1.0.0.3 false BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES false 1 $ false false iso4217_USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 iso4217_USD_per_shares Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares 0 shares Standard http://www.xbrl.org/2003/instance shares 0 5 BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 3 us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <div> NOTE 1:  BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Merger Agreement On February 10, 2010, Allegheny Energy, Inc. (“AE”), FirstEnergy Corp. (“FirstEnergy”), and Element Merger Sub, Inc., a direct wholly-owned subsidiary of FirstEnergy (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). See Note 27, “Subsequent Event – Merger Agreement” for additional information. Business Description Allegheny Energy, Inc. (“AE” and, together with its subsidiaries, “Allegheny”) is an integrated energy business that owns and operates electric generation facilities and delivers electric services to customers in Pennsylvania, West Virginia, Maryland and Virginia. Allegheny manages its operations through two business segments: Merchant Generation and Regulated Operations. These business segments are also referred to as reportable segments. The Merchant Generation segment includes Allegheny’s unregulated electric generation operations including Allegheny Energy Supply Company, LLC (“AE Supply”), and AE Supply’s interest in Allegheny Generating Company (“AGC”). AE Supply owns, operates and controls electric generation capacity and supplies and trades energy and energy-related commodities. AGC owns and sells generation capacity to AE Supply and Monongahela, which own approximately 59% and 41% of AGC, respectively. The Merchant Generation segment is subject to federal and state regulation but, unlike the Regulated Operations segment, is not generally subject to state regulation of rates. The Regulated Operations segment consists of Allegheny’s regulated operations including the operations of Monongahela Power Company (“Monongahela”), The Potomac Edison Company (“Potomac Edison”) and West Penn Power Company (“West Penn”), Trans-Allegheny Interstate Line Company (“TrAIL Company”) and Potomac-Appalachian Transmission Highline, LLC (“PATH, LLC”). The Distribution Companies (Potomac Edison, West Penn and Monongahela) primarily operate electric transmission and distribution (“T&D”) systems in Pennsylvania, West Virginia, Maryland and Virginia. Monongahela also owns and operates electric generation facilities in West Virginia and has an ownership interest in AGC. The Distribution Companies are subject to federal and state regulation, including regulation of rates. TrAIL Company was formed in 2006 to construct transmission expansion projects, including the Trans-Allegheny Interstate Line (“TrAIL”), a 500 kV transmission line to extend from southwestern Pennsylvania through West Virginia and into northern Virginia. PATH, LLC, which is a series limited liability company, was formed in 2007 with a subsidiary of American Electric Power Company, Inc. (“AEP”) to construct the Potomac-Appalachian Transmission Highline (“PATH”), a high-voltage transmission line that is proposed to extend across West Virginia and into Maryland. TrAIL Company and PATH, LLC are subject to the regulation of rates by the Federal Energy Regulatory Commission (the “FERC”). Allegheny Energy Service Corporation (“AESC”) is a wholly owned subsidiary of AE that employs substantially all of Allegheny’s personnel. As of December 31, 2009, AESC employed 4,383 employees, 1,223 of whom were subject to collective bargaining arrangements. Basis of Presentation The accompanying consolidated financial statements include the accounts of AE and its subsidiaries, as well as certain variable interest entities (See Note 23, “Variable Interest Entities,” for additional information). These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP. All significant intercompany accounts and transactions have been eliminated in consolidation. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through the date of filing with the SEC. Reclassifications As described in Note 12, “Segment Information,” Allegheny changed the composition of its reportable segments during 2009. Segment disclosures for 2008 and 2007 have been reclassified to conform to the 2009 presentation. Certain additional amounts in previously issued financial statements have been reclassified to conform to the current presentation, including the retrospective application of the provisions of SFAS No.160 (ASC Topic 810) as described in Note 2, “Recently Adopted and Recently Issued Accounting Standards.” Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates include, but are not limited to, inventory valuation, allowance for doubtful accounts, goodwill, intangible and long-lived asset impairment, unbilled electricity revenue, valuation of derivative and energy contracts, asset retirement obligations, the effects of regulation, long-lived asset recovery, the effects of contingencies and certain assumptions made in accounting for pension and postretirement benefits. The estimates and assumptions used are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results could ultimately differ from those estimates. Regulatory Assets and Liabilities Under cost-based regulation, regulated utility enterprises generally are permitted to recover their operating expenses and earn a reasonable return on their utility investment. Allegheny accounts for its regulated utility operations under regulated industry specific accounting provisions. The economic effects of regulation can result in a regulated company deferring costs or revenues that have been, or are expected to be, allowed in the rate-setting process in a period different from the period in which the costs, revenues or other comprehensive income would be recognized by an unregulated enterprise. Accordingly, Allegheny records assets and liabilities that result from the regulated rate-making process that would not be recorded under GAAP for non-regulated entities. These regulatory assets and liabilities are classified in the Consolidated Balance Sheets as current and non-current “Regulatory assets” and “Regulatory liabilities.” Allegheny periodically evaluates the applicability of regulated industry specific accounting provisions and considers factors such as regulatory changes and the impact of competition. If regulated industry specific accounting provisions would no longer apply to some portion of Allegheny’s operations, Allegheny would eliminate the related regulatory assets and liabilities and record the impact as an extraordinary item in the statement of income. See Note 6, “Regulatory Assets and Liabilities,” for additional information. Revenues and Receivables Revenues from the sale of generation are recorded in the period in which the electricity is delivered. PJM Interconnection, LLC (“PJM”) is a regional transmission organization that operates a competitive wholesale energy market. To facilitate the economic dispatch of Allegheny’s generation, AE Supply and Monongahela sell most of the power that they generate into the PJM market and purchase from the PJM market most of the power needed to meet their contractual obligations to supply power. PJM power purchases and sales are reported on a net basis.   Revenues from the sale of electricity to customers of the regulated utility subsidiaries are recognized in the period that the electricity is delivered and consumed by customers, including an estimate for unbilled revenues. Energy billings to individual customers are based on meter readings, which are performed periodically on a systematic basis. At the end of each month, the amount of energy delivered to each customer is estimated based in part on the most recent reading of the customer’s meter, and the Distribution Companies recognize unbilled revenues that reflect these estimates. The unbilled revenue estimates are based on daily generation, purchases of electricity, estimated customer usage by customer type, weather effects, electric line losses and the most recent consumer rates. A provision for uncollectible accounts is recorded as a component of operations and maintenance expense. Fair Value Measurements, Derivative Instruments and Hedging Activities Derivative contracts are recorded in Allegheny’s Consolidated Balance Sheets at fair value. Changes in the fair value of the derivative contract are included in revenues or expenses on the Consolidated Statements of Income unless the derivative falls within the “normal purchases and normal sales” scope exception or is designated as a cash flow hedge for accounting purposes. The normal purchases and normal sales scope exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that are designated as normal purchases and normal sales are accounted for under accrual accounting and, therefore, are not recorded on the balance sheet at fair value. For certain transactions that are designed to hedge the cash flows of a forecasted transaction and that are designated in a hedging relationship, the effective portion of the changes in fair value of the derivative contract is recorded as a separate component of equity under the caption “Accumulated other comprehensive loss” and subsequently reclassified into earnings when the forecasted transaction is settled and impacts earnings. The ineffective portion of the hedge is immediately recognized in earnings. Fair values for exchange-traded instruments, principally futures, are based on actively quoted market prices. Fair values are subject to change in the near term and reflect management’s best estimate based on various factors. In establishing the fair value of commodity contracts that do not have quoted prices, such as physical contracts, financial transmission rights (“FTRs”) and swaps, management uses available market data and pricing models to estimate fair values. Estimating the fair values of instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party in settlement of the instruments. These amounts could be materially different from amounts that might be realized in an actual sale transaction. Allegheny has netting agreements with various counterparties. These agreements provide the right to set off amounts due from or to the counterparty. In cases in which these netting agreements are in place, Allegheny records the fair value of derivative assets, liabilities and cash collateral and accounts receivable and accounts payable with each counterparty on a net basis. Cash flows associated with derivative contracts are recorded in cash flows from operating activities. See Note 13, “Fair Value Measurements, Derivative Instruments and Hedging Activities,” for additional details regarding energy transacting activities.   Deferred Energy Costs Deferred energy costs represent the deferral of certain energy costs from the period in which they were incurred to the period in which such costs are recovered in rates. Allegheny records deferred energy costs relating to the following items: Expanded Net Energy Cost (“ENEC”) In May 2007, the Public Service Commission of West Virginia (the “West Virginia PSC”) issued an order that re-established an annual ENEC method of recovering net power supply costs, including fuel costs, purchased power costs, including purchased power costs associated with the Grant Town PURPA generation facility and other related expenses, net of related revenue and interest earnings on the Fort Martin Scrubber project escrow fund. Under the ENEC, actual costs and revenues are tracked for under and/or over recoveries, and revised ENEC rate filings are made on an annual basis. Any under and/or over recovery of costs, net of related revenues, is deferred, for subsequent recovery or refund, as a regulatory asset or regulatory liability, with the corresponding impact on the Consolidated Statements of Income reflected within “Deferred energy costs, net.” See Note 4, “Rates and Regulation,” and Note 6, “Regulatory Assets and Liabilities,” for additional information. Market-based Generation Costs Potomac Edison is authorized by the Public Service Commission of Maryland (the “Maryland PSC”) to recover the costs of the generation component of power sold to certain residential, commercial and industrial customers who did not choose a third-party alternative generation provider. A regulatory asset or liability is recorded on Potomac Edison’s balance sheet for any under-recovery or over-recovery of the generation component of costs charged to these customers. In addition, under an order of the Virginia State Corporation Commission (the “Virginia SCC”), Potomac Edison was granted a rate adjustment to recover a portion of its increased purchased power costs. The order directed Potomac Edison to defer any under- or over-recovery of purchased power costs approved. AES Warrior Run PURPA Generation Facility To satisfy certain of its obligations under the Public Utility Regulatory Policies Act of 1978 (“PURPA”), Potomac Edison entered into a long-term contract beginning July 1, 2000 to purchase capacity and energy from the AES Warrior Run PURPA generation facility through the beginning of 2030. Potomac Edison is authorized by the Maryland PSC to recover all contract costs from the AES Warrior Run PURPA generation facility, net of any revenues received from the sale of AES Warrior Run output into the wholesale energy market, by means of a retail revenue surcharge (the “AES Warrior Run Surcharge”). Any under-recovery or over-recovery of net costs is being deferred pending subsequent recovery from, or return to, customers through adjustments to the AES Warrior Run Surcharge. Grant Town PURPA Generation Facility Monongahela acquires energy from the Grant Town PURPA generation facility in West Virginia. The West Virginia PSC approved an amendment to the Electric Energy Purchase Agreement between Monongahela and American Bituminous Power Partners, L.P., the owners of the Grant Town PURPA generation facility, in April 2006. The amendment provided for an increase in the price of energy that Monongahela is acquiring until 2017. The West Virginia PSC authorized Monongahela to institute a temporary surcharge designed to recover the increase in costs from West Virginia customers, as well as a deferred accounting mechanism by which actual aggregate amounts of the incremental cost increase were tracked and reconciled by comparison to the aggregate amounts recovered from West Virginia customers through the temporary surcharge. As a result of the West Virginia Rate Order, beginning in 2007, these costs are included in the ENEC. See Note 4, “Rates and Regulation” for additional information. Debt Issuance Costs Costs incurred to issue debt are recorded as deferred charges on the Consolidated Balance Sheets. These costs are amortized over the term of the related debt instrument primarily using the effective interest method. Common Services and Intercompany Transactions Common Services.  Substantially all of Allegheny’s personnel are employed by AESC, which performs services at cost for other Allegheny entities and makes payments on behalf of Allegheny entities. Each entity is responsible for its share of the cost of services provided by AESC and payments made by AESC on behalf of the entities. Income Taxes. AE and its subsidiaries file a consolidated federal income tax return. Federal income tax expense (benefit) and tax assets and liabilities are allocated among AE and its subsidiaries generally in proportion to the taxable income of each participant, except that no subsidiary pays tax in excess of its separate return income tax liability. Allegheny Money Pool.  Allegheny manages excess cash through its internal money pool. The money pool provides funds to approved AE subsidiaries at the lower of the Federal Reserve’s previous day federal funds effective interest rate, or the Federal Reserve’s previous day seven day commercial paper rate, less four basis points. The minimum interest rate charged to approved AE subsidiaries is zero percent. AE and AE Supply can only place money into the money pool. West Penn and Potomac Edison can either place money into, or borrow money from, the money pool. AGC can only borrow money from the money pool. Beginning in December 2009, Monongahela can only invest money into the money pool, and amounts invested by Monongahela may not be borrowed by any other AE subsidiary. Power Sales and Purchases.  AE Supply provides power to Potomac Edison and West Penn to satisfy a portion of the power necessary to meet their respective retail load. AE Supply and Monongahela purchase all of AGC’s capacity in the Bath County generation facility under a “cost-of-service formula” wholesale rate schedule approved by FERC on a proportionate basis, based on their respective equity ownership of AGC. Leases.  West Penn and Monongahela own property, including buildings and software that they lease primarily to AESC for its use in providing services to AE and its affiliates. Long-Lived Assets Property, Plant and Equipment Property, plant and equipment (“property”) is recorded at original cost. This cost includes direct labor, materials and indirect costs, such as operation, maintenance and depreciation of transportation and construction equipment, taxes, postretirement benefits and other benefits related to employees to the extent they are engaged in construction. In addition, property subject to rate regulation includes an allowance for funds used during construction on property for which construction work in progress is not included in rate base. Property not subject to rate regulation includes capitalized interest during the construction period.   Upon retirement of property of the Distribution Companies, no gain or loss is generally recognized and the original cost of the property less salvage is charged to accumulated depreciation. The cost of removal of regulated property is charged to the related regulatory liability or regulatory asset, and the cost of removal of unregulated property, for which no asset retirement obligation (“ARO”) has been recorded, is expensed as incurred. Allegheny capitalizes the cost of software developed for internal use. These costs are amortized on a straight-line basis over the expected useful life of the software. Depreciation and Maintenance Depreciation expense is determined generally on a straight-line group method over the estimated service lives of depreciable assets for unregulated operations. For regulated utility operations, depreciation expense is determined using a straight-line group method in accordance with currently enacted regulatory rates. Under the straight-line group method, plant components are categorized as “retirement units” or “minor items of property.” As retirement units are replaced, the cost of the replacement is capitalized and the original component is retired. Replacements of minor items of property are expensed as maintenance. Depreciation expense was approximately 2.3% of average depreciable property in 2009, 2008 and 2007. Estimated service lives for generation, T&D and other property at December 31, 2009 were as follows:   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="92%"></td> <td valign="bottom" width="2%"></td> <td></td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align="center">Years</td> </tr> <tr> <td valign="top"> Generation property: </td> <td valign="bottom">  </td> <td valign="bottom"></td> </tr> <tr> <td valign="top"> Steam scrubbers and equipment </td> <td valign="bottom">  </td> <td valign="bottom" align="right">43-65</td> </tr> <tr> <td valign="top"> Steam generator units </td> <td valign="bottom">  </td> <td valign="bottom" align="right">45-80</td> </tr> <tr> <td valign="top"> Internal combustion units </td> <td valign="bottom">  </td> <td valign="bottom" align="right">40-44</td> </tr> <tr> <td valign="top"> Hydroelectric dams and facilities </td> <td valign="bottom">  </td> <td valign="bottom" align="right">50-152</td> </tr> <tr> <td valign="top"> Transmission and distribution property: </td> <td valign="bottom">  </td> <td valign="bottom"></td> </tr> <tr> <td valign="top"> Electric equipment </td> <td valign="bottom">  </td> <td valign="bottom" align="right">10-100</td> </tr> <tr> <td valign="top"> Easements </td> <td valign="bottom">  </td> <td valign="bottom" align="right">70-100</td> </tr> <tr> <td valign="top"> Other property: </td> <td valign="bottom">  </td> <td valign="bottom"></td> </tr> <tr> <td valign="top"> Office buildings and improvements </td> <td valign="bottom">  </td> <td valign="bottom" align="right">42-60</td> </tr> <tr> <td valign="top"> General office and other equipment </td> <td valign="bottom">  </td> <td valign="bottom" align="right">10-25</td> </tr> <tr> <td valign="top"> Vehicles and transportation </td> <td valign="bottom">  </td> <td valign="bottom" align="right">7-25</td> </tr> <tr> <td valign="top"> Computers, software and information systems </td> <td valign="bottom">  </td> <td valign="bottom" align="right">5-20</td> </tr> </table> The cost of repairs, maintenance including planned major maintenance activities, and minor replacements of property are charged to maintenance expense as incurred. Capitalized Interest and Allowance for Funds Used During Construction (“AFUDC”) For non-regulated companies, Allegheny capitalizes interest costs associated with construction activities. The average interest capitalization rates in 2009, 2008, and 2007 were 6.0%, 6.6% and 7.0%, respectively. Allegheny capitalized $25.9 million, $34.6 million, and $20.0 million of interest during 2009, 2008 and 2007, respectively. AFUDC is a component of the construction of Property, Plant and Equipment defined in the applicable regulatory uniform system of accounts as representing “the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used.” AFUDC is capitalized in those instances in which the related construction work in progress is not included in rate base in the rate setting process and is reflected in the Consolidated Statements of Income as a reduction to Interest expense and Other income (expense), net to the extent it relates to borrowed funds and other funds used in construction, respectively. Rates used by the regulated subsidiaries in computing AFUDC in 2009, 2008 and 2007 averaged 7.3%, 7.2% and 7.6%, respectively. Allegheny recorded AFUDC of $8.3 million in 2009 and $6.6 million in 2008 and 2007, of which $5.0 million, $3.7 million and $2.7 million was reflected in “Other income (expense), net” and $3.3 million, $2.9 million and $3.9 million was reflected as a reduction to “Interest expense” in 2009, 2008 and 2007, respectively. Asset Impairment Allegheny’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations. If the carrying amount of the asset exceeds the expected undiscounted future cash flows to be generated by the asset, an impairment loss is recognized, and the asset is written down to its fair value. Allegheny did not record any impairment charges during 2009 and 2008. Asset Retirement Obligations and Cost of Removal A liability for the fair value of an asset retirement obligation (“ARO”) is recognized in the period in which it is incurred if it can be reasonably estimated, with the offsetting associated asset retirement costs capitalized as a part of the carrying amount of the long-lived assets. The asset retirement cost is subsequently charged to expense over its useful life. Changes in the ARO resulting from the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense. Changes resulting from revisions to the timing or amount of the original estimate of cash flows are recognized as an increase or decrease in the asset retirement cost and ARO. When settled, actual ARO costs are charged against the recorded liability. In addition, the Distribution Companies recover cost of removal (“COR”) for property, plant and equipment in their rates. In some jurisdictions, the recovery is provided prior to the time of asset retirement, in which case, the amounts collected are recorded as a regulatory liability. In other jurisdictions, the amounts are recovered only