XML 35 R17.htm IDEA: XBRL DOCUMENT
v3.6.0.2

Organization, Basis of Presentation | 12 Months Ended
--- | ---
Dec. 31, 2016
Accounting Policies [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. FE 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 equity 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 equity 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 MWs 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. FES, a subsidiary of FE, was organized under the laws of the State of Ohio in 1997. FES provides energy-related products and services to retail and wholesale customers. FES also owns and operates, through its FG subsidiary, fossil generating facilities and owns, through its NG subsidiary, nuclear generating facilities. FES purchases the entire output of the generation facilities owned by FG and NG, and purchases the uncommitted output of AE Supply, as well as the output relating to leasehold interests of OE and TE in certain of those facilities that are subject to sale and leaseback arrangements, and pursuant to full output, cost-of-service PSAs. FES complies with the regulations, orders, policies and practices prescribed by the SEC, FERC, NRC and applicable state regulatory authorities. FE and its subsidiaries follow GAAP and comply 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 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 9, 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). These Notes to the Consolidated Financial Statements are combined for FirstEnergy and FES. Certain prior year amounts have been reclassified to conform to the current year presentation. Strategic Review of Competitive Operations FirstEnergy believes having a combination of distribution, transmission and generation assets in a regulated or regulated-like construct is the best way to serve customers. FirstEnergy’s strategy is to be a fully regulated utility, focusing on stable and predictable earnings and cash flow from its regulated business units. Over the past several years, CES has been impacted by a prolonged decrease in demand and excess generation supply in the PJM Region, which has resulted in a period of protracted low power and capacity prices. To address this, CES sold or deactivated more than 6,770 MWs of competitive generation from 2012 to 2015. Additionally, CES has continued to focus on cost reductions, including those identified as part of FirstEnergy’s previously disclosed cash flow improvement plan. However, the energy and capacity markets continue to be weak, as evidenced by the significantly depressed capacity prices from the 2019/2020 PJM Base Residual Auction in May of 2016 as well as the current forward pricing and the long-term fundamental view on energy and capacity prices, which resulted in a non-cash pre-tax impairment charge of $800 million ($23 million at FES) recognized in the second quarter of 2016 representing the total amount of goodwill at CES. As part of a continual process to evaluate its overall generation business, on July 22, 2016, FirstEnergy announced its intent to exit the 136 MW Bay Shore Unit 1 generating station by October 2020 and to deactivate Units 1-4 of the W.H. Sammis generating station totaling 720 MWs by May 2020, resulting in a $647 million ($517 million at FES) non-cash pre-tax impairment charge in the second quarter of 2016. Furthermore, in November of 2016, FirstEnergy announced that it had begun a strategic review of its competitive operations as it transitions to a fully regulated utility with a target to implement its exit from competitive operations by mid-2018. As a result of this strategic review, FirstEnergy announced in January 2017 that AE Supply and AGC had entered into an asset purchase agreement to sell four of AE Supply’s natural gas generating plants and approximately 59% of AGC’s interest in Bath County (1,572 MWs of combined capacity) for an all-cash purchase price of $925 million, subject to customary and other closing conditions as further discussed in Note 22, Subsequent Events, including the satisfaction and discharge of $305 million of AE Supply’s senior notes, which is expected to require the payment of a “make-whole” premium currently estimated to be approximately $100 million based on current interest rates. Additionally, in connection with MP's RFP seeking additional generation capacity, AE Supply offered the Pleasants power station (1,300 MWs) for approximately $195 million. Although FirstEnergy is targeting mid-2018 to exit from competitive operations, the options for the remaining portion of CES' generation are still uncertain, but could include one or more of the following:
• | Legislative or regulatory solutions for generation assets that recognize their environmental or energy security benefits,
• | Additional asset sales and/or plant deactivations,
• | Restructuring FES debt with its creditors, and/or
• | Seeking protection under U.S. bankruptcy laws for FES and possibly FENOC.
Furthermore, adverse outcomes in previously disclosed disputes regarding long-term coal transportation contracts and/or the inability to extend or refinance debt maturities at FES subsidiaries, could accelerate management’s targeted timeline and limit its options to fully exit competitive operations to either restructuring debt with its creditors or seeking protection under U.S. bankruptcy laws for FES and possibly FENOC. As part of assessing the viability of strategic alternatives, FirstEnergy determined that the carrying value of long-lived assets of the competitive business were not recoverable, specifically given FirstEnergy’s target to implement its exit from competitive operations by mid-2018, significantly before the end of the original useful lives, and the anticipated cash flows over this shortened period. As a result, CES recorded a non-cash pre-tax impairment charge of $9,218 million ($8,082 million at FES) in the fourth quarter of 2016 to reduce the carrying value of certain assets to their estimated fair value, including long-lived assets such as generating plants and nuclear fuel, as well as other assets such as materials and supplies. Today, the competitive generation portfolio is comprised of more than 13,000 MWs of generation, primarily from coal, nuclear and natural gas and oil fuel sources. The assets can generate approximately 70-75 million MWHs annually, with up to an additional five million MWHs available from purchased power agreements for wind, solar, and CES' entitlement in OVEC, of which a portion is sold through various retail channels and the remainder targeting forward wholesale or spot sales. Subject to the completion of the sale of the AE Supply natural gas generating plants and AGC’s interest in Bath County and, if accepted in the MP RFP process as the winning bidder, the transfer of the Pleasants Power station to MP, the size and generation capacity of CES’ current portfolio will reduce to approximately 10,000 MWs with approximately 60-65 million MWHs produced annually. The competitive business continues to be managed conservatively due to the stress of weak energy prices, insufficient results from recent capacity auctions and anemic demand forecasts that have lowered the value of the business. Furthermore, the credit quality of CES, specifically FES' unsecured debt rating of Caa1 at Moody’s, CCC+ at S&P and C at Fitch and negative outlook from each of the rating agencies has challenged its ability to hedge generation with retail and forward wholesale sales due to collateral requirements that otherwise would reduce available liquidity. A lack of viable alternative strategies for its competitive portfolio has and would further stress the financial condition of FES. As a result, CES' contract sales are expected to decline from 53 million MWHs in 2016 to 40-45 million MWHs in 2017, and to 35-40 million MWHs in 2018. While the reduced contract sales will decrease potential collateral requirements, market price volatility may significantly impact CES' financial results due to the increased exposure to the wholesale spot market. Going Concern at FES Although FES has access to a $500 million credit facility with FE, in lieu of access to the unregulated money pool, all of which is available as of January 31, 2017, its current credit rating and the current forward wholesale pricing environment are a significant challenge to FES. Furthermore, a lack of viable alternative strategies for its competitive portfolio would further stress the liquidity and financial condition of FES. As previously disclosed, FES has $130 million of debt maturities that need to be refinanced in 2017 (and $515 million of maturing debt in 2018 beginning in the second quarter). Based on its current senior unsecured debt rating and current capital structure, reflecting the impact of the impairment charges discussed above, as well as the forecasted decline in wholesale forward market prices over the next few years, these debt maturities will be difficult to refinance, even on a secured basis, which would further stress FES' anticipated liquidity. Furthermore, lack of clarity regarding the timing and viability of alternative strategies, including additional asset sales or deactivations and/or converting generation from competitive operations to a regulated or regulated-like construct in a way that provides FES with the means to satisfy its obligations over the long-term, may require FES to restructure debt and other financial obligations with its creditors or seek protection under U.S