Organization, Basis of Presentation and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies (Policies) [Abstract]

ACCOUNTING FOR THE EFFECTS OF REGULATION

FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities, ATSI, PATH 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 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.

The following table provides information about the composition of net regulatory assets as of December 31, 2012 and December 31, 2011, and the changes during the year ended December 31, 2012:



Regulatory Assets by Source	December 31, 2012			December 31, 2011			Increase (Decrease)
	(In millions)
Regulatory transition costs	$	281		$	309		$	(28	)
Customer receivables for future income taxes	508			519			(11		)
Nuclear decommissioning and spent fuel disposal costs	(219		)	(210		)	(9		)
Asset removal costs	(372		)	(347		)	(25		)
Deferred transmission costs	390			340			50
Deferred generation costs	379			400			(21		)
Deferred distribution costs	231			267			(36		)
Contract valuations	463			299			164
Storm-related costs	509			144			365
Other	205			309			(104		)
Total	$	2,375		$	2,030		$	345

Regulatory assets that do not earn a current return totaled approximately $779 million as of December 31, 2012. JCP&L had $386 million of regulatory assets not earning a current return, which include storm damage costs. The remaining $393 million of regulatory assets include PJM transmission and regulatory transition costs that are expected to be recovered by 2020.

As of December 31, 2012 and December 31, 2011, FirstEnergy had approximately $392 million and $381 million, respectively, of net regulatory liabilities, that are primarily related to asset removal costs. Net regulatory liabilities are classified within Other Noncurrent Liabilities on the Consolidated Balance Sheets.

Transition Cost Amortization

JCP&L’s regulatory transition costs include the deferral of above-market costs for power supplied from NUGs of $120 million that are recovered through non-utility generation charge revenues. Projected above-market NUG costs are adjusted to fair value at the end of each quarter, with a corresponding offset to regulatory assets. Recovery of the remaining regulatory transition costs is expected to continue pursuant to various regulatory proceedings in New Jersey (see Note 14, Regulatory Matters).

REVENUES AND RECEIVABLES

The Utilities' principal business is providing electric service to customers in Ohio, Pennsylvania, West Virginia, New Jersey and Maryland. FES' and AE Supply's principal business is supplying electric power to end-use customers through retail and wholesale arrangements, including affiliated company power sales to meet a portion of the POLR and default service requirements of the Ohio and Pennsylvania Companies and competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Michigan, New Jersey and Maryland. Retail customers are metered on a cycle basis.

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, the Utilities, FES and AE Supply accrue the estimated unbilled amount receivable as revenue and reverse 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 and AE Supply. There was no material concentration of receivables as of December 31, 2012 and 2011 with respect to any particular segment of FirstEnergy’s customers. Billed and unbilled customer receivables as of December 31, 2012 and 2011 are shown below.



Customer Receivables	FirstEnergy		FES		OE		JCP&L
	(In millions)
December 31, 2012
Billed	$	893	$	243	$	96	$	124
Unbilled	721		240		80		97
Total	$	1,614	$	483	$	176	$	221
December 31, 2011
Billed	$	800	$	220	$	67	$	117
Unbilled	725		204		96		118
Total	$	1,525	$	424	$	163	$	235

EARNINGS 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. The following table reconciles basic and diluted earnings per share of common stock:



Reconciliation of Basic and Diluted Earnings per Share of Common Stock	2012		2011		2010
	(In millions, except per share amounts)
Weighted average number of basic shares outstanding	418		399		304
Assumed exercise of dilutive stock options and awards⁽¹⁾	1		2		1
Weighted average number of diluted shares outstanding	419		401		305

Earnings available to FirstEnergy Corp.	$	770	$	885	$	742

Basic earnings per share of common stock	$	1.85	$	2.22	$	2.44
Diluted earnings per share of common stock	$	1.84	$	2.21	$	2.42


⁽¹⁾	The number of potentially dilutive securities not included in the calculation of diluted shares outstanding due to their antidilutive effect were not significant for the years ending December 31, 2012, 2011 or 2010.

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. Property, plant and equipment balances as of December 31, 2012 and 2011 were as follows:



	December 31, 2012									December 31, 2011
Property, Plant and Equipment	Unregulated			Regulated			Total			Unregulated			Regulated			Total
	(In millions)
In service	$	16,658		$	26,552		$	43,210		$	15,472		$	24,650		$	40,122
Less - Accumulated depreciation	(4,870		)	(7,730		)	(12,600		)	(4,424		)	(7,415		)	(11,839		)
Net plant in service	$	11,788		$	18,822		$	30,610		$	11,048		$	17,235		$	28,283

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 subsidiaries’ electric plant in 2012, 2011 and 2010 are shown in the following table:



	Annual Composite Depreciation Rate
	2012		2011		2010
FG	3.0	%	3.1	%	4.0	%
NG	2.5	%	3.2	%	3.1	%
OE	2.9	%	2.9	%	2.9	%
JCP&L	2.1	%	2.1	%	2.2	%

Jointly Owned Plants

FE, through its subsidiary, AGC, owns an undivided 40% interest (1,109 MWs) in a 2,773 MW pumped storage, hydroelectric station in Bath County, Virginia, operated by the 60% owner, Virginia Electric and Power Company, a non-affiliated utility. Net Property, Plant and Equipment includes $447 million, excluding $19 million of CWIP, representing AGC's share in this facility as of December 31, 2012. 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 FirstEnergy Corp.'s operating expenses on the Consolidated Statement of Income.

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. This approach applies probability weighting to discounted future cash flow scenarios that reflect a range of possible outcomes. The scenarios consider settlement of the ARO at the expiration of the nuclear power plant's current license, settlement based on an extended license term and expected remediation dates. 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. AROs as of December 31, 2012, are described further in Note 13, Asset Retirement Obligations.

ASSET IMPAIRMENTS

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. Impairments of long-lived assets recognized for the year ended December 31, 2012, are described further in Note 10, Impairment of Long-Lived Assets.

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. Goodwill is evaluated for impairment at least annually 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 potential goodwill impairment and measure the amount of goodwill impaired to be recognized, if any.

FirstEnergy's reporting units are consistent with its operating entities, which aggregate to 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 for acquisitions within various reporting units.

Annual impairment testing is conducted during the third quarter of each year and for 2012, 2011 and 2010 the analysis indicated no impairment of goodwill. The 2012 annual goodwill impairment test was performed primarily using a qualitative assessment approach. FirstEnergy assessed economic, industry and market considerations in addition to overall financial performance of its reporting units. It was determined that the fair values of FirstEnergy's reporting units were, more likely than not, greater than their carrying values.

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, 2011	$	5,551		$	—	$	890	$	—	$	6,441
Purchase Accounting Adjustment	—			—		6		—		6
Segment Reorganization⁽¹⁾	(526		)	526		—		—		—
Balance as of December 31, 2012	$	5,025		$	526	$	896	$	—	$	6,447


⁽¹⁾	Note 18, Segment Information discusses the modification of reporting segments that occurred during 2012 that resulted in the transfer of goodwill from Regulated Distribution to Regulated Transmission.

As of December 31, 2012 and 2011, total goodwill recognized by FES and JCP&L was $24 million and $1,811 million, respectively. FirstEnergy, FES and JCP&L have no accumulated impairment charge as of December 31, 2012.

Investments

At the end of each reporting period, FirstEnergy evaluates its investments for OTTI. Investments classified as available-for-sale securities are evaluated to determine whether a decline in fair value below the cost basis is other than temporary. FirstEnergy first 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 available-for-sale securities are recognized in OCI. However, unrealized losses held in the NDTs of FES and OE 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 are subject to regulatory accounting, and therefore, net unrealized gains and losses are recorded as regulatory assets or liabilities because the difference between investments held in the trust and the decommissioning liabilities is expected to be recovered from or refunded to customers. In 2012, 2011 and 2010, FirstEnergy recognized $16 million, $19 million and $33 million, respectively, of OTTI. The fair values of FirstEnergy’s investments are disclosed in Note 8, Fair Value Measurements.

ACCUMULATED OTHER COMPREHENSIVE INCOME

AOCI, net of tax, included on FirstEnergy’s, FES’, OE's and JCP&L's Consolidated Balance Sheets as of December 31, 2012 and 2011, is comprised of the following:



Accumulated Other Comprehensive Income	FirstEnergy			FES		OE		JCP&L
	(In millions)
Net liability for unfunded retirement benefits	$	408		$	56	$	45	$	33
Unrealized gain on investments	15			13		—		—
Unrealized gain (loss) on derivative hedges	(38		)	3		—		(1		)
Balance, December 31, 2012	$	385		$	72	$	45	$	32

Net liability for unfunded retirement benefits	$	446		$	52	$	54	$	40
Unrealized gain on investments	19			16		—		—
Unrealized gain (loss) on derivative hedges	(39		)	8		—		(1		)
Balance, December 31, 2011	$	426		$	76	$	54	$	39

OCI reclassified to net income during the three years ended December 31, 2012, 2011 and 2010 is shown in the following table.



	FirstEnergy			FES			OE		JCP&L
	(In millions)
2012
Pensions and OPEB	$	191		$	20		$	29	$	24
Gain on investments	72			65			—		—
Gain on derivative hedges	—			9			—		—
	263			94			29		24
Income taxes related to reclassification to net income	101			35			11		10
Reclassification to net income	$	162		$	59		$	18	$	14

2011
Pensions and OPEB	$	169		$	18		$	28	$	25
Gain on investments	59			51			6		—
Loss on derivative hedges	(38		)	(32		)	—		—
	190			37			34		25
Income taxes related to reclassification to net income	72			14			12		10
Reclassification to net income	$	118		$	23		$	22	$	15

2010
Pensions and OPEB	$	87		$	46		$	23	$	5
Gain on investments	54			50			2		—
Loss on derivative hedges	(35		)	(24		)	—		—
	106			72			25		5
Income taxes related to reclassification to net income	40			26			9		3
Reclassification to net income	$	66		$	46		$	16	$	2

NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements not yet effective are not expected to have a material effect on the financial statements of FE or its subsidiaries.

Pension and Other Postretirement Plans, Policy

FirstEnergy provides noncontributory qualified defined benefit pension plans that cover substantially all of its employees and non-qualified pension plans that cover certain employees. The plans provide defined benefits based on years of service and compensation levels. In addition, FirstEnergy provides a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee contributions, deductibles and co-payments, are also available upon retirement to certain employees, their dependents and, under certain circumstances, their survivors. FirstEnergy recognizes the expected cost of providing pensions and OPEB to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. FirstEnergy also has obligations to former or inactive employees after employment, but before retirement, for disability-related benefits. During 2012, FirstEnergy amended its OPEB plan to reduce the limit of life insurance benefits for active employees and retirees resulting in a reduction to OPEB liabilities of approximately $85 million.

FirstEnergy’s pensions and OPEB funding policy is based on actuarial computations using the projected unit credit method.

Consolidation, Variable Interest Entity, Policy

FirstEnergy performs qualitative analyses to determine whether a variable interest gives FirstEnergy a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary.