LEASES

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

LEASES

LEASES

FirstEnergy primarily leases vehicles as well as building space, office equipment, and other property and equipment under cancellable and non-cancelable leases. FirstEnergy does not have any material leases in which it is the lessor.

FirstEnergy accounts for leases under, "Leases (Topic 842)". Leases with an initial term of 12 months or less are recognized as lease expense on a straight-line basis over the lease term and not recorded on the balance sheet. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 40 years, and certain leases include options to terminate. The exercise of lease renewal options is at FirstEnergy’s sole discretion. Renewal options are included within the lease liability if they are reasonably certain based on various factors relative to the contract. Certain leases also include options to purchase the leased property. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. FirstEnergy’s lease agreements do not contain any material restrictive covenants. FirstEnergy has elected a policy to not separate lease components from non-lease components for all asset classes.

For vehicles leased under certain master lease agreements, the lessor is guaranteed a residual value up to a stated percentage of the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, FirstEnergy is committed to pay the difference in the actual fair value and the residual value guarantee. FirstEnergy does not believe it is probable that it will be required to pay anything pertaining to the residual value guarantee, and the lease liabilities and right-of-use assets are measured accordingly.

Finance leases for assets used in regulated operations are recognized in FirstEnergy’s Consolidated Statements of Income such that amortization of the right-of-use asset and interest on lease liabilities equals the expense allowed for ratemaking purposes. Finance leases for regulated and non-regulated operations are accounted for as if the assets were owned and financed, with associated expense recognized in Interest expense and Provision for depreciation on FirstEnergy’s Consolidated Statements of Income, while all operating lease expenses are recognized in Other operating expense. The components of lease expense were as follows:

	For the Year Ended December 31, 2021
(In millions)	Vehicles		Buildings		Other		Total
Operating lease costs (1)	$	44	$	9	$	18	$	71
Finance lease costs:
Amortization of right-of-use assets	12		1		1		14
Interest on lease liabilities	1		3		—		4
Total finance lease cost	13		4		1		18
Total lease cost	$	57	$	13	$	19	$	89

(1) Includes $21 million of short-term lease costs.

	For the Year Ended December 31, 2020
(In millions)	Vehicles		Buildings		Other		Total
Operating lease costs (1)	$	35	$	8	$	17	$	60
Finance lease costs:
Amortization of right-of-use assets	14		—		1		15
Interest on lease liabilities	2		3		—		5
Total finance lease cost	16		3		1		20
Total lease cost	$	51	$	11	$	18	$	80

(1) Includes $17 million of short-term lease costs.

	For the Year Ended December 31, 2019
(In millions)	Vehicles		Buildings		Other		Total
Operating lease costs (1)	$	28	$	9	$	12	$	49
Finance lease costs:
Amortization of right-of-use assets	15		1		1		17
Interest on lease liabilities	3		3		—		6
Total finance lease cost	18		4		1		23
Total lease cost	$	46	$	13	$	13	$	72

(1) Includes $13 million of short-term lease costs.

Supplemental cash flow information related to leases was as follows:

	For the Years Ended December 31,
(In millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	64	$	44	$	29
Operating cash flows from finance leases	4		4		5
Finance cash flows from finance leases	13		15		25
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	60	$	67	$	83
Finance leases	5		—		3

Lease terms and discount rates were as follows:

	As of December 31,
	2021		2020		2019
Weighted-average remaining lease terms (years)
Operating leases	7.97		8.55		9.42
Finance leases	8.12		7.74		4.62
Weighted-average discount rate (1)
Operating leases	4.16	%	4.21	%	4.51	%
Finance leases	12.22	%	11.58	%	10.45	%

(1) When an implicit rate is not readily determinable, an incremental borrowing rate is utilized, determining the present value of lease payments. The rate is determined based on expected term and information available at the commencement date.

Supplemental balance sheet information related to leases was as follows:

		As of December 31,
(In millions)	Financial Statement Line Item	2021		2020
Assets
Operating lease (1)	Deferred charges and other assets	$	279	$	265
Finance lease (2)	Property, plant and equipment	48		57
Total leased assets		$	327	$	322
Liabilities
Current:
Operating	Other current liabilities	$	39	$	42
Finance	Currently payable long-term debt	13		14
Noncurrent:
Operating	Other noncurrent liabilities	271		263
Finance	Long-term debt and other long-term obligations	23		31
Total leased liabilities		$	346	$	350

(1) Operating lease assets are recorded net of accumulated amortization of $79 million and $51 million as of December 31, 2021 and 2020, respectively.

(2) Finance lease assets are recorded net of accumulated amortization of $95 million and $96 million as of December 31, 2021 and 2020, respectively.

Maturities of lease liabilities as of December 31, 2021, were as follows:

(In millions)	Operating Leases		Finance Leases		Total
2022	$	54	$	16	$	70
2023	54		9		63
2024	48		5		53
2025	45		5		50
2026	41		5		46
Thereafter	133		8		141
Total lease payments (1)	375		48		423
Less imputed interest	65		12		77
Total net present value	$	310	$	36	$	346

(1) Operating lease payments for certain leases are offset by sublease receipts of $10 million over 11 years.

As of December 31, 2021, additional operating leases agreements, primarily for vehicles, that have not yet commenced are $5 million. These leases are expected to commence within the next 18 months with lease terms of 2 to 10 years.

LEASES

LEASES

FirstEnergy primarily leases vehicles as well as building space, office equipment, and other property and equipment under cancellable and non-cancelable leases. FirstEnergy does not have any material leases in which it is the lessor.

FirstEnergy accounts for leases under, "Leases (Topic 842)". Leases with an initial term of 12 months or less are recognized as lease expense on a straight-line basis over the lease term and not recorded on the balance sheet. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 40 years, and certain leases include options to terminate. The exercise of lease renewal options is at FirstEnergy’s sole discretion. Renewal options are included within the lease liability if they are reasonably certain based on various factors relative to the contract. Certain leases also include options to purchase the leased property. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. FirstEnergy’s lease agreements do not contain any material restrictive covenants. FirstEnergy has elected a policy to not separate lease components from non-lease components for all asset classes.

For vehicles leased under certain master lease agreements, the lessor is guaranteed a residual value up to a stated percentage of the equipment cost at the end of the lease term. If the actual fair value of the leased equipment is below the guaranteed residual value at the end of the lease term, FirstEnergy is committed to pay the difference in the actual fair value and the residual value guarantee. FirstEnergy does not believe it is probable that it will be required to pay anything pertaining to the residual value guarantee, and the lease liabilities and right-of-use assets are measured accordingly.

Finance leases for assets used in regulated operations are recognized in FirstEnergy’s Consolidated Statements of Income such that amortization of the right-of-use asset and interest on lease liabilities equals the expense allowed for ratemaking purposes. Finance leases for regulated and non-regulated operations are accounted for as if the assets were owned and financed, with associated expense recognized in Interest expense and Provision for depreciation on FirstEnergy’s Consolidated Statements of Income, while all operating lease expenses are recognized in Other operating expense. The components of lease expense were as follows:

	For the Year Ended December 31, 2021
(In millions)	Vehicles		Buildings		Other		Total
Operating lease costs (1)	$	44	$	9	$	18	$	71
Finance lease costs:
Amortization of right-of-use assets	12		1		1		14
Interest on lease liabilities	1		3		—		4
Total finance lease cost	13		4		1		18
Total lease cost	$	57	$	13	$	19	$	89

(1) Includes $21 million of short-term lease costs.

	For the Year Ended December 31, 2020
(In millions)	Vehicles		Buildings		Other		Total
Operating lease costs (1)	$	35	$	8	$	17	$	60
Finance lease costs:
Amortization of right-of-use assets	14		—		1		15
Interest on lease liabilities	2		3		—		5
Total finance lease cost	16		3		1		20
Total lease cost	$	51	$	11	$	18	$	80

(1) Includes $17 million of short-term lease costs.

	For the Year Ended December 31, 2019
(In millions)	Vehicles		Buildings		Other		Total
Operating lease costs (1)	$	28	$	9	$	12	$	49
Finance lease costs:
Amortization of right-of-use assets	15		1		1		17
Interest on lease liabilities	3		3		—		6
Total finance lease cost	18		4		1		23
Total lease cost	$	46	$	13	$	13	$	72

(1) Includes $13 million of short-term lease costs.

Supplemental cash flow information related to leases was as follows:

	For the Years Ended December 31,
(In millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	64	$	44	$	29
Operating cash flows from finance leases	4		4		5
Finance cash flows from finance leases	13		15		25
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	60	$	67	$	83
Finance leases	5		—		3

Lease terms and discount rates were as follows:

	As of December 31,
	2021		2020		2019
Weighted-average remaining lease terms (years)
Operating leases	7.97		8.55		9.42
Finance leases	8.12		7.74		4.62
Weighted-average discount rate (1)
Operating leases	4.16	%	4.21	%	4.51	%
Finance leases	12.22	%	11.58	%	10.45	%

(1) When an implicit rate is not readily determinable, an incremental borrowing rate is utilized, determining the present value of lease payments. The rate is determined based on expected term and information available at the commencement date.

Supplemental balance sheet information related to leases was as follows:

		As of December 31,
(In millions)	Financial Statement Line Item	2021		2020
Assets
Operating lease (1)	Deferred charges and other assets	$	279	$	265
Finance lease (2)	Property, plant and equipment	48		57
Total leased assets		$	327	$	322
Liabilities
Current:
Operating	Other current liabilities	$	39	$	42
Finance	Currently payable long-term debt	13		14
Noncurrent:
Operating	Other noncurrent liabilities	271		263
Finance	Long-term debt and other long-term obligations	23		31
Total leased liabilities		$	346	$	350

(1) Operating lease assets are recorded net of accumulated amortization of $79 million and $51 million as of December 31, 2021 and 2020, respectively.

(2) Finance lease assets are recorded net of accumulated amortization of $95 million and $96 million as of December 31, 2021 and 2020, respectively.

Maturities of lease liabilities as of December 31, 2021, were as follows:

(In millions)	Operating Leases		Finance Leases		Total
2022	$	54	$	16	$	70
2023	54		9		63
2024	48		5		53
2025	45		5		50
2026	41		5		46
Thereafter	133		8		141
Total lease payments (1)	375		48		423
Less imputed interest	65		12		77
Total net present value	$	310	$	36	$	346

(1) Operating lease payments for certain leases are offset by sublease receipts of $10 million over 11 years.

As of December 31, 2021, additional operating leases agreements, primarily for vehicles, that have not yet commenced are $5 million. These leases are expected to commence within the next 18 months with lease terms of 2 to 10 years.