XML 27 R16.htm IDEA: XBRL DOCUMENT
v3.20.2

Discontinued Operations | 12 Months Ended
--- | ---
Dec. 31, 2019
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. Prior period results have been reclassified to conform with such presentation as discontinued operations. FES and FENOC Chapter 11 Bankruptcy 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 had 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, the FES Debtors were deconsolidated from FirstEnergy's consolidated financial statements, and FirstEnergy has accounted and will account for its investments in the FES Debtors at fair values of zero. In connection with the disposal and the FES Bankruptcy settlement agreement approved by the Bankruptcy Court in September 2018, as further discussed in Note 1, "Organization and Basis of Presentation," FE recorded an after-tax gain on disposal of $59 million and $435 million in 2019 and 2018, respectively. 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 FES Bankruptcy settlement agreement, 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, the FES Debtors withdrew from the unregulated companies' money pool, which included FE, and the FES Debtors. Under the terms of the FES Bankruptcy settlement agreement, FE reinstated $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 increased 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 the FES Debtors on March 31, 2018, and given the terms of the FES Bankruptcy settlement agreement, FE fully reserved the $92 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. Under the terms of the FES Bankruptcy 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 years ended December 31, 2019 and 2018, approximately $33 million and $24 million of interest was accrued and subsequently reserved, respectively. Services Agreements Pursuant to the FES Bankruptcy 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 provided 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. The entire credit for shared services provided to the FES Debtors ($112.5 million) has been recognized by FE and was included within the loss from discontinued operations as of December 31, 2018. The FES Debtors have paid approximately $152 million for the shared services for the year ended December 31, 2019. 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 and pension/OPEB service costs earned by the FES Debtors' employees during bankruptcy are billed under the shared services agreement. As FE continues to provide pension benefits to FES/FENOC employees, certain components of pension cost, including the mark to market, are seen as providing ongoing services and are reported in the continuing operations of FE, subsequent to the bankruptcy filing. FE has billed the FES Debtors approximately $37 million for their share of pension and OPEB service costs for the year ended December 31, 2019. 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 provides power to certain affiliates' facilities. As of December 31, 2019, the Utilities owed FES approximately $10 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 $171 million and $318 million of power purchases from FES for the years ended December 31, 2019 and 2018, respectively. Income Taxes 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 NOL as a future worthless stock deduction. FirstEnergy currently estimates a future worthless stock deduction of approximately $4.8 billion ($1.0 billion, net of tax) and is net of unrecognized tax benefits of $448 million ($94 million, net of tax). 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. Additionally, the Tax Act amended Section 163(j) of the Code, limiting interest expense deductions for corporations but with exemption for certain regulated utilities. On November 26, 2018, the IRS issued proposed regulations implementing Section 163(j), including application to consolidated groups with both regulated utility and non-regulated members. Based on its interpretation of these proposed regulations, FirstEnergy has estimated the amount of deductible interest for its consolidated group in 2019 and 2018 and has recorded a deferred tax asset on the nondeductible portion as it is carried forward with an indefinite life. However, the deferred tax asset related to the carryforward of nondeductible interest has a full valuation allowance recorded against it as future profitability from sources other than regulated utility businesses is required for utilization. In 2019 and 2018, FirstEnergy recorded tax expense of $54 million and $60 million, respectively, resulting from the valuation allowance, of which $14 million and $27 million has been reflected as an uncertain tax position in 2019 and 2018, respectively. All tax expense related to nondeductible interest in 2019 and 2018 has been recorded in discontinued operations as it is entirely attributed to the inclusion of the FES Debtors in FirstEnergy's consolidated group and therefore, pursuant to the Intercompany Tax Sharing Agreement, has been allocated to the FES Debtors. FE has fully reserved the amount of non-deductible interest allocated to the FES Debtors in connection with the on-going reconciliations under the Intercompany Tax Allocation Agreement with the FES Debtors. 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 Equity Partners III, LP, 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. On March 1, 2018, AE Supply completed the sale of the Buchanan Generating Facility. On May 3, 2018, AE Supply and AGC completed the sale of approximately 59% of AGC's interest in Bath County. Also, on May 3, 2018, following the 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 Bankruptcy Court approved the sale on July 13, 2018, and the transaction was completed on July 31, 2018. As contemplated under the FES Bankruptcy settlement agreement, AE Supply entered into an agreement on December 31, 2018, to transfer the 1,300 MW Pleasants Power Station and related assets to FG, while retaining certain specified liabilities. Under the terms of the agreement, FG acquired the economic interests in Pleasants as of January 1, 2019, and AE Supply operated Pleasants until it transferred, which, as discussed above, occurred on January 30, 2020. After closing, AE Supply will continue to provide access to the McElroy's Run CCR Impoundment Facility, which was not transferred, and FE will provide guarantees for certain retained environmental liabilities of AE Supply, including the McElroy’s Run CCR Impoundment Facility. Individually, the AE Supply and BSPC asset sales and Pleasants Power Station transfer did not qualify for reporting as discontinued operations. However, in the aggregate, the transactions 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 years ended December 31, 2019, 2018, and 2017 were as follows:
|  | For the Years Ended December 31,
(In millions) |  | 2019 |  | 2018 (3) |  | 2017 (3)
Revenues |  | $ | 188 |  |  | $ | 989 |  |  | $ | 3,055 |
Fuel |  | (140) |  |  | (304) |  |  | (879) |
Purchased power |  | — |  |  | (84) |  |  | (268) |
Other operating expenses |  | (63) |  |  | (435) |  |  | (1,499) |
Provision for depreciation |  | — |  |  | (96) |  |  | (109) |
General taxes |  | (14) |  |  | (35) |  |  | (103) |
Impairment of assets(1) |  | — |  |  | — |  |  | (2,358) |
Pleasants economic interest(2) |  | 27 |  |  | — |  |  | — |
Other expense, net |  | (2) |  |  | (83) |  |  | (94) |
Loss from discontinued operations, before tax |  | (4) |  |  | (48) |  |  | (2,255) |
Income tax expense (benefit) |  | 47 |  |  | 61 |  |  | (820) |
Loss from discontinued operations, net of tax |  | (51) |  |  | (109) |  |  | (1,435) |
Gain on disposal of FES and FENOC, net of tax |  | 59 |  |  | 435 |  |  | — |
Income (Loss) from discontinued operations |  | $ | 8 |  |  | $ | 326 |  |  | $ | (1,435) |
(1) Includes impairment of the FES nuclear facilities, the Pleasants Power Station ($120 million), and the competitive generation asset sale ($193 million). (2) Reflects the estimated amounts owed from FG for its economic interests in Pleasants effective January 1, 2019, as further discussed above. (3) Discontinued operations include results of FES and FENOC through March 31, 2018, when deconsolidated from FirstEnergy's financial statements. The gain on disposal that was recognized in the year ended December 31, 2019 and 2018, consisted of the following:
|  | For the Years Ended December 31,
(In millions) |  | 2019 |  | 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 |  | 7 |  |  | (1,197) |
Loss on disposal of FES and FENOC, before tax |  | 7 |  |  | (877) |
Income tax benefit, including estimated worthless stock deduction |  | 52 |  |  | 1,312 |
Gain on disposal of FES and FENOC, net of tax |  | $ | 59 |  |  | $ | 435 |
As of December 31, 2019 and 2018, materials and supplies of $33 million and $25 million, respectively, are included in FirstEnergy's Consolidated Balance Sheets as Current assets - discontinued operations. FirstEnergy's Consolidated Statements of Cash Flows combines cash flows from discontinued operations with cash flows from continuing operations within each cash flow category. The following table summarizes the major classes of cash flow items from discontinued operations for the years ended December 31, 2019, 2018 and 2017:
|  | For the Years Ended December 31,
(In millions) |  | 2019 |  | 2018 |  | 2017
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |
Income from discontinued operations |  | $ | 8 |  |  | $ | 326 |  |  | $ | (1,435) |
Gain on disposal, net of tax |  | (59) |  |  | (435) |  |  | — |
Depreciation and amortization, including nuclear fuel, regulatory assets, net, intangible assets and deferred debt-related costs |  | — |  |  | 110 |  |  | 333 |
Deferred income taxes and investment tax credits, net |  | 47 |  |  | 61 |  |  | (842) |
Unrealized (gain) loss on derivative transactions |  | — |  |  | (10) |  |  | 81 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |
Property additions |  | — |  |  | (27) |  |  | (317) |
Nuclear fuel |  | — |  |  | — |  |  | (254) |
Sales of investment securities held in trusts |  | — |  |  | 109 |  |  | 940 |
Purchases of investment securities held in trusts |  | — |  |  | (122) |  |  | (999) |

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

X
- 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
Name: | us-gaap_DisposalGroupsIncludingDiscontinuedOperationsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration