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ORGANIZATION AND BASIS OF PRESENTATION | 12 Months Ended
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Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [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 incorporated under Ohio law 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, MP, AGC (a wholly owned subsidiary of MP), PE, WP, and FET and its principal subsidiaries (ATSI, MAIT and TrAIL). In addition, FE holds all of the outstanding equity of other direct subsidiaries including: AE Supply, FirstEnergy Properties, Inc., FEV, FirstEnergy License Holding Company, GPUN, Allegheny Ventures, Inc., and Suvon, LLC doing business as both FirstEnergy Home and FirstEnergy Advisors. FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving over 6 million customers in the Midwest and Mid-Atlantic regions. FirstEnergy’s transmission operations include approximately 24,500 miles of lines and two regional transmission operation centers. AGC, JCP&L and MP control 3,790 MWs of total capacity, 210 MWs of which is related to the Yards Creek generating plant that is being sold pursuant to an asset purchase agreement as further discussed below. 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 NRC, 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 and permitted pursuant to GAAP. As further discussed below, FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary. 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 and Comprehensive Income. Certain prior year amounts have been reclassified to conform to the current year presentation. Restricted Cash Restricted cash primarily relates to the consolidated VIE's discussed below. The cash collected from JCP&L, MP, PE and the Ohio Companies' customers is used to service debt of their respective funding companies. COVID-19 The outbreak of COVID-19 is a global pandemic. FirstEnergy is continuously evaluating the global pandemic and taking steps to mitigate known risks. FirstEnergy is actively monitoring the continued impact COVID-19 is having on its customers’ receivable balances, which include increasing arrears balances since the pandemic has begun. FirstEnergy has incurred, and it is expected to incur for the foreseeable future, incremental uncollectible and other COVID-19 pandemic related expenses. COVID-19 related expenses consist of additional costs that FirstEnergy is incurring to protect its employees, contractors and customers, and to support social distancing requirements. These costs include, but are not limited to, new or added benefits provided to employees, the purchase of additional personal protection equipment and disinfecting supplies, additional facility cleaning services, initiated programs and communications to customers on utility response, and increased technology expenses to support remote working, where possible. The full impact on FirstEnergy’s business from the COVID-19 pandemic, including the governmental and regulatory responses, is unknown at this time and difficult to predict. FirstEnergy provides a critical and essential service to its customers and the health and safety of its employees, contractors and customers is its first priority. FirstEnergy is continuously monitoring its supply chain and is working closely with essential vendors to understand the continued impact the COVID-19 pandemic is having on its business, however, FirstEnergy does not currently expect disruptions in its ability to deliver service to customers or any material impact on its capital spending plan. FirstEnergy continues to effectively manage operations during the pandemic in order to provide critical service to customers and believes it is well positioned to manage through the economic slowdown. FirstEnergy Distribution and Transmission revenues benefit from geographic and economic diversity across a five-state service territory, which also allows for flexibility with capital investments and measures to maintain sufficient liquidity over the next twelve months. However, the situation remains fluid and future impacts to FirstEnergy that are presently unknown or unanticipated may occur. Furthermore, the likelihood of an impact to FirstEnergy, and the severity of any impact that does occur, could increase the longer the global pandemic persists. RECEIVABLES Activity in the allowance for uncollectible accounts on receivables for the years ended December 31, 2020, 2019 and 2018 are as follows:
(In millions) |  | 2020 |  | 2019 |  | 2018
Customer Receivables |  |  |  |  |  |
Beginning of year balance |  | $ | 46 |  |  | $ | 50 |  |  | $ | 49 |
Charged to income (1) |  | 174 |  |  | 81 |  |  | 77 |
Charged to other accounts (2) |  | 46 |  |  | 47 |  |  | 60 |
Write-offs |  | (102) |  |  | (132) |  |  | (136) |
End of year balance |  | $ | 164 |  |  | $ | 46 |  |  | $ | 50 |
Other Receivables |  |  |  |  |  |
Beginning of year balance |  | $ | 21 |  |  | $ | 2 |  |  | $ | 1 |
