XML 32 R20.htm IDEA: XBRL DOCUMENT
v3.5.0.2

Derivative Instruments | 6 Months Ended
--- | ---
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity prices, including prices for electricity, natural gas, coal and energy transmission. To manage the volatility related to these exposures, FirstEnergy’s Risk Policy Committee, comprised of senior management, provides general management oversight for risk management activities throughout FirstEnergy. The Risk Policy Committee is responsible for promoting the effective design and implementation of sound risk management programs and oversees compliance with corporate risk management policies and established risk management practice. FirstEnergy also uses a variety of derivative instruments for risk management purposes including forward contracts, options, futures contracts and swaps. FirstEnergy accounts for derivative instruments on its Consolidated Balance Sheets at fair value (unless they meet the normal purchases and normal sales criteria) as follows:
• | Changes in the fair value of derivative instruments that are designated and qualify as cash flow hedges are recorded to AOCI with subsequent reclassification to earnings in the period during which the hedged forecasted transaction affects earnings.
• | Changes in the fair value of derivative instruments that are designated and qualify as fair value hedges are recorded as an adjustment to the item being hedged. When fair value hedges are discontinued, the adjustment recorded to the item being hedged is amortized into earnings.
• | Changes in the fair value of derivative instruments that are not designated in a hedging relationship are recorded in earnings on a mark-to-market basis, unless otherwise noted.
Derivative instruments meeting the normal purchases and normal sales criteria are accounted for under the accrual method of accounting with their effects included in earnings at the time of contract performance. FirstEnergy has contractual derivative agreements through 2020. Cash Flow Hedges FirstEnergy has used cash flow hedges for risk management purposes to manage the volatility related to exposures associated with fluctuating commodity prices and interest rates. Total pre-tax net unamortized losses included in AOCI associated with instruments previously designated as cash flow hedges totaled $12 million as of June 30, 2016 and $11 million as of December 31, 2015. Since the forecasted transactions remain probable of occurring, these amounts will be amortized into earnings over the life of the hedging instruments. Less than $1 million of net unamortized losses is expected to be amortized to income during the next twelve months. FirstEnergy has used forward starting interest rate swap agreements to hedge a portion of the consolidated interest rate risk associated with anticipated issuances of fixed-rate, long-term debt securities of its subsidiaries. These derivatives were designated as cash flow hedges, protecting against the risk of changes in future interest payments resulting from changes in benchmark U.S. Treasury rates between the date of hedge inception and the date of the debt issuance. Total pre-tax unamortized losses included in AOCI associated with prior interest rate cash flow hedges totaled $37 million and $42 million as of June 30, 2016 and December 31, 2015, respectively. Based on current estimates, approximately $8 million of these unamortized losses are expected to be amortized to interest expense during the next twelve months. Refer to Note 5, Accumulated Other Comprehensive Income, for reclassifications from AOCI during the three and six months ended June 30, 2016 and 2015. As of June 30, 2016 and December 31, 2015, no commodity or interest rate derivatives were designated as cash flow hedges. Fair Value Hedges FirstEnergy has used fixed-for-floating interest rate swap agreements to hedge a portion of the consolidated interest rate risk associated with the debt portfolio of its subsidiaries. As of June 30, 2016 and December 31, 2015, no fixed-for-floating interest rate swap agreements were outstanding. Unamortized gains included in long-term debt associated with prior fixed-for-floating interest rate swap agreements totaled $15 million and $20 million as of June 30, 2016 and December 31, 2015, respectively. During the next twelve months, approximately $9 million of unamortized gains are expected to be amortized to interest expense. Amortization of unamortized gains included in long-term debt totaled approximately $3 