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Discontinued Operations | 9 Months Ended
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Sep. 30, 2018
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | DISCONTINUED OPERATIONS FES, FENOC, BSPC and a portion of AE Supply (including the Pleasants Power Station), 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. During the third quarter of 2018, the Pleasants Power Station was reclassified to discontinued operations following its inclusion in the definitive settlement agreement for the benefit of FES' creditors. 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 the FES Debtors, 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 FirstEnergy has accounted and will account for its investments in FES and FENOC at fair values of zero. By eliminating a significant portion of its competitive generation fleet with the deconsolidation of the FES Debtors, FirstEnergy has concluded the FES Debtors 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. Under the terms of the settlement agreement discussed below, FE will release any and all claims against the FES Debtors with respect to the $500 million borrowed 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, the FES Debtors owed FE approximately $4 million in unsecured borrowings in the aggregate under the money pool. Under the terms of the settlement agreement, FE will reinstate $88 million for 2018 estimated payments for NOLs applied against the FES Debtor’s position in the unregulated companies’ money pool prior to their withdrawal on March 16, 2018, which will increase the amount the FES Debtors owed FE under the money pool to $92 million. 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 on March 31, 2018, FE fully reserved the initial $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. In the third quarter of 2018, FE reserved the additional $88 million that will be reinstated for the FES Debtors under the money pool and, under the terms of the settlement agreement, FirstEnergy will release any and all claims against the FES Debtors with respect to the $92 million owed under the unregulated money pool and $102 million unsecured promissory note. For the three and nine months ended September 30, 2018, approximately $8 million and $16 million, respectively, of interest was accrued and subsequently reserved. Services Agreements Pursuant to the settlement agreement, FirstEnergy entered into an amended and restated shared services agreement with the FES Debtors to extend the availability of Shared Services until no later than June 30, 2020, subject to reductions in services if requested by the FES Debtors. Under the amended shared services agreement, and consistent with the prior shared services agreements, costs are directly billed or assigned at no more than cost. In addition to providing for certain notice requirements and other terms and conditions, the agreement provides for a credit to the FES Debtors in an amount up to $112.5 million for charges incurred for services provided under prior shared services agreements and the amended shared services agreement from April 1, 2018 through December 31, 2018. As of September 30, 2018, approximately $110 million has been incurred and credited for shared services provided to the FES Debtors, which has been recognized by FE in loss from discontinued operations. 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 the FES Debtors' employees for services provided prior to emergence from bankruptcy. The retention of this obligation at March 31, 2018, resulted in a net liability of $820 million (including EDCP, pension and OPEB) with a corresponding loss from discontinued operations. EDCP, pension and OPEB costs earned by the FES Debtors' employees during bankruptcy are billed under the shared services agreement. Guarantees provided by FE FE previously guaranteed FG's 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. Under the terms of the settlement agreement, FE will release all claims against the FES Debtors with respect to the guaranteed amounts. 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 September 30, 2018, the Utilities owed FES approximately $21 million related to these purchases. The terms and conditions of the power purchase agreements are generally consistent with industry practices and other similar third-party arrangements. The Utilities purchased and recognized in continuing operations approximately $74 million and $248 million of power from FES for the three and nine months ended September 30, 2018, respectively. Tax Allocation Agreement Until the FES Debtors emerge from bankruptcy, it is expected that the FES Debtors 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. Under the terms of the settlement agreement, FE agreed to waive settlement of the 2017 overpayment made to the FES Debtors and pay a minimum of $66 million to the FES Debtors for the 2018 tax year (approximately $20 million in estimated tax payments have been paid through September 30, 2018). For U.S. federal income taxes, until emergence from bankruptcy, the FES Debtors 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 (FirstEnergy currently estimates approximately $950 million, net of unrecognized tax benefits of $88 million). The estimated worthless stock deduction is contingent upon the emergence of the FES Debtors from the FES Bankruptcy and such amounts may be materially impacted by future events. See Note 1, "Organization and Basis of Presentation," for further discussion of the settlement among FirstEnergy, the FES Key Creditor Groups, the FES Debtors and the UCC. 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), all of which were closed by May 2018. Additionally, as part of the FES Bankruptcy settlement agreement, discussed above, AE Supply will transfer all of its rights, title and interest in the 1,300 MW Pleasants Power Station and related assets to FES for the benefit of FES' creditors, while retaining certain specified liabilities, subject to the terms and conditions of an asset transfer agreement and related ancillary agreements to be negotiated by the parties prior to December 31, 2018. If the transaction is not consummated before January 1, 2019, FES will acquire the economic interests in Pleasants as of January 1, 2019, and AE Supply will operate Pleasants until the transfer. 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 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 and planned Pleasants transfer under the settlement agreement did not qualify for reporting as discontinued operations. However, in the aggregate, the asset sales and planned Pleasants transfer 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 nine months ended September 30, 2018 and 2017, were as follows:
|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(In millions) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Revenues |  | $ | 83 |  |  | $ | 788 |  |  | $ | 934 |  |  | $ | 2,299 |
Fuel |  | (52 | ) |  | (237 | ) |  | (269 | ) |  | (671 | )
Purchased power |  | — |  |  | (66 | ) |  | (85 | ) |  | (189 | )
Other operating expenses |  | (24 | ) |  | (290 | ) |  | (414 | ) |  | (1,097 | )
Provision for depreciation |  | (18 | ) |  | (28 | ) |  | (96 | ) |  | (80 | )
General taxes |  | (4 | ) |  | (15 | ) |  | (32 | ) |  | (74 | )
Impairment of assets |  | — |  |  | (18 | ) |  | — |  |  | (149 | )
Other expense, net |  | (1 | ) |  | (2 | ) |  | (82 | ) |  | (37 | )
Income (Loss) from discontinued operations, before tax |  | (16 | ) |  | 132 |  |  | (44 | ) |  | 2 |
Income tax expense (benefit)(1) |  | (5 | ) |  | 37 |  |  | (9 | ) |  | (1 | )
Income (Loss) from discontinued operations, net of tax |  | (11 | ) |  | 95 |  |  | (35 | ) |  | 3 |
Gain (Loss) on disposal of FES and FENOC, net of tax |  | (834 | ) |  | — |  |  | 405 |  |  | — |
Income (Loss) from discontinued operations |  | $ | (845 | ) |  | $ | 95 |  |  | $ | 370 |  |  | $ | 3 |
(1) In conjunction with the sale of an interest in Bath County, AGC wrote off and recognized as a benefit in discontinued operations in the second quarter of 2018 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 (loss) on disposal that was recognized in the three and nine months ended September 30, 2018, consisted of the following:
(In millions) |  | For the Three Months Ended September 30, 2018 |  | For the Nine Months Ended September 30, 2018
Removal of investment in FES and FENOC |  | $ | — |  |  | $ | 2,193 |
Assumption of benefit obligations retained at FE |  | — |  |  | (820 | )
Guarantees and credit support provided by FE |  | — |  |  | (139 | )
Reserve on receivables and allocated Pension/OPEB mark-to-market |  | — |  |  | (914 | )
Settlement Consideration and Services Credit |  | (1,183 | ) |  | (1,183 | )
Loss on disposal of FES and FENOC, before tax |  | (1,183 | ) |  | (863 | )
Income tax benefit, including estimated worthless stock deduction |  | 349 |  |  | 1,268 |
Gain (Loss) on disposal of FES and FENOC, net of tax |  | $ | (834 | ) |  | $ | 405 |
The following table summarizes the major classes of assets and liabilities as discontinued operations as of September 30, 2018, and December 31, 2017:
(In millions) |  | September 30, 2018 |  | December 31, 2017
Carrying amount of the major classes of assets included in discontinued operations: |  |  |  |
Cash and cash equivalents |  | $ | — |  |  | $ | 1 |
Restricted cash |  | — |  |  | 3 |
Receivables |  | — |  |  | 202 |
Materials and supplies |  | 17 |  |  | 227 |
Prepaid taxes and other |  | — |  |  | 199 |
Total current assets |  | 17 |  |  | 632 |
Property, plant and equipment |  | — |  |  | 1,132 |
Investments |  | — |  |  | 1,875 |
Other noncurrent assets |  | — |  |  | 356 |
Total noncurrent assets |  | — |  |  | 3,363 |
Total assets included in discontinued operations |  | $ | 17 |  |  | $ | 3,995 |
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 |  | — |  |  | 137 |
Total current liabilities |  | — |  |  | 978 |
Long-term debt and other long-term obligations |  | — |  |  | 2,428 |
Accumulated deferred income taxes (1) |  | — |  |  | (1,812 | )
Asset retirement obligations |  | — |  |  | 1,945 |
Deferred gain on sale and leaseback transaction |  | — |  |  | 723 |
Other noncurrent liabilities |  | — |  |  | 244 |
Total noncurrent liabilities |  | — |  |  | 3,528 |
Total liabilities included in discontinued operations |  | $ | — |  |  | $ | 4,506 |
(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 nine months ended September 30, 2018 and 2017:
|  | For the Nine Months Ended September 30,
(In millions) |  | 2018 |  | 2017
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
Income from discontinued operations |  | $ | 370 |  |  | $ | 3 |
Depreciation and amortization, including nuclear fuel, regulatory assets, net, intangible assets and deferred debt-related costs |  | 110 |  |  | 245 |
Unrealized (gain) loss on derivative transactions |  | (15 | ) |  | 64 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
Property additions |  | (27 | ) |  | (233 | )
Nuclear fuel |  | — |  |  | (156 | )
Sales of investment securities held in trusts |  | 109 |  |  | 834 |
Purchases of investment securities held in trusts |  | (122 | ) |  | (878 | )

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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