GOODWILL

In a business combination, the excess of the purchase price over the estimated fair values 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 first assesses qualitative factors to determine whether it is more likely than not (that is, likelihood of more than 50 percent) 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, then the two-step goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any.

FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution, Regulated Transmission, Competitive Energy Services and Other/Corporate. Goodwill is allocated to these reportable segments based on the original purchase price allocation of acquisitions. Total goodwill recognized by segment in FirstEnergy's Consolidated Balance Sheet is as follows:



Goodwill	Regulated Distribution		Regulated Transmission		Competitive Energy Services			Other/Corporate		Consolidated
	(In millions)
Balance as of December 31, 2012	$	5,025	$	526	$	896		$	—	$	6,447
Classification to Assets Held for Sale⁽¹⁾	—		—		(29		)	—		(29		)
Balance as of September 30, 2013	$	5,025	$	526	$	867		$	—	$	6,418


⁽¹⁾	See Note 16, Discontinued Operations and Assets Held for Sale.

FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission segments as of July 31, 2013. FirstEnergy assessed economic, industry and market considerations in addition to overall financial performance of its Regulated Distribution and Regulated Transmission segments. It was determined that the fair values of these segments were, more likely than not, greater than their carrying values. Due to excess generation supply in the region, which has caused a period of protracted low power and capacity prices impacting Competitive operations, FirstEnergy performed a quantitative assessment of the Competitive Energy Services segment as of July 31, 2013. The fair value of the Competitive Energy Services segment was calculated using a discounted cash flow analysis which included the effects of the potential sale of certain hydroelectric power stations and transfer of the Harrison plant to the Regulated Distribution Segment and the Pleasants plant to the Competitive Energy Services Segment as discussed in Note 12, Regulatory Matters. Assumptions used in the analysis include discount rates, market performance, projected operating and capital cash flows and the fair value of debt. The estimated fair value of the Competitive Energy Services segment exceeded its carrying amount (including goodwill) as of July 31, 2013. Continued weak economic conditions, lower than forecasted power and capacity prices, and revised environmental requirements could have a negative impact on future goodwill assessments.

In October of 2013, in connection with the closing of the West Virginia asset transfer, as discussed in Note 12, Regulatory Matters, FirstEnergy transferred approximately $67 million of goodwill from the Competitive Energy Services segment to the Regulated Distribution segment based on the relative fair value of the generating plants to the fair value of the respective segment.