Allegheny Power 2015 Annual Report Download - page 89

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72
December31,2015 December31,2014
Property,PlantandEquipmentInService(2)Accum.Depr.NetPlantInService(2)Accum.Depr.NetPlant
(Inmillions)
RegulatedDistribution $ 24,553
$ (7,058)
$ 17,495
$ 23,973 $ (6,759)
$ 17,214
RegulatedTransmission 7,703
(1,647)
6,056
6,634 (1,595)
5,039
CompetitiveEnergyServices(1) 17,214
(6,213)
11,001
16,442 (5,598)
10,844
Corporate/Other 482
(242)
240
435 (198)
237
Total $ 49,952
$ (15,160) $ 34,792 $ 47,484 $ (14,150) $ 33,334
(1)Primarilyconsistsofgeneratingassetsandnuclearfuelasdiscussedabove.
(2)Includescapitalleasesof$253millionand$281millionatDecember31,2015and2014,respectively.

ThemajorclassesofProperty,plantandequipmentarelargelyconsistentwiththesegmentdisclosuresabove,withtheexceptionof
RegulatedDistribution,whichhasapproximately$2.0billionofregulatedgenerationnetplantinservice.

FirstEnergyprovidesfordepreciationonastraightlinebasisatvariousratesovertheestimatedlivesofpropertyincludedinplantin
service.TherespectiveannualcompositeratesforFirstEnergy'sandFES'electricplantin2015,2014and2013areshowninthe
followingtable:
AnnualCompositeDepreciationRate
2015 2014 2013
FirstEnergy 2.5% 2.5%
2.6%
FES 3.2% 3.1%
3.1%

FortheyearsendedDecember31,2015,2014and2013,capitalizedfinancingcostsonFirstEnergy'sConsolidatedStatementsof
Incomeinclude$49million,$49millionand$28million,respectively,ofallowanceforequityfundsusedduringconstructionand$68
million,$69millionand$75million,respectively,ofcapitalizedinterest.

JointlyOwnedPlants

FE,throughitssubsidiary,AGC,ownsanundivided40%interest(1,200MWs)ina3,003MWpumpedstorage,hydroelectricstation
inBathCounty,Virginia,operatedbythe60%owner,VirginiaElectricandPowerCompany,anonaffiliatedutility.NetProperty,plant
andequipmentincludes$666millionrepresentingAGC'sshareinthisfacilityasofDecember31,2015ofwhich$484millionis
unregulatedandincludedwithintheCESsegment.AGCisobligatedtopayitsshareofthecostsofthisjointlyownedfacilityinthe
sameproportionasitsownershipinterestusingitsownfinancing.AGC'sshareofdirectexpensesofthejointplantisincludedinFE's
operatingexpensesontheConsolidatedStatementsofIncome.

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.
Whensettlementisconditionalonafutureeventoccurring,itisreflectedinthemeasurementoftheliability,notthetimingofthe
liabilityrecognition.
AROsasofDecember31,2015,aredescribedfurtherinNote13,AssetRetirementObligations.


73
ASSETIMPAIRMENTS

LonglivedAssets

FirstEnergyreviewslonglived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.

OnOctober9,2013,MPsolditsapproximate8%shareofPleasantsatitsfairmarketvalueof$73milliontoAESupply,andAE
Supplysolditsapproximate80%shareofHarrisontoMPatitsbookvalueof$1.2billion.ThetransactionresultedinAESupply
receivingnetconsiderationof$1.1billionandMP'sassumptionofa$73.5millionpollutioncontrolnote.Inconnectionwiththe
transaction,MPrecordedapretaximpairmentchargeofapproximately$322milliontoreducethenetbookvalueoftheHarrison
PowerStationtotheamountthatwaspermittedtobeincludedinjurisdictionalratebase.Additionally,MPrecognizedaregulatory
liabilityofapproximately$23millionin2013representingrefundstocustomersassociatedwiththeexcesspurchasepricereceivedby
MPabovethenetbookvalueofMP'sminorityinterestinthePleasantsPowerStation.Theimpairmentchargerecognizedin2013is
includedwithintheresultsoftheRegulatedDistributionsegment.

OnJuly8,2013,officersofFirstEnergyandAESupplycommittedtodeactivatingtheHatfield'sFerry,generatingUnits13,and
Mitchell,generatingunits23.AsaresultofthisdecisionFirstEnergyrecordedapretaximpairmentofapproximately$473millionto
continuingoperations,whichalsoincludespretaximpairmentsof$13millionrelatedtoexcessiveinventoryatthesefacilities.The
impairmentchargerecognizedin2013isincludedwithintheresultsoftheCESsegment.OnOctober9,2013,Hatfield'sFerryUnits
13andMitchellUnits23weredeactivated.

During2015,FirstEnergyrecognizedimpairmentstotaling$42millionassociatedwithcertainnoncoreassets,includingequipment
andfacilities.TheimpairmentchargesareincludedwithintheRegulatedDistributionsegment($8million)andtheCESsegment($34
million).

Goodwill

Inabusinesscombination,theexcessofthepurchasepriceovertheestimatedfairvaluesoftheassetsacquiredandliabilities
assumedisrecognizedasgoodwill.FirstEnergyevaluatesgoodwillforimpairmentannuallyonJuly31andmorefrequentlyif
indicatorsofimpairmentarise.

FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution, Regulated
Transmission,andCES.Thefollowingtablepresentsgoodwillbyreportingunit:
Goodwill
Regulated
Distribution
Regulated
Transmission
Competitive
Energy
Services
Consolidated
(Inmillions)
BalanceasofDecember31,2015
$
5,092
$
526
$
800
$
6,418

Therewerenochangesingoodwillforanyreportingunitduring2015.AsofDecember31,2015and2014,totalgoodwillrecognized
byFESwas$23million.NeitherFirstEnergynorFEShasaccumulatedimpairmentchargesasofDecember31,2015.

AnnualimpairmenttestingisconductedasofJuly31ofeachyearandfor2015,2014and2013,theanalysisindicatednoimpairment
ofgoodwill.For2015,FirstEnergyperformedaqualitativeassessmentoftheRegulatedDistributionandRegulatedTransmission
reporting units, assessing economic, industry and market considerations in addition to the reporting unit's overall financial
performance.Itwasdeterminedthatthefairvalueofthesereportingunitswere,morelikelythannot,greaterthantheircarryingvalue
andaquantitativeanalysiswasnotnecessaryfor2015.

FirstEnergyperformedaquantitativeassessmentoftheCESreportingunitasofJuly31,2015.Keyassumptionsincorporatedinto
theCESdiscountedcashflowanalysisrequiringsignificantmanagementjudgmentincludedthefollowing:
•FutureEnergyandCapacityPrices:FirstEnergyusedobservablemarketinformationforneartermforwardpowerprices,
PJMauctionresultsforneartermcapacitypricing,andalongertermpricingmodelforenergyandcapacitythatconsidered
theimpactofkeyfactorssuchasloadgrowth,plantretirements,carbonandotherenvironmentalregulations,andnatural
gaspipelineconstruction,aswellascoalandnaturalgaspricing.
•RetailSalesandMargin:FirstEnergyusedCES'currentretailtargetedportfoliotoestimatefutureretailsalesvolumeas
wellashistoricalfinancialresultstoestimateretailmargins.