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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No.1

(Mark One)

    ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the FISCAL YEAR ended December 31, 2019

OR

    ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission

Registrant; State of Incorporation;

I.R.S. Employer

File Number

Address; and Telephone Number

Identification No.

333-21011

FIRSTENERGY CORP

34-1843785

(An

Ohio

Corporation)

76 South Main Street

Akron

OH

44308

Telephone

(800)

736-3402

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.10 par value per share

FE

New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

☑

No

☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

☐

No

☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☑

No

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☑

No

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer			☑
Accelerated Filer			☐
Non-accelerated Filer			☐
Smaller Reporting Company			☐
Emerging Growth Company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes

☐

No

☑

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

$22,724,895,037 as of June 30, 2019

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

CLASS						AS OF JANUARY 31, 2020
Common Stock, $0.10 par value						540,713,909

Documents Incorporated By Reference

						PART OF FORM 10-K INTO WHICH
DOCUMENT						DOCUMENT IS INCORPORATED
Proxy Statement for 2020 Annual Meeting of Shareholders of FirstEnergy Corp. to be held May 19, 2020						Part III

---

TABLE OF CONTENTS

			Page
Explanatory Note			ii
Glossary of Terms			iii
Part II			1
Item 8. Financial Statements and Supplementary Data			1
Report of Independent Registered Public Accounting Firm			2
Financial Statements
Consolidated Statements of Income (Loss)			4
Consolidated Statements of Comprehensive Income (Loss)			5
Consolidated Balance Sheets			6
Consolidated Statements of Stockholders' Equity			7
Consolidated Statements of Cash Flows			8
Notes to Consolidated Financial Statements			9
Item 9A. Controls and Procedures			65
Part IV			67
Item 15. Exhibits			67

i

---

EXPLANATORY NOTE

On February 10, 2020, FirstEnergy Corp. (the “Company”) filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Original 10-K”). On November 18, 2020, subsequent to the issuance of the Original 10-K, Company management, in consultation with the Audit Committee of the Company’s Board of Directors, concluded that there was a material weakness in internal control over financial reporting that existed as of December 31, 2019, and continues to exist as of the end of the third quarter of 2020. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

A committee of independent members of the Board of Directors ("Board") is directing an internal investigation related to ongoing government investigations. In connection with the Company’s internal investigation, such committee determined that certain former members of senior management, including the Company’s former chief executive officer, violated certain Company policies and its code of conduct. Such former members of senior management did not maintain and promote a control environment with an appropriate tone of compliance in certain areas of FirstEnergy’s business, nor sufficiently promote, monitor or enforce adherence to certain FirstEnergy policies and its code of conduct. Furthermore, certain former members of senior management did not reasonably ensure that relevant information was communicated within our organization and not withheld from our independent directors, our Audit Committee, and our independent auditor. Among the matters considered with respect to the determination by the committee of independent members of the Board of Directors that certain former members of senior management violated certain FirstEnergy policies and its code of conduct related to a payment of approximately $4 million made in early 2019 in connection with the termination of a purported consulting agreement, as amended, which had been in place since 2013. The counterparty to such agreement was an entity associated with an individual who subsequently was appointed to a full-time role as an Ohio government official directly involved in regulating the Ohio Companies, including with respect to distribution rates. It has not been determined if the payments were for the purposes represented within the consulting agreement. The matter is a subject of the ongoing internal investigation related to the government investigations.

The Company is filing this Amendment No. 1 to Annual Report on Form 10-K/A (this “Amendment”) solely for the purpose of amending the Original 10-K to: (i) amend and restate the (a) disclosure in the section titled “Management’s Report on Internal Control Over Financial Reporting” and (b) report of PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, in each case, to reflect that the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, and (ii) amend and restate the disclosure included in Item 9A. “Controls and Procedures,” to reflect the ineffective disclosure controls and procedures as a result of the material weakness. In addition, the Company included Note 18, "Subsequent Events", in Item 8 "Financial Statements And Supplementary Data".

As required by Rule 12b-15 under the Securities Exchange Act of 1934, the Company’s principal executive officer and principal financial officer are providing new currently dated certifications. In addition, the Company is filing a new consent from PricewaterhouseCoopers LLP. Accordingly, this Amendment amends Item 15. “Exhibits, Financial Statement Schedules” in the Original 10-K to reflect the filing of the new certifications and consent. Other than the foregoing, there are no changes being made to the Original 10-K. In addition, except as specifically described above, this Amendment does not reflect events occurring after the filing of the Original 10-K, nor does it modify or update disclosures therein in any way. Among other things, risk factors and forward-looking statements made in the Original 10-K have not been revised to reflect events that occurred or facts that became known to us after the filing of the Original 10-K, and any such forward looking statements should be read in their historical context. Accordingly, this Amendment should be read in conjunction with the Company’s filings made with the Securities and Exchange Commission subsequent to the filings with the Original 10-K.

ii

---

GLOSSARY OF TERMS

The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and its current and former subsidiaries:

AE			Allegheny Energy, Inc., a Maryland utility holding company that merged with a subsidiary of FirstEnergy on February 25, 2011, which subsequently merged with and into FE on January 1, 2014
AESC			Allegheny Energy Service Corporation, a subsidiary of FirstEnergy Corp.
AE Supply			Allegheny Energy Supply Company, LLC, an unregulated generation subsidiary
AGC			Allegheny Generating Company, formerly a generation subsidiary of AE Supply that became a wholly owned subsidiary of MP in May 2018
ATSI			American Transmission Systems, Incorporated, formerly a direct subsidiary of FE that became a subsidiary of FET in April 2012, which owns and operates transmission facilities
BSPC			Bay Shore Power Company
CEI			The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary
CES			Competitive Energy Services, formerly a reportable operating segment of FirstEnergy
FE			FirstEnergy Corp., a public utility holding company
FELHC			FirstEnergy License Holding Company
FENOC			FirstEnergy Nuclear Operating Company, a subsidiary of FE, which operates NG's nuclear generating facilities
FES			FirstEnergy Solutions Corp., together with its consolidated subsidiaries, FG, NG, FE Aircraft Leasing Corp., Norton Energy Storage L.L.C., and FGMUC, which provides energy-related products and services
FES Debtors			FES and FENOC
FESC			FirstEnergy Service Company, which provides legal, financial and other corporate support services
FET			FirstEnergy Transmission, LLC, formerly known as Allegheny Energy Transmission, LLC, which is the parent of ATSI, MAIT and TrAIL, and has a joint venture in PATH
FEV			FirstEnergy Ventures Corp., which invests in certain unregulated enterprises and business ventures
FG			FirstEnergy Generation, LLC, a wholly owned subsidiary of FES, which owns and operates non-nuclear generating facilities
FGMUC			FirstEnergy Generation Mansfield Unit 1 Corp., a wholly owned subsidiary of FG, which has certain leasehold interests in a portion of Unit 1 at the Bruce Mansfield plant
FirstEnergy			FirstEnergy Corp., together with its consolidated subsidiaries
Global Holding			Global Mining Holding Company, LLC, a joint venture between FEV, WMB Marketing Ventures, LLC and Pinesdale LLC
Global Rail			Global Rail Group, LLC, a subsidiary of Global Holding that owns coal transportation operations near Roundup, Montana
GPU			GPU, Inc., former parent of JCP&L, ME and PN, that merged with FE on November 7, 2001
GPUN			GPU Nuclear, Inc., a subsidiary of FE, which operates TMI-2
JCP&L			Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary
MAIT			Mid-Atlantic Interstate Transmission, LLC, a subsidiary of FET, which owns and operates transmission facilities
ME			Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary
MP			Monongahela Power Company, a West Virginia electric utility operating subsidiary
NG			FirstEnergy Nuclear Generation, LLC, a wholly owned subsidiary of FES, which owns nuclear generating facilities
OE			Ohio Edison Company, an Ohio electric utility operating subsidiary
Ohio Companies			CEI, OE and TE
PATH			Potomac-Appalachian Transmission Highline, LLC, a joint venture between FE and a subsidiary of AEP
PATH-Allegheny			PATH Allegheny Transmission Company, LLC
PATH-WV			PATH West Virginia Transmission Company, LLC
PE			The Potomac Edison Company, a Maryland and West Virginia electric utility operating subsidiary
Penn			Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE
Pennsylvania Companies			ME, PN, Penn and WP
PN			Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary
Signal Peak			Signal Peak Energy, LLC, an indirect subsidiary of Global Holding that owns mining operations near Roundup, Montana
TE			The Toledo Edison Company, an Ohio electric utility operating subsidiary
TrAIL			Trans-Allegheny Interstate Line Company, a subsidiary of FET, which owns and operates transmission facilities
Transmission Companies			ATSI, MAIT and TrAIL
Utilities			OE, CEI, TE, Penn, JCP&L, ME, PN, MP, PE and WP
WP			West Penn Power Company, a Pennsylvania electric utility operating subsidiary

iii

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The following abbreviations and acronyms are used to identify frequently used terms in this report:

ACE

Affordable Clean Energy

DTA

Deferred Tax Asset

ADIT

Accumulated Deferred Income Taxes

E&P

Earnings and Profits

AEP

American Electric Power Company, Inc.

EDC

Electric Distribution Company

AFS

Available-for-sale

EDCP

Executive Deferred Compensation Plan

AFUDC

Allowance for Funds Used During Construction

EDIS

Electric Distribution Investment Surcharge

ALJ

Administrative Law Judge

EE&C

Energy Efficiency and Conservation

AMT

Alternative Minimum Tax

EGS

Electric Generation Supplier

ANI

American Nuclear Insurers

EGU

Electric Generation Units

AOCI

Accumulated Other Comprehensive Income

EmPOWER Maryland

EmPOWER Maryland Energy Efficiency Act

ARO

Asset Retirement Obligation

ENEC

Expanded Net Energy Cost

ARP

Alternative Revenue Program

EPA

United States Environmental Protection Agency

ASC

Accounting Standard Codification

EPS

Earnings per Share

ASU

Accounting Standards Update

ERO

Electric Reliability Organization

AYE DCD

Allegheny Energy, Inc. Amended and Restated Revised Plan for Deferral of Compensation of Directors

ESOP

Employee Stock Ownership Plan

AYE Director's Plan

Allegheny Energy, Inc. Non-Employee Director Stock Plan

ESP IV

Electric Security Plan IV

Bankruptcy Court

U.S. Bankruptcy Court in the Northern District of Ohio in Akron

Facebook®

Facebook is a registered trademark of Facebook, Inc.

Bath County

Bath County Pumped Storage Hydro-Power Station

FASB

Financial Accounting Standards Board

BGS

Basic Generation Service

FE Tomorrow

FirstEnergy's initiative launched in late 2016 to identify its optimal organizational structure and properly align corporate costs and systems to efficiently support a fully regulated company going forward

BNSF

BNSF Railway Company

FERC

Federal Energy Regulatory Commission

bps

Basis points

FES Bankruptcy

FES Debtors' voluntary petitions for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code with the Bankruptcy Court

CAA

Clean Air Act

Fitch

Fitch Ratings

CBA

Collective Bargaining Agreement

FMB

First Mortgage Bond

CCR

Coal Combustion Residuals

FPA

Federal Power Act

CERCLA

Comprehensive Environmental Response, Compensation, and Liability Act of 1980

FTR

Financial Transmission Right

CFL

Compact Fluorescent Light

GAAP

Accounting Principles Generally Accepted in the United States of America

CFR

Code of Federal Regulations

GHG

Greenhouse Gases

CO2

Carbon Dioxide

IBEW

International Brotherhood of Electrical Workers

CPP

EPA's Clean Power Plan

ICP 2007

FirstEnergy Corp. 2007 Incentive Compensation Plan

CSAPR

Cross-State Air Pollution Rule

ICP 2015

FirstEnergy Corp. 2015 Incentive Compensation Plan

CSX

CSX Transportation, Inc.

IIP

Infrastructure Investment Program

CTA

Consolidated Tax Adjustment

IRS

Internal Revenue Service

CWA

Clean Water Act

ISO

Independent System Operator

D.C. Circuit

United States Court of Appeals for the District of Columbia Circuit

JCP&L Reliability Plus

JCP&L Reliability Plus IIP

DCPD

Deferred Compensation Plan for Outside Directors

kV

Kilovolt

DCR

Delivery Capital Recovery

KWH

Kilowatt-hour

DMR

Distribution Modernization Rider

LBR

Little Blue Run

DPM

Distribution Platform Modernization

LED

Light Emitting Diode

DSIC

Distribution System Improvement Charge

LIBOR

London Interbank Offered Rate

DSP

Default Service Plan

LOC

Letter of Credit

iv

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LS Power

LS Power Equity Partners III, LP

POR

Purchase of Receivables

LSE

Load Serving Entity

PPA

Purchase Power Agreement

LTIIPs

Long-Term Infrastructure Improvement Plans

PPB

Parts per Billion

MDPSC

Maryland Public Service Commission

PPUC

Pennsylvania Public Utility Commission

MGP

Manufactured Gas Plants

PUCO

Public Utilities Commission of Ohio

MISO

Midcontinent Independent System Operator, Inc.

PURPA

Public Utility Regulatory Policies Act of 1978

mmBTU

One Million British Thermal Units

RCRA

Resource Conservation and Recovery Act

Moody’s

Moody’s Investors Service, Inc.

REC

Renewable Energy Credit

MW

Megawatt

Regulation FD

Regulation Fair Disclosure promulgated by the SEC

MWH

Megawatt-hour

RFC

ReliabilityFirst Corporation

NAAQS

National Ambient Air Quality Standards

RFP

Request for Proposal

NAV

Net Asset Value

RGGI

Regional Greenhouse Gas Initiative

NDT

Nuclear Decommissioning Trust

ROE

Return on Equity

NEIL

Nuclear Electric Insurance Limited

RSS

Rich Site Summary

NERC

North American Electric Reliability Corporation

RSU

Restricted Stock Unit

NJBPU

New Jersey Board of Public Utilities

RTEP

Regional Transmission Expansion Plan

NMB

Non-Market Based

RTO

Regional Transmission Organization

NOL

Net Operating Loss

S&P

Standard & Poor’s Ratings Service

NOx

Nitrogen Oxide

SBC

Societal Benefits Charge

NPDES

National Pollutant Discharge Elimination System

SCOH

Supreme Court of Ohio

NRC

Nuclear Regulatory Commission

SEC

United States Securities and Exchange Commission

NSR

New Source Review

SIP

State Implementation Plan(s) Under the Clean Air Act

NUG

Non-Utility Generation

SO2

Sulfur Dioxide

NYPSC

New York State Public Service Commission

SOS

Standard Offer Service

OCA

Office of Consumer Advocate

SPE

Special Purpose Entity

OCC

Ohio Consumers' Counsel

SREC

Solar Renewable Energy Credit

OEPA

Ohio Environmental Protection Agency

SSO

Standard Service Offer

OMAEG

Ohio Manufacturers' Association Energy Group

SVC

Static Var Compensator

OPEB

Other Post-Employment Benefits

Tax Act

Tax Cuts and Jobs Act adopted December 22, 2017

OPEIU

Office and Professional Employees International Union

TMI-2

Three Mile Island Unit 2

OPIC

Other Paid-in Capital

Twitter®

Twitter is a registered trademark of Twitter, Inc.

OSHA

Occupational Safety and Health Administration

UCC

Official committee of unsecured creditors appointed in connection with the FES Bankruptcy

OVEC

Ohio Valley Electric Corporation

UWUA

Utility Workers Union of America

PA DEP

Pennsylvania Department of Environmental Protection

VEPCO

Virginia Electric and Power Company

PCRB

Pollution Control Revenue Bond

VIE

Variable Interest Entity

PJM

PJM Interconnection, L.L.C.

VMS

Vegetation Management Surcharge

PJM Region

The aggregate of the zones within PJM

VSCC

Virginia State Corporation Commission

PJM Tariff

PJM Open Access Transmission Tariff

WVPSC

Public Service Commission of West Virginia

POLR

Provider of Last Resort

v

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PART II

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and supplementary data of FirstEnergy required in this item are set forth beginning on page 4. The only changes from the financial statements filed with FirstEnergy’s Original 10-K are changes to the Report of Independent Registered Public Accounting Firm on page 2, and the addition of Note 18, "Subsequent Events", on page 62.

1

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of FirstEnergy Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of FirstEnergy Corp. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to its senior management failing to set an appropriate tone at the top. Specifically, certain members of senior management failed to reinforce the need for compliance with the Company’s policies and code of conduct, which resulted in inappropriate conduct that was inconsistent with the Company’s policies and code of conduct.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Restatement of Management’s Conclusion Regarding Internal Control over Financial Reporting

Management and we previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2019. However, management has subsequently determined that a material weakness in internal control over financial reporting related to its senior management failing to set an appropriate tone at the top existed as of that date. Accordingly, management’s report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

2

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Recoverability of Regulatory Assets That Do Not Have an Order for Recovery

As described in Note 1 to the consolidated financial statements, the Company accounts for the effects of regulation through the application of regulatory accounting to its regulated distribution and transmission subsidiaries as 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. This ratemaking process results in the recording of regulatory assets and liabilities based on anticipated future cash inflows and outflows. Management assesses the probability of recovery of regulatory assets at each balance sheet date and whenever new events occur. Factors that may affect probability include changes in the regulatory environment, issuance of a regulatory commission order or passage of new legislation. Management applies judgment in evaluating the evidence available to assess the probability of recovery of regulatory assets from customers and certain of these assets, totaling approximately $111 million as of December 31, 2019, have been recorded based on precedent and rate making premises without a specific order.

The principal considerations for our determination that performing procedures relating to the Company’s recoverability of regulatory assets that do not have an order for recovery is a critical audit matter are there was significant judgment by management when assessing the probability of recovery of these regulatory assets from customers. This led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the recoverability of these regulatory assets.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s regulatory accounting process, including controls over management’s assessment of the recoverability of regulatory assets that do not have an order for recovery. These procedures also included evaluating the reasonableness of management’s assessment of recoverability of regulatory assets which involved evaluating evidence related to precedent for similar items at the Company and information on comparable companies within similar regulatory jurisdictions as well as assessing progress of communications between management and regulators.

 

 

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

February 10, 2020, except with respect to Note 18 and our opinion on internal control over financial reporting insofar as it relates to the effects of the matter described in the penultimate paragraph of Management’s Report on Internal Control over Financial Reporting, as to which the date is November 19, 2020

We have served as the Company’s auditor since 2002.

3

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FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

						For the Years Ended December 31,
(In millions, except per share amounts)						2019						2018						2017
REVENUES:
Distribution services and retail generation						$	8,720					$	8,937					$	8,685
Transmission						1,510						1,335						1,307
Other						805						989						936
Total revenues(1)						11,035						11,261						10,928
OPERATING EXPENSES:
Fuel						497						538						497
Purchased power						2,927						3,109						2,926
Other operating expenses						2,952						3,133						2,802
Provision for depreciation						1,220						1,136						1,027
Amortization (deferral) of regulatory assets, net						(79)						(150)						308
General taxes						1,008						993						940
Total operating expenses						8,525						8,759						8,500
OPERATING INCOME						2,510						2,502						2,428
OTHER INCOME (EXPENSE):
Miscellaneous income, net						243						205						53
Pension and OPEB mark-to-market adjustment						(674)						(144)						(102)
Interest expense						(1,033)						(1,116)						(1,005)
Capitalized financing costs						71						65						52
Total other expense						(1,393)						(990)						(1,002)
INCOME BEFORE INCOME TAXES						1,117						1,512						1,426
INCOME TAXES						213						490						1,715
INCOME (LOSS) FROM CONTINUING OPERATIONS						904						1,022						(289)
Discontinued operations (Note 3)(2)						8						326						(1,435)
NET INCOME (LOSS)						$	912					$	1,348					$	(1,724)
INCOME ALLOCATED TO PREFERRED STOCKHOLDERS (Note 1)						4						367						—
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS						$	908					$	981					$	(1,724)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Basic - Continuing Operations						$	1.69					$	1.33					$	(0.65)
Basic - Discontinued Operations						0.01						0.66						(3.23)
Basic - Net Income (Loss) Attributable to Common Stockholders						$	1.70					$	1.99					$	(3.88)
Diluted - Continuing Operations						$	1.67					$	1.33					$	(0.65)
Diluted - Discontinued Operations						0.01						0.66						(3.23)
Diluted - Net Income (Loss) Attributable to Common Stockholders						$	1.68					$	1.99					$	(3.88)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic						535						492						444
Diluted						542						494						444

(1) Includes excise and gross receipts tax collections of $373 million, $386 million and $370 million in 2019, 2018 and 2017, respectively.

(2) Net of income tax benefit of $5 million, $1,251 million, and $820 million in 2019, 2018 and 2017, respectively.

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

4

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FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

						For the Years Ended December 31,
(In millions)						2019						2018						2017
NET INCOME (LOSS)						$	912					$	1,348					$	(1,724)
OTHER COMPREHENSIVE INCOME (LOSS):
Pension and OPEB prior service costs						(31)						(83)						(85)
Amortized losses on derivative hedges						2						21						10
Change in unrealized gains on available-for-sale securities						—						(106)						22
Other comprehensive loss						(29)						(168)						(53)
Income tax benefits on other comprehensive loss						(8)						(67)						(21)
Other comprehensive loss, net of tax						(21)						(101)						(32)
COMPREHENSIVE INCOME (LOSS)						$	891					$	1,247					$	(1,756)

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

5

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FIRSTENERGY CORP.

CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)									December 31, 2019						December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents									$	627					$	367
Restricted cash									52						62
Receivables-
Customers, net of allowance for uncollectible accounts of $46 in 2019 and $50 in 2018									1,091						1,221
Affiliated companies, net of allowance for uncollectible accounts of $1,063 in 2019 and $920 in 2018									—						20
Other, net of allowance for uncollectible accounts of $21 in 2019 and $2 in 2018									203						270
Materials and supplies, at average cost									281						252
Prepaid taxes and other									157						175
Current assets - discontinued operations									33						25
									2,444						2,392
PROPERTY, PLANT AND EQUIPMENT:
In service									41,767						39,469
Less — Accumulated provision for depreciation									11,427						10,793
									30,340						28,676
Construction work in progress									1,310						1,235
									31,650						29,911
INVESTMENTS:
Nuclear plant decommissioning trusts									—						790
Nuclear fuel disposal trust									270						256
Other									299						253
Investments - held for sale (Note 15)									882						—
									1,451						1,299
DEFERRED CHARGES AND OTHER ASSETS:
Goodwill									5,618						5,618
Regulatory assets									99						91
Other									1,039						752
									6,756						6,461
									$	42,301					$	40,063
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt									$	380					$	503
Short-term borrowings									1,000						1,250
Accounts payable									918						965
Accounts payable - affiliated companies									87						—
Accrued interest									249						243
Accrued taxes									545						533
Accrued compensation and benefits									258						318
Other									1,425						822
									4,862						4,634
CAPITALIZATION:
Stockholders’ equity-
Common stock, $0.10 par value, authorized 700,000,000 shares - 540,652,222 and 511,915,450 shares outstanding as of December 31, 2019 and December 31, 2018, respectively									54						51
Preferred stock, $100 par value, authorized 5,000,000 shares, of which 1,616,000 are designated Series A Convertible Preferred - none outstanding as of December 31, 2019, and 704,589 shares outstanding as of December 31, 2018									—						71
Other paid-in capital									10,868						11,530
Accumulated other comprehensive income									20						41
Accumulated deficit									(3,967)						(4,879)
Total stockholders' equity									6,975						6,814
Long-term debt and other long-term obligations									19,618						17,751
									26,593						24,565
NONCURRENT LIABILITIES:
Accumulated deferred income taxes									2,849						2,502
Retirement benefits									3,065						2,906
Regulatory liabilities									2,360						2,498
Asset retirement obligations									165						812
Adverse power contract liability									49						89
Other									1,667						2,057
Noncurrent liabilities - held for sale (Note 15)									691						—
									10,846						10,864
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 15)
									$	42,301					$	40,063

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

6

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FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

						Series A Convertible Preferred Stock												Common Stock												OPIC						AOCI						Accumulated Deficit						Total Stockholders' Equity
(In millions)						Shares						Amount						Shares						Amount
Balance, January 1, 2017						—						$	—					442						$	44					$	10,555					$	174					$	(4,532)					$	6,241
Net loss																																										(1,724)						(1,724)
Other comprehensive loss, net of tax																																				(32)												(32)
Stock-based compensation																														36																		36
Cash dividends declared on common stock																														(639)																		(639)
Stock Investment Plan and certain share-based benefit plans																		3												56																		56
Reclass to liability awards																														(7)																		(7)
Share-based compensation accounting change																																										(6)						(6)
Balance, December 31, 2017						—						—						445						44						10,001						142						(6,262)						3,925
Net income																																										1,348						1,348
Other comprehensive loss, net of tax																																				(101)												(101)
Stock-based compensation																														60																		60
Cash dividends declared on common stock																														(906)																		(906)
Cash dividends declared on preferred stock																														(71)																		(71)
Stock Investment Plan and certain share-based benefit plans																		4						1						61																		62
Stock issuance (Note 11)(1)						1.6						162						30						3						2,297																		2,462
Conversion of Series A Convertible Stock (Note 11)						(0.9)						(91)						33						3						88																		—
Impact of adopting new accounting pronouncements																																										35						35
Balance, December 31, 2018						0.7						71						512						51						11,530						41						(4,879)						6,814
Net income																																										912						912
Other comprehensive loss, net of tax																																				(21)												(21)
Stock-based compensation																														41																		41
Cash dividends declared on common stock																														(824)																		(824)
Cash dividends declared on preferred stock																														(3)																		(3)
Stock Investment Plan and certain share-based benefit plans																		3												56																		56
Conversion of Series A Convertible Stock (Note 11)						(0.7)						(71)						26						3						68																		—
Balance, December 31, 2019						—						$	—					541						$	54					$	10,868					$	20					$	(3,967)					$	6,975

(1) The Preferred Stock included an embedded conversion option at a price that is below the fair value of the Common Stock on the commitment date. This beneficial conversion feature (BCF), which was approximately $296 million, was recorded to OPIC as well as the amortization of the BCF (deemed dividend) through the period from the issue date to the first allowable conversion date (July 22, 2018) and as such there is no net impact to OPIC for the year ended December 31, 2018. See Note 1, "Organization and Basis of Presentation - Earnings per share," and Note 11, "Capitalization" for additional information on the BCF and the equity issuance.

Dividends declared for each share of common stock and as-converted share of preferred stock was $1.53 during 2019, $1.82 during 2018, and $1.44 during 2017.

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

7

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FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

						For the Years Ended December 31,
(In millions)						2019						2018						2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)						$	912					$	1,348					$	(1,724)
Adjustments to reconcile net income (loss) to net cash from operating activities-
Gain on disposal, net of tax (Note 3)						(59)						(435)						—
Depreciation and amortization, including nuclear fuel, regulatory assets, net, intangible assets and deferred debt-related costs						1,217						1,384						1,700
Impairment of assets and related charges						—						—						2,399
Pension trust contributions						(500)						(1,250)						—
Retirement benefits, net of payments						(108)						(137)						29
Pension and OPEB mark-to-market adjustment						676						144						141
Deferred income taxes and investment tax credits, net						252						485						839
Asset removal costs charged to income						28						42						22
Unrealized (gain) loss on derivative transactions						—						(5)						81
Gain on sale of investment securities held in trusts						—						(9)						(63)
Changes in current assets and liabilities-
Receivables						271						(248)						(39)
Materials and supplies						(37)						24						(6)
Prepaid taxes and other						10						(61)						30
Accounts payable						(49)						109						72
Accrued taxes						12						—						(9)
Accrued interest						6						(25)						55
Accrued compensation and benefits						(60)						37						(27)
Other current liabilities						(21)						(121)						(35)
Other						(83)						128						343
Net cash provided from operating activities						2,467						1,410						3,808
CASH FLOWS FROM FINANCING ACTIVITIES:
New financing-
Long-term debt						2,300						1,474						4,675
Short-term borrowings, net						—						950						—
Preferred stock issuance						—						1,616						—
Common stock issuance						—						850						—
Redemptions and repayments-
Long-term debt						(789)						(2,608)						(2,291)
Short-term borrowings, net						—						—						(2,375)
Tender premiums paid on debt redemptions						—						(89)						—
Preferred stock dividend payments						(6)						(61)						—
Common stock dividend payments						(814)						(711)						(639)
Other						(35)						(27)						(72)
Net cash provided from (used for) financing activities						656						1,394						(702)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions						(2,665)						(2,675)						(2,587)
Nuclear fuel						—						—						(254)
Proceeds from asset sales						47						425						388
Sales of investment securities held in trusts						1,637						909						2,170
Purchases of investment securities held in trusts						(1,675)						(963)						(2,268)
Notes receivable from affiliated companies						—						(500)						—
Asset removal costs						(217)						(218)						(172)
Other						—						4						—
Net cash used for investing activities						(2,873)						(3,018)						(2,723)
Net change in cash, cash equivalents and restricted cash						250						(214)						383
Cash, cash equivalents, and restricted cash at beginning of period						429						643						260
Cash, cash equivalents, and restricted cash at end of period						$	679					$	429					$	643
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash transaction: beneficial conversion feature (Note1)						$	—					$	296					$	—
Non-cash transaction: deemed dividend convertible preferred stock (Note 1)						$	—					$	(296)					$	—
Cash paid during the year-
Interest (net of amounts capitalized)						$	960					$	1,071					$	1,039
Income taxes, net of refunds						$	12					$	49					$	53

    

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

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FIRSTENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note Number						Page Number
1			Organization and Basis of Presentation			10
2			Revenue			18
3			Discontinued Operations			21
4			Accumulated Other Comprehensive Income			24
5			Pension and Other Postemployment Benefits			25
6			Stock-Based Compensation Plans			31
7			Taxes			33
8			Leases			36
9			Intangible Assets			39
10			Fair Value Measurements			40
11			Capitalization			43
12			Short-Term Borrowings and Bank Lines of Credit			47
13			Asset Retirement Obligations			48
14			Regulatory Matters			48
15			Commitments, Guarantees and Contingencies			55
16			Transactions with Affiliated Companies			59
17			Segment Information			59
18			Subsequent Events			62
19			Summary of Quarterly Financial Data (Unaudited)			64

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Terms.

FE was incorporated under Ohio law in 1996. FE’s principal business is the holding, directly or indirectly, of all of the outstanding equity of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), JCP&L, ME, PN, FESC, AE Supply, MP, AGC, PE, WP, and FET and its principal subsidiaries (ATSI, MAIT and TrAIL). In addition, FE holds all of the outstanding equity of other direct subsidiaries including: AESC, FirstEnergy Properties, Inc., FEV, FELHC, Inc., GPUN, Allegheny Ventures, Inc., and Suvon, LLC doing business as both FirstEnergy Home and FirstEnergy Advisors.

FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving over six million customers in the Midwest and Mid-Atlantic regions. FirstEnergy’s transmission operations include approximately 24,500 miles of lines and two regional transmission operation centers. AGC, JCP&L and MP control 3,790 MWs of total capacity.

FE and its subsidiaries follow GAAP and comply with the related regulations, orders, policies and practices prescribed by the SEC, FERC, and, as applicable, the NRC, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not necessarily indicative of results of operations for any future period. FE and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation as appropriate and permitted pursuant to GAAP. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary (see below). Investments in affiliates over which FE and its subsidiaries have the ability to exercise significant influence, but do not have a controlling financial interest, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage of FE's ownership share of the entity’s earnings is reported in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).

Certain prior year amounts have been reclassified to conform to the current year presentation.

FES and FENOC Chapter 11 Filing

On March 31, 2018, the FES Debtors announced that, in order to facilitate an orderly financial restructuring, they filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court (which is referred to throughout as the FES Bankruptcy). As a result of the bankruptcy filings, FirstEnergy concluded that it no longer had a controlling interest in the FES Debtors as the entities are subject to the jurisdiction of the Bankruptcy Court and, accordingly, as of March 31, 2018, the FES Debtors were deconsolidated from FirstEnergy’s consolidated financial statements. Since such time, FE has accounted and will account for its investments in the FES Debtors at fair values of zero. FE concluded that in connection with the disposal, FES and FENOC became discontinued operations. See Note 3, "Discontinued Operations," for additional information.

On September 26, 2018, the Bankruptcy Court approved a FES Bankruptcy settlement agreement dated August 26, 2018, by and among FirstEnergy, two groups of key FES creditors (collectively, the FES Key Creditor Groups), the FES Debtors and the UCC. The FES Bankruptcy settlement agreement resolves certain claims by FirstEnergy against the FES Debtors and all claims by the FES Debtors and the FES Key Creditor Groups against FirstEnergy, and includes the following terms, among others:

•FE will pay certain pre-petition FES Debtors employee-related obligations, which include unfunded pension obligations and other employee benefits.

•FE will waive all pre-petition claims (other than those claims under the Tax Allocation Agreement for the 2018 tax year) and certain post-petition claims, against the FES Debtors related to the FES Debtors and their businesses, including the full borrowings by FES under the $500 million secured credit facility, the $200 million credit agreement being used to support surety bonds, the BNSF Railway Company/CSX Transportation, Inc. rail settlement guarantee, and the FES Debtors' unfunded pension obligations.

•The nonconsensual release of all claims against FirstEnergy by the FES Debtors' creditors, which was subsequently waived pursuant to the Waiver Agreement, discussed below.

•A $225 million cash payment from FirstEnergy.

•An additional $628 million cash payment from FirstEnergy, which may be decreased by the amount, if any, of cash paid by FirstEnergy to the FES Debtors under the Intercompany Income Tax Allocation Agreement for the tax benefits related to the

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sale or deactivation of certain plants. On November 21, 2019, FirstEnergy, the FES Debtors, the UCC, and the FES Key Creditors Group entered into an amendment to the settlement agreement, which among other things, changed the $628 million note issuance, into a cash payment to be made upon emergence. The amendment was approved by the Bankruptcy Court on December 16, 2019.

•Transfer of the Pleasants Power Station and related assets, including the economic interests therein as of January 1, 2019, and a requirement that FE continues to provide access to the McElroy's Run CCR Impoundment Facility, which is not being transferred. In addition, FE provides guarantees for certain retained environmental liabilities of AE Supply, including the McElroy’s Run CCR Impoundment Facility. On January 21, 2020, AE Supply, FG and a newly formed subsidiary of FG, entered into a letter agreement authorizing the transfer of Pleasants Power Station prior to the FES Debtors’ emergence from bankruptcy. The letter agreement was approved by the Bankruptcy Court on January 28, 2020. The transfer of the Pleasants Power Station was completed on January 30, 2020.

•FirstEnergy agrees to waive all pre-petition claims related to shared services and credit for nine months of the FES Debtors' shared service costs beginning as of April 1, 2018 through December 31, 2018, in an amount not to exceed $112.5 million, and FirstEnergy agrees to extend the availability of shared services until no later than June 30, 2020.

•Subject to a cap, FirstEnergy has agreed to fund a pension enhancement through its pension plan for voluntary enhanced retirement packages offered to certain FES employees, as well as offer certain other employee benefits (approximately $14 million recognized for the year ending December 31, 2019).

•FirstEnergy agrees to perform under the Intercompany Tax Allocation Agreement through the FES Debtors’ emergence from bankruptcy, at which time FirstEnergy will waive a 2017 overpayment for NOLs of approximately $71 million, reverse 2018 estimated payments for NOLs of approximately $88 million and pay the FES Debtors for the use of NOLs in an amount no less than $66 million for 2018. Based on the 2018 federal tax return filed in September 2019, FirstEnergy owes the FES debtors approximately $31 million associated with 2018, which will be paid upon emergence. Based on current estimates for the 2019 tax return to be filed in 2020, FirstEnergy estimates that it owes the FES Debtors approximately $83 million of which FirstEnergy has paid $14 million as of December 31, 2019. The estimated amounts owed to the FES Debtors for 2018 and 2019 tax returns excludes amounts allocated for non-deductible interest as discussed in Note 3, "Discontinued Operations." FirstEnergy is currently reconciling tax matters under the Intercompany Tax Allocation Agreement with the FES Debtors.

The FES Bankruptcy settlement agreement remains subject to satisfaction of certain conditions. There can be no assurance that such conditions will be satisfied or the FES Bankruptcy settlement agreement will be otherwise consummated, and the actual outcome of this matter may differ materially from the terms of the agreement described herein. FirstEnergy will continue to evaluate the impact of any new factors on the settlement and their relative impact on the financial statements.

In connection with the FES Bankruptcy settlement agreement, FirstEnergy entered into a separation agreement with the FES Debtors to implement the separation of the FES Debtors and their businesses from FirstEnergy. A business separation committee was established between FirstEnergy and the FES Debtors to review and determine issues that arise in the context of the separation of the FES Debtors’ businesses from those of FirstEnergy.

As contemplated under the FES Bankruptcy settlement agreement, AE Supply entered into an agreement on December 31, 2018, to transfer the 1,300 MW Pleasants Power Station and related assets to FG, while retaining certain specified liabilities. Under the terms of the agreement, FG acquired the economic interests in Pleasants as of January 1, 2019, and AE Supply operated Pleasants until it transferred, which, as discussed above, occurred on January 30, 2020. After closing, AE Supply will continue to provide access to the McElroy's Run CCR Impoundment Facility, which was not transferred, and FE will provide guarantees for certain retained environmental liabilities of AE Supply, including the McElroy’s Run CCR Impoundment Facility.

On April 11, 2019, the Bankruptcy Court entered an order denying the FES Debtors’ disclosure statement approval motion. The Bankruptcy Court concluded that the nonconsensual third-party releases proposed under the plan of reorganization, which were a condition under the FES Bankruptcy settlement agreement for FirstEnergy’s benefit, were legally impermissible and rendered the plan unconfirmable. On April 18, 2019, FirstEnergy consented to the waiver of the condition. Additionally, the FES Debtors agreed to provide FirstEnergy with the same third-party release provided in favor of certain other parties in any plan of reorganization and to pay FirstEnergy approximately $60 million in cash (paid during the second quarter of 2019) to resolve certain outstanding pension and service charges totaling $87 million, which resulted in FirstEnergy recognizing a $27 million pre-tax charge to income in the first quarter of 2019 ($17 million of which was recognized in continuing operations). Further, the FES Debtors agreed to initiate negotiations with the EPA, OEPA, PA DEP and the NRC to obtain those parties’ cooperation with the FES Debtors’ revised plan of reorganization. FirstEnergy may choose to participate in those negotiations at its option. On May 20, 2019, the Bankruptcy Court approved the waiver and a revised disclosure statement.

In August 2019, the Bankruptcy Court held hearings to consider whether to confirm the FES Debtors’ plan of reorganization. Upon the conclusion of the hearing, the Bankruptcy Court ruled against the objections of several parties, including FERC and OVEC. However, the Bankruptcy Court ruled in favor of the objections made by certain of the FES Debtors’ unions regarding their collective bargaining agreements. The Bankruptcy Court adjourned the hearing without ruling on confirmation and explained that the only issue to be resolved was the acceptance or rejection by the FES Debtors of the collective bargaining agreements at issue.

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In October 2019, the FES Debtors and the unions objecting to confirmation of the plan of reorganization reached an agreement framework and the unions agreed to withdraw their objections to the plan of reorganization. On October 15, 2019, the Bankruptcy Court held a hearing to confirm the FES Debtors’ plan of reorganization, and on October 16, 2019, entered a final order confirming the FES Debtors' plan of reorganization. On October 29, 2019, several parties, including FERC, filed notices of appeal with the United States District Court for the Northern District of Ohio appealing the Bankruptcy Court’s final order approving FES Debtors’ plan of reorganization. On December 3, 2019, the NRC provided its approval. The emergence of the FES Debtors from bankruptcy pursuant to the confirmed plan of reorganization is subject to the satisfaction of certain conditions, including approvals from the FERC.

Restricted Cash

Restricted cash primarily relates to the consolidated VIE's discussed below. The cash collected from JCP&L, MP, PE and the Ohio Companies' customers is used to service debt of their respective funding companies.

ACCOUNTING FOR THE EFFECTS OF REGULATION

FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities and the Transmission Companies 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 (Loss) 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, the Utilities and the Transmission Companies net their regulatory assets and liabilities based on federal and state jurisdictions.

Management assesses the probability of recovery of regulatory assets at each balance sheet date and whenever new events occur. Factors that may affect probability include changes in the regulatory environment, issuance of a regulatory commission order or passage of new legislation. Management applies judgment in evaluating the evidence available to assess the probability of recovery of regulatory assets from customers, including, but not limited to evaluating evidence related to precedent for similar items at the Company and information on comparable companies within similar jurisdictions, as well as assessing progress of communications between the Company and regulators. Certain of these regulatory assets, totaling approximately $111 million as of December 31, 2019, are recorded based on prior precedent or anticipated recovery based on rate making premises without a specific order.

The following table provides information about the composition of net regulatory assets and liabilities as of December 31, 2019 and December 31, 2018, and the changes during the year ended December 31, 2019:

Net Regulatory Assets (Liabilities) by Source						December 31, 2019						December 31, 2018						Change
						(In millions)
Regulatory transition costs						$	(8)					$	49					$	(57)
Customer payables for future income taxes						(2,605)						(2,725)						120
Nuclear decommissioning and spent fuel disposal costs						(197)						(148)						(49)
Asset removal costs						(756)						(787)						31
Deferred transmission costs						298						170						128
Deferred generation costs						214						202						12
Deferred distribution costs						155						208						(53)
Contract valuations						51						72						(21)
Storm-related costs						551						500						51
Other						36						52						(16)
Net Regulatory Liabilities included on the Consolidated Balance Sheets						$	(2,261)					$	(2,407)					$	146

The following table provides information about the composition of net regulatory assets that do not earn a current return as of December 31, 2019 and 2018, of which approximately $228 million and $290 million, respectively, are currently being recovered through rates over varying periods depending on the nature of the deferral and the jurisdiction.

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Regulatory Assets by Source Not Earning a Current Return						December 31, 2019						December 31, 2018						Change
												(in millions)
Regulatory transition costs						$	7					$	10					$	(3)
Deferred transmission costs						27						80						(53)
Deferred generation costs						15						8						7
Storm-related costs						471						363						108
Other						25						42						(17)
Regulatory Assets Not Earning a Current Return						$	545					$	503					$	42

CUSTOMER RECEIVABLES

Receivables from customers include retail electric sales and distribution deliveries to residential, commercial and industrial customers for the Utilities. There was no material concentration of receivables as of December 31, 2019 and 2018, with respect to any particular segment of FirstEnergy’s customers. Billed and unbilled customer receivables as of December 31, 2019 and 2018, net of allowance for uncollectible accounts, are included below. The allowance for uncollectible customer receivables is based on historical loss information comprised of a rolling 36-month average net write-off percentage of revenues.

Customer Receivables						December 31, 2019						December 31, 2018
						(In millions)
Billed						$	564					$	686
Unbilled						527						535
Total						$	1,091					$	1,221

EARNINGS (LOSS) PER SHARE OF COMMON STOCK

The convertible preferred stock issued in January 2018 (see Note 11, "Capitalization") is considered participating securities since these shares participate in dividends on common stock on an "as-converted" basis. As a result, EPS of common stock is computed using the two-class method required for participating securities.

The two-class method uses an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available only to common stockholders. Under the two-class method, net income attributable to common stockholders is derived by subtracting the following from income from continuing operations:

•preferred stock dividends,

•deemed dividends for the amortization of the beneficial conversion feature recognized at issuance of the preferred stock (if any), and

•an allocation of undistributed earnings between the common stock and the participating securities (convertible preferred stock) based on their respective rights to receive dividends.

Net losses are not allocated to the convertible preferred stock as they do not have a contractual obligation to share in the losses of FirstEnergy. FirstEnergy allocates undistributed earnings based upon income from continuing operations.

The preferred stock included an embedded conversion option at a price that was below the fair value of the common stock on the commitment date. This beneficial conversion feature, which was approximately $296 million, represents the difference between the fair value per share of the common stock and the conversion price, multiplied by the number of common shares issuable upon conversion. The beneficial conversion feature was amortized as a deemed dividend over the period from the issue date to the first allowable conversion date (July 22, 2018) as a charge to OPIC, since FE is in an accumulated deficit position with no retained earnings to declare a dividend. As noted above, for EPS reporting purposes, this beneficial conversion feature was reflected in net income attributable to common stockholders as a deemed dividend and was fully amortized in 2018.

Basic EPS available to common stockholders is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Participating securities are excluded from basic weighted average ordinary shares outstanding. Diluted EPS available to common stockholders is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of such common shares is dilutive.

Diluted EPS reflects the dilutive effect of potential common shares from share-based awards and convertible shares of preferred stock. The dilutive effect of outstanding share-based awards is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of the award would be used to purchase common stock at the average market price for the period. The dilutive effect of the convertible preferred stock is computed using the if-converted method,

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which assumes conversion of the convertible preferred stock at the beginning of the period, giving income recognition for the add-back of the preferred share dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred stockholders.

						Year Ended December 31,
Reconciliation of Basic and Diluted EPS of Common Stock						2019						2018						2017
(In millions, except per share amounts)
EPS of Common Stock
Income from continuing operations						$	904					$	1,022					$	(289)
Less: Preferred dividends						(3)						(71)						—
Less: Amortization of beneficial conversion feature						—						(296)						—
Less: Undistributed earnings allocated to preferred stockholders(1)						(1)						—						—
Income (loss) from continuing operations available to common stockholders						900						655						(289)
Discontinued operations, net of tax						8						326						(1,435)
Less: Undistributed earnings allocated to preferred stockholders (1)						—						—						—
Income (loss) from discontinued operations available to common stockholders						8						326						(1,435)
Income (loss) attributable to common stockholders, basic						$	908					$	981					$	(1,724)
Income allocated to preferred stockholders, preferred dilutive (2)						4						N/A						N/A
Income (loss) attributable to common stockholders, dilutive						$	912					$	981					$	(1,724)
Share Count information:
Weighted average number of basic shares outstanding						535						492						444
Assumed exercise of dilutive stock options and awards						3						2						—
Assumed conversion of preferred stock						4						—						—
Weighted average number of diluted shares outstanding						542						494						444
Income (loss) attributable to common stockholders, per common share:
Income from continuing operations, basic						$	1.69					$	1.33					$	(0.65)
Discontinued operations, basic						0.01						0.66						(3.23)
Income (loss) attributable to common stockholders, basic						$	1.70					$	1.99					$	(3.88)
Income from continuing operations, diluted						$	1.67					$	1.33					$	(0.65)
Discontinued operations, diluted						0.01						0.66						(3.23)
Income (loss) attributable to common stockholders, diluted						$	1.68					$	1.99					$	(3.88)

(1)Undistributed earnings were not allocated to participating securities for the year ended December 31, 2018, as income from continuing operations less dividends declared (common and preferred) and deemed dividends were a net loss. Undistributed earning allocated to participating securities for the year ended December 31, 2019 were immaterial.

(2)The shares of common stock issuable upon conversion of the preferred shares (26 million shares) were not included for 2018 as their inclusion would be anti-dilutive to basic EPS from continuing operations. Amounts allocated to preferred stockholders of $4 million for the year ended December 31,2019 are included within Income from continuing operations available to common stockholders for diluted earnings.

For the years ended December 31, 2018 and 2017, approximately 1 million and 3 million shares from stock options and awards were excluded from the calculation of diluted shares outstanding, respectively, as their inclusion would be antidilutive, and, in the case of 2017, a result of the net loss for the period. For the year ended December 31, 2019, no shares from stock options or awards were excluded from the calculation of diluted shares.

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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 by segment as of December 31, 2019 and 2018, were as follows:

						December 31, 2019
Property, Plant and Equipment						In Service(1)						Accum. Depr.						Net Plant						CWIP						Total
						(In millions)
Regulated Distribution						$	28,735					$	(8,540)					$	20,195					$	744					$	20,939
Regulated Transmission						12,023						(2,383)						9,640						526						10,166
Corporate/Other						1,009						(504)						505						40						545
Total						$	41,767					$	(11,427)					$	30,340					$	1,310					$	31,650

						December 31, 2018
Property, Plant and Equipment						In Service(1)						Accum. Depr.						Net Plant						CWIP						Total
						(In millions)
Regulated Distribution						$	27,520					$	(8,132)					$	19,388					$	628					$	20,016
Regulated Transmission						11,041						(2,210)						8,831						545						9,376
Corporate/Other						908						(451)						457						62						519
Total						$	39,469					$	(10,793)					$	28,676					$	1,235					$	29,911

(1) Includes finance leases of $163 million and $173 million as of December 31, 2019 and 2018, respectively.

The major classes of Property, plant and equipment are largely consistent with the segment disclosures above. Regulated Distribution has approximately $2 billion of total regulated generation property, plant and equipment.

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 depreciation rates for FirstEnergy were 2.7%, 2.6% and 2.4% in 2019, 2018 and 2017, respectively.

For the years ended December 31, 2019, 2018 and 2017, capitalized financing costs on FirstEnergy's Consolidated Statements of Income (Loss) include $45 million, $46 million and $35 million, respectively, of allowance for equity funds used during construction and $26 million, $19 million and $17 million, respectively, of capitalized interest.

Jointly Owned Plants

FE, through its subsidiary, AGC, owns an undivided 16.25% interest (487 MWs) in a 3,003 MW pumped storage, hydroelectric station in Bath County, Virginia, operated by the 60% owner, VEPCO, a non-affiliated utility. Net Property, plant and equipment includes $161 million representing AGC's share in this facility as of December 31, 2019. AGC is obligated to pay its share of the costs of this jointly-owned facility in the same proportion as its ownership interests using its own financing. AGC's share of direct expenses of the joint plant is included in FE's operating expenses on the Consolidated Statements of Income (Loss). AGC provides the generation capacity from this facility to its owner, MP.

Asset Retirement Obligations

FE recognizes an ARO for the future decommissioning of its TMI-2 nuclear power plant 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 FirstEnergy'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. FirstEnergy uses an expected cash flow approach to measure the fair value of the nuclear decommissioning and environmental remediation AROs, considering the expected timing of settlement of the ARO based on the expected economic useful life of associated asset and/or regulatory requirements. 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. In certain circumstances, FirstEnergy has recovery of asset retirement costs and, as such, certain accretion and depreciation is offset against regulatory assets.

Conditional retirement obligations associated with tangible long-lived assets are recognized at fair value in the period in which they are incurred if a reasonable estimate can be made, even though there may be uncertainty about timing or method of settlement. When settlement is conditional on a future event occurring, it is reflected in the measurement of the liability, not the

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timing of the liability recognition.

AROs as of December 31, 2019, are described further in Note 13, "Asset Retirement Obligations."

Asset Impairments

FirstEnergy evaluates long-lived assets classified as held and used for impairment when events or changes in circumstances indicate the carrying value of the long-lived assets may not be recoverable. First, the estimated undiscounted future cash flows attributable to the assets is compared with the carrying value of the assets. If the carrying value is greater than the undiscounted future cash flows, an impairment charge is recognized equal to the amount the carrying value of the assets exceeds its estimated fair value.

GOODWILL

In a business combination, the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. FirstEnergy evaluates goodwill for impairment annually on July 31 and more frequently if indicators of impairment arise. In evaluating goodwill for impairment, FirstEnergy assesses qualitative factors to determine whether it is more likely than not (that is, likelihood of more than 50%) 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 or bypasses the qualitative assessment, then the quantitative goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any.

FirstEnergy's reporting units are consistent with its reportable segments and consist of Regulated Distribution and Regulated Transmission. The following table presents goodwill by reporting unit as of December 31, 2019:

						Regulated Distribution						Regulated Transmission						Consolidated
						(In millions)
Goodwill						$	5,004					$	614					$	5,618

As of July 31, 2019, FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission reporting units' goodwill, assessing economic, industry and market considerations in addition to the reporting units' overall financial performance. Key factors used in the assessment include: growth rates, interest rates, expected capital expenditures, utility sector market performance and other market considerations. It was determined that the fair values of these reporting units were, more likely than not, greater than their carrying values and a quantitative analysis was not necessary.

INVENTORY

Materials and supplies inventory includes fuel inventory and the distribution, transmission and generation plant materials, net of reserve for excess and obsolete inventory. Materials are generally charged to inventory at weighted average cost when purchased and expensed or capitalized, as appropriate, when used or installed. Fuel inventory is accounted for at weighted average cost when purchased, and recorded to fuel expense when consumed.

DERIVATIVES

FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity prices, including prices for electricity, coal and energy transmission. To manage the volatility related to these exposures, FirstEnergy’s Risk Policy Committee, comprised of senior management, provides general management oversight for risk management activities throughout FirstEnergy. The Risk Policy Committee is responsible for promoting the effective design and implementation of sound risk management programs and oversees compliance with corporate risk management policies and established risk management practice. FirstEnergy may use a variety of derivative instruments for risk management purposes including forward contracts, options, futures contracts and swaps.

FirstEnergy accounts for derivative instruments on its Consolidated Balance Sheets at fair value unless they meet the normal purchases and normal sales criteria. Derivative instruments meeting the normal purchases and normal sales criteria are accounted for under the accrual method of accounting with their effects included in earnings at the time of contract performance.

VARIABLE INTEREST ENTITIES

FirstEnergy performs qualitative analyses based on control and economics to determine whether a variable interest classifies FirstEnergy as the primary beneficiary (a controlling financial interest) of a VIE. An enterprise has a controlling financial interest if it has both power and economic control, such that an entity has: (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses of the entity that could potentially

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be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. FirstEnergy consolidates a VIE when it is determined that it is the primary beneficiary.

In order to evaluate contracts for consolidation treatment and entities for which FirstEnergy has an interest, FirstEnergy aggregates variable interests into categories based on similar risk characteristics and significance.

Consolidated VIEs

VIEs in which FirstEnergy is the primary beneficiary consist of the following (included in FirstEnergy’s consolidated financial statements):

•Ohio Securitization - In June 2013, SPEs formed by the Ohio Companies issued approximately $445 million of pass-through trust certificates supported by phase-in recovery bonds to securitize the recovery of certain all electric customer heating discounts, fuel and purchased power regulatory assets.

•JCP&L Securitization - JCP&L Transition Funding II sold transition bonds to securitize the recovery of deferred costs associated with JCP&L’s supply of BGS.

•MP and PE Environmental Funding Companies - Bankruptcy remote, special purpose limited liability companies that are indirect subsidiaries of MP and PE which issued environmental control bonds.

See Note 11, “Capitalization,” for additional information on securitized bonds.

Unconsolidated VIEs

FirstEnergy is not the primary beneficiary of the following VIEs:

•Global Holding - FEV holds a 33-1/3% equity ownership in Global Holding, the holding company for a joint venture in the Signal Peak mining and coal transportation operations with coal sales in U.S. and international markets. FEV is not the primary beneficiary of the joint venture, as it does not have control over the significant activities affecting the joint ventures economic performance. FEV's ownership interest is subject to the equity method of accounting. As of December 31, 2019, the carrying value of the equity method investment was $28 million.

As discussed in Note 15, "Commitments, Guarantees and Contingencies," FE is the guarantor under Global Holding's $120 million syndicated senior secured term loan facility due November 12, 2024, under which Global Holding's outstanding principal balance is $114 million as of December 31, 2019. Failure by Global Holding to meet the terms and conditions under its term loan facility could require FE to be obligated under the provisions of its guarantee, resulting in consolidation of Global Holding by FE.

•PATH WV - PATH, a proposed transmission line from West Virginia through Virginia into Maryland which PJM cancelled in 2012, is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties regarding specified property and the series profits and losses associated with such property. A subsidiary of FE owns 100% of the Allegheny Series (PATH-Allegheny) and 50% of the West Virginia Series (PATH-WV), which is a joint venture with a subsidiary of AEP. FirstEnergy is not the primary beneficiary of PATH-WV, as it does not have control over the significant activities affecting the economics of PATH-WV. FirstEnergy's ownership interest in PATH-WV is subject to the equity method of accounting. As of December 31, 2019, the carrying value of the equity method investment was $18 million.

•Purchase Power Agreements - FirstEnergy evaluated its PPAs and determined that certain NUG entities at its Regulated Distribution segment may be VIEs to the extent that they own a plant that sells substantially all of its output to the applicable utilities and the contract price for power is correlated with the plant’s variable costs of production.

FirstEnergy maintains 10 long-term PPAs with NUG entities that were entered into pursuant to PURPA. FirstEnergy was not involved in the creation of, and has no equity or debt invested in, any of these entities. FirstEnergy has determined that for all but one of these NUG entities, it does not have a variable interest, or the entities do not meet the criteria to be considered a VIE. FirstEnergy may hold a variable interest in the remaining one entity; however, it applied the scope exception that exempts enterprises unable to obtain the necessary information to evaluate entities.

Because FirstEnergy has no equity or debt interests in the NUG entities, its maximum exposure to loss relates primarily to the above-market costs incurred for power. FirstEnergy expects any above-market costs incurred at its Regulated Distribution segment to be recovered from customers. Purchased power costs related to the contract that may contain a variable interest were $116 million and $108 million, respectively, during the years ended December 31, 2019 and 2018.

•FES and FENOC - As a result of the Chapter 11 bankruptcy filing discussed in Note 3, "Discontinued Operations," FE evaluated its investments in FES and FENOC and determined they are VIEs. FE is not the primary beneficiary because it lacks a controlling interest in FES and FENOC, which are subject to the jurisdiction of the Bankruptcy Court as of March 31, 2018. The carrying values of the equity investments in FES and FENOC were zero at December 31, 2019.

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NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

ASU 2016-02, "Leases (Topic 842)" (Issued February 2016 and subsequently updated to address implementation questions): The new guidance requires organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets, as well as new qualitative and quantitative disclosures. FirstEnergy implemented a third-party software tool that assisted with the initial adoption and will assist with ongoing compliance. FirstEnergy chose to apply the requirements of the standard in the period of adoption (January 1, 2019) with no restatement of prior periods. Upon adoption, on January 1, 2019, FirstEnergy increased assets and liabilities by $186 million, with no impact to results of operations or cash flows. See Note 8, "Leases," for additional information on FirstEnergy's leases.

Recently Issued Pronouncements - The following new authoritative accounting guidance issued by the FASB has not yet been adopted. Unless otherwise indicated, FirstEnergy is currently assessing the impact such guidance may have on its financial statements and disclosures, as well as the potential to early adopt where applicable. FirstEnergy has assessed other FASB issuances of new standards not described below based upon the current expectation that such new standards will not significantly impact FirstEnergy's financial reporting.

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (issued June 2016 and subsequently updated): ASU 2016-13 removes all recognition thresholds and will require companies to recognize an allowance for expected credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost the company expects to collect over the instrument’s contractual life. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. FirstEnergy has analyzed its financial instruments within the scope of this guidance, primarily trade receivables, AFS debt securities and certain third-party guarantees and does not expect a material impact to its financial statements upon adoption in 2020.

ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" (Issued August 2018): ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customers in a software licensing arrangement. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. FirstEnergy does not expect a material impact to its financial statements upon adoption in 2020.

ASU 2019-12, "Simplifying the Accounting for Income Taxes" (Issued in December 2019): ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance including the elimination of certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

2. REVENUE

FirstEnergy accounts for revenues from contracts with customers under ASC 606, "Revenue from Contracts with Customers." Revenue from leases, financial instruments, other contractual rights or obligations and other revenues that are not from contracts with customers are outside the scope of the new standard and accounted for under other existing GAAP. FirstEnergy has elected to exclude sales taxes and other similar taxes collected on behalf of third parties from revenue as prescribed in the new standard. As a result, tax collections and remittances are excluded from recognition in the income statement and instead recorded through the balance sheet. Excise and gross receipts taxes that are assessed on FirstEnergy are not subject to the election and are included in revenue. FirstEnergy has elected the optional invoice practical expedient for most of its revenues and, with the exception of JCP&L transmission, utilizes the optional short-term contract exemption for transmission revenues due to the annual establishment of revenue requirements, which eliminates the need to provide certain revenue disclosures regarding unsatisfied performance obligations.

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FirstEnergy’s revenues are primarily derived from electric service provided by the Utilities and Transmission Companies. The following tables represent a disaggregation of revenue from contracts with customers for the year ended December 31, 2019, by type of service from each reportable segment:

Revenues by Type of Service						Regulated Distribution						Regulated Transmission						Corporate/Other and Reconciling Adjustments (1)						Total
						(In millions)
Distribution services(2)						$	5,133					$	—					$	(83)					$	5,050
Retail generation						3,727						—						(57)						3,670
Wholesale sales(2)						411						—						12						423
Transmission(2)						—						1,510						—						1,510
Other						150						—						2						152
Total revenues from contracts with customers						$	9,421					$	1,510					$	(126)					$	10,805
ARP						181						—						—						181
Other non-customer revenue						96						16						(63)						49
Total revenues						$	9,698					$	1,526					$	(189)					$	11,035

(1) Includes eliminations and reconciling adjustments of inter-segment revenues.

(2) Includes reductions to revenue related to amounts subject to refund resulting from the Tax Act ($16 million at Regulated Distribution and $19 million at Regulated Transmission).

The following tables represent a disaggregation of revenue from contracts with customers for the year ended December 31, 2018, by type of service from each reportable segment:

Revenues by Type of Service						Regulated Distribution						Regulated Transmission						Corporate/Other and Reconciling Adjustments (1)						Total
						(In millions)
Distribution services(2)						$	5,159					$	—					$	(104)					$	5,055
Retail generation						3,936						—						(54)						3,882
Wholesale sales(2)						502						—						22						524
Transmission(2)						—						1,335						—						1,335
Other						144						—						4						148
Total revenues from contracts with customers						$	9,741					$	1,335					$	(132)					$	10,944
ARP						254						—						—						254
Other non-customer revenue						108						18						(63)						63
Total revenues						$	10,103					$	1,353					$	(195)					$	11,261

(1) Includes eliminations and reconciling adjustments of inter-segment revenues.

(2) Includes $147 million in net reductions to revenue related to amounts subject to refund resulting from the Tax Act ($131 million at Regulated Distribution and $16 million at Regulated Transmission).

Other non-customer revenue includes revenue from late payment charges of $37 million and $39 million, as well as revenue from derivatives of $8 million and $18 million, respectively, for the years ended December 31, 2019 and 2018.

Regulated Distribution

The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies and also controls 3,790 MWs of regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey. Each of the Utilities earns revenue from state-regulated rate tariffs under which it provides distribution services to residential, commercial and industrial customers in its service territory. The Utilities are obligated under the regulated construct to deliver power to customers reliably, as it is needed, which creates an implied monthly contract with the end-use customer. See Note 14 "Regulatory Matters," for additional information on rate recovery mechanisms. Distribution and electric revenues are recognized over time as electricity is distributed and delivered to the customer and the customers consume the electricity immediately as delivery occurs.

Retail generation sales relate to POLR, SOS, SSO and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland, as well as generation sales in West Virginia that are regulated by the WVPSC. Certain of the Utilities have default service obligations to provide power to non-shopping customers who have elected to continue to receive service under regulated retail tariffs. The volume of these sales varies depending on the level of shopping that occurs. Supply plans vary by state and by

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service territory. Default service for the Ohio Companies, Pennsylvania Companies, JCP&L and PE's Maryland jurisdiction are provided through a competitive procurement process approved by each state's respective commission. Retail generation revenues are recognized over time as electricity is delivered and consumed immediately by the customer.

The following table represents a disaggregation of the Regulated Distribution segment revenue from contracts with distribution service and retail generation customers for the years ended December 31, 2019 and 2018, by class:

						For the Years Ended December 31,
Revenues by Customer Class						2019						2018
						(In millions)
Residential						$	5,412					$	5,598
Commercial						2,252						2,350
Industrial						1,106						1,056
Other						90						91
Total						$	8,860					$	9,095

Wholesale sales primarily consist of generation and capacity sales into the PJM market from FirstEnergy's regulated electric generation capacity and NUGs. Certain of the Utilities may also purchase power in the PJM markets to supply power to their customers. Generally, these power sales from generation and purchases to serve load are netted hourly and reported gross as either revenues or purchased power on the Consolidated Statements of Income (Loss) based on whether the entity was a net seller or buyer each hour. Capacity revenues are recognized ratably over the PJM planning year at prices cleared in the annual PJM Reliability Pricing Model Based Residual Auction and incremental auctions. Capacity purchases and sales through PJM capacity auctions are reported within revenues on the Consolidated Statements of Income (Loss). Certain capacity income (bonuses) and charges (penalties) related to the availability of units that have cleared in the auctions are unknown and not recorded in revenue until, and unless, they occur.

The Utilities’ distribution customers are metered on a cycle basis. 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 accrue the estimated unbilled amount as revenue and reverse the related prior period estimate. Customer payments vary by state but are generally due within 30 days.

ASC 606 excludes industry-specific accounting guidance for recognizing revenue from ARPs as these programs represent contracts between the utility and its regulators, as opposed to customers. Therefore, revenue from these programs are not within the scope of ASC 606 and regulated utilities are permitted to continue to recognize such revenues in accordance with existing practice but are presented separately from revenue arising from contracts with customers. FirstEnergy currently has ARPs in Ohio, primarily under Rider DMR, and in New Jersey. Please see Note 14, "Regulatory Matters," for further discussion on Rider DMR.

Regulated Transmission

The Regulated Transmission segment provides transmission infrastructure owned and operated by the Transmission Companies and certain of FirstEnergy's utilities (JCP&L, MP, PE and WP) to transmit electricity from generation sources to distribution facilities. The segment's revenues are primarily derived from forward-looking formula rates at the Transmission Companies, as well as stated transmission rates at JCP&L, MP, PE and WP. Both the forward-looking formula and stated rates recover costs that the regulatory agencies determine are permitted to be recovered and provide a return on transmission capital investment. Under forward-looking formula rates, the revenue requirement is updated annually based on a projected rate base and projected costs, which is subject to an annual true-up based on actual costs. Revenue requirements under stated rates are calculated annually by multiplying the highest one-hour peak load in each respective transmission zone by the approved, stated rate in that zone. Revenues and cash receipts for the stand-ready obligation of providing transmission service are recognized ratably over time.

Effective January 1, 2018, JCP&L is subject to a FERC-approved settlement agreement that provides an annual revenue requirement of $155 million, which is recognized ratably as revenue over time. Please see Note 14, "Regulatory Matters," for further discussion on tariff amendments approved by FERC on December 19, 2019, to convert JCP&L's existing stated transmission rate to a forward-looking formula transmission rate.

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The following table represents a disaggregation of revenue from contracts with regulated transmission customers by transmission owner for the years ended December 31, 2019 and 2018 by transmission owner:

						For the Years Ended December 31,
Transmission Owner						2019						2018
						(In millions)
ATSI						$	754					$	664
TrAIL						242						237
MAIT						224						150
Other						290						284
Total Revenues						$	1,510					$	1,335

3. DISCONTINUED OPERATIONS

FES, FENOC, BSPC and a portion of AE Supply (including the Pleasants Power Station), representing substantially all of FirstEnergy’s operations that previously comprised the CES reportable operating segment, are presented as discontinued operations in FirstEnergy’s consolidated financial statements resulting from the FES Bankruptcy and actions taken as part of the strategic review to exit commodity-exposed generation, as discussed below. Prior period results have been reclassified to conform with such presentation as discontinued operations.

FES and FENOC Chapter 11 Bankruptcy Filing

As discussed in Note 1, "Organization and Basis of Presentation," on March 31, 2018, FES and FENOC announced the FES Bankruptcy. FirstEnergy concluded that it no longer had a controlling interest in the FES Debtors, as the entities are subject to the jurisdiction of the Bankruptcy Court and, accordingly, as of March 31, 2018, the FES Debtors were deconsolidated from FirstEnergy's consolidated financial statements, and FirstEnergy has accounted and will account for its investments in the FES Debtors at fair values of zero. In connection with the disposal and the FES Bankruptcy settlement agreement approved by the Bankruptcy Court in September 2018, as further discussed in Note 1, "Organization and Basis of Presentation," FE recorded an after-tax gain on disposal of $59 million and $435 million in 2019 and 2018, respectively.

By eliminating a significant portion of its competitive generation fleet with the deconsolidation of the FES Debtors, FirstEnergy has concluded the FES Debtors meet the criteria for discontinued operations, as this represents a significant event in management’s strategic review to exit commodity-exposed generation and transition to a fully regulated company.

FES Borrowings from FE

On March 9, 2018, FES borrowed $500 million from FE under the secured credit facility, dated as of December 6, 2016, among FES, as borrower, FG and NG as guarantors, and FE, as lender, which fully utilized the committed line of credit available under the secured credit facility. Following deconsolidation of FES, FE fully reserved for the $500 million associated with the borrowings under the secured credit facility. Under the terms of the FES Bankruptcy settlement agreement, FE will release any and all claims against the FES Debtors with respect to the $500 million borrowed under the secured credit facility.

On March 16, 2018, the FES Debtors withdrew from the unregulated companies' money pool, which included FE, and the FES Debtors. Under the terms of the FES Bankruptcy settlement agreement, FE reinstated $88 million for 2018 estimated payments for NOLs applied against the FES Debtor’s position in the unregulated companies’ money pool prior to their withdrawal on March 16, 2018, which increased the amount the FES Debtors owed FE under the money pool to $92 million. In addition, as of March 31, 2018, AE Supply had a $102 million outstanding unsecured promissory note owed from FES. Following deconsolidation of the FES Debtors on March 31, 2018, and given the terms of the FES Bankruptcy settlement agreement, FE fully reserved the $92 million associated with the outstanding unsecured borrowings under the unregulated companies' money pool and the $102 million associated with the AE Supply unsecured promissory note. Under the terms of the FES Bankruptcy settlement agreement, FirstEnergy will release any and all claims against the FES Debtors with respect to the $92 million owed under the unregulated money pool and $102 million unsecured promissory note. For the years ended December 31, 2019 and 2018, approximately $33 million and $24 million of interest was accrued and subsequently reserved, respectively.

Services Agreements

Pursuant to the FES Bankruptcy settlement agreement, FirstEnergy entered into an amended and restated shared services agreement with the FES Debtors to extend the availability of shared services until no later than June 30, 2020, subject to reductions in services if requested by the FES Debtors. Under the amended shared services agreement, and consistent with the prior shared services agreements, costs are directly billed or assigned at no more than cost. In addition to providing for certain notice requirements and other terms and conditions, the agreement provided for a credit to the FES Debtors in an amount up to $112.5 million for charges incurred for services provided under prior shared services agreements and the amended shared services agreement from April 1, 2018 through December 31, 2018. The entire credit for shared services provided to the FES Debtors ($112.5 million) has been recognized by FE and was included within the loss from discontinued operations as of

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December 31, 2018. The FES Debtors have paid approximately $152 million for the shared services for the year ended December 31, 2019.

Benefit Obligations

FirstEnergy will retain certain obligations for the FES Debtors' employees for services provided prior to emergence from bankruptcy. The retention of this obligation at March 31, 2018, resulted in a net liability of $820 million (including EDCP, pension and OPEB) with a corresponding loss from discontinued operations. EDCP and pension/OPEB service costs earned by the FES Debtors' employees during bankruptcy are billed under the shared services agreement. As FE continues to provide pension benefits to FES/FENOC employees, certain components of pension cost, including the mark to market, are seen as providing ongoing services and are reported in the continuing operations of FE, subsequent to the bankruptcy filing. FE has billed the FES Debtors approximately $37 million for their share of pension and OPEB service costs for the year ended December 31, 2019.

Purchase Power

FES at times provides power through affiliated company power sales to meet a portion of the Utilities' POLR and default service requirements and provides power to certain affiliates' facilities. As of December 31, 2019, the Utilities owed FES approximately $10 million related to these purchases. The terms and conditions of the power purchase agreements are generally consistent with industry practices and other similar third-party arrangements. The Utilities purchased and recognized in continuing operations approximately $171 million and $318 million of power purchases from FES for the years ended December 31, 2019 and 2018, respectively.

Income Taxes

For U.S. federal income taxes, until emergence from bankruptcy, the FES Debtors will continue to be consolidated in FirstEnergy’s tax return and taxable income will be determined based on the tax basis of underlying individual net assets. Deferred taxes previously recorded on the inside basis differences may not represent the actual tax consequence for the outside basis difference, causing a recharacterization of an existing consolidated-return NOL as a future worthless stock deduction. FirstEnergy currently estimates a future worthless stock deduction of approximately $4.8 billion ($1.0 billion, net of tax) and is net of unrecognized tax benefits of $448 million ($94 million, net of tax). The estimated worthless stock deduction is contingent upon the emergence of the FES Debtors from the FES Bankruptcy and such amounts may be materially impacted by future events.

Additionally, the Tax Act amended Section 163(j) of the Code, limiting interest expense deductions for corporations but with exemption for certain regulated utilities. On November 26, 2018, the IRS issued proposed regulations implementing Section 163(j), including application to consolidated groups with both regulated utility and non-regulated members. Based on its interpretation of these proposed regulations, FirstEnergy has estimated the amount of deductible interest for its consolidated group in 2019 and 2018 and has recorded a deferred tax asset on the nondeductible portion as it is carried forward with an indefinite life. However, the deferred tax asset related to the carryforward of nondeductible interest has a full valuation allowance recorded against it as future profitability from sources other than regulated utility businesses is required for utilization. In 2019 and 2018, FirstEnergy recorded tax expense of $54 million and $60 million, respectively, resulting from the valuation allowance, of which $14 million and $27 million has been reflected as an uncertain tax position in 2019 and 2018, respectively. All tax expense related to nondeductible interest in 2019 and 2018 has been recorded in discontinued operations as it is entirely attributed to the inclusion of the FES Debtors in FirstEnergy's consolidated group and therefore, pursuant to the Intercompany Tax Sharing Agreement, has been allocated to the FES Debtors. FE has fully reserved the amount of non-deductible interest allocated to the FES Debtors in connection with the on-going reconciliations under the Intercompany Tax Allocation Agreement with the FES Debtors.

See Note 1, "Organization and Basis of Presentation," for further discussion of the settlement among FirstEnergy, the FES Key Creditor Groups, the FES Debtors and the UCC.

Competitive Generation Asset Sales

FirstEnergy announced in January 2017 that AE Supply and AGC had entered into an asset purchase agreement with a subsidiary of LS Power Equity Partners III, LP, as amended and restated in August 2017, to sell four natural gas generating plants, AE Supply's interest in the Buchanan Generating facility and approximately 59% of AGC's interest in Bath County (1,615 MWs of combined capacity). On December 13, 2017, AE Supply completed the sale of the natural gas generating plants. On March 1, 2018, AE Supply completed the sale of the Buchanan Generating Facility. On May 3, 2018, AE Supply and AGC completed the sale of approximately 59% of AGC's interest in Bath County. Also, on May 3, 2018, following the closing of the sale by AGC of a portion of its ownership interest in Bath County, AGC completed the redemption of AE Supply's shares in AGC and AGC became a wholly owned subsidiary of MP.

On March 9, 2018, BSPC and FG entered into an asset purchase agreement with Walleye Power, LLC (formerly Walleye Energy, LLC), for the sale of the Bay Shore Generating Facility, including the 136 MW Bay Shore Unit 1 and other retired coal-fired generating equipment owned by FG. The Bankruptcy Court approved the sale on July 13, 2018, and the transaction was completed on July 31, 2018.

As contemplated under the FES Bankruptcy settlement agreement, AE Supply entered into an agreement on December 31, 2018, to transfer the 1,300 MW Pleasants Power Station and related assets to FG, while retaining certain specified liabilities.

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Under the terms of the agreement, FG acquired the economic interests in Pleasants as of January 1, 2019, and AE Supply operated Pleasants until it transferred, which, as discussed above, occurred on January 30, 2020. After closing, AE Supply will continue to provide access to the McElroy's Run CCR Impoundment Facility, which was not transferred, and FE will provide guarantees for certain retained environmental liabilities of AE Supply, including the McElroy’s Run CCR Impoundment Facility.

Individually, the AE Supply and BSPC asset sales and Pleasants Power Station transfer did not qualify for reporting as discontinued operations. However, in the aggregate, the transactions were part of management’s strategic review to exit commodity-exposed generation and, when considered with FES' and FENOC’s bankruptcy filings on March 31, 2018, represent a collective elimination of substantially all of FirstEnergy’s competitive generation fleet and meet the criteria for discontinued operations.

Summarized Results of Discontinued Operations

Summarized results of discontinued operations for the years ended December 31, 2019, 2018, and 2017 were as follows:

						For the Years Ended December 31,
(In millions)						2019						2018 (3)						2017 (3)
Revenues						$	188					$	989					$	3,055
Fuel						(140)						(304)						(879)
Purchased power						—						(84)						(268)
Other operating expenses						(63)						(435)						(1,499)
Provision for depreciation						—						(96)						(109)
General taxes						(14)						(35)						(103)
Impairment of assets(1)						—						—						(2,358)
Pleasants economic interest(2)						27						—						—
Other expense, net						(2)						(83)						(94)
Loss from discontinued operations, before tax						(4)						(48)						(2,255)
Income tax expense (benefit)						47						61						(820)
Loss from discontinued operations, net of tax						(51)						(109)						(1,435)
Gain on disposal of FES and FENOC, net of tax						59						435						—
Income (Loss) from discontinued operations						$	8					$	326					$	(1,435)

(1) Includes impairment of the FES nuclear facilities, the Pleasants Power Station ($120 million), and the competitive generation asset sale ($193 million).

(2) Reflects the estimated amounts owed from FG for its economic interests in Pleasants effective January 1, 2019, as further discussed above.

(3) Discontinued operations include results of FES and FENOC through March 31, 2018, when deconsolidated from FirstEnergy's financial statements.

The gain on disposal that was recognized in the year ended December 31, 2019 and 2018, consisted of the following:

						For the Years Ended December 31,
(In millions)						2019						2018
Removal of investment in FES and FENOC						$	—					$	2,193
Assumption of benefit obligations retained at FE						—						(820)
Guarantees and credit support provided by FE						—						(139)
Reserve on receivables and allocated pension/OPEB mark-to-market						—						(914)
Settlement consideration and services credit						7						(1,197)
Loss on disposal of FES and FENOC, before tax						7						(877)
Income tax benefit, including estimated worthless stock deduction						52						1,312
Gain on disposal of FES and FENOC, net of tax						$	59					$	435

As of December 31, 2019 and 2018, materials and supplies of $33 million and $25 million, respectively, are included in FirstEnergy's Consolidated Balance Sheets as Current assets - discontinued operations.

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FirstEnergy's Consolidated Statements of Cash Flows combines cash flows from discontinued operations with cash flows from continuing operations within each cash flow category. The following table summarizes the major classes of cash flow items from discontinued operations for the years ended December 31, 2019, 2018 and 2017:

						For the Years Ended December 31,
(In millions)						2019						2018						2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from discontinued operations						$	8					$	326					$	(1,435)
Gain on disposal, net of tax						(59)						(435)						—
Depreciation and amortization, including nuclear fuel, regulatory assets, net, intangible assets and deferred debt-related costs						—						110						333
Deferred income taxes and investment tax credits, net						47						61						(842)
Unrealized (gain) loss on derivative transactions						—						(10)						81
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions						—						(27)						(317)
Nuclear fuel						—						—						(254)
Sales of investment securities held in trusts						—						109						940
Purchases of investment securities held in trusts						—						(122)						(999)

4. ACCUMULATED OTHER COMPREHENSIVE INCOME

The changes in AOCI for the years ended December 31, 2019, 2018 and 2017, for FirstEnergy are shown in the following table:

						Gains & Losses on Cash Flow Hedges (1)						Unrealized Gains on AFS Securities						Defined Benefit Pension & OPEB Plans						Total
						(In millions)
AOCI Balance, January 1, 2017						$	(28)					$	52					$	150					$	174
Other comprehensive income before reclassifications						—						85						(11)						74
Amounts reclassified from AOCI						10						(63)						(74)						(127)
Other comprehensive income (loss)						10						22						(85)						(53)
Income tax (benefits) on other comprehensive income (loss)						4						7						(32)						(21)
Other comprehensive income (loss), net of tax						6						15						(53)						(32)
AOCI Balance, December 31, 2017						$	(22)					$	67					$	97					$	142
Other comprehensive income before reclassifications						—						(97)						(9)						(106)
Amounts reclassified from AOCI						8						(1)						(74)						(67)
Deconsolidation of FES and FENOC						13						(8)						—						5
Other comprehensive income (loss)						21						(106)						(83)						(168)
Income tax (benefits) on other comprehensive income (loss)						10						(39)						(38)						(67)
Other comprehensive income (loss), net of tax						11						(67)						(45)						(101)
AOCI Balance, December 31, 2018						$	(11)					$	—					$	52					$	41
Other comprehensive income before reclassifications						—						—						(2)						(2)
Amounts reclassified from AOCI						2						—						(29)						(27)
Other comprehensive income (loss)						2						—						(31)						(29)
Income tax (benefits) on other comprehensive income (loss)						—						—						(8)						(8)
Other comprehensive income (loss), net of tax						2						—						(23)						(21)
AOCI Balance, December 31, 2019						$	(9)					$	—					$	29					$	20

(1) Relates to previous cash flow hedges used to hedge fixed rate long-term debt securities prior to their issuance.

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The following amounts were reclassified from AOCI for FirstEnergy in the years ended December 31, 2019, 2018 and 2017:

						Year Ended December 31,																		Affected Line Item in Consolidated Statements of Income (Loss)
Reclassifications from AOCI (1)						2019						2018 (2)						2017
						(In millions)
Gains & losses on cash flow hedges
Commodity contracts						$	—					$	1					$	2					Other operating expenses
Long-term debt						2						7						8						Interest expense
						—						(2)						(4)						Income taxes
						$	2					$	6					$	6					Net of tax
Unrealized gains on AFS securities
Realized gains on sales of securities						$	—					$	(1)					$	(40)					Discontinued operations
Defined benefit pension and OPEB plans
Prior-service costs						$	(29)					$	(74)					$	(74)					(3)
						8						19						28						Income taxes
						$	(21)					$	(55)					$	(46)					Net of tax
(1) Amounts in parenthesis represent credits to the Consolidated Statements of Income (Loss) from AOCI.
(2) Includes stranded tax amounts reclassified from AOCI in connection with the adoption of ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income".
(3) Prior-service costs are reported within Miscellaneous income, net within Other Income (Expense) on FirstEnergy’s Consolidated Statements of Income (Loss). Components are included in the computation of net periodic cost (credits), see Note 5, "Pension and Other Postemployment Benefits," for additional details.

5. PENSION AND OTHER POSTEMPLOYMENT BENEFITS

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. Under the cash-balance portion of the Pension Plan (for employees hired on or after January 1, 2014), FirstEnergy makes contributions to eligible employee retirement accounts based on a pay credit and an interest credit. 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 pension 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.

FirstEnergy recognizes a pension and OPEB mark-to-market adjustment for the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement. The remaining components of pension and OPEB expense, primarily service costs, interest on obligations, assumed return on assets and prior service costs, are recorded on a monthly basis. The pension and OPEB mark-to-market adjustment for the years ended December 31, 2019, 2018, and 2017 were $676 million, $145 million, and $141 million, respectively. Of these amounts, approximately $2 million, $1 million, and $39 million, are included in discontinued operations for the years ended December 31, 2019, 2018, and 2017, respectively. In 2019, the pension and OPEB mark-to-market adjustment primarily reflects a 110 bps decrease in the discount rate used to measure benefit obligations and higher than expected asset returns.

FirstEnergy’s pension and OPEB funding policy is based on actuarial computations using the projected unit credit method. In January 2018, FirstEnergy satisfied its minimum required funding obligations to its qualified pension plan of $500 million and addressed anticipated required funding obligations through 2020 to its pension plan with an additional contribution of $750 million. On February 1, 2019, FirstEnergy made a $500 million voluntary cash contribution to the qualified pension plan. FirstEnergy expects no required contributions through 2021.

Pension and OPEB costs are affected by employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plans and earnings on plan assets. Pension and OPEB costs may also be affected by changes in key assumptions, including anticipated rates of return on plan assets, the discount rates and health care trend rates used in determining the projected benefit obligations for pension and OPEB costs. FirstEnergy uses a December 31 measurement date for its pension and OPEB plans. The fair value of the plan assets represents the actual market value as of the measurement date.

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FirstEnergy’s assumed rate of return on pension plan assets considers historical market returns and economic forecasts for the types of investments held by the pension trusts. In 2019, FirstEnergy’s pension and OPEB plan assets experienced gains of $1,492 million, or 20.2%, compared to losses of $371 million, or (4.0)%, in 2018 and gains of $999 million, or 15.1%, in 2017, and assumed a 7.50% rate of return for 2019, 2018 and 2017 which generated $569 million, $605 million and $478 million of expected returns on plan assets, respectively. The expected return on pension and OPEB assets is based on the trusts’ asset allocation targets and the historical performance of risk-based and fixed income securities. The gains or losses generated as a result of the difference between expected and actual returns on plan assets will decrease or increase future net periodic pension and OPEB cost as the difference is recognized annually in the fourth quarter of each fiscal year or whenever a plan is determined to qualify for remeasurement.

During 2019, the Society of Actuaries published new mortality tables that include more current data than the RP-2014 tables as well as new improvement scales. An analysis of FirstEnergy pension and OPEB plan mortality data indicated the use of the Pri-2012 mortality table with projection scale MP-2019 was most appropriate. As such, the Pri-2012 mortality table with projection scale MP-2019 was utilized to determine the 2019 benefit cost and obligation as of December 31, 2019 for the FirstEnergy pension and OPEB plans. The impact of using the Pri-2012 mortality table with projection scale MP-2019 resulted in a decrease to the projected benefit obligation approximately $29 million and $3 million for the pension and OPEB plans, respectively, and was included in the 2019 pension and OPEB mark-to-market adjustment.

Effective in 2019, FirstEnergy changed the approach utilized to estimate the service cost and interest cost components of net periodic benefit cost for pension and OPEB plans. Historically, FirstEnergy estimated these components utilizing a single, weighted average discount rate derived from the yield curve used to measure the benefit obligation. FirstEnergy has elected to use a spot rate approach in the estimation of the components of benefit cost by applying specific spot rates along the full yield curve to the relevant projected cash flows, as this provides a better estimate of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This election is considered a change in estimate and, accordingly, accounted for prospectively, and did not have a material impact on FirstEnergy's financial statements.

Following adoption of ASU 2017-07, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" in 2018, service costs, net of capitalization, continue to be reported within Other operating expenses on the FirstEnergy Consolidated Statements of Income (Loss). Non-service costs are reported within Miscellaneous income, net, within Other Income (Expense).

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						Pension												OPEB
Obligations and Funded Status - Qualified and Non-Qualified Plans						2019						2018						2019						2018
						(In millions)
Change in benefit obligation:
Benefit obligation as of January 1						$	9,462					$	10,167					$	608					$	731
Service cost						193						224						3						5
Interest cost						373						372						22						25
Plan participants’ contributions						—						—						4						3
Plan amendments						2						5						—						5
Special termination benefits						14						31						—						8
Medicare retiree drug subsidy						—						—						1						1
Annuity purchase						—						(129)						—						—
Actuarial (gain) loss						1,535						(710)						64						(121)
Benefits paid						(529)						(498)						(48)						(49)
Benefit obligation as of December 31						$	11,050					$	9,462					$	654					$	608
Change in fair value of plan assets:
Fair value of plan assets as of January 1						$	6,984					$	6,704					$	408					$	439
Actual return on plan assets						1,419						(363)						73						(8)
Annuity purchase						—						(129)						—						—
Company contributions						521						1,270						21						22
Plan participants’ contributions						—						—						4						3
Benefits paid						(529)						(498)						(48)						(48)
Fair value of plan assets as of December 31						$	8,395					$	6,984					$	458					$	408
Funded Status:
Qualified plan						$	(2,203)					$	(2,093)					$	—					$	—
Non-qualified plans						(452)						(385)						—						—
Funded Status (Net liability as of December 31)						$	(2,655)					$	(2,478)					$	(196)					$	(200)
Accumulated benefit obligation						$	10,439					$	8,951					$	—					$	—
Amounts Recognized in AOCI:
Prior service cost (credit)						$	24					$	30					$	(85)					$	(121)
Assumptions Used to Determine Benefit Obligations
(as of December 31)
Discount rate						3.34		%				4.44		%				3.18		%				4.30		%
Rate of compensation increase						4.10		%				4.10		%				N/A						N/A
Cash balance weighted average interest crediting rate						2.57		%				3.34		%				N/A						N/A
Assumed Health Care Cost Trend Rates
(as of December 31)
Health care cost trend rate assumed (pre/post-Medicare)						N/A						N/A						6.0-5.5%						6.0-5.5%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)						N/A						N/A						4.5		%				4.5		%
Year that the rate reaches the ultimate trend rate						N/A						N/A						2028						2028
Allocation of Plan Assets (as of December 31)
Equity securities						29		%				34		%				54		%				48		%
Fixed Income						36		%				34		%				30		%				35		%
Hedge funds						9		%				11		%				—		%				—		%
Insurance-linked securities						2		%				2		%				—		%				—		%
Real estate funds						7		%				10		%				—		%				—		%
Derivatives						—		%				2		%				—		%				—		%
Private equity funds						4		%				2		%				—		%				—		%
Cash and short-term securities						13		%				5		%				16		%				17		%
Total						100		%				100		%				100		%				100		%

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Components of Net Periodic Benefit Costs for the Years Ended December 31,						Pension																		OPEB
						2019						2018						2017						2019						2018						2017
						(In millions)
Service cost						$	193					$	224					$	208					$	3					$	5					$	5
Interest cost						373						372						390						22						25						27
Expected return on plan assets						(540)						(574)						(448)						(29)						(31)						(30)
Amortization of prior service costs (credits)						7						7						7						(36)						(81)						(81)
Special termination costs (1)						14						31						—						—						8						—
Pension & OPEB mark-to-market adjustment						656						227						108						20						(82)						13
Net periodic benefit costs (credits)						$	703					$	287					$	265					$	(20)					$	(156)					$	(66)

(1) Subject to a cap, FirstEnergy has agreed to fund a pension enhancement through its pension plan, for voluntary enhanced retirement packages offered to certain FES employees, as well as offer certain other employee benefits (approximately $14 million recognized for the year ended December 31, 2019).

Assumptions Used to Determine Net Periodic Benefit Cost for the Years Ended December 31,*						Pension																		OPEB
						2019						2018						2017						2019						2018						2017
Weighted-average discount rate						4.44		%				3.75		%				4.25		%				4.30		%				3.50		%				4.00		%
Expected long-term return on plan assets						7.50		%				7.50		%				7.50		%				7.50		%				7.50		%				7.50		%
Rate of compensation increase						4.10		%				4.20		%				4.20		%				N/A						N/A						N/A

*Excludes impact of pension and OPEB mark-to-market adjustment.

Amounts in the tables above include FES Debtors' share of the net periodic pension and OPEB costs (credits) of $242 million and $(19) million, respectively, for the year ended December 31, 2019. The FES Debtors' share of the net periodic pension and OPEB costs (credits) were $64 million and $(25) million, respectively, for the year ended December 31, 2018, and $60 million and $(17) million, respectively, for the year ended December 31, 2017. The 2019 special termination costs associated with FES' voluntary enhanced retirement package are a component of Discontinued operations in FirstEnergy's Consolidated Statements of Income (Loss). Following the FES Debtors’ voluntary bankruptcy filing, FE has billed the FES Debtors approximately $37 million and $42 million for their share of pension and OPEB service costs for the years ended December 31, 2019 and 2018, respectively. 

In selecting an assumed discount rate, FirstEnergy considers currently available rates of return on high-quality fixed income investments expected to be available during the period to maturity of the pension and OPEB obligations. The assumed rates of return on plan assets consider historical market returns and economic forecasts for the types of investments held by FirstEnergy’s pension trusts. The long-term rate of return is developed considering the portfolio’s asset allocation strategy.

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The following tables set forth pension financial assets that are accounted for at fair value by level within the fair value hierarchy. See Note 10, "Fair Value Measurements," for a description of each level of the fair value hierarchy. There were no significant transfers between levels during 2019 and 2018.

						December 31, 2019																								Asset Allocation
						Level 1						Level 2						Level 3						Total
						(In millions)
Cash and short-term securities						$	—					$	1,069					$	—					$	1,069					13		%
Equities						1,532						828						—						2,360						29		%
Fixed income:
Corporate bonds						—						2,064						—						2,064						25		%
Other(3)						—						880						—						880						11		%
Alternatives:
Derivatives						(40)						—						—						(40)						—		%
Total (1)						$	1,492					$	4,841					$	—					$	6,333					78		%
Private equity funds (2)																								342						4		%
Insurance-linked securities (2)																								186						2		%
Hedge funds (2)																								774						9		%
Real estate funds (2)																								584						7		%
Total Investments																								$	8,219					100		%

(1)Excludes $176 million as of December 31, 2019, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table.

(2)Net Asset Value used as a practical expedient to approximate fair value.

(3)Includes insurance annuities, bank loans and emerging markets debt.

						December 31, 2018																								Asset Allocation
						Level 1						Level 2						Level 3						Total
						(In millions)
Cash and short-term securities						$	—					$	342					$	—					$	342					5		%
Equities						1,115						1,256						—						2,371						34		%
Fixed income:
Government bonds						—						59						—						59						1		%
Corporate bonds						—						1,674						—						1,674						23		%
Other(4)						—						667						—						667						10		%
Alternatives:
Derivatives						108						—						—						108						2		%
Total (1)						$	1,223					$	3,998					$	—					$	5,221					75		%
Private equity funds (2)																								143						2		%
Insurance-linked securities (2)																								108						2		%
Hedge funds (3)																								779						11		%
Real estate funds (3)																								665						10		%
Total Investments																								$	6,916					100		%

(1)Excludes $68 million as of December 31, 2018, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table.

(2)Net asset value used as a practical expedient to approximate fair value.

(3)The classification of Level 2 and 3 assets from the prior year, $779 million and $665 million, respectively, was adjusted in the current year presentation and included outside of the fair value hierarchy table as of December 31, 2018, as investments for which Net Asset Value is used as a practical expedient to approximate fair value in accordance with ASU 2015-07 "Disclosure for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)". 

(4)Includes insurance annuities, bank loans and emerging markets debt.

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As of December 31, 2019 and 2018, the OPEB trust investments measured at fair value were as follows:

						December 31, 2019																								Asset Allocation
						Level 1						Level 2						Level 3						Total
						(In millions)
Cash and short-term securities						$	—					$	72					$	—					$	72					16		%
Equity investment:
Domestic						246						—						—						246						54		%
Fixed income:
Government bonds						—						100						—						100						22		%
Corporate bonds						—						34						—						34						7		%
Mortgage-backed securities (non-government)												5						—						5						1		%
Total (1)						$	246					$	211					$	—					$	457					100		%

(1) Excludes $1 million as of December 31, 2019, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table.

						December 31, 2018																								Asset Allocation
						Level 1						Level 2						Level 3						Total
						(In millions)
Cash and short-term securities						$	—					$	71					$	—					$	71					17		%
Equity investment:
Domestic						196						—						—						196						48		%
Fixed income:
Government bonds						—						107						—						107						26		%
Corporate bonds						—						32						—						32						8		%
Mortgage-backed securities (non-government)												4						—						4						1		%
Total (1)						$	196					$	214					$	—					$	410					100		%

(1) Excludes $(2) million as of December 31, 2018, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table.

FirstEnergy follows a total return investment approach using a mix of equities, fixed income and other available investments while taking into account the pension plan liabilities to optimize the long-term return on plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalization funds. Other assets such as real estate and private equity are used to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives are not used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on a continuing basis through periodic investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

FirstEnergy’s target asset allocations for its pension and OPEB trust portfolios for 2019 and 2018 are shown in the following table:

Target Asset Allocations
						2019						2018
Equities						38		%				38		%
Fixed income						30		%				30		%
Hedge funds						8		%				8		%
Real estate						10		%				10		%
Alternative investments						8		%				8		%
Cash						6		%				6		%
						100		%				100		%

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Taking into account estimated employee future service, FirstEnergy expects to make the following benefit payments from plan assets and other payments, net of participant contributions:

												OPEB
						Pension						Benefit Payments						Subsidy Receipts
						(In millions)
2020						$	547					$	52					$	(1)
2021						564						49						(1)
2022						573						48						(1)
2023						586						47						(1)
2024						593						46						(1)
Years 2025-2029						3,099						208						(3)

6. STOCK-BASED COMPENSATION PLANS

FirstEnergy grants stock-based awards through the ICP 2015, primarily in the form of restricted stock and performance-based restricted stock units. Under FirstEnergy's previous incentive compensation plan, the ICP 2007, FirstEnergy also granted stock options and performance shares. The ICP 2007 and ICP 2015 include shareholder authorization to issue 29 million shares and 10 million shares, respectively, of common stock or their equivalent. As of December 31, 2019, approximately 3.9 million shares were available for future grants under the ICP 2015 assuming maximum performance metrics are achieved for the outstanding cycles of restricted stock units. No shares are available for future grants under the ICP 2007. Shares not issued due to forfeitures or cancellations may be added back to the ICP 2015. Shares granted under the ICP 2007 and ICP 2015 are issued from authorized but unissued common stock. Vesting periods for stock-based awards range from one to ten years, with the majority of awards having a vesting period of three years. FirstEnergy also issues stock through its 401(k) Savings Plan, EDCP, and DCPD. Currently, FirstEnergy records the compensation costs for stock-based compensation awards that will be paid in stock over the vesting period based on the fair value on the grant date. FirstEnergy accounts for forfeitures as they occur.

FirstEnergy adjusts the compensation costs for stock-based compensation awards that will be paid in cash based on changes in the fair value of the award as of each reporting date. FirstEnergy records the actual tax benefit realized from tax deductions when awards are exercised or settled. Actual income tax benefits realized during the years ended December 31, 2019, 2018 and 2017, were $24 million, $15 million and $15 million, respectively. The income tax effects of awards are recognized in the income statement when the awards vest, are settled or are forfeited.

Stock-based compensation costs and the amount of stock-based compensation costs capitalized related to FirstEnergy plans for the years ended December 31, 2019, 2018 and 2017 are included in the following tables:

						For the Years Ended December 31,
Stock-based Compensation Plan						2019						2018						2017
						(In millions)
Restricted Stock Units						$	73					$	102					$	49
Restricted Stock						1						1						1
401(k) Savings Plan						33						33						42
EDCP & DCPD						9						7						6
Total						$	116					$	143					$	98
Stock-based compensation costs capitalized						$	54					$	60					$	37

There was no stock option expense for the years ended December 31, 2019, 2018 and 2017. Income tax benefits associated with stock-based compensation plan expense were $10 million, $18 million and $10 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Restricted Stock Units

Beginning with the performance-based restricted stock units granted in 2015, two-thirds of each award will be paid in stock and one-third will be paid in cash. Restricted stock units payable in stock provide the participant the right to receive, at the end of the period of restriction, a number of shares of common stock equal to the number of stock units set forth in the agreement, subject to adjustment based on FirstEnergy's performance relative to financial and operational performance targets applicable to each award. The grant date fair value of the stock portion of the restricted stock unit award is measured based on the average of the high and low prices of FE common stock on the date of grant. Beginning with awards granted in 2018, restricted stock units include a performance metric consisting of a relative total shareholder return modifier utilizing the S&P 500 Utility Index as a comparator group. The estimated grant date fair value for these awards is calculated using the Monte Carlo simulation method.

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Restricted stock units payable in cash provide the participant the right to receive cash based on the number of stock units set forth in the agreement and value of the equivalent number of shares of FE common stock as of the vesting date. The cash portion of the restricted stock unit award is considered a liability award, which is remeasured each period based on FE's stock price and projected performance adjustments. The liability recorded for the portion of performance-based restricted stock units payable in cash in the future as of December 31, 2019, was $46 million. During 2019, approximately $44 million was paid in relation to the cash portion of restricted stock unit obligations that vested in 2019.

The vesting period for the performance-based restricted stock unit awards granted in 2017, 2018 and 2019, were each three years. Dividend equivalents are received on the restricted stock units and are reinvested in additional restricted stock units and subject to the same performance conditions as the underlying award.

Restricted stock unit activity for the year ended December 31, 2019, was as follows:

Restricted Stock Unit Activity						Shares (in millions)						Weighted-Average Grant Date Fair Value (per share)
Nonvested as of January 1, 2019						3.3						$	33.78
Granted in 2019						1.9						41.23
Forfeited in 2019						(0.4)						37.23
Vested in 2019(1)						(2.2)						40.73
Nonvested as of December 31, 2019						2.6						$	36.20

(1) Excludes dividend equivalents of approximately 636 thousand shares earned during vesting period.

The weighted-average fair value of awards granted in 2019, 2018 and 2017 was $41.23, $36.78 and $31.71 per share, respectively. For the years ended December 31, 2019, 2018, and 2017, the fair value of restricted stock units vested was $91 million, $62 million, and $42 million, respectively. As of December 31, 2019, there was approximately $31 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted for restricted stock units, which is expected to be recognized over a period of approximately three years.

Restricted Stock

Certain employees receive awards of FE restricted stock (as opposed to "units" with the right to receive shares at the end of the restriction period) subject to restrictions that lapse over a defined period of time or upon achieving performance results. The fair value of restricted stock is measured based on the average of the high and low prices of FE common stock on the date of grant. Dividends are received on the restricted stock and are reinvested in additional shares of restricted stock, subject to the vesting conditions of the underlying award. Restricted stock activity for the year ended December 31, 2019, was not material.

Stock Options

Stock options have been granted to certain employees allowing them to purchase a specified number of common shares at a fixed exercise price over a defined period of time. Stock options generally expire ten years from the date of grant. There were no stock options granted in 2019. Stock option activity for the year ended December 31, 2019 was as follows:

Stock Option Activity						Number of Shares (in millions)						Weighted Average Exercise Price (per share)
Balance, January 1, 2019 (all options exercisable)						0.8						$	37.37
Options exercised						(0.6)						37.26
Options forfeited						(0.1)						37.72
Balance, December 31, 2019 (all options exercisable)						0.1						$	37.75

Approximately $23 million and $12 million of cash was received from the exercise of stock options in 2019 and 2018, respectively. There was no cash received from the exercise of stock options in 2017. The weighted-average remaining contractual term of options outstanding as of December 31, 2019, was 2.16 years.

401(k) Savings Plan

In 2019 and 2018, approximately 1 million and 1.3 million shares of FE common stock, respectively, were issued and contributed to participants' accounts.

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EDCP

Under the EDCP, certain employees can defer a portion of their compensation, including base salary, annual incentive awards and/or long-term incentive awards, into unfunded accounts. Annual incentive and long-term incentive awards may be deferred in FE stock accounts. Base salary and annual incentive awards may be deferred into a retirement cash account which earns interest. Dividends are calculated quarterly on stock units outstanding and are credited in the form of additional stock units. The form of payout as stock or cash vary depending upon the form of the award, the duration of the deferral and other factors. Certain types of deferrals such as dividend equivalent units, Annual incentive awards, and performance share awards are required to be paid in cash. Until 2015, payouts of the stock accounts typically occurred three years from the date of deferral, although participants could have elected to defer their shares into a retirement stock account that would pay out in cash upon retirement. In 2015, FirstEnergy amended the EDCP to eliminate the right to receive deferred shares after three years, effective for deferrals made on or after November 1, 2015. Awards deferred into a retirement stock account will pay out in cash upon separation from service, death or disability. Interest accrues on the cash allocated to the retirement cash account and the balance will pay out in cash over a time period as elected by the participant.

DCPD

Under the DCPD, members of FE's Board of Directors can elect to defer all or a portion of their equity retainers to a deferred stock account and their cash retainers to deferred stock or deferred cash accounts. The net liability recognized for DCPD of approximately $9 million as of December 31, 2019 and December 31, 2018, is included in the caption “Retirement benefits,” on the Consolidated Balance Sheets.

7. TAXES

FirstEnergy records income taxes in accordance with the liability method of accounting. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recognized for tax purposes. Investment tax credits, which were deferred when utilized, are being amortized over the recovery period of the related property. Deferred income tax liabilities related to temporary tax and accounting basis differences and tax credit carryforward items are recognized at the statutory income tax rates in effect when the liabilities are expected to be paid. Deferred tax assets are recognized based on income tax rates expected to be in effect when they are settled.

FE and its subsidiaries, as well as FES and FENOC, are party to an intercompany income tax allocation agreement that provides for the allocation of consolidated tax liabilities. Net tax benefits attributable to FE, excluding any tax benefits derived from interest expense associated with acquisition indebtedness from the merger with GPU, are reallocated to the subsidiaries of FE that have taxable income. That allocation is accounted for as a capital contribution to the company receiving the tax benefit. FES and FENOC are expected to remain parties to the intercompany tax allocation agreement until their emergence from bankruptcy, which is when they will no longer be part of FirstEnergy's consolidated tax group.

On December 22, 2017, the President signed into law the Tax Act, which included significant changes to the Internal Revenue Code of 1986 (as amended, the Code). The more significant changes that impacted FirstEnergy were as follows:

•Reduction of the corporate federal income tax rate from 35% to 21%, effective in 2018;

•Full expensing of qualified property, excluding rate regulated utilities, through 2022 with a phase down beginning in 2023;

•Limitations on interest deductions with an exception for rate regulated utilities, effective in 2018;

•Limitation of the utilization of federal NOLs arising after December 31, 2017 to 80% of taxable income with an indefinite carryforward;

•Repeal of the corporate AMT and allowing taxpayers to claim a refund on any AMT credit carryovers.

						For the Years Ended December 31,
INCOME TAXES(1)						2019						2018						2017
						(In millions)
Currently payable (receivable)-
Federal						$	(16)					$	(16)					$	14
State(2)						24						17						20
						8						1						34
Deferred, net-
Federal(3)						150						252						1,647
State(4)						60						243						40
						210						495						1,687
Investment tax credit amortization						(5)						(6)						(6)
Total income taxes						$	213					$	490					$	1,715

(1)Income Taxes on Income from Continuing Operations.

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(2)Excludes $1 million and $22 million of state tax expense associated with discontinued operations for the years ended December 31, 2018 and 2017, respectively.

(3)Excludes $(9) million, $(1.3) billion and $(771) million of federal tax benefit associated with discontinued operations for the years ended December 31, 2019, 2018 and 2017, respectively.

(4)Excludes $4 million, $12 million and $(69) million of state tax expense (benefit) associated with discontinued operations for the years ended December 31, 2019, 2018 and 2017, respectively.