after being incurred, in which case, the amounts incurred are recorded as a regulatory asset until recovered. When incurred, COR costs are charged to the regulatory asset or liability. Goodwill and Intangible Assets Goodwill represents the acquisition cost of a business combination in excess of fair value of tangible and intangible assets acquired, less liabilities assumed. Recorded goodwill is not amortized, but is tested for impairment at least annually. Other intangible assets with finite lives are amortized over their useful lives and tested for impairment when events or circumstances warrant. See Note 18, “Goodwill and Intangible Assets” for additional information. Investments in Unconsolidated Affiliates Investments in unconsolidated affiliates are typically accounted for under the equity method of accounting. The income or loss on such investments is recorded in “Other income (expense), net” in the Consolidated Statements of Income. Investments in unconsolidated affiliates of $26.7 million and $28.0 million at December 31, 2009 and 2008, respectively, primarily consisted of Allegheny’s investment, through AE Supply, in Buchanan Generation LLC. Cash Equivalents For purposes of the Consolidated Statements of Cash Flows and Consolidated Balance Sheets, investments in money market funds and highly liquid investments purchased with original maturities of three months or less are considered to be the equivalent of cash.   Restricted Funds At December 31, 2009 and 2008, Allegheny had current restricted funds of $25.9 million and $36.8 million, respectively. Current restricted funds at December 31, 2009 included $20.6 million of funds collected from West Virginia customers that will be used to service the environmental control bonds in connection with the construction of the Scrubbers at Fort Martin and $5.3 million of intangible transition charges collected from West Penn customers related to Pennsylvania transition costs. Current restricted funds at December 31, 2008 included $21.9 million of funds collected from West Virginia customers that will be used to service the environmental control bonds in connection with the construction of Scrubbers at Fort Martin and $14.9 million of intangible transition charges collected from West Penn customers related to Pennsylvania transition costs. In addition, at December 31, 2009 and 2008, Allegheny had long-term restricted funds of $60.2 million and $133.3 million, respectively. Long-term restricted funds at December 31, 2009 included $10.3 million of funds remaining from the $235 million Pennsylvania Development Financing Authority bond issued in connection with the construction and installation of Scrubbers at Hatfield’s Ferry generation facility, $49.6 million of funds relating to proceeds from the issuance of ratepayer obligation bonds in connection with the construction of the Scrubbers at Fort Martin and $0.3 of escrow funds related to the Scrubber construction projects. Long-term restricted funds at December 31, 2008 consisted of funds relating to proceeds from the issuance of ratepayer obligation bonds in connection with the construction of the Scrubbers at Fort Martin. Collateral Deposits Allegheny posts collateral with counterparties, including PJM, for certain transactions and transmission and transportation tariffs. Approximately $20.8 million and $33.4 million of cash collateral deposits were included in current assets at December 31, 2009 and 2008, respectively. Approximately $3.1 million and $0.2 million of cash collateral deposits were netted against derivative liabilities on the Consolidated Balance Sheets at December 31, 2009 and 2008, respectively. In addition, approximately $27.5 million of counterparty collateral deposits are netted against derivative assets on the Consolidated Balance Sheets at December 31, 2009. Inventory Allegheny records materials, supplies and fuel inventory, including emission allowances, using the average cost method. Income Taxes Allegheny computes income taxes under the liability method. Deferred income tax balances are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Tax benefits are recognized in the financial statements when it is more likely than not that a tax position will be sustained upon examination by the tax authorities based on the technical merits of the position. Such tax positions are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Deferred income tax assets have also been recorded on the tax effects of net operating losses that are more likely than not to be realized through future operations and through the reversal of existing temporary differences. Allegheny has deferred investment tax credits associated with its regulated business and assets previously held by its regulated business. These investment tax credits are amortized to income on a straight-line basis over the life of the assets. See Note 7, “Income Taxes” for additional information.   