XML 35 R15.htm IDEA: XBRL DOCUMENT v3.24.3
FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
RECURRING FAIR VALUE MEASUREMENTS

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 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 are used to measure fair value.

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 PJM auctions and are initially recorded using the auction clearing price less cost. After initial recognition, FTRs’ carrying values are periodically adjusted to fair value using a mark-to-model methodology, which approximates market. The primary inputs into the model, which are generally less observable than objective sources, are the most recent PJM 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. Significant increases or decreases in inputs in isolation may have resulted 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 September 30, 2024, from those used as of December 31, 2023. 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.
The following table sets forth the recurring assets and liabilities that are accounted for at fair value by level within the fair value hierarchy:
September 30, 2024December 31, 2023
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets(In millions)
Derivative assets FTRs(1)
$— $— $9 $9 $— $— $4 $4 
Equity securities2 — — 2 2 — — 2 
U.S. state and municipal debt securities— 277 — 277 — 275 — 275 
Cash, cash equivalents and restricted cash(2)
465 — — 465 179 — — 179 
Other(3)
— 47 — 47 — 40 — 40 
Total assets$467 $324 $9 $800 $181 $315 $4 $500 
Liabilities
Derivative liabilities FTRs(1)
$— $— $1 $1 $— $— $1 $1 
Total liabilities$— $— $1 $1 $— $— $1 $1 
Net assets$467 $324 $8 $799 $181 $315 $3 $499 
(1) Contracts are subject to regulatory accounting treatment and changes in market values do not impact earnings.
(2) Restricted cash of $26 million and $42 million as of September 30, 2024 and December 31, 2023, respectively, primarily relates to cash collected from MP, PE and the Ohio Companies’ customers that is specifically used to service debt of their respective securitization or funding companies.
(3) Primarily consists of short-term investments.

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 equity securities, AFS debt securities and other investments. FirstEnergy has no debt securities held for trading purposes.

Generally, unrealized gains and losses on equity securities are recognized in income whereas unrealized gains and losses on AFS debt securities are recognized in AOCI. However, the spent nuclear fuel disposal trusts of JCP&L are subject to regulatory accounting with all gains and losses on equity and AFS debt securities offset against regulatory assets.

Spent Nuclear Fuel Disposal Trusts

JCP&L holds debt securities within the spent nuclear fuel disposal trust, which are classified as AFS securities, recognized at fair market value. The trust is intended for funding spent nuclear fuel disposal fees to the DOE associated with the previously owned Oyster Creek and Three Mile Island Unit 1 nuclear power plants.

The following table summarizes the amortized cost basis, unrealized gains, unrealized losses and fair values of investments held in spent nuclear fuel disposal trusts as of September 30, 2024, and December 31, 2023:
September 30, 2024(1)
December 31, 2023(2)
Cost BasisUnrealized GainsUnrealized LossesFair ValueCost BasisUnrealized GainsUnrealized LossesFair Value
(In millions)
Debt securities$295 $1 $(19)$277 $301 $1 $(27)$275 
(1) Excludes short-term cash investments of $9 million as of September 30, 2024.
(2) Excludes short-term cash investments of $6 million December 31, 2023.
Proceeds from the sale of investments in AFS debt securities, realized gains and losses on those sales and interest and dividend income for the three and nine months ended September 30, 2024 and 2023, were as follows:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2024202320242023
(In millions)
Sale proceeds$87 $10 $104 $28 
Realized gains— — — — 
Realized losses(11)— (13)(2)
Interest and dividend income3 3 9 9 

Other Investments

Other investments include employee benefit trusts, which are primarily invested in corporate-owned life insurance policies, and equity method investments. Earnings and losses associated with corporate-owned life insurance policies are reflected in “Miscellaneous income, net” on FirstEnergy’s Consolidated Statements of Income. The total carrying value of other investments were $402 million and $382 million as of September 30, 2024, and December 31, 2023, respectively, and are excluded from the amounts reported above. See Note 1, "Organization and Basis of Presentation," for additional information on FirstEnergy's equity method investments.

For the three months ended September 30, 2024 and 2023, pre-tax income (loss) related to corporate-owned life insurance policies was $10 million and $(4) million, respectively, and $20 million and $6 million for the nine months ended September 30, 2024 and 2023, respectively. Corporate-owned life insurance policies are valued using the cash surrender value and any changes in value during the period are recognized as income or expense.

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 as “Short-term borrowings” on the Consolidated Balance Sheets at cost. Since these borrowings are short-term in nature, FirstEnergy believes that their costs approximate their fair market value. The following table provides the approximate fair value and related carrying amounts of long-term debt, which excludes finance lease obligations and net unamortized debt issuance costs, unamortized fair value adjustments, premiums and discounts as of September 30, 2024 and December 31, 2023:

September 30, 2024December 31, 2023
(In millions)
Carrying value$23,744 $24,254 
Fair value$23,113 $23,003 

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. FirstEnergy classified short-term borrowings, long-term debt and other long-term obligations as Level 2 in the fair value hierarchy as of September 30, 2024, and December 31, 2023.
FirstEnergy had the following issuances and redemptions during the nine months ended September 30, 2024:

CompanyTypeRedemption / Issuance DateInterest RateMaturity
Amount
(In millions)
Description
Redemptions
FEUnsecured NotesApril, 20247.375%2031$463
FE redeemed all of its remaining $463 million of 2031 Notes, including a premium of approximately $80 million ($63 million after-tax). In addition, FE recognized approximately $4 million ($3 million after-tax) of deferred cash flow hedge losses and $1 million in other unamortized debt costs and fees associated with the FE debt redemptions.
JCP&LUnsecured NotesApril, 20244.70%2024$500JCP&L redeemed unsecured notes that became due.
MPFMBsApril, 20244.10%2024$400MP redeemed FMBs that became due.
CEIFMBsAugust, 20245.50%2024$300CEI redeemed FMBs that became due.
Issuances
ATSIUnsecured NotesMarch, 20245.63%2034$150Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MAITUnsecured NotesMay, 20245.94%2034$250Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
FETUnsecured Notes with registration rightsSeptember, 20244.55%2030$400
Proceeds were or will be used to repay short-term borrowings, to redeem FET's $600 million 4.35% notes due 2025, to finance capital expenditures and for other general corporate purposes.
FETUnsecured Notes with registration rightsSeptember, 20245.00%2035$400
Proceeds were or will be used to repay short-term borrowings, to redeem FET's $600 million 4.35% notes due 2025, to finance capital expenditures and for other general corporate purposes.

On September 3, 2024, KATCo priced $200 million of senior notes due 2035 at 5.17%, which will be issued and funded on November 20, 2024.

As noted above, on September 5, 2024, FET issued $800 million of unsecured senior notes due in 2030 and 2035 in a private offering that included a registration rights agreement in which FET agreed to conduct an exchange offer of these senior notes for like principal amounts registered with the SEC. FET also agreed to file a shelf registration statement with the SEC to cover resales of the senior notes under certain circumstances. In the event FET's exchange offer is not completed or the shelf registration statement, if required, is not effective by the 366th day after September 5, 2024, or the effective shelf registration stops being effective for 60 days during any 12-month period, then additional interest will accrue on the coupon. Interest will accrue at a rate of 25 basis points for the first 90 days and an additional 25 basis points in the subsequent 90-day period, but not to exceed 50 basis points per year. However, if the additional interest is triggered, the interest rate will reset to the original notes rate once the registration statement is effective, or the shelf registration, if required, becomes effective. FET filed a registration statement on Form S-4 with the SEC on October 8, 2024.