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Impairment of Long-Lived Assets
12 Months Ended
Dec. 31, 2011
Asset Impairment Charges [Abstract]  
IMPAIRMENT OF LONG-LIVED ASSETS
IMPAIRMENT OF LONG-LIVED ASSETS
FirstEnergy reviews long-lived assets, including regulatory assets, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The recoverability of a long-lived asset is measured by comparing its carrying value to the sum of undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is greater than the undiscounted cash flows, impairment exists and a loss is recognized for the amount by which the carrying value of the long-lived asset exceeds its estimated fair value.
Fremont Energy Center
On March 11, 2011, FirstEnergy and American Municipal Power, Inc., entered into an agreement for the sale of Fremont Energy Center, which included two natural gas combined-cycle combustion turbines and a steam turbine capable of producing 544 MW of load-following capacity and 163 MW of peaking capacity. The execution of this agreement triggered a need to evaluate the recoverability of the carrying value of the assets associated with the Fremont Energy Center. The estimated fair value of the Fremont Energy Center was based on the purchase price outlined in the sale agreement with American Municipal Power, Inc. The result of this evaluation indicated that the carrying cost of the Fremont Energy Center was not fully recoverable. As a result of the recoverability evaluation, FirstEnergy recorded an impairment charge of $11 million to operating income in the first quarter of 2011. On July 28, 2011, FirstEnergy completed the sale of Fremont Energy Center to American Municipal Power, Inc.
Peaking Facilities
During 2011, FirstEnergy assessed the carrying values of certain peaking facilities that were more likely than not to be sold or disposed of before the end of their useful lives. The estimated fair values were based on estimated sales prices quoted in an active market. The result of the evaluation indicated that the carrying costs of the peaking facilities were not fully recoverable. FirstEnergy recorded impairment charges of $23 million during 2011 as a result of the recoverability evaluation and on October 18, 2011, FirstEnergy closed on the sale of the Richland and Stryker peaking facilities.
Generating Plant Retirements
On January 26, 2012, FirstEnergy announced that it will retire certain coal-fired generating plants owned by FGCO or AE Supply: Bay Shore Units 2-4, Eastlake Units 1-5, Ashtabula, Lake Shore, Armstrong Units 1-2 and R. Paul Smith Units 3-4. On February 8, 2012, FirstEnergy announced that it will retire three additional coal-fired generation plants owned by MP: Albright, Willow Island and Rivesville. All of these generating plants are expected to be closed by September 1, 2012 and are subject to review by PJM for reliability impacts (see Note 16, Commitment, Guarantees and Contingencies, regarding PJM's review of the Company's plans). The decision to close the plants is the result of a comprehensive review of FirstEnergy's coal-fired generating facilities in light of the MATS rules that were recently finalized and other environmental requirements.
As a result of this decision, FirstEnergy recorded a pre-tax impairment of $334 million to continuing operations during the year ended 2011. This impairment consists of a $311 million write down of the carrying value of the plant assets, approximately $5 million in excessive SO2 emission allowances and an $18 million charge for excessive or obsolete inventory at these facilities.
In addition to the emission allowance impairments in connection with the plant closures, FirstEnergy recorded during 2011, pre-tax impairment charges of approximately $6 million ($1 million for FES and $5 million for AE Supply) for NOx emission allowances that were expected to be obsolete after 2011 and approximately $16 million ($13 million for FES and $3 million for AE Supply) for excess SO2 emission allowances in inventory that it expects will not be consumed in the future.
In total, 634 employees will be directly affected by this decision. Existing severance benefits will apply to those that are eligible, however, the number of affected employees could be less as some are considered for open positions at other FirstEnergy facilities and other locations. In addition, a VSP will be offered to retirement-eligible affected employees who work at the plants being closed. Under the VSP, employees will receive an enhanced one-time lump sum severance payment in exchange for agreeing to remain an active employee until a date determined by FirstEnergy. Normal retirement benefits are unchanged by the VSP.
FirstEnergy estimates that the total severance benefits may be up to $25 million ($15 million - FGCO; $5 million - AE Supply; $5 million - MP). It is also estimated that additional costs to prepare the plants for closing during 2012 will be approximately $9 million ($4 million - FGCO; $3 million - AE Supply; $2 million - MP ). FGCO, AE Supply and MP have other obligations that could be affected by the plant closings and are currently unable to reasonably estimate potential costs, or a range thereof, that could be incurred.