Taxes Collected from Customers and Remitted to Governmental Authorities Allegheny records taxes collected from customers, which are directly imposed on a transaction with that customer, on a net basis. That is, in instances in which Allegheny acts as a collection agent for a taxing authority by collecting taxes that are the responsibility of the customer, Allegheny records the amount collected as a liability and relieves such liability upon remittance to the taxing authority without impacting revenues or expenses. Pension and Other Postretirement Benefits Allegheny sponsors a noncontributory, defined benefit pension plan covering substantially all employees, including officers. Benefits are based on each employee’s years-of-service and compensation. Allegheny also maintains a Supplemental Executive Retirement Plan for executive officers and other senior executives. Allegheny also provides partially contributory medical and life insurance plans for eligible retirees and dependents. Medical benefits, which make up the largest component of the plans, have retiree premiums based upon an age and years-of-service vesting schedule, include other plan provisions that limit future benefits and take into account certain collective bargaining arrangements. Pension and other postretirement benefit expense is determined by an actuarial valuation, based on assumptions that are evaluated annually. See Note 11, “Pension Benefits and Postretirement Benefits Other Than Pensions” for additional information. Stock-Based Compensation Share-based payments are generally measured at fair value on the date of grant and are expensed over the requisite service period. For options, Allegheny is entitled to income tax deductions in an amount equal to the fair value of shares on the date of the option exercise less the option exercise price. To the extent that the income tax deduction exceeds the cumulative compensation expense recorded for book purposes, the tax effect of the excess (referred to as a windfall tax benefit) is recorded as a credit to stockholders’ equity when the tax benefit is realized. See Note 10, “Stock-Based Compensation” for additional information. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, included in the shareholders’ equity section of the Consolidated Balance Sheets, were as follows:   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="78%"></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> <td valign="bottom" width="7%"></td> <td></td> <td></td> <td></td> </tr> <tr> <td valign="bottom" nowrap="nowrap"> (In millions) </td> <td valign="bottom">  </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center">December 31, 2009</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" colspan="2" align="center">December 31, 2008</td> <td valign="bottom"> </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Cash flow hedges and other, net of tax of $(10.7) million and $17.8 million, respectively </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(16.8</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">28.1</td> <td valign="bottom" nowrap="nowrap">  </td> </tr> <tr> <td valign="top"> Net unrecognized pension and other benefit plan costs, net of tax of $(49.7) million and $(48.7) million, respectively </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(73.1</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">(71.4</td> <td valign="bottom" nowrap="nowrap">) </td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">  </td> <td style="BORDER-TOP: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-TOP: #000000 1px solid" valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td style="BORDER-TOP: #000000 1px solid" valign="bottom">  </td> <td style="BORDER-TOP: #000000 1px solid" valign="bottom">  </td> <td> </td> </tr> <tr bgcolor="#CCEEFF"> <td valign="top"> Total </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(89.9</td> <td valign="bottom" nowrap="nowrap">) </td> <td valign="bottom"> </td> <td valign="bottom">$</td> <td valign="bottom" align="right">(43.3</td> <td valign="bottom" nowrap="nowrap">) </td> </tr> <tr style="FONT-SIZE: 1px"> <td valign="bottom"></td> <td valign="bottom">  </td> <td style="BORDER-TOP: #000000 3px double" valign="bottom">  </td> <td style="BORDER-TOP: #000000 3px double" valign="bottom">  </td> <td> </td> <td valign="bottom"> </td> <td style="BORDER-TOP: #000000 3px double" valign="bottom">  </td> <td style="BORDER-TOP: #000000 3px double" valign="bottom">  </td> <td> </td> </tr> </table>   </div> NOTE 1:  BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Merger Agreement On February 10, 2010, Allegheny Energy, Inc. false false No definition available. 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