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FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2023
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, 2023, from those used as of December 31, 2022. 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 table sets forth the recurring assets and liabilities that are accounted for at fair value by level within the fair value hierarchy:
| September 30, 2023 |  | December 31, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets | (In millions)
Derivative assets FTRs (1) | $ | — |  |  | $ | — |  |  | $ | 10 |  |  | $ | 10 |  |  | $ | — |  |  | $ | — |  |  | $ | 11 |  |  | $ | 11 |
Equity securities | 2 |  |  | — |  |  | — |  |  | 2 |  |  | 2 |  |  | — |  |  | — |  |  | 2 |
U.S. state and municipal debt securities | — |  |  | 259 |  |  | — |  |  | 259 |  |  | — |  |  | 266 |  |  | — |  |  | 266 |
Cash, cash equivalents and restricted cash (2) | 144 |  |  | — |  |  | — |  |  | 144 |  |  | 206 |  |  | — |  |  | — |  |  | 206 |
Other (3) | — |  |  | 41 |  |  | — |  |  | 41 |  |  | — |  |  | 40 |  |  | — |  |  | 40 |
Total assets | $ | 146 |  |  | $ | 300 |  |  | $ | 10 |  |  | $ | 456 |  |  | $ | 208 |  |  | $ | 306 |  |  | $ | 11 |  |  | $ | 525 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities FTRs (1) | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | (3) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | (2) |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | (3) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | (2) |
Net assets | $ | 146 |  |  | $ | 300 |  |  | $ | 7 |  |  | $ | 453 |  |  | $ | 208 |  |  | $ | 306 |  |  | $ | 9 |  |  | $ | 523 |
(1) Contracts are subject to regulatory accounting treatment and changes in market values do not impact earnings. (2) Restricted cash of $26 million and $46 million as of September 30, 2023 and December 31, 2022, 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. 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, 2023, and December 31, 2022:
|  | September 30, 2023 (1) |  | December 31, 2022 (2)
|  | Cost Basis |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value |  | Cost Basis |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
|  | (In millions)
Debt securities |  | $ | 296 |  |  | $ | — |  |  | $ | (37) |  |  | $ | 259 |  |  | $ | 294 |  |  | $ | — |  |  | $ | (28) |  |  | $ | 266 |
(1) Excludes short-term cash investments of $9 million as of September 30, 2023. (2) Excludes short-term cash investments of $5 million as of December 31, 2022. 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, 2023 and 2022, were as follows:
|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
|  | (In millions)
Sale proceeds |  | $ | 10 |  |  | $ | 15 |  |  | $ | 28 |  |  | $ | 31 |
Realized gains |  | — |  |  | — |  |  | — |  |  | 1 |
Realized losses |  | — |  |  | (2) |  |  | (2) |  |  | (4) |
Interest and dividend income |  | 3 |  |  | 3 |  |  | 9 |  |  | 9 |
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 are reflected in “Miscellaneous income, net” on FirstEnergy’s Consolidated Statements of Income. The total carrying value of other investments were $358 million and $351 million as of September 30, 2023, and December 31, 2022, respectively, and are excluded from the amounts reported above. See Note 1, "Organization and Basis of Presentation," for additional information on FirstEnergy's equity method investments. Pre-tax income (expense) related to corporate-owned life insurance policies were $(4) million and $(6) million, for the three months ended September 30, 2023 and 2022, respectively, and $6 million and $(28) million for the nine months ended September 30, 2023 and 2022, 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. 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, 2023 and December 31, 2022:
| September 30, 2023 |  | December 31, 2022
| (In millions)
Carrying value | $ | 24,254 |  |  | $ | 21,641 |
Fair value | $ | 21,800 |  |  | $ | 19,784 |
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, 2023, and December 31, 2022. FirstEnergy had the following redemptions and issuances during the nine months ended September 30, 2023:
Company | Type | Redemption / Issuance Date | Interest Rate | Maturity | Amount (In millions) | Description
Redemptions (1)
ME | Unsecured Notes | March, 2023 | 3.50% | 2023 | $300 | ME redeemed unsecured notes that became due.
