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•OperatingandCapitalCosts:FirstEnergyusedestimatedfutureoperatingandcapitalcosts,includingtheestimated
impact on costs of pending carbon and other environmental regulations, as well as costs associated with capacity
performancereformsinthePJMmarket.
•DiscountRate:Adiscountrateof8.25%,basedonacapitalstructure,returnondebtandreturnonequityofselected
comparablecompanies.
•Terminal Value: A terminal value of 7.0x earnings before interest, taxes, depreciation and amortization based on
considerationofpeergroupdataandanalystconsensusexpectations.
Basedontheresultsofthequantitativeanalysis,thefairvalueoftheCESreportingunitexceededitscarryingvaluebyapproximately
10%.Continuedweakeconomicconditions,lowerthanexpectedpowerandcapacityprices,ahighercostofcapitalandrevised
environmentalrequirementscouldhaveanegativeimpactonfuturegoodwillassessments.
Investments
Attheendofeachreportingperiod,FirstEnergyevaluatesitsinvestmentsforOTTI.InvestmentsclassifiedasAFSsecuritiesare
evaluatedtodeterminewhetheradeclineinfairvaluebelowthecostbasisisotherthantemporary.FirstEnergyfirstconsidersits
intentandabilitytoholdanequitysecurityuntilrecoveryandthenconsiders,amongotherfactors,thedurationandtheextentto
whichthesecurity'sfairvaluehasbeenlessthanitscostandtheneartermfinancialprospectsofthesecurityissuerwhenevaluating
aninvestmentforimpairment.Fordebtsecurities,FirstEnergyconsidersitsintenttoholdthesecurities,thelikelihoodthatitwillbe
requiredtosellthesecuritiesbeforerecoveryofitscostbasisandthelikelihoodofrecoveryofthesecurities'entireamortizedcost
basis.Ifthedeclineinfairvalueisdeterminedtobeotherthantemporary,thecostbasisofthesecuritiesiswrittendowntofairvalue.
UnrealizedgainsandlossesonAFSsecuritiesarerecognizedinAOCI.However,unrealizedlossesheldintheNDTsofFES,OEand
TEarerecognizedinearningssincethetrustarrangements,astheyarecurrentlydefined,donotmeettherequiredabilityandintent
toholdcriteriainconsiderationofOTTI.TheNDTsofJCP&L,MEandPNaresubjecttoregulatoryaccountingwithunrealizedgains
andlossesoffsetinnetregulatoryassets.In2015,2014and2013,FirstEnergyrecognized$102million,$37millionand$90million,
respectively,ofOTTI.Duringthesameperiods,FESrecognizedOTTIof$90million,$33millionand$79million,respectively.Thefair
valuesofFirstEnergy’sinvestmentsaredisclosedinNote9,FairValueMeasurements.
FirstEnergyholdsa331/3%equityownershipinGlobalHolding,theholdingcompanyforajointventureintheSignalPeakmining
andcoaltransportationoperationswithcoalsalesinU.S.andinternationalmarkets.In2015,GlobalHoldingincurredlossesprimarily
asaresultofdeclinesincoalpricesduetoweakeningglobalandU.S.coaldemand.Basedonthesignificantdeclineincoalpricing
andthecurrentoutlookforthecoalmarket,includingthesignificantdeclineinthemarketcapitalizationofcoalcompaniesin2015,
FirstEnergyassessedthevalueofitsinvestmentinGlobalHoldinganddeterminedtherewasadeclineinthefairvalueofthe
investmentbelowitscarryingvaluethatwasotherthantemporary,resultinginanapretaximpairmentchargeof$362million.Key
assumptionsincorporatedintothediscountedcashflowanalysisutilizedintheimpairmentanalysisincludedthediscountrate,future
longtermcoalprices,productionlevels,salesforecasts,projectedcapitalandoperatingcosts.Theimpairmentchargeisclassifiedas
acomponentofOtherIncome(Expense)intheConsolidatedStatementofIncome.SeeNote8,VariableInterestEntities,forfurther
discussionofFirstEnergy'sinvestmentinGlobalHolding.
INVENTORY
Materialsandsuppliesinventoryincludesfuelinventoryandthedistribution,transmissionandgenerationplantmaterials,netof
reserveforexcessandobsoleteinventory.Materialsaregenerallychargedtoinventoryatweightedaveragecostwhenpurchased
andexpensedorcapitalized,asappropriate,whenusedorinstalled.Fuelinventoryisaccountedforatweightedaveragecostwhen
purchased,andrecordedtofuelexpensewhenconsumed.
NEWACCOUNTINGPRONOUNCEMENTS
InMay2014,theFASBissued,ASU201409"RevenuefromContractswithCustomers",requiringentitiestorecognizerevenueby
applyingafivestepmodelinaccordancewiththecoreprincipletodepictthetransferofpromisedgoodsorservicestocustomersin
anamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.In
addition,theaccountingforcoststoobtainorfulfillacontractwithacustomerisspecifiedanddisclosurerequirementsforrevenue
recognitionareexpanded.InAugust2015,theFASBissuedafinalAccountingStandardsUpdatedeferringtheeffectivedateuntil
fiscalyearsbeginningafterDecember15,2017.Earlierapplicationispermittedonlyasofannualreportingperiodsbeginningafter
December15,2016,(theoriginaleffectivedate).Thestandardshallbeappliedretrospectivelytoeachperiodpresentedorasa
cumulativeeffectadjustmentasofthedateofadoption.FirstEnergyiscurrentlyevaluatingtheimpactonitsfinancialstatementsof
adoptingthisstandard.
InFebruary2015,theFASBissued,ASU201502"Consolidations:AmendmentstotheConsolidationAnalysis",whichamends
currentconsolidationguidanceincludingchangestoboththevariableandvotinginterestmodelsusedbycompaniestoevaluate
whetheranentityshouldbeconsolidated. ThisstandardiseffectiveforinterimandannualperiodsbeginningafterDecember15,
2015,andearlyadoptionispermitted. Areportingentitymustapplytheamendmentsusingamodifiedretrospectiveapproachby
recording a cumulativeeffect adjustment to equity as of the beginning of the period of adoption or apply the amendments
retrospectively.FirstEnergydoesnotexpectthisamendmenttohaveamaterialeffectonitsfinancialstatements.
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InApril2015,theFASBissued,ASU201503"SimplifyingthePresentationofDebtIssuanceCosts",whichrequiresdebtissuance
coststobepresentedonthebalancesheetasadirectdeductionfromthecarryingvalueoftheassociateddebtliability,consistent
withthepresentationofadebtdiscount.Theguidanceiseffectiveforfinancialstatementsissuedforfiscalyearsbeginningafter
December15,2015,andinterimperiodswithinthosefiscalyears.Earlyadoptionispermittedforfinancialstatementsthathavenot
beenpreviouslyissued.Uponadoption,anentitymustapplythenewguidanceretrospectivelytoallpriorperiodspresentedinthe
financialstatements.Inaddition,inAugust2015,theFASBissuedASU201515,"PresentationandSubsequentMeasurementof
DebtIssuanceCostsAssociatedwithLineofCreditArrangements",whichstatesgiventheabsenceofauthoritativeguidancewithin
ASU201503fordebtissuancecostsrelatedtothelineofcreditarrangements,theSECstaffwouldnotobjecttopresentingthose
deferreddebtissuancecostsasanassetandsubsequentlyamortizingthecostsratablyoverthetermofthearrangement,regardless
ofwhether there areany outstandingborrowingson thelineofcredit.FirstEnergywilladoptASU 201515 andASU 201503
beginningJanuary1,2016.AsofDecember31,2015,FirstEnergyandFESdebtissuancecostsincludedinDeferredChargesand
OtherAssetswere$93millionand$17million,respectively.FirstEnergywillelecttocontinuepresentingdebtissuancecostsrelating
toitsrevolvingcreditfacilitiesasanasset.
InAugust2015,theFASBissuedASU201513,"ApplicationoftheNPNSScopeExceptiontoCertainElectricityContractswithin
NodalEnergyMarkets",whichconfirmedthatforwardphysicalcontractsforthesaleorpurchaseofelectricitymeetthephysical
deliverycriterionwithintheNPNSscopeexceptionwhentheelectricityistransmittedthroughagridmanagedbyanISO.Asaresult,
anentitycanelecttheNPNSexceptionwithinthederivativeaccountingguidanceforsuchcontracts,providedthattheotherNPNS
criteriaarealsomet.TheASUwaseffectiveonissuanceandrequiresprospectiveapplication.Therewasnomaterialeffecton
FirstEnergy'sfinancialstatementsresultingfromtheissuanceofASU201513.
InNovember2015,theFASBissuedASU201517,"BalanceSheetClassificationofDeferredTaxes",whichrequiresalldeferredtax
assetsandliabilities,alongwithanyrelatedvaluationallowance,beclassifiedasnoncurrentonthebalancesheet.Thenewguidance
willbeeffectiveforfiscalyearsbeginningafterDecember15,2016,andinterimperiodswithinthosefiscalyears.Earlyadoptionis
permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either
prospectively,foralldeferredtaxassetsandliabilities,orretrospectively.FirstEnergyearlyadoptedASU201517asofDecember
2015,andappliedthenewguidanceretrospectivelytoallpriorperiodspresentedinthefinancialstatements.Therewasnoimpact
fromtheearlyadoptionofASU201517ontheConsolidatedStatementsofIncome.OntheConsolidatedBalanceSheetasof
December31,2014,FirstEnergyandFESreclassified$518millionand$27million ofAccumulatedDeferredIncomeTaxesfrom
CurrentAssetstoNoncurrentLiabilities.
InJanuaryof2016,theFASBissuedASU201601,"FinancialInstrumentsOverall:RecognitionandMeasurementofFinancial
AssetsandFinancialLiabilities".ChangestothecurrentGAAPmodelprimarilyaffecttheaccountingforequityinvestments,financial
liabilitiesunderthefairvalueoption,andthepresentationanddisclosurerequirementsforfinancialinstruments.Inaddition,theFASB
clarifiedguidancerelatedtothevaluationallowanceassessmentwhenrecognizingdeferredtaxassetsresultingfromunrealized
lossesonavailableforsaledebtsecurities.TheASUwillbeeffectiveinfiscalyearsbeginningafterDecember15,2017,including
interimperiodswithinthosefiscalyears.Earlyadoptioncanbeelectedforallfinancialstatementsoffiscalyearsandinterimperiods
thathavenotyetbeenissuedorthathavenotyetbeenmadeavailableforissuance.FirstEnergyiscurrentlyevaluatingtheimpacton
itsfinancialstatementsofadoptingthisstandard.