Charged to income |  | 7 |  | 27 |  |  | 13 |
Charged to other accounts (2) |  | 10 |  | 1 |  |  | — |
Write-offs |  | (12) |  |  | (9) |  |  | (12) |
End of year balance |  | $ | 26 |  |  | $ | 21 |  |  | $ | 2 |
Affiliated Companies Receivables (3) |  |  |  |  |  |
Beginning of year balance |  | $ | 1,063 |  |  | $ | 920 |  |  | $ | — |
Charged to income |  | — |  |  | 143 |  |  | 920 |
Charged to other accounts (2) |  | — |  |  | — |  |  | — |
Write-offs |  | (1,063) |  |  | — |  |  | — |
End of year balance |  | $ | — |  |  | $ | 1,063 |  |  | $ | 920 |
(1) Customer receivable amounts charged to income for the years ended December 31, 2020, 2019 and 2018 include approximately $103 million, $25 million, and $24 million respectively, deferred for future recovery. (2) Represents recoveries and reinstatements of accounts previously written off for uncollectible accounts. (3) Amounts relate to the FES Debtors and are included in discontinued operations. Write-off of $1.1 billion in 2020 was recognized upon their emergence in February 2020. See Note 3, "Discontinued Operations" for additional information. Receivables from customers include retail electric sales and distribution deliveries to residential, commercial and industrial customers for the Utilities. There was no material concentration of receivables as of December 31, 2020 and 2019, with respect to any particular segment of FirstEnergy’s customers. Billed and unbilled customer receivables as of December 31, 2020 and 2019, net of allowance for uncollectible accounts, are included below.
Customer Receivables |  | December 31, 2020 |  | December 31, 2019 |
|  | (In millions)
Billed |  | $ | 636 |  |  | $ | 564 |  |
Unbilled |  | 567 |  |  | 527 |  |
Total |  | $ | 1,203 |  |  | $ | 1,091 |  |
The allowance for uncollectible customer receivables is based on historical loss information comprised of a rolling 36-month average net write-off percentage of revenues, in conjunction with a qualitative assessment of elements that impact the collectability of receivables to determine if allowances for uncollectible accounts should be further adjusted in accordance with the accounting guidance for credit losses. Management contemplates available current information such as changes in economic factors, regulatory matters, industry trends, customer credit factors, amount of receivable balances that are past-due, payment options and programs available to customers, and the methods that the Utilities are able to utilize to ensure payment. FirstEnergy reviews its allowance for uncollectible customer receivables utilizing a quantitative and qualitative assessment, which includes consideration of the outbreak of COVID-19 and the impact on customer receivable balances outstanding and the ability of customers to continue payment since the pandemic began. Beginning March 13, 2020, FirstEnergy temporarily suspended customer disconnections for nonpayment and ceased collection activities as a result of the ongoing pandemic and in accordance with state regulatory requirements. The temporary suspension of disconnections for nonpayment and ceased collection activities extended into the fourth quarter of 2020 and resumed for most customers before the end of 2020. Customers are subject to each state's applicable regulations on winter moratoriums for residential customers, which begin as early as November 1, 2020, and are in effect until April 15, 2021. See Note 14, “Regulatory Matters,” for further discussion on applicable regulations that may alter residential customer disconnection and collection activity, such as winter moratoriums. The impact of COVID-19 on customers’ ability to pay for service, along with the actions FirstEnergy has taken in response to the pandemic, is expected to result in an increase in customer receivable write-offs as compared to historically incurred losses. In order to estimate the additional losses and impacts expected, FirstEnergy analyzed the likelihood of loss based on increases in customer accounts in arrears since the pandemic began in mid-March 2020 as well as what collection methods are or were suspended, and that have historically been utilized to ensure payment. Based on this assessment, and consideration of other qualitative factors described above, FirstEnergy recognized incremental uncollectible expense of $121 million in the year 2020, of which approximately $90 million is not currently being collected through rates and as a result was deferred for future recovery under regulatory mechanisms described below. The Ohio Companies and JCP&L had existing regulatory mechanisms in place prior to the outbreak of COVID-19, where incremental uncollectible expenses are able to be recovered through riders with no material impact to earnings. Additionally, in response to the COVID-19 pandemic, the MDPSC, NJBPU and WVPSC issued orders allowing PE, JCP&L and MP, respectively, to track and create a regulatory asset for future recovery of incremental