsandfuturepricemovements,higheramountsformarginingcouldberequired.

SubsequenttotheoccurrenceofaseniorunsecuredcreditratingdowngradetobelowS&P'sBBBandMoody'sBaa3,ora“material
adverseevent,”theimmediatepostingofcollateraloracceleratedpaymentsmayberequiredofFEoritssubsidiaries.Thefollowing
tabledisclosestheadditionalcreditcontingentcontractualobligationsthatmayberequiredundercertaineventsasofDecember31,
2015:

CollateralProvisions
FES
AESupply
Utilities
Total
(Inmillions)
SplitRating(Oneratingagency'sratingbelowinvestmentgrade)
$
198
$
6
$
41

$
245
BB+/Ba1CreditRatings
$
231
$
6
$
41

$
278
Fullimpactofcreditcontingentcontractualobligations
$
363
$
16
$
41

$
420

Excluded from the preceding chart are the potential collateral obligations due to affiliate transactions between the Regulated
DistributionsegmentandCESsegment.AsofDecember31,2015,neitherFESnorAESupplyhadanycollateralpostedwiththeir
affiliates.IntheeventofaseniorunsecuredcreditratingdowngradetobelowS&P'sBBorMoody'sBa3,FESwouldberequiredto
post$8millionwithaffiliatedparties.
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OtherCommitmentsandContingencies

FirstEnergyisaguarantorunderasyndicatedseniorsecuredtermloanfacilitydueMarch3,2020,underwhichGlobalHolding
borrowed$300million.InadditiontoFirstEnergy,SignalPeak,GlobalRail,GlobalMiningGroup,LLCandGlobalCoalSalesGroup,
LLC,eachbeingadirector indirectsubsidiaryofGlobalHolding,havealsoprovidedtheirjointandseveralguarantiesof the
obligationsofGlobalHoldingunderthefacility.

InconnectionwithGlobalHolding'stermloanfacility,aportionofGlobalHolding'sdirectandindirectmembershipinterestsinSignal
Peak,GlobalRailandtheiraffiliatesalongwitheachofFEV'sandWMBMarketingVentures,LLC's331/3%membershipinterestsin
GlobalHolding,arepledgedtothelendersunderGlobalHolding'sfacilityascollateral.FailurebyGlobalHoldingtomeettheterms
andconditionsunderitstermloanfacilitycouldrequireFirstEnergytobeobligatedundertheprovisionsofitsguarantee,resultingin
consolidationofGlobalHoldingbyFE.

Duringthefirstquarterof2015,asubsidiaryofGlobalHoldingeliminateditsrighttoput2milliontonsannuallythrough2024fromthe
SignalPeakminetoFGinexchangeforFirstEnergyextendingitsguaranteeunderGlobalHolding's$300millionseniorsecuredterm
loanfacilitythrough2020,resultinginapretaxchargeof$24million.SeeNote8,VariableInterestEntities,andNote1,Organization,
BasisofPresentationandSignificantAccountingPoliciesInvestments,foradditionalinformationregardingFEV'sinvestmentin
GlobalHolding.
OFFBALANCESHEETARRANGEMENTS

FESandcertainoftheOhioCompanieshaveobligationsthatarenotincludedontheirConsolidatedBalanceSheetsrelatedtothe
PerryUnit1,BeaverValleyUnit2,and2007BruceMansfieldUnit1saleandleasebackarrangements,whicharesatisfiedthrough
operating lease payments. The total present value of these sale and leaseback operating lease commitments, net of trust
investments,was$950millionasofDecember31,2015andprimarilyrelatestothe2007BruceMansfieldUnit1saleandleaseback