LEASES

FirstEnergy leases certain generating facilities, office space and other property and equipment under cancelable and noncancelable leases.

In 1987, OE sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms of approximately 29 years, which expired in 2016 for Perry Unit 1 and will expire in 2017 for Beaver Valley Unit 2. In that same year, CEI and TE also sold portions of their ownership interests in Beaver Valley Unit 2 and entered into similar operating leases for lease terms of approximately 30 years expiring in 2017. OE, CEI and TE had the right, at the expiration of the respective basic lease terms, to renew their respective leases. They also have the right to purchase the facilities at the expiration of the basic lease term or any renewal term at a price equal to the fair market value of the facilities. The basic rental payments are adjusted when applicable federal tax law changes.

In 2007, FG completed a sale and leaseback transaction for its 93.825% undivided interest in Bruce Mansfield Unit 1 and entered into operating leases for basic lease terms of approximately 33 years, expiring in 2040. FES has unconditionally and irrevocably guaranteed all of FG’s obligations under each of the leases.

On June 24, 2014, OE exercised its irrevocable right to repurchase from the remaining owner participants the lessors' interests in Beaver Valley Unit 2 at the end of the lease term (June 1, 2017), which right to repurchase was assigned to NG. Upon the completion of this transaction, NG will have obtained all of the lessor equity interests at Beaver Valley Unit 2. Therefore, upon the expiration of the Beaver Valley Unit 2 leases, NG will be the sole owner of Beaver Valley Unit 2 and entitled to 100% of the unit's output.

In November 2014, NG repurchased 55.3 MWs of lessor equity interests in OE's existing sale and leaseback of Perry Unit 1 for approximately $87 million. On May 23, 2016, NG completed the purchase of the 3.75% lessor equity interests of the remaining non-affiliated leasehold interest in Perry Unit 1 for $50 million. In addition, the Perry Unit 1 leases expired in accordance with their terms on May 30, 2016, resulting in NG being the sole owner of Perry Unit 1 and entitled to100% of the unit's output.

Established by OE in 1996, PNBV purchased a portion of the lease obligation bonds issued on behalf of lessors in OE’s Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions. The PNBV arrangements effectively reduce lease costs related to those transactions (see "Note 9, Variable Interest Entities").

As of December 31, 2016, FirstEnergy's leasehold interest was 2.60% of Beaver Valley Unit 2 and FES' leasehold interest was 93.83% of Bruce Mansfield Unit 1.

Operating lease expense for 2016, 2015 and 2014, is summarized as follows:



(In millions)	2016		2015		2014

FirstEnergy	$	168	$	174	$	199
FES	$	94	$	94	$	95

The future minimum capital lease payments as of December 31, 2016 are as follows:



Capital leases	FirstEnergy			FES
	(In millions)
2017	$	32		$	6
2018	25			2
2019	19			—
2020	14			—
2021	12			—
Years thereafter	15			1
Total minimum lease payments	117			9
Interest portion	(13		)	(1		)
Present value of net minimum lease payments	104			8
Less current portion	29			5
Noncurrent portion	$	75		$	3

FirstEnergy's future minimum consolidated operating lease payments as of December 31, 2016, are as follows:




Operating Leases	FirstEnergy
	(In millions)
2017⁽¹⁾	$	125
2018	142
2019	123
2020	97
2021	119
Years thereafter	1,351
Total minimum lease payments	$	1,957

⁽¹⁾Includes a $3 million payment PNBV Trust will receive associated with certain sale and leaseback transactions. These arrangements, which expire in 2017, effectively reduce lease costs related to those transactions.

FES' future minimum operating lease payments as of December 31, 2016, are as follows:



Operating Leases	FES
	(In millions)
2017	$	82
2018	101
2019	97
2020	68
2021	93
Years thereafter	1,222
Total minimum lease payments	$	1,663