bankruptcy laws. In the event FES seeks protection under U.S. bankruptcy laws, FENOC may similarly seek such protection. Although management is exploring capital and other cost reductions, asset sales, and other options to improve cash flow as well as continuing with legislative efforts to explore a regulatory solution, these obligations and their impact on liquidity raise substantial doubt about FES’ ability to meet its obligations as they come due over the next twelve months and, as such, its ability to continue as a going concern. ACCOUNTING FOR THE EFFECTS OF REGULATION FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities, AGC, ATSI, PATH and TrAIL since their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-based and can be charged to and collected from customers. FirstEnergy records regulatory assets and liabilities that result from the regulated rate-making process that would not be recorded under GAAP for non-regulated entities. These assets and liabilities are amortized in the Consolidated Statements of Income concurrent with the recovery or refund through customer rates. FirstEnergy believes that it is probable that its regulatory assets and liabilities will be recovered and settled, respectively, through future rates. FirstEnergy and the Utilities net their regulatory assets and liabilities based on federal and state jurisdictions. The following table provides information about the composition of net regulatory assets as of December 31, 2016 and December 31, 2015, and the changes during the year ended December 31, 2016:
Regulatory Assets by Source |  | December 31, 2016 |  | December 31, 2015 |  | Increase (Decrease)
|  | (In millions)
Regulatory transition costs |  | $ | 90 |  |  | $ | 185 |  |  | $ | (95 | )
Customer receivables for future income taxes |  | 444 |  |  | 355 |  |  | 89 |
Nuclear decommissioning and spent fuel disposal costs |  | (304 | ) |  | (272 | ) |  | (32 | )
Asset removal costs |  | (470 | ) |  | (372 | ) |  | (98 | )
Deferred transmission costs |  | 127 |  |  | 115 |  |  | 12 |
Deferred generation costs |  | 215 |  |  | 243 |  |  | (28 | )
Deferred distribution costs |  | 296 |  |  | 335 |  |  | (39 | )
Contract valuations |  | 153 |  |  | 186 |  |  | (33 | )
Storm-related costs |  | 353 |  |  | 403 |  |  | (50 | )
Other |  | 110 |  |  | 170 |  |  | (60 | )
Net Regulatory Assets included on the Consolidated Balance Sheets |  | $ | 1,014 |  |  | $ | 1,348 |  |  | $ | (334 | )
Regulatory assets that do not earn a current return totaled approximately $153 million and $148 million as of December 31, 2016 and 2015, respectively, primarily related to storm damage costs, and are currently being recovered through rates. As of December 31, 2016 and December 31, 2015, FirstEnergy had approximately $157 million and $116 million of net regulatory liabilities that are primarily related to asset removal costs. Net regulatory liabilities are classified within other noncurrent liabilities on the Consolidated Balance Sheets. REVENUES AND RECEIVABLES The Utilities' principal business is providing electric service to customers in Ohio, Pennsylvania, West Virginia, New Jersey and Maryland. FES' principal business is supplying electric power to end-use customers through retail and wholesale arrangements, including affiliated company power sales to meet a portion of the POLR and default service requirements, and competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Michigan, New Jersey and Maryland. Retail customers are metered on a cycle basis. Electric revenues are recorded based on energy delivered through the end of the calendar month. An estimate of unbilled revenues is calculated to recognize electric service provided from the last meter reading through the end of the month. This estimate includes many factors, among which are historical customer usage, load profiles, estimated weather impacts, customer shopping activity and prices in effect for each class of customer. In each accounting period, FirstEnergy accrues the estimated unbilled amount as revenue and reverses the related prior period estimate. Receivables from customers include retail electric sales and distribution deliveries to residential, commercial and industrial customers for the Utilities, and retail and wholesale sales to customers for FES. There was no material concentration of receivables as of December 31, 2016 and 2015 with respect to any particular segment of FirstEnergy’s customers. Billed and unbilled customer receivables as of December 31, 2016 and 2015 are included below.
Customer Receivables |  | FirstEnergy |  | FES
|  | (In millions)
December 31, 2016 |  |  |  |
Billed |  | $ | 833 |  |  | $ | 123 |
Unbilled |  | 607 |  |  | 90 |
Total |  | $ | 1,440 |  |  | $ | 213 |
December 31, 2015 |  |  |  |
Billed |  | $ | 836 |  |  | $ | 165 |
Unbilled |  | 579 |  |  | 110 |
Total |  | $ | 1,415 |  |  | $ | 275 |
EARNINGS (LOSS) PER SHARE OF COMMON STOCK Basic earnings (loss) per share of common stock are computed using the weighted average number of common shares outstanding during the relevant period as the denominator. The denominator for diluted earnings per share of common stock reflects the weighted average of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised. The following table reconciles basic and diluted earnings (loss) per share of common stock:
Reconciliation of Basic and Diluted Earnings (Loss) per Share of Common Stock |  | 2016 |  | 2015 |  | 2014
|  | (In millions, except per share amounts)
Income (loss) from continuing operations available to common shareholders |  | $ | (6,177 | ) |  | $ | 578 |  |  | $ | 213 |
Discontinued operations (Note 20) |  | — |  |  | — |  |  | 86 |
Net income (loss) |  | $ | (6,177 | ) |  | $ | 578 |  |  | $ | 299 |
Weighted average number of basic shares outstanding |  | 426 |  |  | 422 |  |  | 420 |
Assumed exercise of dilutive stock options and awards(1) |  | — |  |  | 2 |  |  | 1 |
Weighted average number of diluted shares outstanding |  | 426 |  |  | 424 |  |  | 421 |
Earnings (loss) per share: |  |  |  |  |  |
Basic earnings (loss) per share: |  |  |  |  |  |
Continuing operations |  | $ | (14.49 | ) |  | $ | 1.37 |  |  | $ | 0.51 |
Discontinued operations (Note 20) |  | — |  |  | — |  |  | 0.20 |
Earnings (loss) per basic share |  | $ | (14.49 | ) |  | $ | 1.37 |  |  | $ | 0.71 |
Diluted earnings (loss) per share: |  |  |  |  |  |
Continuing operations |  | $ | (14.49 | ) |  | $ | 1.37 |  |  | $ | 0.51 |
Discontinued operations (Note 20) |  | — |  |  | — |  |  | 0.20 |
Earnings (loss) per diluted share |  | $ | (14.49 | ) |  | $ | 1.37 |  |  | $ | 0.71 |
(1) | For the year ended December 31, 2016, approximately three million shares were excluded from the calculation of diluted shares outstanding, as their inclusion would be antidilutive as a result of the net loss for the period. For the years ended December 31, 2015 and 2014, approximately one million and two million shares were excluded from the calculation of diluted shares outstanding, respectively, as their inclusion would be antidilutive.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment reflects original cost (net of any impairments recognized), including payroll and related costs such as taxes, employee benefits, administrative and general costs, and interest costs incurred to place the assets in service. The costs of normal maintenance, repairs and minor replacements are expensed as incurred. FirstEnergy recognizes liabilities for planned major maintenance projects as they are incurred. The cost of nuclear fuel is capitalized within the CES segment's Property, plant and equipment and charged to fuel expense using the specific identification method. Property, plant and equipment balances by segment as of December 31, 2016 and 2015 were as follows:
|  | December 31, 2016
Property, Plant and Equipment |  | In Service(1) |  | Accum. Depr. |  | Net Plant |  | CWIP |  | Total PP&E
|  | (In millions)
Regulated Distribution(2) |  | $ | 24,979 |  |  | $ | (7,169 | ) |  | $ | 17,810 |  |  | $ | 472 |  |  | $ | 18,282 |
Regulated Transmission(2) |  | 9,342 |  |  | (1,948 | ) |  | 7,394 |  |  | 383 |  |  | 7,777 |
Competitive Energy Services(3) |  | 8,680 |  |  | (6,267 | ) |  | 2,413 |  |  | 453 |  |  | 2,866 |
Corporate/Other |  | 766 |  |  | (347 | ) |  | 419 |  |  | 43 |  |  | 462 |
Total |  | $ | 43,767 |  |  | $ | (15,731 | ) |  | $ | 28,036 |  |  | $ | 1,351 |  |  | $ | 29,387 |
|  | December 31, 2015
Property, Plant and Equipment |  | In Service(1) |  | Accum. Depr. |  | Net Plant |  | CWIP |  | Total PP&E
|  | (In millions)
Regulated Distribution(2) |  | $ | 24,034 |  |  | $ | (6,865 | ) |  | $ | 17,169 |  |  | $ | 530 |  |  | $ | 17,699 |
Regulated Transmission(2) |  | 8,222 |  |  | (1,840 | ) |  | 6,382 |  |  | 484 |  |  | 6,866 |
Competitive Energy Services(3) |  | 17,214 |  |  | (6,213 | ) |  | 11,001 |  |  | 1,304 |  |  | 12,305 |
Corporate/Other |  | 482 |  |  | (242 | ) |  | 240 |  |  | 104 |  |  | 344 |
Total |  | $ | 49,952 |  |  | $ | (15,160 | ) |  | $ | 34,792 |  |  | $ | 2,422 |  |  | $ | 37,214 |
(1) Includes capital leases of $244 million and $253 million at December 31, 2016 and 2015, respectively. (2) Net plant in service of $326 million as of December 31, 2015 was reclassified to conform to the current presentation reflecting the transfer of certain transmission assets from Regulated Distribution to Regulated Transmission during the fourth quarter of 2016. See "Note 19, Segment Information", for more information. (3) Primarily consists of generating assets and nuclear fuel as discussed above. 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 $2.1 billion of regulated generation property, plant and equipment. Property, plant and equipment balances for FES as of December 31, 2016 and 2015 were as follows:
|  | December 31, 2016
Property, Plant and Equipment |  | In Service |  | Accum. Depr. |  | Net Plant |  | CWIP |  | Total PP&E
|  | (In millions)
Fossil Generation |  | $ | 2,212 |  |  | $ | (1,720 | ) |  | $ | 492 |  |  | $ | 63 |  |  | $ | 555 |
Nuclear Generation |  | 2,065 |  |  | (1,723 | ) |  | 342 |  |  | 118 |  |  | 460 |
Nuclear Fuel |  | 2,637 |  |  | (2,418 | ) |  | 219 |  |  | 241 |  |  | 460 |
Other |  | 143 |  |  | (68 | ) |  | 75 |  |  | 5 |  |  | 80 |
Total |  | $ | 7,057 |  |  | $ | (5,929 | ) |  | $ | 1,128 |  |  | $ | 427 |  |  | $ | 1,555 |
|  | December 31, 2015
Property, Plant and Equipment |  | In Service |  | Accum. Depr. |  | Net Plant |  | CWIP |  | Total PP&E
|  | (In millions)
Fossil Generation |  | $ | 5,911 |  |  | $ | (1,937 | ) |  | $ | 3,974 |  |  | $ | 218 |  |  | $ | 4,192 |
Nuclear Generation |  | 5,617 |  |  | (1,574 | ) |  | 4,043 |  |  | 512 |  |  | 4,555 |
Nuclear Fuel |  | 2,616 |  |  | (2,198 | ) |  | 418 |  |  | 283 |  |  | 701 |
Other |  | 167 |  |  | (56 | ) |  | 111 |  |  | 144 |  |  | 255 |
Total |  | $ | 14,311 |  |  | $ | (5,765 | ) |  | $ | 8,546 |  |  | $ | 1,157 |  |  | $ | 9,703 |
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 2016, 2015 and 2014 are shown in the following table:
|  | Annual Composite Depreciation Rate
|  | 2016 |  | 2015 |  | 2014
FirstEnergy |  | 2.5 | % |  | 2.5 | % |  | 2.5 | %
FES |  | 3.3 | % |  | 3.2 | % |  | 3.1 | %
During the third quarter of 2016, FirstEnergy recorded a reduction to depreciation expense of $21 million ($19 million prior to January 1, 2016) 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. For the years ended December 31, 2016, 2015 and 2014, capitalized financing costs on FirstEnergy's Consolidated Statements of Income (Loss) include $37 million, $49 million and $49 million, respectively, of allowance for equity funds used during construction and $66 million, $68 million and $69 million, respectively, of capitalized interest. For the years ended December 31, 2016, 2015 and 2014, capitalized financing costs on FES' Consolidated Statements of Income (Loss) includes $34 million, $35 million and $34 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 $639 million representing AGC's share in this facility as of December 31, 2016 of which $458 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 (Loss). Approximately 59% of AGC is owned by AE Supply and approximately 41% by MP. As part of FE's strategic review of its competitive operations, on January 18, 2017, AGC entered into an asset purchase agreement with Aspen to sell AE Supply's indirect interest (23.75%) in Bath County, as discussed in "Note 22, Subsequent Events". Additionally, on December 16, 2016, MP issued an RFP for the sale of its ownership interest in Bath County, discussed in "Note 15, Regulatory Matters". 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, 2016, are described further in "Note 14, Asset Retirement Obligations". ASSET IMPAIRMENTS Long-Lived Assets FirstEnergy evaluates long-lived assets classified as held and used for impairment when events or changes in circumstances indicate the carrying value of the long-lived assets may not be recoverable. First, the estimated undiscounted future cash flows attributable to the assets is compared with the carrying value of the assets. If the carrying value is greater than the undiscounted future cash flows, an impairment charge is recognized equal to the amount the carrying value of the assets exceeds its estimated fair value. See Note 2, Asset Impairments, for long-lived asset impairments recognized during 2016 and 2015. Goodwill In a business combination, the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution, Regulated Transmission, and CES. The following table presents the changes in the carrying value of goodwill for the year ended December 31, 2016:
Goodwill |  | Regulated Distribution |  | Regulated Transmission |  | Competitive Energy Services |  | Consolidated
|  | (In millions)
Balance as of December 31, 2015 |  | $ | 5,092 |  |  | $ | 526 |  |  | $ | 800 |  |  | $ | 6,418 |
Impairment |  | — |  |  | — |  |  | (800 | ) |  | (800 | )
Transmission Segment (1) |  | (88 | ) |  | 88 |  |  | — |  |  | — |
Balance as of December 31, 2016 |  | $ | 5,004 |  |  | $ | 614 |  |  | $ | — |  |  | $ | 5,618 |
(1) See Note 19, Segment Information for discussion of transfer of certain transmission assets from the Regulated Distribution segment to the Regulated Transmission segment during the fourth quarter of 2016, resulting in the transfer of $88 million of goodwill between the segments based on the relative fair value of the transmission assets to fair value of the Regulated Distribution segment. FirstEnergy tests goodwill for impairment annually as of July 31 and considers more frequent testing if indicators of potential impairment arise. As of July 31, 2016, FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission reporting units' goodwill, assessing economic, industry and market considerations in addition to the reporting units' 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. See Note 2, Asset Impairments, for goodwill impairment recognized during 2016 at CES. Investments All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets at cost, which approximates their fair market value. Investments other than cash and cash equivalents include held-to-maturity securities and AFS securities. At the end of each reporting period, FirstEnergy evaluates its investments for OTTI. Investments classified as AFS securities are evaluated to determine whether a decline in fair value below the cost basis is other than temporary. FirstEnergy considers its intent and ability to hold an equity security until recovery and then considers, among other factors, the duration and the extent to which the security's fair value has been less than its cost and the near-term financial prospects of the security issuer when evaluating an investment for impairment. For debt securities, FirstEnergy considers its intent to hold the securities, the likelihood that it will be required to sell the securities before recovery of its cost basis and the likelihood of recovery of the securities' entire amortized cost basis. If the decline in fair value is determined to be other than temporary, the cost basis of the securities is written down to fair value. Unrealized gains and losses on AFS securities are recognized in AOCI. However, unrealized losses held in the NDTs of FES, OE and TE are recognized in earnings since the trust arrangements, as they are currently defined, do not meet the required ability and intent to hold criteria in consideration of OTTI. The NDTs of JCP&L, ME and PN are subject to regulatory accounting with unrealized gains and losses offset against regulatory assets. In 2016, 2015 and 2014, FirstEnergy recognized $21 million, $102 million and $37 million, respectively, of OTTI. During the same periods, FES recognized OTTI of $19 million, $90 million and $33 million, respectively. The fair values of FirstEnergy’s investments are disclosed in Note 10, Fair Value Measurements. The investment policy for the NDT funds restricts or limits the trusts' ability to hold certain types of assets including private or direct placements, warrants, securities of FirstEnergy, investments in companies owning nuclear power plants, financial derivatives, securities convertible into common stock and securities of the trust funds' custodian or managers and their parents or subsidiaries. FirstEnergy holds a 33-1/3% equity ownership in Global Holding, the holding company for a joint venture in the Signal Peak mining and coal transportation operations with coal sales in U.S. and international markets. In 2015, Global Holding incurred losses primarily as a result of declines in coal prices due to weakening global and U.S. coal demand. Based on the significant decline in coal pricing and the outlook for the coal market, including the significant decline in the market capitalization of coal companies in 2015, FirstEnergy assessed the value of its investment in Global Holding and determined there was a decline in the fair value of the investment below its carrying value that was other than temporary, resulting in a pre-tax impairment charge of $362 million recognized in 2015. Key assumptions incorporated into the discounted cash flow analysis utilized in the impairment analysis included the discount rate, future long-term coal prices, production levels, sales forecasts, projected capital and operating costs. The impairment charge is classified as a component of Other Income (Expense) in the Consolidated Statement of Income (Loss). See Note 9, Variable Interest Entities, for further discussion of FirstEnergy's investment in Global Holding. INVENTORY Materials and supplies inventory includes fuel inventory and the distribution, transmission and generation plant materials, net of reserve for excess and obsolete inventory. Materials are generally charged to inventory at weighted average cost when purchased and expensed or capitalized, as appropriate, when used or installed. Fuel inventory is accounted for at weighted average cost when purchased, and recorded to fuel expense when consumed. See Note 2, Asset Impairments, for inventory-related charges recognized during 2016. 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. FirstEnergy will not early adopt the standards. The standards shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. FirstEnergy has evaluated a significant portion of its revenues and preliminarily expects limited impacts to current revenue recognition practices, dependent on the resolution of industry issues including accounting for contributions in aid of construction and the ability to recognize revenue for contracts where collectibility is in question. FirstEnergy continues to assess the remainder of its revenue streams and the impact on its financial statements and disclosures as well as which transition method it will select to adopt the guidance. On August 27, 2014, the FASB issued ASU 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." In connection with preparing financial statements for each annual and interim reporting period, the ASU requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Disclosures are required when management identifies conditions or events that raise substantial doubt. The new requirements were effective for the annual period ended December 31, 2016. 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 twelve 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. Upon adoption, January 1, 2017, FirstEnergy elected to account for forfeitures as they occur. The adoption of the ASU did not have a material impact on FirstEnergy’s financial statements. 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, including the presentation of debt prepayment or debt extinguishment costs, all of which will be classified as financing activities. 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 expects to adopt this ASU in 2017 and 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. In November 2016, the FASB issued ASU 2016-18, "Restricted Cash" that will require entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. FirstEnergy does not expect this ASU to have a material effect on its financial statements. 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
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

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