million during the three months ended June 30, 2016 and 2015. Amortization of unamortized gains included in long-term debt totaled approximately $6 million during the six months ended June 30, 2016 and 2015. Commodity Derivatives FirstEnergy uses both physically and financially settled derivatives to manage its exposure to volatility in commodity prices. Commodity derivatives are used for risk management purposes to hedge exposures when it makes economic sense to do so, including circumstances where the hedging relationship does not qualify for hedge accounting. Electricity forwards are used to balance expected sales with expected generation and purchased power. Natural gas futures are entered into based on expected consumption of natural gas primarily for use in FirstEnergy’s combustion turbine units. Derivative instruments are not used in quantities greater than forecasted needs. As of June 30, 2016, FirstEnergy’s net asset position under commodity derivative contracts was $86 million, which related to FES positions. Under these commodity derivative contracts, FES posted $6 million of collateral and received $3 million of collateral. Certain commodity derivative contracts include credit risk related contingent features that would require FES to post $4 million of additional collateral if the credit rating for its debt were to fall below investment grade. Based on commodity derivative contracts held as of June 30, 2016, an increase in commodity prices of 10% would decrease net income by approximately $33 million during the next twelve months. NUGs As of June 30, 2016, FirstEnergy's net liability position under NUG contracts was $123 million, representing contracts held at JCP&L, ME and PN. Changes in the fair value of NUG contracts are subject to regulatory accounting treatment and do not impact earnings. FTRs As of June 30, 2016, FirstEnergy's and FES' FTR position was a $9 million and $7 million net asset, respectively, and FES posted $10 million of collateral. FirstEnergy holds FTRs that generally represent an economic hedge of future congestion charges that will be incurred in connection with FirstEnergy’s load obligations. FirstEnergy acquires the majority of its FTRs in an annual auction through a self-scheduling process involving the use of ARRs allocated to members of PJM that have load serving obligations. The future obligations for the FTRs acquired at auction are reflected on the Consolidated Balance Sheets and have not been designated as cash flow hedge instruments. FirstEnergy initially records these FTRs at the auction price less the obligation due to PJM, and subsequently adjusts the carrying value of remaining FTRs to their estimated fair value at the end of each accounting period prior to settlement. Changes in the fair value of FTRs held by FES and AE Supply are included in other operating expenses as unrealized gains or losses. Unrealized gains or losses on FTRs held by FirstEnergy’s utilities are recorded as regulatory assets or liabilities. Directly allocated FTRs are accounted for under the accrual method of accounting, and their effects are included in earnings at the time of contract performance. FirstEnergy records the fair value of derivative instruments on a gross basis. The following table summarizes the fair value and classification of derivative instruments on FirstEnergy’s Consolidated Balance Sheets:
Derivative Assets |  | Derivative Liabilities
| Fair Value |  |  | Fair Value
| June 30, 2016 |  | December 31, 2015 |  |  | June 30, 2016 |  | December 31, 2015
| (In millions) |  |  | (In millions)
Current Assets - Derivatives |  |  |  |  | Current Liabilities - Derivatives |  |  |
Commodity Contracts | $ | 144 |  |  | $ | 150 |  |  | Commodity Contracts | $ | (94 | ) |  | $ | (94 | )
FTRs | 17 |  |  | 7 |  |  | FTRs | (8 | ) |  | (12 | )
| 161 |  |  | 157 |  |  |  | (102 | ) |  | (106 | )
Deferred Charges and Other Assets - Other |  |  |  |  | Noncurrent Liabilities - Adverse Power Contract Liability |  |  |
|  |  |  | NUGs(1) | (124 | ) |  | (137 | )
Commodity Contracts | 82 |  |  | 78 |  |  | Noncurrent Liabilities - Other |  |  |
FTRs | — |  |  | 1 |  |  | Commodity Contracts | (46 | ) |  | (37 | )
NUGs(1) | 1 |  |  | 1 |  |  | FTRs | — |  |  | (1 | )
| 83 |  |  | 80 |  |  |  | (170 | ) |  | (175 | )
Derivative Assets | $ | 244 |  |  | $ | 237 |  |  | Derivative Liabilities | $ | (272 | ) |  | $ | (281 | )
(1) | NUG contracts are subject to regulatory accounting treatment and do not impact earnings.