FE | Unsecured Notes | May, 2023 | 7.375% | 2031 | $194 | FE repurchased approximately $194 million of the principal amount of its 2031 Notes through the open market for $228 million including a premium of approximately $34 million ($27 million after-tax). In addition, FE recognized approximately $2 million ($1 million after-tax) of deferred cash flow hedge losses associated with the FE debt redemptions.
Issuances
WP | FMBs | January, 2023 | 5.29% | 2033 | $50 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MAIT | Unsecured Notes | February, 2023 | 5.39% | 2033 | $175 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
ME | Unsecured Notes | March, 2023 | 5.20% | 2028 | $425 | Proceeds were used to repay short-term borrowings, including borrowings incurred to repay, at maturity, the $300 million aggregate principal amount of ME's 3.50% unsecured notes due March 15, 2023, to finance capital expenditures and for other general corporate purposes.
PN | Unsecured Notes | March, 2023 | 5.15% | 2026 | $300 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
ATSI | Unsecured Notes | May, 2023 | 5.13% | 2033 | $150 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
FE | Unsecured Convertible Notes | May, 2023 | 4.00% | 2026 | $1,500 | Proceeds were used to repay short-term borrowings, to repurchase a portion of its 2031 Notes, to fund the qualified pension plan and for other general corporate purposes.
PE | FMBs | September, 2023 | 5.64% | 2028 | $100 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
PE | FMBs | September, 2023 | 5.73% | 2030 | $50 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MP | FMBs | September, 2023 | 5.85% | 2034 | $400 | Proceeds are for repaying short-term and long-term debt, including MP’s $400 million 4.1% FMBs due April 15, 2024, to finance capital expenditures and for other general corporate purposes.
(1) Excludes principal payments on securitized bonds. Convertible Notes As discussed above, on May 4, 2023, FE issued $1.5 billion aggregate principal amount of 2026 Convertible Notes, with a fixed interest rate of 4.00% per year, payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2023. The 2026 Convertible Notes are unsecured and unsubordinated obligations of FE, and will mature on May 1, 2026, unless required to be converted or repurchased in accordance with their terms. However, FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date. The 2026 Convertible Notes are included within “Long-term debt and other long-term obligations” on the FirstEnergy Consolidated Balance Sheets. Proceeds from the issuance were approximately $1.48 billion, net of issuance costs. Prior to the close of business on the business day immediately preceding February 1, 2026, the 2026 Convertible Notes will be convertible at the option of the holders only under the following conditions: •During any calendar quarter, if the last reported sale price of FE’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; •During the five consecutive business day period immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Convertible Notes for each trading day of such 10 trading day period was less than 98% of the product of the last reported sale price of FE’s common stock and the conversion rate on each such trading day; or •Upon the occurrence of certain corporate events specified in the indenture governing the 2026 Convertible Notes. On and after February 1, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes at their option at any time at the conversion rate then in effect, irrespective of these conditions. FE will settle conversions of the 2026 Convertible Notes, if any, by paying cash up to the aggregate principal amount of the 2026 Convertible Notes being converted and by paying cash or delivering shares of FE’s common stock (or a combination of each), at its election, of its conversion obligation in excess of the aggregate principal amount of the 2026 Convertible Notes being converted. The conversion rate for the 2026 Convertible Notes will initially be 21.3620 shares of FE’s common stock per $1,000 principal amount of the 2026 Convertible Notes (equivalent to an initial conversion price of approximately $46.81 per share of FE’s common stock). The initial conversion price of the 2026 Convertible Notes represents a premium of approximately 20% over the last reported sale price of FE’s common stock on the New York Stock Exchange on May 1, 2023. The conversion rate and the corresponding conversion price will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date. If FE undergoes a fundamental change (as defined in the relevant indenture), subject to certain conditions, holders of the 2026 Convertible Notes may require FE to repurchase for cash all or any portion of their 2026 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the relevant indenture). In addition, if certain fundamental changes occur, FE may be required, in certain circumstances, to increase the conversion rate for any 2026 Convertible Notes converted in connection with such fundamental changes by a specified number of shares of its common stock.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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