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Discontinued Operations | 6 Months Ended
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Jun. 30, 2018
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | DISCONTINUED OPERATIONS FES, FENOC, BSPC and a portion of AE Supply, representing substantially all of FirstEnergy’s operations that previously comprised the CES reportable operating segment, are presented as discontinued operations in FirstEnergy’s consolidated financial statements resulting from the FES Bankruptcy and actions taken as part of the strategic review to exit commodity-exposed generation, as discussed below. Prior period results have been reclassified to conform with such presentation as discontinued operations. FES and FENOC Chapter 11 Filing As discussed in Note 1, "Organization and Basis of Presentation," on March 31, 2018, FES and FENOC announced the FES Bankruptcy. FirstEnergy concluded that it no longer has a controlling interest in FES or FENOC, as the entities are subject to the jurisdiction of the Bankruptcy Court and, accordingly, as of March 31, 2018, FES and FENOC were deconsolidated from FirstEnergy's consolidated financial statements, and will account for its investments in FES and FENOC with fair values of zero. By eliminating a significant portion of its competitive generation fleet with the deconsolidation of FES and FENOC, FirstEnergy has concluded FES and FENOC meet the criteria for discontinued operations, as this represents a significant event in management’s strategic review to exit commodity-exposed generation and transition to a fully-regulated company. FES Borrowings from FE On March 9, 2018, FES borrowed $500 million from FE under the secured credit facility, dated as of December 6, 2016, among FES, as Borrower, FG and NG as guarantors, and FE, as lender, which fully utilized the committed line of credit available under the secured credit facility. Following deconsolidation of FES, FE fully reserved for the $500 million associated with the borrowings under the secured credit facility. On March 16, 2018, FES and FENOC withdrew from the unregulated companies' money pool, which included FE, FES and FENOC. As of the date of the withdrawal, FES and FENOC owed FE approximately $4 million in unsecured borrowings in the aggregate under the money pool. In addition, as of March 31, 2018, AE Supply had a $102 million outstanding unsecured promissory note owed from FES. Following deconsolidation of FES and FENOC, FE fully reserved the $4 million associated with the outstanding unsecured borrowings under the unregulated companies' money pool and the $102 million associated with the AE Supply unsecured promissory note. For the three months ended June 30, 2018, approximately $8 million of interest was accrued and subsequently reserved. Services Agreements FirstEnergy is currently continuing to provide shared services support to FES and FENOC under existing shared services agreements ("Services Agreements"). Under the Services Agreements, costs are directly billed or assigned at no more than cost. The remaining costs are for services that are provided on behalf of more than one company, or costs that cannot be precisely identified and are allocated using formulas provided for in the Services Agreements. Transactions under the Services Agreements are generally settled within 30 days. At this time, FirstEnergy expects to provide shared services support to FES and FENOC under the Services Agreements through at least 2018. Following the deconsolidation of FES and FENOC from FirstEnergy's consolidated financial statements on March 31, 2018, approximately $41 million related to these services were charged to FES by FirstEnergy, which was outstanding as of June 30, 2018. In addition, on March 16, 2018, FES, FENOC and FESC, entered into the FirstEnergy Solutions Money Pool Agreement in order for FESC to assist FES and FENOC with certain treasury support services under the shared service agreement. FESC is a party to the FirstEnergy Solutions Money Pool Agreement solely in the role as administrator of the money pool arrangement thereunder. Benefit Obligations FirstEnergy will retain certain obligations for FES and FENOC employees for services provided prior to emergence from bankruptcy. The retention of this obligation at March 31, 2018, resulted in a liability of $820 million (including EDCP, pension and OPEB) with a corresponding loss from discontinued operations. EDCP, net pension and OPEB costs earned by FES and FENOC employees during bankruptcy are expected to be billed under the Services Agreements, and will be reassessed as the bankruptcy proceedings progress. Guarantees provided by FE As discussed in Note 14, "Commitments, Guarantees and Contingencies," FE guaranteed the remaining payments due to CSX and BNSF in connection with the definitive settlement of a dispute regarding a coal transportation agreement. As of March 31, 2018, FE recorded an obligation for this guarantee in other current liabilities with a corresponding loss from discontinued operations. On April 6, 2018, FE paid the remaining $72 million owed under the settlement agreement as a result of the FES Bankruptcy. In addition, as of March 31, 2018, FE recorded, and on May 11, 2018, paid a $58 million obligation for a sale-leaseback indemnity in other current liabilities with a corresponding loss from discontinued operations. Purchase Power FES at times provides power through affiliated company power sales to meet a portion of the Utilities' POLR and default service requirements and provide power to certain affiliates' facilities. As of June 30, 2018, the Utilities owed FES approximately $23 million related to these purchases. The terms and conditions of the agreements are generally consistent with industry practices and other third-party arrangements. The Utilities purchased and recognized in continuing operations approximately $71 million and $174 million of power from FES for the three and six months ended June 30, 2018, respectively. Tax Allocation Agreement Until FES and FENOC emerge from bankruptcy, it is expected that FES and FENOC will remain parties to the intercompany income tax allocation agreement with FE and its other subsidiaries, which provides for the allocation of consolidated tax liabilities. Net tax benefits attributable to FE are generally reallocated to the subsidiaries of FirstEnergy that have taxable income. As of June 30, 2018, FE has a $58 million receivable from FES and FENOC, in the aggregate, related to the federal tax obligation. For U.S. federal income taxes, FES and FENOC will continue to be consolidated in FirstEnergy’s tax return and taxable income will be determined based on the tax basis of underlying individual net assets. Deferred taxes previously recorded on the inside basis differences may not represent the actual tax consequence for the outside basis difference, causing a recharacterization of an existing consolidated-return net operating loss as a future worthless stock deduction (currently estimated at approximately $600 million). The estimated worthless stock deduction is contingent upon the emergence of FES and FENOC from the FES Bankruptcy and such amounts may be impacted by future events. Competitive Generation Asset Sales FirstEnergy announced in January 2017 that AE Supply and AGC had entered into an asset purchase agreement with a subsidiary of LS Power, as amended and restated in August 2017, to sell four natural gas generating plants, AE Supply's interest in the Buchanan Generating facility and approximately 59% of AGC's interest in Bath County (1,615 MWs of combined capacity). On December 13, 2017, AE Supply completed the sale of the natural gas generating plants, with net proceeds of approximately $388 million. On March 1, 2018, AE Supply completed the sale of the Buchanan Generating Facility with net proceeds of approximately $20 million. On May 3, 2018, AE Supply and AGC completed the sale of approximately 59% of AGC's interest in Bath County. Net proceeds were approximately $355 million, which includes adjustments based on the timing of the closing and is subject to other customary post-closing adjustments. In connection with its obligations under the asset purchase agreement, in June 2018, AE Supply redeemed its $305 million aggregate principal amount of senior notes and on May 3, 2018, AGC optionally redeemed its $100 million aggregate principal amount of senior notes. As a result of these redemptions, "make-whole" premiums of approximately $89 million were required to be paid to the noteholders (reported in continuing operations). Additionally, as a result of the completion of the asset sales to LS Power, AE Supply caused the redemption of $142 million aggregate principal amount of PCRBs and separately, together with MP, caused the redemption of $73.5 million of PCRBs. Also, on May 3, 2018, following closing of the sale by AGC of a portion of its ownership interest in Bath County, AGC completed the redemption of AE Supply's shares in AGC and AGC became a wholly owned subsidiary of MP. On March 9, 2018, BSPC and FG entered into an asset purchase agreement with Walleye Power, LLC (formerly Walleye Energy, LLC), for the sale of the Bay Shore Generating Facility, including the 136 MW Bay Shore Unit 1 and other retired coal-fired generating equipment owned by FG. The sale is subject to customary and other closing conditions, including regulatory approvals, various third-party consents and approval by the Bankruptcy Court in connection with the FES Bankruptcy. On May 11, 2018, FES filed with the Bankruptcy Court for approval of the sale transaction. On June 14, 2018, the UCC filed a limited objection in the Bankruptcy Court proceeding to approve the sale, contesting the previously agreed purchase price allocation between BSPC and FG, which objection was subsequently resolved. The Bankruptcy Court approved the sale on July 13, 2018, and the transaction was completed on July 31, 2018. Individually, the AE Supply and BSPC asset sales did not qualify for reporting as discontinued operations. However, the asset sales were part of management’s strategic review to exit commodity-exposed generation and, when considered with FES' and FENOC’s bankruptcy filings on March 31, 2018, represent a collective elimination of substantially all of FirstEnergy’s competitive generation fleet and meet the criteria for discontinued operations. Summarized Results of Discontinued Operations Summarized results of discontinued operations for the three and six months ended June 30, 2018 and 2017, were as follows:
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
(In millions) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Revenues |  | $ | 11 |  |  | $ | 680 |  |  | $ | 633 |  |  | $ | 1,369 |
Fuel |  | (5 | ) |  | (180 | ) |  | (121 | ) |  | (344 | )
Purchased power |  | — |  |  | (74 | ) |  | (53 | ) |  | (123 | )
Other operating expenses |  | — |  |  | (282 | ) |  | (347 | ) |  | (774 | )
Provision for depreciation |  | — |  |  | (27 | ) |  | (46 | ) |  | (52 | )
General taxes |  | — |  |  | (23 | ) |  | (18 | ) |  | (52 | )
Impairment of assets |  | — |  |  | (131 | ) |  | — |  |  | (131 | )
Other expense, net |  | (4 | ) |  | (23 | ) |  | (64 | ) |  | (31 | )
Income (Loss) from discontinued operations, before tax |  | 2 |  |  | (60 | ) |  | (16 | ) |  | (138 | )
Income tax benefit(1) |  | (30 | ) |  | (15 | ) |  | (1 | ) |  | (41 | )
Income (Loss) from discontinued operations, net of tax |  | 32 |  |  | (45 | ) |  | (15 | ) |  | (97 | )
Gain on deconsolidation, net of tax |  | — |  |  | — |  |  | 1,239 |  |  | — |
Income (loss) from discontinued operations |  | $ | 32 |  |  | $ | (45 | ) |  | $ | 1,224 |  |  | $ | (97 | )
(1) In conjunction with the sale of an interest in Bath County, AGC wrote-off and recognized as a benefit in discontinued operations its excess deferred tax liabilities of $32 million, created from the Tax Act, since they are not required to be refunded to ratepayers. The gain on deconsolidation that was recognized in the six months ended June 30, 2018, consisted of the following:
(In millions) |  | For the Six Months Ended June 30, 2018
Removal of investment in FES and FENOC |  | $ | 2,193 |
Assumption of benefit obligations retained at FE (including Pension, OPEB and EDCP) |  | (820 | )
Guarantees and credit support provided by FE |  | (139 | )
Reserve on receivables and allocated Pension/OPEB mark-to-market |  | (914 | )
Gain on deconsolidation of FES and FENOC, before tax |  | 320 |
Income tax benefit, including estimated worthless stock deduction |  | 919 |
Gain on deconsolidation of FES and FENOC, net of tax |  | $ | 1,239 |
The following table summarizes the major classes of assets and liabilities as discontinued operations as of June 30, 2018 and December 31, 2017:
(In millions) |  | June 30, 2018 |  | December 31, 2017
Carrying amount of the major classes of assets included in discontinued operations: |  |  |  |
Cash |  | $ | — |  |  | $ | 1 |
Restricted cash |  | — |  |  | 3 |
Receivables |  | — |  |  | 202 |
Materials and supplies |  | — |  |  | 201 |
Collateral |  | — |  |  | 130 |
Other current assets |  | — |  |  | 69 |
Total current assets |  | — |  |  | 606 |
Property, plant and equipment |  | — |  |  | 1,057 |
Investments |  | — |  |  | 1,875 |
Other non-current assets |  | — |  |  | 356 |
Total non-current assets |  | — |  |  | 3,288 |
Total assets included in discontinued operations |  | $ | — |  |  | $ | 3,894 |
Carrying amount of the major classes of liabilities included in discontinued operations: |  |  |  |
Currently payable long-term debt |  | $ | — |  |  | $ | 524 |
Accounts payable |  | — |  |  | 200 |
Accrued taxes |  | — |  |  | 38 |
Accrued compensation and benefits |  | — |  |  | 79 |
Other current liabilities |  | — |  |  | 132 |
Total current liabilities |  | — |  |  | 973 |
Long-term debt and other long-term obligations |  | — |  |  | 2,299 |
Accumulated deferred income taxes (1) |  | — |  |  | (1,812 | )
Asset retirement obligations |  | — |  |  | 1,945 |
Deferred gain on sale and leaseback transaction |  | — |  |  | 723 |
Other non-current liabilities |  | — |  |  | 244 |
Total noncurrent liabilities |  | — |  |  | 3,399 |
Total liabilities included in discontinued operations |  | $ | — |  |  | $ | 4,372 |
(1) Represents an increase in FirstEnergy's ADIT liability as an ADIT asset was removed upon deconsolidation of FES and FENOC. FirstEnergy's Consolidated Statement of Cash Flows combines cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category. The following table summarizes the major classes of cash flow items as discontinued operations for the six months ended June 30, 2018 and 2017:
|  | For the Six Months Ended June 30,
(In millions) |  | 2018 |  | 2017
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
Income (loss) from discontinued operations |  | $ | 1,224 |  |  | $ | (97 | )
Depreciation and amortization, including nuclear fuel, regulatory assets, net, intangible assets and deferred debt-related costs |  | 47 |  |  | 157 |
Unrealized (gain) loss on derivative transactions |  | (10 | ) |  | 53 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
Property additions |  | (15 | ) |  | (178 | )
Nuclear fuel |  | — |  |  | (134 | )
Sales of investment securities held in trusts |  | 109 |  |  | 437 |
Purchases of investment securities held in trusts |  | (122 | ) |  | (466 | )

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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