FirstEnergy enters into contracts with counterparties that allow for the offsetting of derivative assets and derivative liabilities under netting arrangements with the same counterparty. Certain of these contracts contain margining provisions that require the use of collateral to mitigate credit exposure between FirstEnergy and these counterparties. In situations where collateral is pledged to mitigate exposures related to derivative and non-derivative instruments with the same counterparty, FirstEnergy allocates the collateral based on the percentage of the net fair value of derivative instruments to the total fair value of the combined derivative and non-derivative instruments. The following tables summarize the fair value of derivative assets and derivative liabilities on FirstEnergy’s Consolidated Balance Sheets and the effect of netting arrangements and collateral on its financial position:
|  |  |  | Amounts Not Offset in Consolidated Balance Sheet |  |
June 30, 2016 |  | Fair Value |  | Derivative Instruments |  | Cash Collateral (Received)/Pledged |  | Net Fair Value
|  | (In millions)
Derivative Assets |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 226 |  |  | $ | (128 | ) |  | $ | (3 | ) |  | $ | 95 |
FTRs |  | 17 |  |  | (8 | ) |  | — |  |  | 9 |
NUG contracts |  | 1 |  |  | — |  |  | — |  |  | 1 |
|  | $ | 244 |  |  | $ | (136 | ) |  | $ | (3 | ) |  | $ | 105 |
Derivative Liabilities |  |  |  |  |  |  |  |
Commodity contracts |  | $ | (140 | ) |  | $ | 128 |  |  | $ | 2 |  |  | $ | (10 | )
FTRs |  | (8 | ) |  | 8 |  |  | — |  |  | — |
NUG contracts |  | (124 | ) |  | — |  |  | — |  |  | (124 | )
|  | $ | (272 | ) |  | $ | 136 |  |  | $ | 2 |  |  | $ | (134 | )
|  |  |  | Amounts Not Offset in Consolidated Balance Sheet |  |
December 31, 2015 |  | Fair Value |  | Derivative Instruments |  | Cash Collateral (Received)/Pledged |  | Net Fair Value
|  | (In millions)
Derivative Assets |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 228 |  |  | $ | (125 | ) |  | $ | — |  |  | $ | 103 |
FTRs |  | 8 |  |  | (8 | ) |  | — |  |  | — |
NUG contracts |  | 1 |  |  | — |  |  | — |  |  | 1 |
|  | $ | 237 |  |  | $ | (133 | ) |  | $ | — |  |  | $ | 104 |
Derivative Liabilities |  |  |  |  |  |  |  |
Commodity contracts |  | $ | (131 | ) |  | $ | 125 |  |  | $ | 3 |  |  | $ | (3 | )
FTRs |  | (13 | ) |  | 8 |  |  | 5 |  |  | — |
NUG contracts |  | (137 | ) |  | — |  |  | — |  |  | (137 | )
|  | $ | (281 | ) |  | $ | 133 |  |  | $ | 8 |  |  | $ | (140 | )
The following table summarizes the volumes associated with FirstEnergy’s outstanding derivative transactions as of June 30, 2016:
| Purchases |  | Sales |  | Net |  | Units
| (In millions)
Power Contracts | 11 |  |  | 46 |  |  | (35 | ) |  | MWH
FTRs | 55 |  |  | — |  |  | 55 |  |  | MWH
NUGs | 4 |  |  | — |  |  | 4 |  |  | MWH
Natural Gas | 61 |  |  | — |  |  | 61 |  |  | mmBTU
The effect of active derivative instruments not in a hedging relationship on the Consolidated Statements of Income (Loss) during the three months and six months ended June 30, 2016 and 2015, are summarized in the following tables:
| For the Three Months Ended June 30
| Commodity Contracts |  | FTRs |  | Total
| (In millions)
2016 |  |  |  |  |  |  |  |
Unrealized Gain (Loss) Recognized in: |  |  |  |  |  |  |  |
Other Operating Expense(1) | $ | (79 | ) |  | $ | 9 |  |  | $ | (70 | )
Realized Gain (Loss) Reclassified to: |  |  |  |  |  |  |  |
Revenues(1) | $ | 59 |  |  | $ | 1 |  |  | $ | 60 |
Purchased Power Expense(1) | (37 | ) |  | — |  |  | (37 | )
Other Operating Expense(1) | — |  |  | (9 | ) |  | (9 | )
(1) All amounts are associated with FES.
| For the Three Months Ended June 30
| Commodity Contracts |  | FTRs |  | Total
| (In millions)
2015 |  |  |  |  |  |  |  |
Unrealized Gain (Loss) Recognized in: |  |  |  |  |  |  |  |
Other Operating Expense(2) | $ | 11 |  |  | $ | (2 | ) |  | $ | 9 |
Realized Gain (Loss) Reclassified to: |  |  |  |  |  |  |  |
Revenues(2) | $ | 8 |  |  | $ | 8 |  |  | $ | 16 |
Purchased Power Expense(2) | (25 | ) |  | — |  |  | (25 | )
Other Operating Expense(2) | — |  |  | (13 | ) |  | (13 | )
Fuel Expense | (5 | ) |  | — |  |  | (5 | )
(2) All amounts are associated with FES.
| For the Six Months Ended June 30
| Commodity Contracts |  | FTRs |  |  | Total
2016 | (In millions)
Unrealized Gain (Loss) Recognized in: |  |  |  |  |  |  |  |  |
Other Operating Expense(1) | $ | (17 | ) |  | $ | 12 |  |  |  | $ | (5 | )
Realized Gain (Loss) Reclassified to: |  |  |  |  |  |  |  |  |
Revenues(1) | $ | 130 |  |  | $ | 3 |  |  |  | $ | 133 |
Purchased Power Expense(1) | (83 | ) |  | — |  |  |  | (83 | )
Other Operating Expense(1) | — |  |  | (22 | ) |  |  | (22 | )
Fuel Expense | (7 | ) |  | — |  |  |  | (7 | )
(1) All amounts are associated with FES.
| For the Six Months Ended June 30
| Commodity Contracts |  | FTRs |  |  | Total
| (In millions)
2015 |  |  |  |  |  |  |  |  |
Unrealized Gain (Loss) Recognized in: |  |  |  |  |  |  |  |  |
Other Operating Expense(2) | $ | 22 |  |  | $ | (15 | ) |  |  | $ | 7 |
Realized Gain (Loss) Reclassified to: |  |  |  |  |  |  |  |  |
Revenues(3) | $ | 7 |  |  | $ | 45 |  |  |  | $ | 52 |
Purchased Power Expense(4) | (28 | ) |  | — |  |  |  | (28 | )
Other Operating Expense(4) | — |  |  | (26 | ) |  |  | (26 | )
Fuel Expense | (21 | ) |  | — |  |  |  | (21 | )
(2) Includes $22 million for commodity contracts and $(14) million for FTRs associated with FES.
(3) Includes $7 million for commodity contracts and $44 million for FTRs associated with FES.
(4) All amounts are associated with FES.
The following table provides a reconciliation of changes in the fair value of FirstEnergy's derivative instruments subject to regulatory accounting during the three and six months ended June 30, 2016 and 2015. Changes in the value of these instruments are deferred for future recovery from (or credit to) customers:
|  | For the Three Months Ended June 30
Derivatives Not in a Hedging Relationship with Regulatory Offset |  | NUGs |  | Regulated FTRs |  | Total
|  | (In millions)
Outstanding net liability as of April 1, 2016 |  | $ | (135 | ) |  | $ | (2 | ) |  | $ | (137 | )
Purchases |  | — |  |  | 4 |  |  | 4 |
Settlements |  | 11 |  |  | 2 |  |  | 13 |
Outstanding net asset (liability) as of June 30, 2016 |  | $ | (124 | ) |  | $ | 4 |  |  | $ | (120 | )
Outstanding net asset (liability) as of April 1, 2015 |  | $ | (148 | ) |  | $ | 1 |  |  | $ | (147 | )
Unrealized loss |  | (8 | ) |  | — |  |  | (8 | )
Purchases |  | — |  |  | 12 |  |  | 12 |
Settlements |  | 16 |  |  | (1 | ) |  | 15 |
Outstanding net asset (liability) as of June 30, 2015 |  | $ | (140 | ) |  | $ | 12 |  |  | $ | (128 | )
|  | For the Six Months Ended June 30
Derivatives Not in a Hedging Relationship with Regulatory Offset |  | NUGs |  | Regulated FTRs |  | Total
|  | (In millions)
Outstanding net asset (liability) as of January 1, 2016 |  | $ | (136 | ) |  | $ | 1 |  |  | $ | (135 | )
Unrealized loss |  | (12 | ) |  | — |  |  | (12 | )
Purchases |  | — |  |  | 4 |  |  | 4 |
Settlements |  | 24 |  |  | (1 | ) |  | 23 |
Outstanding net asset (liability) as of June 30, 2016 |  | $ | (124 | ) |  | $ | 4 |  |  | $ | (120 | )
Outstanding net asset (liability) as of January 1, 2015 |  | $ | (151 | ) |  | $ | 11 |  |  | $ | (140 | )
Unrealized gain (loss) |  | (16 | ) |  | 1 |  |  | (15 | )
Purchases |  | — |  |  | 12 |  |  | 12 |
Settlements |  | 27 |  |  | (12 | ) |  | 15 |
Outstanding net asset (liability) as of June 30, 2015 |  | $ | (140 | ) |  | $ | 12 |  |  | $ | (128 | )

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration