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Fair Value Measurements
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
RECURRING FAIR VALUE MEASUREMENTS

Authoritative accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. The three levels of the fair value hierarchy and a description of the valuation techniques are as follows:
Level 1-Quoted prices for identical instruments in active market.
Level 2-Quoted prices for similar instruments in active market.
-Quoted prices for identical or similar instruments in markets that are not active.
-Model-derived valuations for which all significant inputs are observable market data.
Models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.
Level 3-Valuation inputs are unobservable and significant to the fair value measurement.
FirstEnergy produces a long-term power and capacity price forecast annually with periodic updates as market conditions change. When underlying prices are not observable, prices from the long-term price forecast are used to measure fair value.

FTRs are financial instruments that entitle the holder to a stream of revenues (or charges) based on the hourly day-ahead congestion price differences across transmission paths. FTRs are acquired by FirstEnergy in the annual, monthly and long-term PJM auctions and are initially recorded using the auction clearing price less cost. After initial recognition, FTRs’ carrying values are periodically adjusted to fair value using a mark-to-model methodology, which approximates market. The primary inputs into the model, which are generally less observable than objective sources, are the most recent PJM auction clearing prices and the FTRs’ remaining hours. The model calculates the fair value by multiplying the most recent auction clearing price by the remaining FTR hours less the prorated FTR cost. Significant increases or decreases in inputs in isolation may have resulted in a higher or lower fair value measurement.

FirstEnergy primarily applies the market approach for recurring fair value measurements using the best information available. Accordingly, FirstEnergy maximizes the use of observable inputs and minimizes the use of unobservable inputs. There were no changes in valuation methodologies used as of September 30, 2022, from those used as of December 31, 2021. The
determination of the fair value measures takes into consideration various factors, including but not limited to, nonperformance risk, counterparty credit risk and the impact of credit enhancements (such as cash deposits, LOCs and priority interests). The impact of these forms of risk was not significant to the fair value measurements.

The following tables set forth the recurring assets and liabilities that are accounted for at fair value by level within the fair value hierarchy:
September 30, 2022December 31, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets(In millions)
Derivative assets FTRs(1)
$— $— $17 $17 $— $— $9 $9 
Equity securities2 — — 2 2 — — 2 
U.S. state debt securities— 256 — 256 — 273 — 273 
Cash, cash equivalents and restricted cash(2)
277 — — 277 1,511 — — 1,511 
Other(3)
— 40 — 40 — 42 — 42 
Total assets$279 $296 $17 $592 $1,513 $315 $9 $1,837 
Liabilities
Derivative liabilities FTRs(1)
$— $— $(2)$(2)$— $— $(1)$(1)
Total liabilities$— $— $(2)$(2)$— $— $(1)$(1)
Net assets$279 $296 $15 $590 $1,513 $315 $8 $1,836 
(1) Contracts are subject to regulatory accounting treatment and changes in market values do not impact earnings.
(2) Restricted cash of $26 million and $49 million as of September 30, 2022 and December 31, 2021, respectively, primarily relates to cash collected from MP, PE and the Ohio Companies’ customers that is specifically used to service debt of their respective securitization or funding companies.
(3) Primarily consists of short-term investments.

Level 3 Quantitative Information

The following table provides quantitative information for FTRs contracts that are classified as Level 3 in the fair value hierarchy for the period ended September 30, 2022:
Fair Value, Net (In millions)Valuation
Technique		Significant InputRangeWeighted AverageUnits
FTRs$15 ModelRTO auction clearing prices$2.40 to$7.40 $4.00Dollars/MWH
INVESTMENTS

All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets at cost, which approximates their fair market value. Investments other than cash and cash equivalents include equity securities, AFS debt securities and other investments. FirstEnergy has no debt securities held for trading purposes.

Generally, unrealized gains and losses on equity securities are recognized in income whereas unrealized gains and losses on AFS debt securities are recognized in AOCI. However, the spent nuclear fuel disposal trusts of JCP&L are subject to regulatory accounting with all gains and losses on equity and AFS debt securities offset against regulatory assets.

Spent Nuclear Fuel Disposal Trusts

JCP&L holds debt securities within the spent nuclear fuel disposal trust, which are classified as AFS securities, recognized at fair market value. The trust is intended for funding spent nuclear fuel disposal fees to the United States Department of Energy associated with the previously owned Oyster Creek and TMI-1 nuclear power plants.
The following table summarizes the amortized cost basis, unrealized gains, unrealized losses and fair values of investments held in spent nuclear fuel disposal trusts as of September 30, 2022, and December 31, 2021:
September 30, 2022(1)
December 31, 2021(2)
Cost BasisUnrealized GainsUnrealized LossesFair ValueCost BasisUnrealized GainsUnrealized LossesFair Value
(In millions)
Debt securities$290 $— $(34)$256 $280 $2 $(9)$273 
(1) Excludes short-term cash investments of $7 million.
(2) Excludes short-term cash investments of $11 million.

Proceeds from the sale of investments in AFS debt securities, realized gains and losses on those sales and interest and dividend income for the three and nine months ended September 30, 2022 and 2021, were as follows:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
(In millions)
Sale proceeds$15 $16 $31 $29 
Realized gains— — 1 — 
Realized losses(2)(1)(4)(2)
Interest and dividend income3 3 9 8 

Other Investments

Other investments include employee benefit trusts, which are primarily invested in corporate-owned life insurance policies and equity method investments. Earnings and losses associated with corporate-owned life insurance policies and equity method investments are reflected in the “Miscellaneous Income, net” line of FirstEnergy’s Consolidated Statements of Income. The total carrying value of other investments were $358 million and $371 million as of September 30, 2022, and December 31, 2021, respectively, and are excluded from the amounts reported above.

For the three months ended September 30, 2022 and 2021, pre-tax income (expense) related to corporate-owned life insurance policies were $(6) million and $(1) million, respectively, and $(28) million and $7 million for the nine months ended September 30, 2022 and 2021, respectively. Corporate-owned life insurance policies are valued using the cash surrender value and any changes in value during the period are recognized as income or expense.

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 primarily focused on international markets. FEV is not the primary beneficiary of the joint venture. FEV's ownership interest is subject to the equity method of accounting. For the three months ended September 30, 2022 and 2021, pre-tax income related to FEV’s ownership in Global Holding were $57 million and $8 million, respectively, and $133 million and $12 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, the carrying value of the equity method investment was $72 million and $59 million, respectively. During 2022, FEV received cash dividends from Global Holding totaling $120 million ($50 million in the third quarter of 2022), which were classified with “Cash from Operating Activities” on FirstEnergy’s Consolidated Statements of Cash Flow.
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS

All borrowings with initial maturities of less than one year are defined as short-term financial instruments under GAAP and are reported as Short-term borrowings on the Consolidated Balance Sheets at cost. Since these borrowings are short-term in nature, FirstEnergy believes that their costs approximate their fair market value. The following table provides the approximate fair value and related carrying amounts of long-term debt, which excludes finance lease obligations and net unamortized debt issuance costs, unamortized fair value adjustments, premiums and discounts as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
(In millions)
Carrying value$21,343 $23,946 
Fair value$19,203 $27,043 

The fair values of long-term debt and other long-term obligations reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective period. The yields assumed were based on securities with similar characteristics offered by corporations with credit ratings similar to those of FirstEnergy. FirstEnergy classified short-term borrowings, long-term debt and other long-term obligations as Level 2 in the fair value hierarchy as of September 30, 2022, and December 31, 2021.
FirstEnergy had the following redemptions and issuances during the nine months ended September 30, 2022:
CompanyTypeRedemption / Issuance DateInterest RateMaturityAmount (in Millions)Description
Redemptions
FEUnsecured NotesJanuary, 20224.25%2023$850
In December 2021, FE provided notice of redemption with a make-whole premium of approximately $38 million ($30 million after-tax).
TESenior Secured NotesFebruary, 20222.65%2028$25On January 27, 2022, TE instructed its indenture trustee to provide notice of partial redemption.
CEISenior Notes, Series AMarch, 20222.77%2034$150On February 11, 2022, CEI instructed its indenture trustee to provide notice of full redemption.
WPFMBsApril, 20223.34%2022$100WP redeemed FMBs that became due.
FEUnsecured NotesJune, 20222.85%2022$500On May 23, 2022 FE provided notice of redemption.
FEUnsecured NotesJune, 20227.375%2031$715
On May 25, 2022, FE commenced an offer to purchase for cash a portion of its 2031 Notes and 2047 Notes, which had $1.5 billion and $1 billion principal amounts outstanding, respectively. A portion of these notes were redeemed for approximately $1.1 billion, including a tender premium of approximately $101 million ($80 million after-tax). In addition, FE recognized approximately $7 million ($5 million after-tax) of deferred cash flow hedge losses and $10 million ($8 million after-tax) in other unamortized debt costs and fees associated with the FE debt redemptions.
FEUnsecured NotesJune, 2022
4.85%
2047$284
PennFMBsJune, 20226.09%2022$100Penn redeemed FMBs that became due.
FEUnsecured NotesAugust-September 20227.375%2031$27
During the third quarter of 2022, FE repurchased a portion of the principal amount of its 2031 Notes and 2047 Notes through the open market for approximately $134 million including a discount of approximately $3 million ($2 million after tax). In addition, FE recognized approximately $2 million ($1 million after-tax) in other unamortized debt costs related to the FE open market repurchases.
FEUnsecured NotesAugust-September 2022
4.85%
2047$110
Issuances
PennFMBsApril, 20223.79%2032$150Proceeds are expected to be received on November 29, 2022, and used to repay short-term borrowings.
OESenior Unsecured NotesSeptember, 20225.50%2033$300Proceeds were used to repay borrowings outstanding under the regulated money pool, to finance capital expenditures, to fund working capital needs and for other general corporate purposes.