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Discontinued Operations | 3 Months Ended
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Mar. 31, 2020
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | DISCONTINUED OPERATIONS FES and FENOC Chapter 11 Bankruptcy Filing On March 31, 2018, the FES Debtors announced that, in order to facilitate an orderly financial restructuring, they filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court (which is referred to throughout as the FES Bankruptcy). In September 2018, the Bankruptcy Court approved a FES Bankruptcy settlement agreement by and among FirstEnergy, two groups of key FES creditors (collectively, the FES Key Creditor Groups), the FES Debtors and the UCC. The FES Bankruptcy settlement agreement resolved certain claims by FirstEnergy against the FES Debtors, all claims by the FES Debtors and the FES Key Creditor Groups against FirstEnergy, as well as releases from third parties who voted in favor the FES Debtors' plan of reorganization, in return for among other things, a cash payment of $853 million upon emergence. The FES Bankruptcy settlement was conditioned on the FES Debtors confirming and effectuating a plan of reorganization acceptable to FirstEnergy. On February 18, 2020, the FES Debtors and FirstEnergy entered into an IT Access Agreement that provided IT support to enable the Debtors to emerge from bankruptcy prior to full IT separation by the FES Debtors. As part of the IT Access Agreement, the FES Debtors and FirstEnergy resolved, among other things, the on-going reconciliation of outstanding tax sharing payments for tax years 2018, 2019 and 2020 for a total of $125 million. On February 25, 2020, the Bankruptcy Court approved the IT Access Agreement. On February 27, 2020, the FES Debtors effectuated their plan, emerged from bankruptcy and FirstEnergy tendered the settlement payments totaling $853 million and the $125 million tax sharing payment to the FES Debtors, with no material impact to net income in the first quarter of 2020. 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. 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, and extensions of time, subject to FirstEnergy’s approval, as provided by the IT Access Agreement. 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. Currently, FirstEnergy continues to provide services post emergence to the FES Debtors under the terms of the amended and restated shared services agreement and the IT Access Agreement. The FES Debtors have paid approximately $34 million and $35 million for shared services for the three months ended March 31, 2020 and 2019, respectively. FES Borrowings from FE and AE Supply Due to the FES Debtors’ emergence from bankruptcy on February 27, 2020, FirstEnergy reversed the following amounts and related reserves in the first quarter of 2020, with no material impact to earnings:
• | $500 million in borrowings by FES from FE under the secured credit facility;
• | $92 million in borrowings by the FES Debtors from FE under the unregulated companies’ money pool; and
• | $102 million outstanding unsecured promissory note by FES from AE Supply.
Benefit Obligations FirstEnergy retained certain obligations for the FES Debtors’ employees for services provided prior to emergence from bankruptcy. Prior to emergence, FirstEnergy billed the FES Debtors approximately $6 million and $10 million for their share of pension and OPEB service costs for the three months ended March 31, 2020 and 2019, respectively. Purchase Power At times, FES provides power through power sales agreements to meet a portion of the Utilities' POLR and default service requirements and also provides power to certain of the Utilities facilities. The terms and conditions of the power purchase agreements are generally consistent with industry practices and other similar third-party arrangements. These agreements were not impacted by the FES Debtors’ emergence and continue to operate under the original terms. The Utilities purchased and recognized in continuing operations approximately $17 million and $83 million of power purchases from FES for the three months ended March 31, 2020 and 2019, respectively. Income Taxes For U.S. federal income taxes, the FES Debtors were included in FirstEnergy’s consolidated tax return until emergence from bankruptcy. Upon emergence on February 27, 2020, FirstEnergy deconsolidated the FES Debtors for federal income tax purposes and recognized a worthless stock deduction for the remaining tax basis in the FES Debtors of approximately $4.9 billion, net of unrecognized tax benefits of $316 million. Tax-effected, the worthless stock deduction is approximately $1 billion, net of valuation allowances recorded against the state tax benefit ($83 million) and the aforementioned unrecognized tax benefits ($72 million). Additionally, the Tax Act amended Section 163(j) of the Internal Revenue Code, limiting interest expense deductions for corporations but with exemption for certain regulated utilities. Based on interpretation of subsequently issued proposed regulations, FirstEnergy has estimated the amount of deductible interest for its consolidated group in 2018 and 2019, with nondeductible portions being carried forward with an indefinite life and for which deferred tax assets have been recorded. However, full valuation allowances have been recorded against the deferred tax assets related to the carryforward of nondeductible interest as future utilization of the carryforwards requires profitability from sources other than regulated utility businesses. New or additional changes to proposed regulations or guidelines by the IRS on Section 163(j), including their impact resulting from the CARES Act, as further discussed below, could have a material impact on FirstEnergy’s results. All tax expense related to nondeductible interest in 2018 and 2019 has been recorded in discontinued operations as it is entirely attributed to the inclusion of the FES Debtors in FirstEnergy's consolidated tax group. Upon emergence, FirstEnergy paid the FES Debtors $125 million to settle all reconciliations under the Intercompany Tax Allocation Agreement for 2018, 2019 and 2020 tax years, including all issues regarding nondeductible interest. Pursuant to certain safe harbor rules in existing proposed regulations under Section 163(j), and due to the FES Debtors’ emergence from bankruptcy on February 27, 2020, FirstEnergy expects interest expense for 2020 to be fully deductible. See Note 7, “Income Taxes” for further information. Competitive Generation Asset Sales 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 ownership was transferred on January 30, 2020. 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. During the first quarter of 2020, FG paid AE Supply approximately $65 million of cash for related materials and supplies (at book value) and the settlement of FG’s economic interest in Pleasants. Summarized Results of Discontinued Operations Summarized results of discontinued operations for the three months ended March 31, 2020 and 2019, were as follows:
|  | For the Three Months Ended March 31,
(In millions) |  | 2020 |  | 2019
Revenues |  | $ | 7 |  |  | $ | 54 |
Fuel |  | (6 | ) |  | (35 | )
Other operating expenses |  | (6 | ) |  | (10 | )
General taxes |  | — |  |  | (4 | )
Other income (expense) |  | 5 |  |  | (2 | )
Loss from discontinued operations, before tax |  | — |  |  | 3 |
Income tax expense |  | — |  |  | 14 |
Loss from discontinued operations, net of tax |  | — |  |  | (11 | )
Gain (loss) on disposal of FES and FENOC, net of tax (1) |  | 50 |  |  | (24 | )
Income (loss) from discontinued operations |  | $ | 50 |  |  | $ | (35 | )
(1) The gain on disposal of FES and FENOC recognized in the three months ended March 31, 2020, of $50 million primarily related to settlement expense of $4 million, accelerated net pension and OPEB prior service credits of $18 million and income tax benefits (including the estimated worthless stock deduction and adjustments from the tax sharing agreement with the FES Debtors) of $36 million. The loss on disposal of FES and FENOC recognized in the three months ended March 31, 2019, of $24 million consisted of settlement expense of $33 million and income tax benefits (including the estimated worthless stock deduction) of $9 million. As of December 31, 2019, material and supplies of $33 million are included in FirstEnergy’s Consolidated Balance Sheets as Current assets - discontinued operations. As of March 31, 2020, there were no items on FirstEnergy’s Consolidated Balance Sheets classified as discontinued operations. FirstEnergy’s Consolidated Statement of Cash Flows combines cash flows from discontinued operations with cash flows from continuing operations within each cash flow category. For the three months ended March 31, 2020 and 2019, cash flows from operating activities includes income (loss) from discontinued operations of $50 million and $(35) million, respectively.

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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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