XML 27 R12.htm IDEA: XBRL DOCUMENT
v3.5.0.2

Organization and Basis of Presentation | 9 Months Ended
--- | ---
Sep. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
ORGANIZATION AND BASIS OF PRESENTATION | ORGANIZATION AND BASIS OF PRESENTATION Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Terms. FirstEnergy Corp. was organized under the laws of the State of Ohio in 1996. FE’s principal business is the holding, directly or indirectly, of all of the outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), JCP&L, ME, PN, FESC, FES and its principal subsidiaries (FG and NG), AE Supply, MP, PE, WP, FET and its principal subsidiaries (ATSI and TrAIL), and AESC. In addition, FE holds all of the outstanding common stock of other direct subsidiaries including: FirstEnergy Properties, Inc., FEV, FENOC, FELHC, Inc., GPU Nuclear, Inc., and Allegheny Ventures, Inc. FE and its subsidiaries are principally involved in the generation, transmission, and distribution of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving six million customers in the Midwest and Mid-Atlantic regions. Its regulated and unregulated generation subsidiaries control nearly 17,000 MW of capacity from a diverse mix of non-emitting nuclear, scrubbed coal, natural gas, hydroelectric and other renewables. FirstEnergy’s transmission operations include approximately 24,000 miles of lines and two regional transmission operation centers. These interim financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the financial statements and notes included in the combined Annual Report on Form 10-K for the year ended December 31, 2015. These Notes to the Consolidated Financial Statements are combined for FirstEnergy and FES. FirstEnergy follows GAAP and complies with the related regulations, orders, policies and practices prescribed by the SEC, FERC, and, as applicable, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The accompanying interim financial statements are unaudited, but reflect all adjustments, consisting of normal recurring adjustments, that, in the opinion of management, are necessary for a fair statement of the financial statements. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not necessarily indicative of results of operations for any future period. FE and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation as appropriate. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary (see Note 7, Variable Interest Entities). Investments in affiliates over which FE and its subsidiaries have the ability to exercise significant influence, but do not have a controlling financial interest, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage of FE's ownership share of the entity’s earnings is reported in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). For the three months ended September 30, 2016 and 2015, capitalized financing costs on FirstEnergy's Consolidated Statements of Income (Loss) include $11 million and $10 million, respectively, of allowance for equity funds used during construction and $17 million and $16 million, respectively, of capitalized interest. For the nine months ended September 30, 2016 and 2015, capitalized financing costs on FirstEnergy's Consolidated Statements of Income (Loss) include $28 million and $40 million, respectively, of allowance for equity funds used during construction and $51 million and $53 million, respectively, of capitalized interest. During the third quarter of 2016, a reduction to depreciation of $21 million ($19 million prior to January 1, 2016) was recorded that related to prior periods. The out-of-period adjustment related to the utilization of an accelerated useful life for a component of a certain power station. Management has determined this adjustment is not material to the current period or any prior periods. Strategic Review of Competitive Operations FirstEnergy’s strategy is to be a fully regulated utility focusing on stable and predictable earnings and cash flow from its regulated business units. In order to execute on this strategy, FirstEnergy has begun a strategic review of its competitive operations focused on the sale of gas and hydroelectric units as well as exploring all alternatives for the remaining generation assets at FES and AE Supply. These include, but are not limited to, legislative efforts to convert generation from competitive operations to a regulated or regulated-like construct such as a regulatory restructuring in Ohio, offering generation into any process designed to address MP's generation shortfall included in its IRP, and/or a solution for nuclear generation that recognize their environmental benefits. Management anticipates that the viability of these alternatives will be determined in the near term with a target to implement these strategic options within the next 12 to 18 months and could result in material asset impairments. Based on current market forwards, CES, including FES, expects to have more than sufficient cash flow from operations in 2017 and 2018 to fund anticipated capital expenditures with no equity contributions from FirstEnergy. However, in addition to exposure to market price volatility and operational risks, CES, including FES, faces significant financial risks that could impact its anticipated cash flow and liquidity, including, but not limited to, the following:
• | Requests to post additional collateral or accelerated payments of up to $355 million resulting from current credit ratings at FES, including Moody's downgrade of the Senior Unsecured debt rating for FES to Caa1 as well as S&P's downgrade of the Senior Unsecured debt rating at FES to B, both of which occurred on November 4, 2016.
• | Adverse outcomes in the previously disclosed disputes regarding long-term coal transportation contracts.
• | The inability to extend or refinance debt maturities at CES, including at FES subsidiaries, in 2017 and 2018 of $130 million and $515 million, respectively.
A significant collateral call or the inability to refinance 2017 debt maturities at FES subsidiaries is expected to be addressed by FES through a combination of cash on hand, additional capital expenditure reductions, asset sales, and/or borrowings under the unregulated money pool. However, adverse outcomes in the coal transportation contracts disputes, the inability to refinance 2018 debt maturities, or lack of viable alternative strategies could cause FES to take one or more of the following actions: (i) restructuring of debt and other financial obligations, (ii) additional borrowings under the unregulated money pool, (iii) further asset sales or plant deactivations, and/or (iv) seek protection under bankruptcy laws. In the event FES seeks such protection, FENOC may similarly seek protection under bankruptcy laws. Material asset impairments resulting from the sale or deactivation of generation assets or from a determination by management of its intent to exit competitive generation assets before the end of their estimated useful life resulting from the inability to implement alternative strategies discussed above, adverse judgments or a FES bankruptcy filing could result in an event of default under various agreements related to the indebtedness of FE. Although management expects to successfully resolve any FE defaults through waivers or other actions on acceptable terms and conditions, the failure to do so would have a material and adverse impact on FirstEnergy’s financial condition, and FirstEnergy cannot provide any assurance that it will be able to successfully resolve any such defaults on satisfactory terms. New Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers". Subsequent accounting standards updates have been issued which amend and/or clarify the application of ASU 2014-09. The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. More detailed disclosures will also be required to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. For public business entities, the new revenue recognition guidance will be effective for annual and interim reporting periods beginning after December 15, 2017. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2016. The standards shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. FirstEnergy is currently evaluating the impact on its financial statements of adopting these standards. In February 2015, the FASB issued ASU 2015-02, "Consolidations: Amendments to the Consolidation Analysis", which amends current consolidation guidance including changes to both the variable and voting interest models used by companies to evaluate whether an entity should be consolidated. A reporting entity must apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the period of adoption or apply the amendments retrospectively. FirstEnergy's adoption of ASU 2015-02, on January 1, 2016, did not result in a change in the consolidation of VIEs by FE or its subsidiaries. In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. I n addition, in August 2015, the FASB issued ASU 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements", which allows debt issuance costs related to line of credit arrangements to be presented as an asset and amortized ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit. FirstEnergy adopted ASU 2015-15 and ASU 2015-03 beginning January 1, 2016. As of December 31, 2015, FirstEnergy and FES reclassified $93 million and $17 million of debt issuance costs included in Deferred charges and other assets to Long-term debt and Other long-term obligations. FirstEnergy has elected to continue presenting debt issuance costs relating to its revolving credit facilities as an asset. In January of 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities", which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The ASU will be effective in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption for certain provisions can be elected for all financial statements of fiscal years and interim periods that have not yet been issued or that have not yet been made available for issuance. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which will require organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. In addition, new qualitative and quantitative disclosures of the amounts, timing, and uncertainty of cash flows arising from leases will be required. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Lessors and lessees will be required to apply a modified retrospective transition approach, which requires adjusting the accounting for any leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard. In March of 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", which simplifies several aspects of the accounting for employee share-based payment. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will not require liability accounting when an employer repurchases more of an employee’s shares for tax withholding purposes. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which removes all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard. In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". The standard is intended to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for all entities. FirstEnergy does not expect this ASU to have a material effect on its financial statements. In October 2016, the FASB issued ASU 2016-16, " Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory." ASU 2016-16 eliminates the exception for all intra-entity sales of assets other than inventory, which allows companies to defer the tax effects of intra-entity asset transfers. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the intra-entity transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted and the modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard. Additionally, during 2016, the FASB issued the following ASUs:
• | ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,”
• | ASU 2016-06, “Contingent Put and Call Options in Debt Instruments (a consensus of the FASB Emerging Issues Task Force),"
• | ASU 2016-07, “Simplifying the Transition to the Equity Method of Accounting," and
• | ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control.”
FirstEnergy does not expect these ASUs to have a material effect on its financial statements.

X
- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
Name: | us-gaap_BasisOfPresentationAndSignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

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