costs, including uncollectible expenses, incurred as a result of the pandemic. In Pennsylvania, the PPUC has authorized the Pennsylvania Companies to track all prudently incurred incremental costs arising from COVID-19, and to create a regulatory asset for future recovery of incremental uncollectible expenses incurred as a result of COVID-19 above what is included in the Pennsylvania Companies existing rates. On October 13, 2020, the PPUC entered an order that permits the Pennsylvania Companies to create a regulatory asset for incremental expenses associated with lifting the service termination moratorium, as further discussed below. Receivables from customers also include PJM receivables resulting from transmission and wholesale sales. FirstEnergy’s credit risk on PJM receivables is reduced due to the nature of PJM’s settlement process whereby members of PJM legally agree to share the cost of defaults and as a result there is no allowance for doubtful accounts. ACCOUNTING FOR THE EFFECTS OF REGULATION FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities and the Transmission Companies 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, the Utilities and the Transmission Companies net their regulatory assets and liabilities based on federal and state jurisdictions. Management assesses the probability of recovery of regulatory assets at each balance sheet date and whenever new events occur. Factors that may affect probability relate to changes in the regulatory environment, issuance of a regulatory commission order or passage of new legislation. Management applies judgment in evaluating the evidence available to assess the probability of recovery of regulatory assets from customers, including, but not limited to evaluating evidence related to precedent for similar items at FirstEnergy and information on comparable companies within similar jurisdictions, as well as assessing progress of communications between FirstEnergy and regulators. Certain of these regulatory assets, totaling approximately $117 million and $111 million as of December 31, 2020 and December 31, 2019, respectively, are recorded based on prior precedent or anticipated recovery based on rate making premises without a specific order, of which, $79 million and $73 million as of December 31, 2020 and December 31, 2019, respectively, are being sought for recovery in a formula rate amendment filing at ATSI that is pending before FERC. See Note 14, "Regulatory Matters" for additional information. The following table provides information about the composition of net regulatory assets and liabilities as of December 31, 2020 and December 31, 2019, and the changes during the year ended December 31, 2020:
Net Regulatory Assets (Liabilities) by Source |  | December 31, 2020 |  | December 31, 2019 |  | Change
|  | (In millions)
Customer payables for future income taxes |  | $ | (2,369) |  |  | $ | (2,605) |  |  | $ | 236 |
Nuclear decommissioning and spent fuel disposal costs |  | (102) |  |  | (197) |  |  | 95 |
Asset removal costs |  | (721) |  |  | (756) |  |  | 35 |
Deferred transmission costs |  | 316 |  |  | 298 |  |  | 18 |
Deferred generation costs |  | 104 |  |  | 214 |  |  | (110) |
Deferred distribution costs |  | 136 |  |  | 155 |  |  | (19) |
Contract valuations |  | 41 |  |  | 51 |  |  | (10) |
Storm-related costs |  | 748 |  |  | 551 |  |  | 197 |
Uncollectible and COVID-19 related costs |  | 97 |  |  | 3 |  |  | 94 |
Other |  | 6 |  |  | 25 |  |  | (19) |
Net Regulatory Liabilities included on the Consolidated Balance Sheets |  | $ | (1,744) |  |  | $ | (2,261) |  |  | $ | 517 |
The following table provides information about the composition of net regulatory assets that do not earn a current return as of December 31, 2020 and 2019, of which approximately $195 million and $228 million, respectively, are currently being recovered through rates over varying periods, through 2068, depending on the nature of the deferral and the jurisdiction:
Regulatory Assets by Source Not Earning a Current Return |  | December 31, 2020 |  | December 31, 2019 |  | Change
|  |  |  | (in millions) |  |
Deferred transmission costs |  | $ | 29 |  |  | $ | 27 |  |  | $ | 2 |
Deferred generation costs |  | 5 |  |  | 15 |  |  | (10) |
Storm-related costs |  | 654 |  |  | 471 |  |  | 183 |
COVID-19 related costs |  | 66 |  |  | — |  |  | 66 |
Other |  | 35 |  |  | 32 |  |  | 3 |
Regulatory Assets Not Earning a Current Return |  | $ | 789 |  |  | $ | 545 |  |  | $ | 244 |
EARNINGS PER SHARE OF COMMON STOCK Basic EPS available to common stockholders is computed using the weighted average number of common shares outstanding during the relevant period as the denominator. The denominator for diluted EPS 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. During 2019 and 2018, EPS was computed using the two-class method required for participating securities. The convertible preferred stock issued in January 2018 were considered participating securities since the shares participated in dividends on common stock on an “as-converted” basis. All convertible preferred stock was converted to common stock during 2019. The two-class method uses an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available only to common stockholders. Under the two-class method, net income attributable to common stockholders is derived by subtracting the following from income from continuing operations: •preferred stock dividends, •deemed dividends for the amortization of the beneficial conversion feature recognized at issuance of the preferred stock (if any), and •an allocation of undistributed earnings between the common stock and the participating securities (convertible preferred stock) based on their respective rights to receive dividends. Net losses were not allocated to the convertible preferred stock as they did not have a contractual obligation to share in the losses of FirstEnergy. FirstEnergy allocated undistributed earnings based upon income from continuing operations. Diluted EPS reflects the dilutive effect of potential common shares from share-based awards and convertible shares of preferred stock. The dilutive effect of outstanding share-based awards was computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of the award would be used to purchase common stock at the average market price for the period. The dilutive effect of the convertible preferred stock was computed using the if-converted method, which assumes conversion of the convertible preferred stock at the beginning of the period, giving income recognition for the add-back of the preferred stock dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred stockholders.
|  | Year Ended December 31,
Reconciliation of Basic and Diluted EPS of Common Stock |  | 2020 |  | 2019 |  | 2018
(In millions, except per share amounts) |  |  |  |  |  |
EPS of Common Stock |  |  |  |  |  |
Income from continuing operations |  | $ | 1,003 |  |  | $ | 904 |  |  | $ | 1,022 |
Less: Preferred dividends |  | — |  |  | (3) |  |  | (71) |
Less: Amortization of beneficial conversion feature |  | — |  |  | — |  |  | (296) |
Less: Undistributed earnings allocated to preferred stockholders(1) |  | N/A |  | (1) |  |  | — |
Income from continuing operations available to common stockholders |  | 1,003 |  |  | 900 |  |  | 655 |
Discontinued operations, net of tax |  | 76 |  |  | 8 |  |  | 326 |
Less: Undistributed earnings allocated to preferred stockholders (1) |  | N/A |  | — |  |  | — |
Income from discontinued operations available to common stockholders |  | 76 |  |  | 8 |  |  | 326 |
Income attributable to common stockholders, basic |  | $ | 1,079 |  |  | $ | 908 |  |  | $ | 981 |
Income allocated to preferred stockholders, preferred dilutive (2) |  | N/A |  | 4 |  |  | N/A
Income attributable to common stockholders, dilutive |  | $ | 1,079 |  |  | $ | 912 |  |  | $ | 981 |
Share Count information: |  |  |  |  |  |
Weighted average number of basic shares outstanding |  | 542 |  |  | 535 |  |  | 492 |
Assumed exercise of dilutive stock options and awards |  | 1 |  |  | 3 |  |  | 2 |
Assumed conversion of preferred stock |  | — |  |  | 4 |  |  | — |
Weighted average number of diluted shares outstanding |  | 543 |  |  | 542 |  |  | 494 |
Income attributable to common stockholders, per common share: |  |  |  |  |  |
Income from continuing operations, basic |  | $ | 1.85 |  |  | $ | 1.69 |  |  | $ | 1.33 |
Discontinued operations, basic |  | 0.14 |  |  | 0.01 |  |  | 0.66 |
Income attributable to common stockholders, basic |  | $ | 1.99 |  |  | $ | 1.70 |  |  | $ | 1.99 |
Income from continuing operations, diluted |  | $ | 1.85 |  |  | $ | 1.67 |  |  | $ | 1.33 |
Discontinued operations, diluted |  | 0.14 |  |  | 0.01 |  |  | 0.66 |
Income attributable to common stockholders, diluted |  | $ | 1.99 |  |  | $ | 1.68 |  |  | $ | 1.99 |
(1)Undistributed earnings were not allocated to participating securities for the year ended December 31, 2018, as income from continuing operations less dividends declared (common and preferred) and deemed dividends were a net loss. Undistributed earning allocated to participating securities for the years ended December 31, 2019 and 2020 were immaterial. (2)The shares of common stock issuable upon conversion of the preferred shares (26 million shares) were not included for 2018 as their inclusion would be anti-dilutive to basic EPS from continuing operations. Amounts allocated to preferred stockholders of $4 million for the year ended December 31, 2019 are included within Income from continuing operations available to common stockholders for diluted earnings. For the year ended December 31, 2018, approximately 1 million shares from stock options and awards were excluded from the calculation of diluted shares outstanding, as their inclusion would be antidilutive. For the year ended December 31, 2019, no shares from stock options or awards were excluded from the calculation of diluted shares. For the year ended December 31, 2020, approximately 80 thousand shares from stock options and awards were excluded from the calculation of diluted shares outstanding, 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. Property, plant and equipment balances by segment as of December 31, 2020 and 2019, were as follows:
|  | December 31, 2020
Property, Plant and Equipment |  | In Service(1) |  | Accum. Depr. |  | Net Plant |  | CWIP |  | Total
|  | (In millions)
Regulated Distribution |  | $ | 29,775 |  |  | $ | (8,800) |  |  | $ | 20,975 |  |  | $ | 841 |  |  | $ | 21,816 |
Regulated Transmission |  | 12,912 |  |  | (2,609) |  |  | 10,303 |  |  | 671 |  |  | 10,974 |
Corporate/Other |  | 1,039 |  |  | (556) |  |  | 483 |  |  | 66 |  |  | 549 |
Total |  | $ | 43,726 |  |  | $ | (11,965) |  |  | $ | 31,761 |  |  | $ | 1,578 |  |  | $ | 33,339 |
|  | December 31, 2019
Property, Plant and Equipment |  | In Service(1) |  | Accum. Depr. |  | Net Plant |  | CWIP |  | Total
|  | (In millions)
Regulated Distribution |  | $ | 28,735 |  |  | $ | (8,540) |  |  | $ | 20,195 |  |  | $ | 744 |  |  | $ | 20,939 |
Regulated Transmission |  | 12,023 |  |  | (2,383) |  |  | 9,640 |  |  | 526 |  |  | 10,166 |
Corporate/Other |  | 1,009 |  |  | (504) |  |  | 505 |  |  | 40 |  |  | 545 |
Total |  | $ | 41,767 |  |  | $ | (11,427) |  |  | $ | 30,340 |  |  | $ | 1,310 |  |  | $ | 31,650 |
(1) Includes finance leases of $153 million and $163 million as of December 31, 2020 and 2019, respectively. The major classes of Property, plant and equipment are largely consistent with the segment disclosures above. Regulated Distribution has approximately $2.1 billion of total regulated generation property, plant and equipment. Included within Regulated Distribution is $882 million of assets classified as held for sale as of December 31, 2019 associated with the asset purchase and sale agreements with TMI-2 Solutions to transfer TMI-2 to TMI-2 Solutions, LLC. With the receipt of all required regulatory approvals, the transaction was consummated on December 18, 2020. As a result, during the fourth quarter of 2020 FirstEnergy recognized an after tax-gain of approximately $33 million, primarily associated with the write-off of a tax related regulatory liability. See Note 15, "Commitments, Guarantees and Contingencies" for additional information. Also included within the segment is $45 million of assets classified as held for sale as of December 31, 2020 associated with the asset purchase agreement with Yards Creek Energy, LLC to transfer JCP&L's 50% interest in the Yards Creek pumped-storage hydro generation station (210 MWs). See Note 14, "Regulatory Matters" for additional information. 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 depreciation rates for FirstEnergy were 2.7%, 2.7% and 2.6% in 2020, 2019 and 2018, respectively. For the years ended December 31, 2020, 2019 and 2018, capitalized financing costs on FirstEnergy's Consolidated Statements of Income include $49 million, $45 million and $46 million, respectively, of allowance for equity funds used during construction and $28 million, $26 million and $19 million, respectively, of capitalized interest. Jointly Owned Plants FE, through its subsidiary, AGC, owns an undivided 16.25% interest (487 MWs) in the 3,003 MW Bath County pumped-storage, hydroelectric station in Virginia, operated by the 60% owner, VEPCO, a non-affiliated utility. Total property, plant and equipment includes $157 million representing AGC's share in this facility as of December 31, 2020. AGC is obligated to pay its share of the costs of this jointly owned facility in the same proportion as its ownership interests using its own financing. AGC's share of direct expenses of the joint plant is included in operating expenses on FirstEnergy's Consolidated Statements of Income. AGC provides the generation capacity from this facility to its owner, MP. Asset Retirement Obligations FE recognizes an ARO for the future remediation of environmental liabilities associated with all of its long-lived assets. The ARO liability represents an estimate of the fair value of FirstEnergy'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. FirstEnergy uses an expected cash flow approach to measure the fair value of the nuclear decommissioning and environmental remediation AROs, considering the expected timing of settlement of the ARO based on the expected economic useful life of associated asset and/or regulatory requirements. 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. In certain circumstances, FirstEnergy has recovery of asset retirement costs and, as such, certain accretion and depreciation is offset against regulatory assets. 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, 2020, including the transfer of TMI-2, its NDT and related decommissioning liabilities to TMI-2 Solutions, LLC, a subsidiary of Energy Solutions, LLC, in the fourth quarter of 2020, are described further in Note 13, "Asset Retirement Obligations." Asset Impairments 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. 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 evaluates goodwill for impairment annually on July 31 and more frequently if indicators of impairment arise. In evaluating goodwill for impairment, FirstEnergy assesses qualitative factors to determine whether it is more likely than not (that is, likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying value (including goodwill). If FirstEnergy concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing is required. However, if FirstEnergy concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value or bypasses the qualitative assessment, then the quantitative goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any. As of July 31, 2020, 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. Key factors used in the assessment included: growth rates, interest rates, expected capital expenditures, utility sector market performance, regulatory and legal developments, and other market considerations. It was determined that the fair values of these reporting units were, more likely than not, greater than their carrying values and a quantitative analysis was not necessary. FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution and Regulated Transmission. The following table presents goodwill by reporting unit as of December 31, 2020:
(In millions) |  | Regulated Distribution |  | Regulated Transmission |  | Consolidated
Goodwill |  | $ | 5,004 |  |  | $ | 614 |  |  | $ | 5,618 |
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. DERIVATIVES FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity prices, including prices for electricity, coal and energy transmission. To manage the volatility related to these exposures, FirstEnergy’s Risk Policy Committee, comprised of senior management, provides general management oversight for risk management activities throughout FirstEnergy. The Risk Policy Committee is responsible for promoting the effective design and implementation of sound risk management programs and oversees compliance with corporate risk management policies and established risk management practice. FirstEnergy may use a variety of derivative instruments for risk management purposes including forward contracts, options, futures contracts and swaps. FirstEnergy accounts for derivative instruments on its Consolidated Balance Sheets at fair value unless they meet the normal purchases and normal sales criteria. Derivative instruments meeting the normal purchases and normal sales criteria are accounted for under the accrual method of accounting with their effects included in earnings at the time of contract performance. VARIABLE INTEREST ENTITIES FirstEnergy performs qualitative analyses based on control and economics to determine whether a variable interest classifies FirstEnergy as the primary beneficiary (a controlling financial interest) of a VIE. An enterprise has a controlling financial interest if it has both power and economic control, such that an entity has: (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. FirstEnergy consolidates a VIE when it is determined that it is the primary beneficiary. In order to evaluate contracts for consolidation treatment and entities for which FirstEnergy has an interest, FirstEnergy aggregates variable interests into categories based on similar risk characteristics and significance. Consolidated VIEs VIEs in which FirstEnergy is the primary beneficiary consist of the following (included in FirstEnergy’s consolidated financial statements): •Ohio Securitization - In June 2013, SPEs formed by the Ohio Companies issued approximately $445 million of pass-through trust certificates supported by phase-in recovery bonds to securitize the recovery of certain all electric customer heating discounts, fuel and purchased power regulatory assets. •JCP&L Securitization - JCP&L Transition Funding II sold transition bonds to securitize the recovery of deferred costs associated with JCP&L’s supply of BGS. •MP and PE Environmental Funding Companies - Bankruptcy remote, special purpose limited liability companies that are indirect subsidiaries of MP and PE which issued environmental control bonds. See Note 11, “Capitalization,” for additional information on securitized bonds. Unconsolidated VIEs FirstEnergy is not the primary beneficiary of the following VIEs: •Global Holding - FEV 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. FEV is not the primary beneficiary of the joint venture, as it does not have control over the significant activities affecting the joint ventures economic performance. FEV's ownership interest is subject to the equity method of accounting. As of December 31, 2020, the carrying value of the equity method investment was $30 million. As discussed in Note 15, "Commitments, Guarantees and Contingencies," FE is the guarantor under Global Holding's $120 million syndicated