Organization, Basis of Presentation

12 Months Ended

Dec. 31, 2017

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Terms.

FE was incorporated under Ohio law in 1996. FE’s principal business is the holding, directly or indirectly, of all of the outstanding equity of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), JCP&L, ME, PN, FESC, FES and its principal subsidiaries (FG and NG), AE Supply, MP, PE, WP, FET and its principal subsidiaries (ATSI, MAIT and TrAIL), and AESC. In addition, FE holds all of the outstanding equity of other direct subsidiaries including: FirstEnergy Properties, Inc., FEV, FENOC, FELHC, Inc., GPU Nuclear, Inc. and Allegheny Ventures, Inc.

FE and its subsidiaries are principally involved in the generation, transmission and distribution of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving over six million customers in the Midwest and Mid-Atlantic regions. Its regulated and unregulated generation subsidiaries control over 16,000 MWs of capacity from a diverse mix of non-emitting nuclear, scrubbed coal, natural gas, hydroelectric and other renewables. FirstEnergy’s transmission operations include approximately 24,500 miles of lines and two regional transmission operation centers.

FES, a subsidiary of FE, was incorporated under Ohio law in 1997. FES provides energy-related products and services to retail and wholesale customers. FES also owns and operates, through its FG subsidiary, fossil generating facilities and owns, through its NG subsidiary, nuclear generating facilities, which are operated by FENOC. On December 21, 2015, FES agreed, under a PSA, to physically purchase all the output of AE Supply's generation facilities effective April 1, 2016. FES and AE Supply terminated the PSA effective on April 1, 2017. FES complies with the regulations, orders, policies and practices prescribed by the SEC, FERC, NRC and applicable state regulatory authorities.

FE and its subsidiaries follow GAAP and comply with the related regulations, orders, policies and practices prescribed by the SEC, FERC, and, as applicable, the NRC, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not necessarily indicative of results of operations for any future period. FE and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation as appropriate. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary (see Note 9, "Variable Interest Entities"). Investments in affiliates over which FE and its subsidiaries have the ability to exercise significant influence, but do not have a controlling financial interest, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage of FE's ownership share of the entity’s earnings is reported in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). These Notes to Consolidated Financial Statements are combined for FirstEnergy and FES.

Certain prior year amounts have been reclassified to conform to the current year presentation, including the reclassification of $30 million and $105 million of deferred purchased power and fuel costs previously included in Purchased power to Amortization of regulatory assets, net, for the years ended December 31, 2016 and 2015, respectively.

Strategic Review of Competitive Operations

FirstEnergy’s strategy is to be a fully regulated utility company, focusing on stable and predictable earnings and cash flow from its regulated business units - Regulated Distribution and Regulated Transmission. The Company continues to focus on its regulated growth strategy and in November 2016, FirstEnergy announced a strategic review to exit its commodity-exposed generation at CES, which is primarily comprised of the operations of FES and AE Supply.

In connection with this strategic review, AE Supply and AGC entered into an asset purchase agreement with a subsidiary of LS Power, as amended and restated in August 2017, to sell four natural gas generating plants, AE Supply’s interest in the Buchanan Generating facility and approximately 59% of AGC’s interest in Bath County (1,615 MWs of combined capacity) for an all-cash purchase price of $825 million, subject to adjustments and through multiple, independent closings. On December 13, 2017, AE Supply completed the sale of the natural gas generating plants with net proceeds, subject to post-closing adjustments, of approximately $388 million. The sale of AE Supply’s interests in the Bath County hydroelectric power station and the Buchanan Generating facility is expected to generate net proceeds of $375 million and is anticipated to close in the first half of 2018, subject in each case to various customary and other closing conditions, including, without limitation, receipt of regulatory approvals.

Additionally, on March 6, 2017, AE Supply and MP entered into an asset purchase agreement for MP to acquire AE Supply’s Pleasants Power Station (1,300 MWs) for approximately $195 million, resulting from an RFP issued by MP to address its generation shortfall. On January 12, 2018, FERC issued an order denying authorization for the transaction, holding that MP and AE Supply did not demonstrate the sale was consistent with the public interest and the transaction did not fall within the safe harbors for meeting FERC’s affiliate cross-subsidization analysis. On January 26, 2018, the WVPSC approved the transfer of the Pleasants Power Station, subject to certain conditions as further described in Note 15, "Regulatory Matters - West Virginia," below, which included MP assuming significant commodity risk. Based on the FERC ruling and the conditions included in the WVPSC order, MP and AE Supply terminated the asset purchase agreement and on February 16, 2018, AE Supply announced its intent to exit operations of the Pleasants Power Station by January 1, 2019, through either sale or deactivation, which resulted in a pre-tax impairment charge of $120 million.

With the sale of the gas plants completed, upon the consummation of the sale of AGC's interest in the Bath County hydroelectric power station or the sale or deactivation of the Pleasants Power Station, AE Supply is obligated under the amended and restated purchase agreement and AE Supply's applicable debt agreements to satisfy and discharge approximately $305 million of currently outstanding senior notes, as well as its $142 million of pollution control notes and AGC's $100 million senior notes, which are expected to require the payment of “make-whole” premiums currently estimated to be approximately $95 million based on current interest rates. For additional information see Note 2, "Asset Sales and Impairments."

The strategic options to exit the remaining portion of the CES portfolio, which is primarily at FES, are limited. The credit quality of FES, including its unsecured debt rating of Ca at Moody’s, C at S&P, and C at Fitch and the negative outlook from Moody’s and S&P, has challenged its ability to consummate asset sales. Furthermore, the inability to obtain legislative support under the Department of Energy’s recent NOPR, which was rejected by FERC, limits FES’ strategic options to plant deactivations, restructuring its debt and other financial obligations with its creditors, and/or to seek protection under U.S. bankruptcy laws.

As part of the strategic review, FES evaluated its options with respect to its nuclear power plants. Factors considered as part of this review included current and forecasted market conditions, such as wholesale power and capacity prices, legislative and regulatory solutions that recognize their environmental and energy security benefits, and many other factors, including the significant capital and operating costs associated with operating a safe and reliable nuclear fleet. Based on this analysis, given the weak power and capacity price environment and the lack of legislative and regulatory solutions achieved to date, FES concluded that it would be increasingly difficult to operate these facilities in this environment and absent significant change concluded that it was probable that the facilities would be either deactivated or sold before the end of their estimated useful lives. As a result, FES recorded a pre-tax charge of $2.0 billion in the fourth quarter of 2017 to fully impair the nuclear facilities, including the generating plants and nuclear fuel as well as to reserve against the value of materials and supplies inventory and to increase its asset retirement obligation. For additional information see Note 2, "Asset Sales and Impairments."

Going Concern at FES

Although FES has access to a $500 million secured line of credit with FE, all of which was available as of January 31, 2018, its current credit rating and the current forward wholesale pricing environment present significant challenges to FES. As previously disclosed, FES has $515 million of maturing debt in 2018 (excluding intra-company debt), beginning with a $100 million principal payment due April 2, 2018. Based on FES' current senior unsecured debt rating, capital structure and long-term cash flow projections, the debt maturities are unlikely to be refinanced. Although management continues to explore cost reductions and other options to improve cash flow, these obligations and their impact to liquidity raise substantial doubt about FES’ ability to meet its obligations as they come due over the next twelve months and, as such, its ability to continue as a going concern.

ACCOUNTING FOR THE EFFECTS OF REGULATION

FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities, AGC, ATSI, MAIT and TrAIL since their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-based and can be charged to and collected from customers.

FirstEnergy records regulatory assets and liabilities that result from the regulated rate-making process that would not be recorded under GAAP for non-regulated entities. These assets and liabilities are amortized in the Consolidated Statements of Income (Loss) concurrent with the recovery or refund through customer rates. FirstEnergy believes that it is probable that its regulatory assets and liabilities will be recovered and settled, respectively, through future rates. FirstEnergy and the Utilities net their regulatory assets and liabilities based on federal and state jurisdictions.

As a result of the Tax Act, FirstEnergy adjusted its net deferred tax liabilities at December 31, 2017, for the reduction in the corporate income tax rate from 35% to 21%. For the portions of FirstEnergy’s business that apply regulatory accounting, the impact of reducing the net deferred tax liabilities was offset with a regulatory liability, as appropriate, for amounts expected to be refunded to rate payers in future rates, with the remainder recorded to deferred income tax expense.

The following table provides information about the composition of net regulatory assets and liabilities as of December 31, 2017 and December 31, 2016, and the changes during the year ended December 31, 2017:



Net Regulatory Assets (Liabilities) by Source	December 31, 2017			December 31, 2016			Increase (Decrease)
	(In millions)
Regulatory transition costs	$	46		$	90		$	(44	)
Customer receivables (payables) for future income taxes	(2,765		)	468			(3,233		)
Nuclear decommissioning and spent fuel disposal costs	(323		)	(304		)	(19		)
Asset removal costs	(774		)	(770		)	(4		)
Deferred transmission costs	187			122			65
Deferred generation costs	198			331			(133		)
Deferred distribution costs	258			296			(38		)
Contract valuations	118			153			(35		)
Storm-related costs	329			397			(68		)
Other	46			74			(28		)
Net Regulatory Assets (Liabilities) included on the Consolidated Balance Sheets	$	(2,680	)	$	857		$	(3,537	)

Regulatory assets that do not earn a current return totaled approximately $7 million and $153 million as of December 31, 2017 and 2016, respectively, primarily related to storm damage costs, and are currently being recovered through rates.

REVENUES AND RECEIVABLES

Electric revenues are recorded based on energy delivered through the end of the calendar month. An estimate of unbilled revenues is calculated to recognize electric service provided from the last meter reading through the end of the month. This estimate includes many factors, among which are historical customer usage, load profiles, estimated weather impacts, customer shopping activity and prices in effect for each class of customer. In each accounting period, FirstEnergy accrues the estimated unbilled amount as revenue and reverses the related prior period estimate.

Receivables from customers include retail electric sales and distribution deliveries to residential, commercial and industrial customers for the Utilities, and retail and wholesale sales to customers for FES. There was no material concentration of receivables as of December 31, 2017 and 2016 with respect to any particular segment of FirstEnergy’s customers. Billed and unbilled customer receivables as of December 31, 2017 and 2016 are included below.



Customer Receivables	FirstEnergy		FES
	(In millions)
December 31, 2017
Billed	$	860	$	106
Unbilled	603		75
Total	$	1,463	$	181

December 31, 2016
Billed	$	833	$	123
Unbilled	607		90
Total	$	1,440	$	213

EARNINGS (LOSS) PER SHARE OF COMMON STOCK

Basic earnings per share of common stock are computed using the weighted average number of common shares outstanding during the relevant period as the denominator. The denominator for diluted earnings per share of common stock reflects the weighted average of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised. As discussed below in "New Accounting Pronouncements," FirstEnergy adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," beginning January 1, 2017. For the year ended December 31, 2017, there were no material impacts to the basic or diluted earnings per share due to the new standard.



Reconciliation of Basic and Diluted Earnings (Loss) per Share of Common Stock	2017			2016			2015
	(In millions, except per share amounts)

Net income (loss)	$	(1,724	)	$	(6,177	)	$	578

Weighted average number of basic shares outstanding	444			426			422
Assumed exercise of dilutive stock options and awards⁽¹⁾	—			—			2
Weighted average number of diluted shares outstanding	444			426			424

Basic earnings (loss) per share of common stock	$	(3.88	)	$	(14.49	)	$	1.37
Diluted earnings (loss) per share of common stock	$	(3.88	)	$	(14.49	)	$	1.37


