1.0.0.3falseFAIR VALUE MEASURESfalse1$falsefalseu000Standardhttp://www.xbrl.org/2003/iso4217USDiso42170u001Standardhttp://www.xbrl.org/2003/instancesharesxbrli0u002Dividehttp://www.xbrl.org/2003/iso4217USDiso4217http://www.xbrl.org/2003/instancesharesxbrli020fe_FairValueMeasurementsAbstractfefalsenadurationstringNo definition available.falsefalsefalsefalsefalsetruefalsefalsefalse1falsefalse00falsefalseNo definition available.false31us-gaap_FairValueDisclosuresTextBlockus-gaaptruenadurationstringNo definition available.falsefalsefalsefalsefalsefalsefalsefalsefalse1falsefalse004. FAIR VALUE OF FINANCIAL INSTRUMENTS
(A) 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 as of September 30, 2009 and December 31, 2008:
September 30, 2009 December 31, 2008 Carrying Fair Carrying Fair Value Value Value Value (In millions) FirstEnergy $ 13,675 $ 14,483 $ 11,585 $ 11,146 FES 4,233 4,304 2,552 2,528 OE 1,169 1,318 1,232 1,223 CEI 1,900 2,033 1,741 1,618 TE 600 656 300 244 JCP&L 1,849 1,977 1,569 1,520 Met-Ed 842 911 542 519 Penelec 1,179 1,221 779 721
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 FES and the Utilities.
(B) 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, available-for-sale securities, and notes receivable.
FES and the Utilities 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, FES and the Utilities consider their intent to hold the security, the likelihood that they will be required to sell the security before recovery of its cost basis, and the likelihood of recovery of the security's entire amortized cost basis.
Available-For-Sale Securities
FES and the Utilities hold debt and equity securities within their nuclear decommissioning trusts, nuclear fuel disposal trusts and NUG trusts. These trust investments are considered as available-for-sale at fair market value. FES and the Utilities have no securities held for trading purposes.
The following table summarizes the amortized cost basis, unrealized gains and losses and fair values of investments in available-for-sale securities as of September 30, 2009 and December 31, 2008:
September 30, 2009(1) December 31, 2008(2) Cost Unrealized Unrealized Fair Cost Unrealized Unrealized Fair Basis Gains Losses Value Basis Gains Losses Value Debt securities (In millions) FirstEnergy(3) $ 576 $ 25 $ - $ 601 $ 1,078 $ 56 $ - $ 1,134 FES 7 1 - 8 401 28 - 429 OE 2 - - 2 86 9 - 95 TE - - - - 66 8 - 74 JCP&L 266 13 - 279 249 9 - 258 Met-Ed 121 6 - 127 111 4 - 115 Penelec 180 5 - 185 164 3 - 167 Equity securities FirstEnergy $ 245 $ 33 $ - $ 278 $ 589 $ 39 $ - $ 628 FES - - - - 355 25 - 380 OE - - - - 17 1 - 18 JCP&L 72 8 - 80 64 2 - 66 Met-Ed 114 18 - 132 101 9 - 110 Penelec 59 7 - 66 51 2 - 53 (1) Excludes cash balances of $1,291 million at FirstEnergy, $1,094 million at FES, $2 million at JCP&L, $120 million at OE, $5 million at Penelec and $75 million at TE.(2) Excludes cash balances of $244 million at FirstEnergy, $225 million at FES, $12 million at Penelec, $4 million at OE and $1 million at Met-Ed.(3) Includes fair values as of September 30, 2009 and December 31, 2008 of $557 million and $953 million of government obligations, $44 million and $175 million of corporate debt and $1 million and $6 million of mortgage backed securities.
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 nine-month period ended September 30, 2009 were as follows:
FirstEnergy FES OE TE JCP&L Met-Ed Penelec (In millions) Proceeds from sales $ 3,040 $ 2,153 $ 207 $ 171 $ 339 $ 89 $ 81 Realized gains 186 162 11 7 4 1 1 Realized losses 96 62 3 - 11 13 7 Interest and dividend income 47 22 4 2 10 5 4
Unrealized gains applicable to the decommissioning trusts of OE, TE and FES are recognized in OCI as fluctuations in fair value will eventually impact earnings. The decommissioning trusts of JCP&L, Met-Ed and Penelec are subject to regulatory accounting. Net unrealized gains and losses are recorded as regulatory assets or liabilities since the difference between investments held in trust and the decommissioning liabilities will be recovered from or refunded to customers.
The investment policy for the nuclear decommissioning trust funds restricts or limits the 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 fund's custodian or managers and their parents or subsidiaries.
During the three-month period ended September 30, 2009, FES recognized $135 million of realized gains resulting from the sale of securities held in the nuclear decommissioning trust.
Held-To-Maturity Securities
The following table provides the amortized cost basis, unrealized gains and losses, and approximate fair values of investments in held-to-maturity securities (except for investments of $271 million and $293 million that are not required to be disclosed) as of September 30, 2009 and December 31, 2008:
September 30, 2009 December 31, 2008 Cost Unrealized Unrealized Fair Cost Unrealized Unrealized Fair Basis Gains Losses Value Basis Gains Losses Value Debt securities (In millions) FirstEnergy $ 621 $ 91 $ - $ 712 $ 673 $ 14 $ 13 $ 674 OE 230 57 - 287 240 - 13 227 CEI 389 34 - 423 426 9 - 435
The following table provides the approximate fair value and related carrying amounts of notes receivable as of September 30, 2009 and December 31, 2008:
September 30, 2009 December 31, 2008 Carrying Fair Carrying Fair Value Value Value Value Notes receivable (In millions) FirstEnergy $ 45 $ 42 $ 45 $ 44 FES 4 4 75 74 OE 193 234 257 294 TE 161 180 180 189
The fair value of notes receivable represents the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. The maturity dates range from 2009 to 2040.
(C) RECURRING FAIR VALUE MEASUREMENTS
FirstEnergy's valuation techniques, including the three levels of the fair value hierarchy, are disclosed in Note 5 of the Notes to Consolidated Financial Statements in FirstEnergy's Annual Report on Form 10-K for the year ended December 31, 2008.
The following tables set forth financial assets and financial liabilities that are accounted for at fair value by level within the fair value hierarchy as of September 30, 2009 and December 31, 2008. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. FirstEnergy's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the fair valuation of assets and liabilities and their placement within the fair value hierarchy levels.
Recurring Fair Value Measures as of September 30, 2009
Level 1 - Assets Level 1 - Liabilities (In millions) Derivatives Available-for-Sale Securities(1) Other Investments Total Derivatives NUG Contracts(2) TotalFirstEnergy $ - $ 278 $ - $ 278 $ 15 $ - $ 15FES - 1 - 1 15 - 15OE - - - - - - -JCP&L - 81 - 81 - - -Met-Ed - 125 - 125 - - -Penelec - 71 - 71 - - - Level 2 - Assets Level 2 - Liabilities
Derivatives Available-for-Sale Securities(1) Other Investments Total Derivatives NUG Contracts(2) TotalFirstEnergy $ 32 $ 1,896 $ 78 $ 2,006 $ 6 $ - $ 6FES 13 1,103 - 1,116 5 - 5OE - 123 - 123 - - -TE - 75 - 75 - - -JCP&L 5 276 - 281 - - -Met-Ed 9 134 - 143 - - -Penelec 5 185 - 190 - - - Level 3 - Assets Level 3 - Liabilities
Derivatives Available-for-Sale Securities(1) NUG Contracts(2) Total Derivatives NUG Contracts(2) TotalFirstEnergy $ - $ - $ 220 $ 220 $ - $ 685 $ 685JCP&L - - 9 9 - 425 425Met-Ed - - 187 187 - 152 152Penelec - - 24 24 - 108 108
(1) Consists of investments in nuclear decommissioning trusts, spent nuclear fuel trusts and NUG trusts. Balance excludes $2 million of receivables, payables and accrued income.(2) NUG contracts are completely offset by regulatory assets and do not impact earnings.
Recurring Fair Value Measures as of December 31, 2008
Level 1 - Assets Level 1 - Liabilities
(In millions) Derivatives Available-for-Sale Securities(1) Other Investments Total Derivatives NUG Contracts(2) TotalFirstEnergy $ - $ 537 $ - $ 537 $ 25 $ - $ 25FES - 290 - 290 25 - 25OE - 18 - 18 - - -JCP&L - 67 - 67 - - -Met-Ed - 104 - 104 - - -Penelec - 58 - 58 - - - Level 2 - Assets Level 2 - Liabilities
Derivatives Available-for-Sale Securities(1) Other Investments Total Derivatives NUG Contracts(2) TotalFirstEnergy $ 40 $ 1,464 $ 83 $ 1,587 $ 31 $ - $ 31FES 12 744 - 756 28 - 28OE - 98 - 98 - - -TE - 73 - 73 - - -JCP&L 7 255 - 262 - - -Met-Ed 14 121 - 135 - - -Penelec 7 174 - 181 - - - Level 3 - Assets Level 3 - Liabilities
Derivatives Available-for-Sale Securities(1) NUG Contracts(2) Total Derivatives NUG Contracts(2) TotalFirstEnergy $ - $ - $ 434 $ 434 $ - $ 766 $ 766JCP&L - - 14 14 - 532 532Met-Ed - - 300 300 - 150 150Penelec - - 120 120 - 84 84
(1) Consists of investments in nuclear decommissioning trusts, spent nuclear fuel trusts and NUG trusts. Balance excludes $5 million of receivables, payables and accrued income.(2) NUG contracts are completely offset by regulatory assets and do not impact earnings.
The determination of the above fair value measures takes into consideration various factors. These factors include nonperformance risk, including counterparty credit risk and the impact of credit enhancements (such as cash deposits, LOCs and priority interests). The impact of nonperformance risk was immaterial in the fair value measurements.
The following tables set forth a reconciliation of changes in the fair value of NUG contracts classified as Level 3 in the fair value hierarchy for the three and nine months ended September 30, 2009 and 2008 (in millions):
FirstEnergy JCP&L Met-Ed Penelec Balance as of January 1, 2009 $ (332 ) $ (518 ) $ 150 $ 36 Settlements(1) 273 132 63 78 Unrealized gains (losses)(1) (406) (30) (178) (198) Net transfers to (from) Level 3 - - - - Balance as of September 30, 2009 $ (465) $ (416) $ 35 $ (84) Change in unrealized gains (losses) relating to instruments held as of September 30, 2009 $ (406) $ (30) $ (178) $ (198)
Balance as of July 1, 2009 $ (536 ) $ (466 ) $ 23 $ (93 ) Settlements(1) 93 42 20 31 Unrealized gains (losses)(1) (22) 8 (8) (22) Net transfers to (from) Level 3 - - - - Balance as of September 30, 2009 $ (465) $ (416) $ 35 $ (84) Change in unrealized gains (losses) relating to instruments held as of September 30, 2009 $ (22) $ 8 $ (8) $ (22)
(1) Changes in fair value of NUG contracts are completely offset by regulatory assets and do not impact earnings.
FirstEnergy JCP&L Met-Ed Penelec Balance as of January 1, 2008 $ (803 ) $ (750 ) $ (28 ) $ (25 ) Settlements(1) 167 152 (5) 20 Unrealized gains (losses)(1) 314 (43) 236 121 Net transfers to (from) Level 3 - - - - Balance as of September 30, 2008 $ (322) $ (641) $ 203 $ 116 Change in unrealized gains (losses) relating to instruments held as of September 30, 2008 $ 314 $ (43) $ 236 $ 121
Balance as of July 1, 2008 $ (17 ) $ (644 ) $ 350 $ 278 Settlements(1) 57 57 (7) 7 Unrealized gains (losses)(1) (362) (54) (140) (169) Net transfers to (from) Level 3 - - - - Balance as of September 30, 2008 $ (322) $ (641) $ 203 $ 116 Change in unrealized gains (losses) relating to instruments held as of September 30, 2008 $ (362) $ (54) $ (140) $ (169)
(1) Changes in fair value of NUG contracts are completely offset by regulatory assets and do not impact earnings.4. FAIR VALUE OF FINANCIAL INSTRUMENTS
(A) LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
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