senior secured term loan facility due November 12, 2024, under which Global Holding's outstanding principal balance is $108 million as of December 31, 2020. Failure by Global Holding to meet the terms and conditions under its term loan facility could require FE to be obligated under the provisions of its guarantee, resulting in consolidation of Global Holding by FE. •PATH WV - PATH, a proposed transmission line from West Virginia through Virginia into Maryland which PJM cancelled in 2012, is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties regarding specified property and the series profits and losses associated with such property. A subsidiary of FE owns 100% of the Allegheny Series (PATH-Allegheny) and 50% of the West Virginia Series (PATH-WV), which is a joint venture with a subsidiary of AEP. FirstEnergy is not the primary beneficiary of PATH-WV, as it does not have control over the significant activities affecting the economics of PATH-WV. FirstEnergy's ownership interest in PATH-WV is subject to the equity method of accounting. As of December 31, 2020, the carrying value of the equity method investment was $18 million. •Purchase Power Agreements - FirstEnergy evaluated its PPAs and determined that certain NUG entities at its Regulated Distribution segment may be VIEs to the extent that they own a plant that sells substantially all of its output to the applicable utilities and the contract price for power is correlated with the plant’s variable costs of production. FirstEnergy maintains six long-term PPAs with NUG entities that were entered into pursuant to PURPA. FirstEnergy was not involved in the creation of, and has no equity or debt invested in, any of these entities. FirstEnergy has determined that for all but one of these NUG entities, it does not have a variable interest, or the entities do not meet the criteria to be considered a VIE. FirstEnergy may hold a variable interest in the remaining one entity; however, it applied the scope exception that exempts enterprises unable to obtain the necessary information to evaluate entities. Because FirstEnergy has no equity or debt interests in the NUG entities, its maximum exposure to loss relates primarily to the above-market costs incurred for power. FirstEnergy expects any above-market costs incurred at its Regulated Distribution segment to be recovered from customers. Purchased power costs related to the contract that may contain a variable interest were $113 million and $116 million, respectively, during the years ended December 31, 2020 and 2019. NEW ACCOUNTING PRONOUNCEMENTS Recently Adopted Pronouncements ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (Issued June 2016 and subsequently updated): ASU 2016-13 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. Prior to adoption, FirstEnergy analyzed its financial instruments within the scope of this guidance, primarily trade receivables and AFS debt securities. The adoption of this standard upon January 1, 2020 did not have a material impact to FirstEnergy’s financial statements and required additional disclosures in these Notes to the Consolidated Financial Statements. Please see above for additional information on FirstEnergy’s allowance for uncollectible customer receivables. ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" (Issued August 2018): ASU 2018-15 allows implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customers in a software licensing arrangement. FirstEnergy adopted this standard as of January 1, 2020, with no material impact to its financial statements. ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Issued March 2020 and subsequently updated): ASU 2020-04 provides temporary optional expedients and exceptions to the current guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. FirstEnergy’s $3.5 billion Revolving Credit Facility bears interest at fluctuating interest rates based on LIBOR and contains provisions (requiring an amendment) in the event that LIBOR can no longer be used. As of December 31, 2020, FirstEnergy has not utilized any of the expedients discussed within this ASU. Recently Issued Pronouncements - The following new authoritative accounting guidance issued by the FASB has not yet been adopted. Unless otherwise indicated, FirstEnergy is currently assessing the impact such guidance may have on its financial statements and disclosures, as well as the potential to early adopt where applicable. FirstEnergy has assessed other FASB issuances of new standards not described below based upon the current expectation that such new standards will not significantly impact FirstEnergy's financial reporting. ASU 2019-12, "Simplifying the Accounting for Income Taxes" (Issued in December 2019): ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. FirstEnergy continues to evaluate the new guidance, but currently does not expect a material impact upon adopting this standard.

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