FAIR VALUE MEASUREMENTS

RECURRING AND NONRECURRING FAIR VALUE MEASUREMENTS

On January 1, 2012, FirstEnergy adopted an amendment to the authoritative accounting guidance regarding fair value measurements. The amendment was applied prospectively and expanded disclosure requirements for fair value measurements, particularly for Level 3 measurements, among other changes.

Authoritative accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. The three levels of the fair value hierarchy and a description of the valuation techniques for Level 2 and Level 3 are as follows:



Level 1	-	Quoted prices for identical instruments in active market

Level 2	-	Quoted prices for similar instruments in active market
	-	Quoted prices for identical or similar instruments in markets that are not active
	-	Model-derived valuations for which all significant inputs are observable market data

Models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.



Level 3	-	Valuation inputs are unobservable and significant to the fair value measurement

FirstEnergy produces a long-term power and capacity price forecast annually with periodic updates as market conditions change. When underlying prices are not observable, prices from the long-term price forecast, which has been reviewed and approved by the Risk Policy Committee, are used to measure fair value. A more detailed description of FirstEnergy's valuation process for FTRs and NUGs are as follows.

FTRs are financial instruments that entitle the holder to a stream of revenues (or charges) based on the hourly day-ahead congestion price differences across transmission paths. FTRs are acquired by FirstEnergy in the annual, monthly and long-term RTO auctions and are initially recorded using the auction clearing price less cost. After initial recognition, FTRs' carrying values are subsequently adjusted to fair value using a mark-to-model methodology on a monthly basis, which approximates market. The primary inputs into the model, that are generally less observable from objective sources, are the most recent RTO auction clearing prices and the FTRs' remaining hours. The model calculates the fair value by multiplying the most recent auction clearing price by the remaining FTR hours less the prorated FTR cost. Generally, significant increases or decreases in inputs in isolation could result in a higher or lower fair value measurement. See Note 7, Derivative Instruments, for additional information regarding FirstEnergy's FTRs.

NUG contracts represent purchased power agreements with third-party non-utility generators that are transacted to satisfy certain obligations under PURPA. NUG contract carrying values are recorded at fair value using a mark-to-model methodology on a monthly basis, which approximates market. The primary unobservable inputs into the model are regional power prices and generation MWH. Monthly pricing for the NUG contracts is a combination of market prices for the current year and next three years based on observable data and internal models using historical trends and market data for the remaining years under contract. The internal models use forecasted energy purchase prices as an input when prices are not defined by the contract. Forecasted market prices are based on IntercontinentalExchange quotes and management assumptions. Generation MWH reflects data provided by contractual arrangements and historical trends. The model calculates the fair value by multiplying the prices by the generation MWH. Generally, significant increases or decreases in inputs in isolation could result in a higher or lower fair value measurement.

FirstEnergy primarily applies the market approach for recurring fair value measurements using the best information available. Accordingly, FirstEnergy maximizes the use of observable inputs and minimizes the use of unobservable inputs. There were no changes in valuation methodologies used as of March 31, 2012 and December 31, 2011. The determination of the fair value measures takes into consideration various factors, including but not limited to, nonperformance risk, counterparty credit risk and the impact of credit enhancements (such as cash deposits, LOCs and priority interests). The impact of these forms of risk was not significant to the fair value measurements.

Transfers between levels are recognized at the end of the reporting period. There were no significant transfers between levels during the 2012 and 2011 periods. The following tables set forth the recurring and nonrecurring assets and liabilities that are accounted for at fair value by level within the fair value hierarchy.



FE CONSOLIDATED

Recurring Fair Value Measurements	March 31, 2012												December 31, 2011
	Level 1			Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Assets	(In millions)
Corporate debt securities	$	—		$	1,561		$	—		1,561			$	—	$	1,544		$	—		$	1,544
Derivative assets - commodity contracts	1			415			—			416			—		264			—			264
Derivative assets - FTRs	—			—			1			1			—		—			1			1
Derivative assets - NUG contracts⁽¹⁾	—			—			42			42			—		—			56			56
Equity securities⁽²⁾	289			—			—			289			259		—			—			259
Foreign government debt securities	—			—			—			—			—		3			—			3
U.S. government debt securities	—			138			—			138			—		148			—			148
U.S. state debt securities	—			313			—			313			—		314			—			314
Other⁽³⁾	54			167			—			221			49		225			—			274
Total assets	344			2,594			43			2,981			308		2,498			57			2,863

Liabilities
Derivative liabilities - commodity contracts	(2		)	(347		)	—			(349		)	—		(247		)	—			(247		)
Derivative liabilities - FTRs	—			—			(15		)	(15		)	—		—			(23		)	(23		)
Derivative liabilities - NUG contracts⁽¹⁾	—			—			(342		)	(342		)	—		—			(349		)	(349		)
Total liabilities	(2		)	(347		)	(357		)	(706		)	—		(247		)	(372		)	(619		)

Net assets (liabilities)⁽⁴⁾	$	342		$	2,247		$	(314	)	$	2,275		$	308	$	2,251		$	(315	)	$	2,244


⁽¹⁾	NUG contracts are generally subject to regulatory accounting and do not impact earnings.


⁽²⁾	NDT funds hold equity portfolios whose performance is benchmarked against the Alerian MLP Index.


⁽³⁾	Primarily consists of short-term cash investments.


⁽⁴⁾	Excludes $2 million and $(52) million as of March 31, 2012 and December 31, 2011, respectively, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table.

Rollforward of Level 3 Measurements

The following table provides a reconciliation of changes in the fair value of NUG contracts held by the Utilities and FTRs held by FirstEnergy and classified as Level 3 in the fair value hierarchy for the periods ended March 31, 2012 and December 31, 2011:



	NUG Contracts									FTRs
	Derivative Assets⁽¹⁾			Derivative Liabilities⁽¹⁾			Net⁽¹⁾			Derivative Assets⁽¹⁾			Derivative Liabilities⁽¹⁾			Net⁽¹⁾
										(In millions)
January 1, 2011 Balance	$	122		$	(466	)	$	(344	)	$	—		$	—		$	—
Realized gain (loss)	—			—			—			—			—			—
Unrealized gain (loss)	(58		)	(144		)	(202		)	2			(27		)	(25		)
Purchases	—			—			—			13			(4		)	9
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(7		)	261			254			(14		)	20			6
Transfers in (out) of Level 3	—			—			—						(12		)	(12		)
December 31, 2011 Balance	$	57		$	(349	)	$	(292	)	$	1		$	(23	)	$	(22	)
Realized gain (loss)	—			—			—			—			—			—
Unrealized gain (loss)	(14		)	(65		)	(79		)	—			(3		)	(3		)
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1		)	72			71			—			11			11
Transfers in (out) of Level 3	—			—			—			—			—			—
March 31, 2012 Balance	$	42		$	(342	)	$	(300	)	$	1		$	(15	)	$	(14	)


⁽¹⁾	Changes in the fair value of NUG contracts are generally subject to regulatory accounting and do not impact earnings.

Level 3 Quantitative Information

The following table provides quantitative information for NUG contracts and FTRs that are classified as Level 3 in the fair value hierarchy for the period ended March 31, 2012:

Fair Value as of March 31, 2012 (In millions)

Valuation

Technique

Significant Input

Range

Weighted Average

Units

FTRs

(14

)

Model

RTO auction clearing prices

($4.18) to $9.81

1.51

Dollars/MWH

NUG Contracts

(300

)

Model

Generation

Power regional prices

500 to 6,809,000

$58.71 to $84.92

2,547,000

$66.77

MWH

Dollars/MWH



FES

Recurring Fair Value Measurements	March 31, 2012												December 31, 2011
	Level 1			Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
Assets	(In millions)
Corporate debt securities	$	—		$	1,017		$	—		$	1,017		$	—	$	1,010		$	—		$	1,010
Derivative assets - commodity contracts	1			391			—			392			—		248			—			248
Derivative assets - FTRs	—			—			1			1			—		—			1			1
Equity securities⁽¹⁾	150			—			—			150			124		—			—			124
Foreign government debt securities	—			—			—			—			—		3			—			3
U.S. government debt securities	—			5			—			5			—		7			—			7
U.S. state debt securities	—			—			—			—			—		5			—			5
Other⁽²⁾	—			66			—			66			—		132			—			132
Total assets	151			1,479			1			1,631			124		1,405			1			1,530

Liabilities
Derivative liabilities - commodity contracts	(2		)	(340		)	—			(342		)	—		(234		)	—			(234		)
Derivative liabilities - FTRs	—			—			(5		)	(5		)	—		—			(7		)	(7		)
Total liabilities	(2		)	(340		)	(5		)	(347		)	—		(234		)	(7		)	(241		)

Net assets (liabilities)⁽³⁾	$	149		$	1,139		$	(4	)	$	1,284		$	124	$	1,171		$	(6	)	$	1,289


⁽¹⁾	NDT funds hold equity portfolios whose performance of which is benchmarked against the Alerian MLP Index.


⁽²⁾	Primarily consists of short-term cash investments.


⁽³⁾	Excludes $2 million and $(58) million as of March 31, 2012 and December 31, 2011, respectively, of receivables, payables, taxes and accrued income associated with the financial instruments reflected within the fair value table.

Rollforward of Level 3 Measurements

The following table provides a reconciliation of changes in the fair value of FTRs held by FES and classified as Level 3 in the fair value hierarchy for the periods ended March 31, 2012 and December 31, 2011:



	Derivative Asset FTRs			Derivative Liability FTRs			Net FTRs
	(In millions)
January 1, 2011 Balance	$	—		$	—		$	—
Realized gain (loss)	—			—			—
Unrealized gain (loss)	4			(8		)	(4		)
Purchases	2			(1		)	1
Issuances	—			—			—
Sales	—			—			—
Settlements	(5		)	2			(3		)
Transfers in (out) of Level 3	—			—			—
December 31, 2011 Balance	$	1		$	(7	)	$	(6	)
Realized gain (loss)	—			—			—
Unrealized gain (loss)	—			(1		)	(1		)
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	—			4			4
Transfers in (out) of Level 3	—			—			—
March 31, 2012 Balance	$	1		$	(4	)	$	(3	)

Level 3 Quantitative Information

The following table provides quantitative information for FTRs held by FES that are classified as Level 3 in the fair value hierarchy for the period ended March 31, 2012:

Fair Value as of March 31, 2012 (In millions)

Valuation

Technique

Significant Input

Range

Weighted Average

Units

FTRs

)

Model

RTO auction clearing prices

($4.18) to $8.03

0.76

Dollars/MWH



OE

Recurring Fair Value Measurements	March 31, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	(In millions)
Corporate debt securities	$	—	$	—	$	—	$	—		$	—	$	3	$	—	$	3
U.S. government debt securities	—		133		—		133			—		132		—		132
Other⁽¹⁾	—		3		—		3			—		2		—		2
Total assets⁽²⁾	$	—	$	136	$	—	$	136		$	—	$	137	$	—	$	137


⁽¹⁾	Primarily consists of short-term cash investments.


⁽²⁾	Excludes $1 million as of March 31, 2012 and December 31, 2011, respectively, of receivables, payables, taxes and accrued income associated with the financial instruments reflected within the fair value table.



JCP&L

Recurring Fair Value Measurements	March 31, 2012										December 31, 2011
	Level 1		Level 2		Level 3			Total			Level 1		Level 2		Level 3			Total
Assets	(In millions)
Corporate debt securities	$	—	$	148	$	—		$	148		$	—	$	144	$	—		$	144
Derivative assets - NUG contracts⁽¹⁾	—		—		4			4			—		—		4			4
Equity securities⁽²⁾	31		—		—			31			30		—		—			30
U.S. government debt securities	—		—		—			—			—		2		—			2
U.S. state debt securities	—		225		—			225			—		219		—			219
Other⁽³⁾	—		16		—			16			—		15		—			15
Total assets	31		389		4			424			30		380		4			414

Liabilities
Derivative liabilities - NUG contracts⁽¹⁾	—		—		(136		)	(136		)	—		—		(147		)	(147		)
Total liabilities	—		—		(136		)	(136		)	—		—		(147		)	(147		)

Net assets (liabilities)⁽⁴⁾	$	31	$	389	$	(132	)	$	288		$	30	$	380	$	(143	)	$	267


⁽¹⁾	NUG contracts are subject to regulatory accounting and do not impact earnings.


⁽²⁾	NDT funds hold equity portfolios whose performance is benchmarked against the Alerian MLP Index.


⁽³⁾	Primarily consists of short-term cash investments.


⁽⁴⁾	Excludes $2 million as of December 31, 2011 of receivables, payables, taxes and accrued income associated with the financial instruments reflected within the fair value table.

Rollforward of Level 3 Measurements

The following table provides a reconciliation of changes in the fair value of NUG contracts held by JCP&L and classified as Level 3 in the fair value hierarchy for the periods ended March 31, 2012 and December 31, 2011:



	Derivative Asset NUG Contracts⁽¹⁾			Derivative Liability NUG Contracts⁽¹⁾			Net NUG Contracts⁽¹⁾
	(In millions)
January 1, 2011 Balance	$	6		(233		)	(227		)
Realized gain (loss)	—			—			—
Unrealized gain (loss)	(2		)	(11		)	(13		)
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	—			97			97
Transfers in (out) of Level 3	—			—			—
December 31, 2011	$	4		$	(147	)	$	(143	)
Realized gain (loss)	—			—			—
Unrealized gain (loss)	—			(6		)	(6		)
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	—			17			17
Transfers in (out) of Level 3	—			—			—
March 31, 2012	$	4		$	(136	)	$	(132	)


⁽¹⁾	Changes in the fair value of NUG contracts are subject to regulatory accounting and do not impact earnings.

Level 3 Quantitative Information

The following table provides quantitative information for NUG contracts held by JCP&L that are classified as Level 3 in the fair value hierarchy for the period ended March 31, 2012:

Fair Value as of March 31, 2012 (In millions)

Valuation

Technique

Significant Input

Range

Weighted Average

Units

NUG Contracts

(132

)

Model

Generation

Power regional prices

69,000 to 736,000

$58.71 to $84.92

157,000

$68.65

MWH

Dollars/MWH

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 available-for-sale securities.

FE and its subsidiaries periodically evaluate their investments for other-than-temporary impairment. They first consider their intent and ability to hold an equity investment until recovery and then consider, among other factors, the duration and the extent to which the security's fair value has been less than cost and the near-term financial prospects of the security issuer when evaluating an investment for impairment. For debt securities, FE and its subsidiaries consider their intent to hold the security, the likelihood that they will be required to sell the security before recovery of their cost basis and the likelihood of recovery of the security's entire amortized cost basis.

Unrealized gains applicable to the decommissioning trusts of FES and OE are recognized in OCI because fluctuations in fair value will eventually impact earnings while unrealized losses are recorded to earnings. The decommissioning trusts of JCP&L are subject to regulatory accounting. 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 will be recovered from or refunded to customers.

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, preferred stocks, securities convertible into common stock and securities of the trust funds' custodian or managers and their parents or subsidiaries.

Available-For-Sale Securities

FES, OE and JCP&L hold debt and equity securities within their NDT, nuclear fuel disposal trusts and NUG trusts. These trust investments are considered available-for-sale securities at fair market value. FES, OE and JCP&L have no securities held for trading purposes.

The following table summarizes the amortized cost basis, unrealized gains and losses and fair values of investments held in NDT, nuclear fuel disposal trusts and NUG trusts as of March 31, 2012 and December 31, 2011:



	March 31, 2012⁽¹⁾				December 31, 2011⁽²⁾
	Cost Basis	Unrealized Gains	Unrealized Losses	Fair Value	Cost Basis	Unrealized Gains		Unrealized Losses		Fair Value
	(In millions)
Debt securities
FE Consolidated	1,967	42	—	2,009	1,980	25	25	—	—	2,005
FES	1,001	21	—	1,022	1,012	13		—		1,025
OE	133	—	—	133	134	—		—		134
JCP&L	359	12	—	371	356	7		—		363

Equity securities
FE Consolidated	246	42	—	288	222	36		—		258
FES	127	23	—	150	104	20		—		124
JCP&L	27	4	—	31	27	3		—		30


⁽¹⁾	Excludes short-term cash investments: FE Consolidated - $160 million; FES - $68 million; OE - $4 million; JCP&L - $19 million.


⁽²⁾	Excludes short-term cash investments: FE Consolidated - $164 million; FES - $74 million; OE - $2 million; JCP&L - $19 million.

Proceeds from the sale of investments in available-for-sale securities, realized gains and losses on those sales and interest and dividend income for the three months ended March 31, 2012 and 2011 were as follows:



March 31, 2012	Sales Proceeds		Realized Gains		Realized Losses			Interest and Dividend Income
	(In millions)
FE Consolidated	$	251	$	19	$	(17	)	$	15
FES	83		12		(11		)	7
OE	37		—		—			1
JCP&L	95		1		(1		)	4
March 31, 2011	Sales Proceeds		Realized Gains		Realized Losses			Interest and Dividend Income
	(In millions)
FE Consolidated	$	969	$	100	$	(29	)	$	24
FES	216		12		(15		)	15
OE	8		—		—			1
JCP&L	217		22		(4		)	4

Held-To-Maturity Securities

The following table provides the amortized cost basis, unrealized gains and approximate fair values of investments in held-to-maturity securities as of March 31, 2012 and December 31, 2011:



	March 31, 2012			December 31, 2011
	Cost Basis	Unrealized Gains	Fair Value	Cost Basis	Unrealized Gains	Fair Value
	(In millions)
Debt Securities
FE Consolidated	336	41	377	402	50	452
OE	162	19	181	163	21	184

Investments in emission allowances, employee benefit trusts and cost and equity method investments totaling $689 million as of March 31, 2012, and $693 million as of December 31, 2011, are excluded from the amounts reported above.

LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS

All borrowings with initial maturities of less than one year are defined as short-term financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value, in the caption “Short-term borrowings.” The following table provides the approximate fair value and related carrying amounts of long-term debt and other long-term obligations, excluding capital lease obligations and net unamortized premiums and discounts, as of March 31, 2012 and December 31, 2011:



	March 31, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In millions)
FE Consolidated	$	17,130	$	19,321	$	17,165	$	19,320
FES	3,674		3,944		3,675		3,931
OE	1,158		1,469		1,157		1,434
JCP&L	1,770		2,071		1,777		2,080

The fair values of long-term debt and other long-term obligations reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective period. The yields assumed were based on securities with similar characteristics offered by corporations with credit ratings similar to those of FirstEnergy and its subsidiaries listed above. FirstEnergy classified short-term borrowings, long-term debt and other long-term obligations as Level 2 in the fair value hierarchy as of March 31, 2012 and December 31, 2011.