⁽¹⁾	For the years ended December 31, 2017, 2016 and 2015, approximately three million, three million and one million shares were excluded from the calculation of diluted shares outstanding, respectively, as their inclusion would be antidilutive, and in the case of 2016 and 2017, a result of the net loss for the period.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment reflects original cost (net of any impairments recognized), including payroll and related costs such as taxes, employee benefits, administrative and general costs, and interest costs incurred to place the assets in service. The costs of normal maintenance, repairs and minor replacements are expensed as incurred. FirstEnergy recognizes liabilities for planned major maintenance projects as they are incurred. The cost of nuclear fuel is capitalized within the CES segment's Property, plant and equipment and charged to fuel expense using the specific identification method. Property, plant and equipment balances by segment as of December 31, 2017 and 2016 were as follows:



	December 31, 2017
Property, Plant and Equipment	In Service⁽¹⁾		Accum. Depr.			Net Plant		CWIP		Total PP&E
	(In millions)
Regulated Distribution	$	25,950	$	(7,503	)	$	18,447	$	469	$	18,916
Regulated Transmission	10,102		(2,055		)	8,047		480		8,527
Competitive Energy Services⁽²⁾	2,902		(1,958		)	944		28		972
Corporate/Other	824		(409		)	415		49		464
Total	$	39,778	$	(11,925	)	$	27,853	$	1,026	$	28,879



	December 31, 2016
Property, Plant and Equipment	In Service⁽¹⁾		Accum. Depr.			Net Plant		CWIP		Total PP&E
	(In millions)
Regulated Distribution	$	24,979	$	(7,169	)	$	17,810	$	472	$	18,282
Regulated Transmission	9,342		(1,948		)	7,394		383		7,777
Competitive Energy Services⁽²⁾	8,680		(6,267		)	2,413		453		2,866
Corporate/Other	766		(347		)	419		43		462
Total	$	43,767	$	(15,731	)	$	28,036	$	1,351	$	29,387

⁽¹⁾Includes capital leases of $238 million and $244 million at December 31, 2017 and 2016, respectively.

⁽²⁾Primarily consists of generating assets and nuclear fuel as discussed above. In 2017, FirstEnergy fully impaired the value of its nuclear generating assets and nuclear fuel.

The major classes of Property, plant and equipment are largely consistent with the segment disclosures above, with the exception of Regulated Distribution, which has approximately $2.1 billion of regulated generation property, plant and equipment.

Property, plant and equipment balances for FES as of December 31, 2017 and 2016 were as follows:



	December 31, 2017
Property, Plant and Equipment	In Service		Accum. Depr.			Net Plant		CWIP		Total PP&E
	(In millions)
Fossil Generation	$	2,344	$	(1,743	)	$	601	$	19	$	620
Other	151		(80		)	71		3		74
Total	$	2,495	$	(1,823	)	$	672	$	22	$	694



	December 31, 2016
Property, Plant and Equipment	In Service		Accum. Depr.			Net Plant		CWIP		Total PP&E
	(In millions)
Fossil Generation	$	2,212	$	(1,720	)	$	492	$	63	$	555
Nuclear Generation	2,065		(1,723		)	342		118		460
Nuclear Fuel	2,637		(2,418		)	219		241		460
Other	143		(68		)	75		5		80
Total	$	7,057	$	(5,929	)	$	1,128	$	427	$	1,555

FirstEnergy provides for depreciation on a straight-line basis at various rates over the estimated lives of property included in plant in service. The respective annual composite rates for FirstEnergy's and FES' electric plant in 2017, 2016 and 2015 are shown in the following table:



	Annual Composite Depreciation Rate
	2017		2016		2015
FirstEnergy	2.4	%	2.5	%	2.5	%
FES	4.4	%	3.3	%	3.2	%

During the third quarter of 2016, FirstEnergy recorded a reduction to depreciation expense of $21 million ($19 million prior to January 1, 2016) that related to prior periods. The out-of-period adjustment related to the utilization of an accelerated useful life for a component of a certain power station. Management determined this adjustment was not material to 2016 or any prior periods.

For the years ended December 31, 2017, 2016 and 2015, capitalized financing costs on FirstEnergy's Consolidated Statements of Income (Loss) include $35 million, $37 million and $49 million, respectively, of allowance for equity funds used during construction and $44 million, $66 million and $68 million, respectively, of capitalized interest.

For the years ended December 31, 2017, 2016 and 2015, capitalized financing costs on FES' Consolidated Statements of Income (Loss) includes $26 million, $34 million and $35 million, respectively, of capitalized interest.

Jointly Owned Plants

FE, through its subsidiary, AGC, owns an undivided 40% interest (1,200 MWs) in a 3,003 MW pumped storage, hydroelectric station in Bath County, Virginia, operated by the 60% owner, VEPCO, a non-affiliated utility. Net Property, plant and equipment includes $531 million representing AGC's share in this facility as of December 31, 2017 of which $365 million is unregulated and included within the CES segment. AGC is obligated to pay its share of the costs of this jointly-owned facility in the same proportion as its ownership interest using its own financing. AGC's share of direct expenses of the joint plant is included in FE's operating expenses on the Consolidated Statements of Income (Loss). Approximately 59% of AGC is owned by AE Supply and approximately 41% by MP. As part of FE's strategic review of its competitive operations, on January 18, 2017, AGC entered into an asset purchase agreement (which was subsequently amended and restated) with a subsidiary of LS Power to sell AE Supply's indirect interest (23.75%) in Bath County, as discussed in Note 2, "Asset Sales and Impairments."

Asset Retirement Obligations

FE recognizes an ARO for the future decommissioning of its nuclear power plants and future remediation of other environmental liabilities associated with all of its long-lived assets. The ARO liability represents an estimate of the fair value of FE's current obligation related to nuclear decommissioning and the retirement or remediation of environmental liabilities of other assets. A fair value measurement inherently involves uncertainty in the amount and timing of settlement of the liability. FE uses an expected cash flow approach to measure the fair value of the nuclear decommissioning and environmental remediation ARO, considering the expected timing of settlement of the ARO based on the expected economic useful life of the plants (including the likelihood that the facilities will be deactivated before the end of their estimated useful lives). The fair value of an ARO is recognized in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying value of the long-lived asset and are depreciated over the life of the related asset.

Conditional retirement obligations associated with tangible long-lived assets are recognized at fair value in the period in which they are incurred if a reasonable estimate can be made, even though there may be uncertainty about timing or method of settlement. When settlement is conditional on a future event occurring, it is reflected in the measurement of the liability, not the timing of the liability recognition.

AROs as of December 31, 2017, are described further in Note 14, "Asset Retirement Obligations."

Asset Impairments

FirstEnergy evaluates long-lived assets classified as held and used for impairment when events or changes in circumstances indicate the carrying value of the long-lived assets may not be recoverable. First, the estimated undiscounted future cash flows attributable to the assets is compared with the carrying value of the assets. If the carrying value is greater than the undiscounted future cash flows, an impairment charge is recognized equal to the amount the carrying value of the assets exceeds its estimated fair value.

See Note 2, "Asset Sales and Impairments," for long-lived asset impairments recognized in 2017 and 2016.

GOODWILL

In a business combination, the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution, Regulated Transmission, and CES. The following table presents goodwill by reporting unit for the year ended December 31, 2017:



Goodwill	Regulated Distribution		Regulated Transmission		Consolidated
	(In millions)
Balance as of December 31, 2017	$	5,004	$	614	$	5,618

FirstEnergy tests goodwill for impairment annually as of July 31 and considers more frequent testing if indicators of potential impairment arise.

As of July 31, 2017, FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission reporting units' goodwill, assessing economic, industry and market considerations in addition to the reporting units' overall financial performance. Key factors used in the assessment include: growth rates, interest rates, expected capital expenditures, utility sector market performance and other market considerations. It was determined that the fair values of these reporting units were, more likely than not, greater than their carrying value and a quantitative analysis was not necessary.

See Note 2, "Asset Sales and Impairments," for goodwill impairment recognized in 2016 at CES.

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 held-to-maturity securities and AFS securities.

At the end of each reporting period, FirstEnergy evaluates its investments for OTTI. Investments classified as AFS securities are evaluated to determine whether a decline in fair value below the cost basis is other than temporary. FirstEnergy considers its intent and ability to hold an equity security until recovery and then considers, among other factors, the duration and the extent to which the security's fair value has been less than its cost and the near-term financial prospects of the security issuer when evaluating an investment for impairment. For debt securities, FirstEnergy considers its intent to hold the securities, the likelihood that it will be required to sell the securities before recovery of its cost basis and the likelihood of recovery of the securities' entire amortized cost basis. If the decline in fair value is determined to be other than temporary, the cost basis of the securities is written down to fair value.

Unrealized gains and losses on AFS securities are recognized in AOCI. However, unrealized losses held in the NDTs of FES are recognized in earnings since the trust arrangements, as they are currently defined, do not meet the required ability and intent to hold criteria in consideration of OTTI. The NDTs of JCP&L, ME and PN are subject to regulatory accounting with unrealized gains and losses offset against regulatory assets or liabilities. In 2017, 2016 and 2015, FirstEnergy recognized $13 million, $21 million and $102 million, respectively, of OTTI. During the same periods, FES recognized OTTI of $13 million, $19 million and $90 million, respectively. The fair values of FirstEnergy’s investments are disclosed in Note 10, "Fair Value Measurements."

The investment policy for the NDT funds restricts or limits the trusts' ability to hold certain types of assets including private or direct placements, warrants, securities of FirstEnergy, investments in companies owning nuclear power plants, financial derivatives, securities convertible into common stock and securities of the trust funds' custodian or managers and their parents or subsidiaries.

FirstEnergy 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 in U.S. and international markets. In 2015, Global Holding incurred losses primarily as a result of declines in coal prices due to weakening global and U.S. coal demand. Based on the significant decline in coal pricing and the outlook for the coal market, including the significant decline in the market capitalization of coal companies in 2015, FirstEnergy assessed the value of its investment in Global Holding and determined there was a decline in the fair value of the investment below its carrying value that was other than temporary, resulting in a pre-tax impairment charge of $362 million recognized in 2015. Key assumptions incorporated into the discounted cash flow analysis utilized in the impairment analysis included the discount rate, future long-term coal prices, production levels, sales forecasts, projected capital and operating costs. The impairment charge is classified as a component of Other Income (Expense) in the Consolidated Statement of Income (Loss). See Note 9, "Variable Interest Entities," for further discussion of FirstEnergy's investment in Global Holding.

INVENTORY

Materials and supplies inventory includes fuel inventory and the distribution, transmission and generation plant materials, net of reserve for excess and obsolete inventory. Materials are generally charged to inventory at weighted average cost when purchased and expensed or capitalized, as appropriate, when used or installed. Fuel inventory is accounted for at weighted average cost when purchased, and recorded to fuel expense when consumed.

See Note 2, "Asset Sales and Impairments," for inventory-related charges recognized in 2017.

NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" (Issued March 2016): ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also does not require liability accounting when an employer repurchases more of an employee’s shares for tax withholding purposes. FirstEnergy adopted ASU 2016-09 on January 1, 2017. Upon adoption, FirstEnergy elected to account for forfeitures as they occur. The change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of approximately $6 million as of January 1, 2017. Additionally, FirstEnergy retrospectively applied the cash flow presentation requirement to present cash paid to tax authorities when shares are withheld to satisfy statutory tax withholding obligations as financing activities by reclassifying $12 million and $13 million from operating activities to financing activities in the 2016 and 2015 Consolidated Statements of Cash Flows, respectively.

ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments" (Issued August 2016): The standard is intended to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows, including the presentation of debt prepayment or debt extinguishment costs, all of which will be classified as financing activities. ASU 2016-15 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. FirstEnergy early adopted this ASU as of January 1, 2017. There was no impact to prior periods.

Recently Issued Pronouncements - The following new authoritative accounting guidance issued by the FASB was not adopted in 2017. Unless otherwise indicated, FirstEnergy is currently assessing the impact such guidance may have on its financial statements and disclosures, as well as the potential to early adopt where applicable. FirstEnergy has assessed other FASB issuances of new standards not described below and has not included these standards based upon the current expectation that such new standards will not significantly impact FirstEnergy's financial reporting.

ASU 2014-09, "Revenue from Contracts with Customers" (Issued May 2014 and subsequently updated to address implementation questions): The new revenue recognition guidance: establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. FirstEnergy has evaluated its revenues and the new guidance will have limited impacts to current revenue recognition practices upon adoption on January 1, 2018. As part of the adoption, FirstEnergy elected to apply the new guidance on a modified retrospective basis. FirstEnergy will not record a cumulative adjustment to retained earnings for initially applying the new guidance as no revenue recognition differences were identified in the timing or amount of revenue. In addition, upon adoption, certain immaterial financial statement presentation changes will be implemented. FirstEnergy expects to disaggregate revenue by type of service in future revenue disclosures.

ASU 2016-01, "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" (issued January 2016): ASU 2016-01 primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Upon adoption, January 1, 2018, FirstEnergy will recognize all gains and losses for equity securities in income with the exception of those that are accounted for under the equity method of accounting. The NDT’s equity portfolios of JCP&L, ME and PN will not be impacted as unrealized gains and losses will continue to be offset against regulatory assets or liabilities. As a result of adopting the standard, FirstEnergy and FES will record a cumulative effect adjustment to retained earnings of $115 million (pre-tax) on January 1, 2018 representing unrealized gains on equity securities that were previously recorded to AOCI.

ASU 2016-02, "Leases (Topic 842)" (Issued February 2016) and ASU 2018-01,"Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842" (Issued January 2018): ASU 2016-02 will require organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. In addition, new qualitative and quantitative disclosures of the amounts, timing, and uncertainty of cash flows arising from leases will be required. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. ASU 2018-01 (same effective date and transition requirements as ASU 2016-02) provides an optional transition practical expedient that, if elected, would not require an entity to reconsider its accounting for existing land easements that are not currently accounted for under the old leases standard. FirstEnergy does not plan to adopt these standards early. Lessors and lessees will be required to apply a modified retrospective transition approach, which requires adjusting the accounting for any leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. FirstEnergy expects an increase in assets and liabilities, however, it is currently assessing the impact on its Consolidated Financial Statements. This assessment includes monitoring utility industry implementation guidance. FirstEnergy is in the process of conducting outreach activities across its business units and analyzing its lease population. In addition, it has begun implementation of a third-party software tool that will assist with the initial adoption and ongoing compliance.

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (issued June 2016): ASU 2016-13 removes all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018.

ASU 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory" (issued October 2016): ASU 2016-16 eliminates the exception for all intra-entity sales of assets other than inventory, which allows companies to defer the tax effects of intra-entity asset transfers. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the intra-entity transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted and the modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. FirstEnergy will not be impacted upon its adoption of this ASU on January 1, 2018.

ASU 2016-18, "Restricted Cash" (issued November 2016): ASU 2016-18 addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is required to be applied retrospectively. In its first quarter 2018 Form 10-Q, FirstEnergy will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. In addition, FirstEnergy will disclose the nature of its restricted cash and restricted cash equivalent balances within the footnotes.

ASU 2017-01, "Business Combinations: Clarifying the Definition of a Business" (Issued January 2017): ASU 2017-01 assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The ASU will be applied prospectively to any transactions occurring within the period of adoption. FirstEnergy will not early adopt this standard.

ASU 2017-07, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (Issued March 2017): ASU 2017-07 requires entities to retrospectively (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. As a result of the retrospective presentation, FirstEnergy will reclassify approximately $62 million of non-service costs, excluding the annual mark-to-market, to Other Income/Expense related to the fiscal year 2017 within the 2018 financial statements. In addition, ASU 2017-07 requires service costs to be capitalized as appropriate and non-service costs to be charged to earnings. FirstEnergy will present non-service costs in the caption “Miscellaneous Income” with the exception of the annual mark-to-market adjustment which will be disclosed separately.

ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" (Issued February 2018): ASU 2018-02 allows entities to reclassify from AOCI to retained earnings stranded tax effects resulting from the Tax Act. ASU 2018-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early adoption of the ASU is permitted including adoption in any interim period. ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the income tax rate change resulting from the Tax Act is recognized. FirstEnergy did not adopt this ASU as of December 31, 2017.