FirstEnergy tax rates are affected by permanent items, such as AFUDC equity and other flow-through items, as well as discrete items that may occur in any given period, but are not consistent from period to period. The following tables provide a reconciliation of federal income tax expense (benefit) at the federal statutory rate to the total income taxes (benefits) for the years ended December 31, 2019, 2018 and 2017:

			For the Years Ended December 31,
			2019						2018						2017
			(In millions)
Income from Continuing Operations, before income taxes			$	1,117					$	1,512					$	1,426
Federal income tax expense at statutory rate (21%, 21%, and 35% for 2019, 2018, and 2017, respectively)			$	235					$	318					$	499
Increases (reductions) in taxes resulting from-
State income taxes, net of federal tax benefit			96						90						40
AFUDC equity and other flow-through			(36)						(31)						(15)
Amortization of investment tax credits			(5)						(5)						(6)
ESOP dividend			(3)						(3)						(5)
Remeasurement of deferred taxes			—						24						1,193
WV unitary group remeasurement			—						126						—
Excess deferred tax amortization due to the Tax Act			(74)						(60)						—
Uncertain tax positions			(11)						2						(3)
Valuation allowances			5						21						11
Other, net			6						8						1
Total income taxes			$	213					$	490					$	1,715
Effective income tax rate			19.1		%				32.4		%				120.3		%

FirstEnergy's effective tax rate on continuing operations for 2019 and 2018 was 19.1% and 32.4%, respectively. The decrease in the effective tax rate resulted primarily from the absence of charges that occurred in 2018, including approximately $24 million related to the remeasurement of deferred income taxes resulting from the Tax Act and approximately $126 million associated with the remeasurement of West Virginia state deferred income taxes, resulting from the legal and financial separation of FES and FENOC from FirstEnergy, which occurred in the first quarter of 2018 (see Note 3, "Discontinued Operations" for other tax matters relating to the FES Bankruptcy that were recognized in discontinued operations). In addition, in 2019, FirstEnergy's regulated distribution and transmission subsidiaries recognized an increase in the tax benefit associated with the amortization of net excess deferred income taxes as compared to 2018 (see Note 14, "Regulatory Matters," for additional detail).

Accumulated deferred income taxes as of December 31, 2019 and 2018, are as follows:

						As of December 31,
						2019						2018
						(In millions)
Property basis differences						$	5,037					$	4,737
Pension and OPEB						(698)						(629)
TMI-2 nuclear decommissioning						89						82
AROs						(226)						(215)
Regulatory asset/liability						445						414
Deferred compensation						(154)						(170)
Estimated worthless stock deduction						(1,007)						(1,004)
Loss carryforwards and AMT credits						(836)						(899)
Valuation reserve						441						394
All other						(242)						(208)
Net deferred income tax liability						$	2,849					$	2,502

FirstEnergy has recorded as deferred income tax assets the effect of Federal NOLs and tax credits that will more likely than not be realized through future operations and through the reversal of existing temporary differences. As of December 31, 2019,

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FirstEnergy's loss carryforwards and AMT credits consisted of $2.1 billion ($441 million, net of tax) of Federal NOL carryforwards that will begin to expire in 2031 and Federal AMT credits of $9 million that have an indefinite carryforward period.

The table below summarizes pre-tax NOL carryforwards for state and local income tax purposes of approximately $6.8 billion ($361 million, net of tax) for FirstEnergy, of which approximately $1.5 billion ($103 million, net of tax) is expected to be utilized based on current estimates and assumptions. The ultimate utilization of these NOLs may be impacted by statutory limitations on the use of NOLs imposed by state and local tax jurisdictions, changes in statutory tax rates, and changes in business which, among other things, impact both future profitability and the manner in which future taxable income is apportioned to various state and local tax jurisdictions. In addition to the valuation allowances on state and local NOLs, FirstEnergy has recorded a reserve against certain state and local property related DTAs (approximately $62 million, net of tax) and a reserve against the estimated nondeductible portion of interest expense, discussed above.

Expiration Period						State						Local
						(In millions)
2020-2024						$	1,844					$	1,081
2025-2029						1,652						—
2030-2034						1,265						—
2035-2039						886						—
Indefinite						67						—
						$	5,714					$	1,081

FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements. A recognition threshold and measurement attribute are utilized for financial statement recognition and measurement of tax positions taken or expected to be taken on the tax return. As of December 31, 2019 and 2018, FirstEnergy's total unrecognized income tax benefits were approximately $164 million and $158 million, respectively. The change in unrecognized income tax benefits from the prior year is primarily attributable to increases of approximately $14 million for the reserve for estimated nondeductible interest under Section 163(j) and $6 million for reserves on the estimated worthless stock deduction (see Note 3, Discontinued Operations, for further discussion). These increases were partially offset by a remeasurement of the 2018 reserve related to the estimated nondeductible interest under Section 163(j) of approximately $11 million, as well as a $3 million decrease due to the lapse in statute in certain state taxing jurisdictions. If ultimately recognized in future years, approximately $151 million of unrecognized income tax benefits would impact the effective tax rate.

As of December 31, 2019, it is reasonably possible that approximately $59 million of unrecognized tax benefits may be resolved during 2020 as a result of settlements with taxing authorities or the statute of limitations expiring, of which $57 million would affect FirstEnergy's effective tax rate.

The following table summarizes the changes in unrecognized tax positions for the years ended December 31, 2019, 2018 and 2017:

						(In millions)
Balance, January 1, 2017						$	84
Current year increases						2
Decrease for lapse in statute						(6)
Balance, December 31, 2017						$	80
Current year increases						125
Prior year decreases						(45)
Decrease for lapse in statute						(2)
Balance, December 31, 2018						$	158
Current year increases						22
Prior years decreases						(12)
Decrease for lapse in statute						(4)
Balance, December 31, 2019						$	164

FirstEnergy recognizes interest expense or income and penalties related to uncertain tax positions in income taxes by applying the applicable statutory interest rate to the difference between the tax position recognized and the amount previously taken, or expected to be taken, on the tax return. FirstEnergy's recognition of net interest associated with unrecognized tax benefits in 2019, 2018 and 2017, was not material. For the years ended December 31, 2019 and 2018, the cumulative net interest payable recorded by FirstEnergy was not material.

FirstEnergy has tax returns that are under review at the audit or appeals level by the IRS and state taxing authorities. In June 2019, the IRS completed its examination of FirstEnergy's 2017 federal income tax return and issued a Full Acceptance Letter

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with no changes or adjustments to FirstEnergy's taxable income. Tax year 2018 is currently under review by the IRS. FirstEnergy's tax returns for some state jurisdictions are open from 2009-2018.

General Taxes

General tax expense for the years ended December 31, 2019, 2018 and 2017, recognized in continuing operations is summarized as follows:

						For the Years Ended December 31,
						2019						2018						2017
						(In millions)
KWH excise						$	191					$	198					$	188
State gross receipts						185						192						184
Real and personal property						504						478						452
Social security and unemployment						100						103						96
Other						28						22						20
Total general taxes						$	1,008					$	993					$	940

8. LEASES

FirstEnergy primarily leases vehicles as well as building space, office equipment, and other property and equipment under cancelable and non-cancelable leases. FirstEnergy does not have any material leases in which it is the lessor.

FirstEnergy adopted ASU 2016-02, “Leases (Topic 842)” on January 1, 2019, and elected a number of transitional practical expedients provided within the standard. These included a “package of three” expedients that must be taken together and allowed entities to: (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases. In addition, FirstEnergy elected the option to apply the requirements of the standard in the period of adoption (January 1, 2019) with no restatement of prior periods. Adoption of the standard on January 1, 2019, did not result in a material cumulative effect adjustment upon adoption. FirstEnergy did not evaluate land easements under the new guidance as they were not previously accounted for as leases. FirstEnergy also elected not to separate lease components from non-lease components as non-lease components were not material.

Leases with an initial term of 12 months or less are recognized as lease expense on a straight-line basis over the lease term and not recorded on the balance sheet. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 40 years, and certain leases include options to terminate. The exercise of lease renewal options is at FirstEnergy’s sole discretion. Renewal options are included within the lease liability if they are reasonably certain based on various factors relative to the contract. Certain leases also include options to purchase the leased property. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. FirstEnergy’s lease agreements do not contain any material restrictive covenants.

For vehicles leased under master lease agreements, the lessor is guaranteed a residual value up to a stated percentage of the equipment cost at the end of the lease term. As of December 31, 2019, the maximum potential loss for these lease agreements at the end of the lease term is approximately $15 million.

Finance leases for assets used in regulated operations are recognized in FirstEnergy’s Consolidated Statements of Income (Loss) such that amortization of the right-of-use asset and interest on lease liabilities equals the expense allowed for ratemaking purposes. Finance leases for regulated and non-regulated operations are accounted for as if the assets were owned and financed, with associated expense recognized in Interest expense and Provision for depreciation on FirstEnergy’s Consolidated Statements of Income (Loss), while all operating lease expenses are recognized in Other operating expense. The components of lease expense were as follows:

						For the Year Ended December 31, 2019
(In millions)						Vehicles						Buildings						Other						Total
Operating lease costs (1)						$	28					$	9					$	12					$	49
Finance lease costs:
Amortization of right-of-use assets						15						1						1						17
Interest on lease liabilities						3						3						—						6
Total finance lease cost						18						4						1						23
Total lease cost						$	46					$	13					$	13					$	72

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(1) Includes $13 million of short-term lease costs.

Supplemental cash flow information related to leases was as follows:

(In millions)						For the Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases						$	29
Operating cash flows from finance leases						5
Finance cash flows from finance leases						25
Right-of-use assets obtained in exchange for lease obligations:
Operating leases						$	83
Finance leases						3

Lease terms and discount rates were as follows:

						As of December 31, 2019
Weighted-average remaining lease terms (years)
Operating leases						9.42
Finance leases						4.62
Weighted-average discount rate (1)
Operating leases						4.51		%
Finance leases						10.45		%

(1) When an implicit rate is not readily determinable, an incremental borrowing rate is utilized, determining the present value of lease payments. The rate is determined based on expected term and information available at the commencement date.

Supplemental balance sheet information related to leases was as follows:

(In millions)

Financial Statement Line Item

As of December 31, 2019

Assets

Operating lease assets, net of accumulated amortization of $23 million

Deferred charges and other assets

$

231

Finance lease assets, net of accumulated amortization of $90 million

Property, plant and equipment

73

Total leased assets

$

304

Liabilities

Current:

Operating

Other current liabilities

$

32

Finance

Currently payable long-term debt

15

Noncurrent:

Operating

Other noncurrent liabilities

241

Finance

Long-term debt and other long-term obligations

45

Total leased liabilities

$

333

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Maturities of lease liabilities as of December 31, 2019, were as follows:

(In millions)						Operating Leases						Finance Leases						Total
2020						$	40					$	20					$	60
2021						40						17						57
2022						40						15						55
2023						36						8						44
2024						29						4						33
Thereafter						154						16						170
Total lease payments (1)						339						80						419
Less imputed interest						(66)						(20)						(86)
Total net present value						$	273					$	60					$	333

(1) Operating lease payments for certain leases are offset by sublease receipts of $13 million over 13 years.

As of December 31, 2019, additional operating leases agreements, primarily for vehicles, that have not yet commenced are $13 million. These leases are expected to commence within the next 18 months with lease terms of 3 to 10 years.

    

ASC 840, "Leases" Disclosures

The future minimum capital lease payments as of December 31, 2018, as reported in the 2018 Annual Report on Form 10-K for the year ended December 31, 2018 under ASC 840 ”Leases” are as follows:

Capital Leases
						(In millions)
2019						$	24
2020						19
2021						16
2022						13
2023						8
Years thereafter						16
Total minimum lease payments						96
Interest portion						(23)
Present value of net minimum lease payments						73
Less current portion						18
Noncurrent portion						$	55

The future minimum operating lease payments as of December 31, 2018, as reported in the 2018 Annual Report on Form 10-K for the year ended December 31, 2018 under ASC 840 ”Leases” are as follows:

Operating Leases
						(In millions)
2019						$	34
2020						36
2021						34
2022						30
2023						28
Years thereafter						127
Total minimum lease payments						$	289

Operating lease expense under ASC 840 ”Leases" for the years ended December 31, 2018 and 2017 were $48 million and $53 million, respectively.

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9. INTANGIBLE ASSETS

As of December 31, 2019, intangible assets classified in Other Deferred Charges on FirstEnergy’s Consolidated Balance Sheets include the following:

						Intangible Assets																		Amortization Expense
																								Actual						Estimated
(In millions)						Gross						Accumulated Amortization						Net						2019						2020						2021						2022						2023						2024						Thereafter
NUG contracts(1)						$	124					$	46					$	78					$	5					$	5					$	5					$	5					$	5					$	5					$	53
Coal contracts(2)						102						100						2						3						2						—						—						—						—						—
						$	226					$	146					$	80					$	8					$	7					$	5					$	5					$	5					$	5					$	53

(1)NUG contracts are subject to regulatory accounting and their amortization does not impact earnings.

(2)    The coal contracts were recorded with a regulatory offset and their amortization does not impact earnings.

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10. 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.

NUG contracts represent PPAs with third-party non-utility generators that are transacted to satisfy certain obligations under PURPA. NUG contract carrying values are recorded at fair value and adjusted periodically using a mark-to-model methodology, which approximates market. The primary unobservable inputs into the model are regional power prices and generation MWH. Pricing for the NUG contracts is a combination of market prices for the current year and next two 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 Intercontinental Exchange, Inc. 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. Significant increases or decreases in inputs in isolation may have resulted in a higher or lower fair value measurement.

For investments reported at NAV where there is no readily determinable fair value, a practical expedient is available that allows the NAV to approximate fair value. Investments that use NAV as a practical expedient are excluded from the requirement to be categorized within the fair value hierarchy tables. Instead, these investments are reported outside of the fair value hierarchy tables to assist in the reconciliation of investment balances reported in the tables to the balance sheet. FirstEnergy has elected the NAV practical expedient for investments in private equity funds, insurance-linked securities, hedge funds (absolute return) and real estate funds held within the pension plan. See Note 5, "Pension And Other Postemployment Benefits" for the pension financial assets accounted for at fair value by level within the fair value hierarchy.

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 December 31, 2019, from those used as of December 31, 2018. 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.

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The following tables set forth the recurring assets and liabilities that are accounted for at fair value by level within the fair value hierarchy:

			December 31, 2019																								December 31, 2018
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Assets			(In millions)
Corporate debt securities			$	—					$	135					$	—					$	135					$	—					$	405					$	—					$	405
Derivative assets FTRs(1)			—						—						4						4						—						—						10						10
Equity securities(2)			2						—						—						2						339						—						—						339
Foreign government debt securities			—						—						—						—						—						13						—						13
U.S. government debt securities			—						—						—						—						—						20						—						20
U.S. state debt securities			—						271						—						271						—						250						—						250
Other(3)			627						789						—						1,416						367						34						—						401
Total assets			$	629					$	1,195					$	4					$	1,828					$	706					$	722					$	10					$	1,438
Liabilities
Derivative liabilities FTRs(1)			$	—					$	—					$	(1)					$	(1)					$	—					$	—					$	(1)					$	(1)
Derivative liabilities NUG contracts(1)			—						—						(16)						(16)						—						—						(44)						(44)
Total liabilities			$	—					$	—					$	(17)					$	(17)					$	—					$	—					$	(45)					$	(45)
Net assets (liabilities)(4)			$	629					$	1,195					$	(13)					$	1,811					$	706					$	722					$	(35)					$	1,393

(1)Contracts are subject to regulatory accounting treatment and changes in market values do not impact earnings.

(2)NDT funds hold equity portfolios whose performance is benchmarked against the S&P 500 Low Volatility High Dividend Index, S&P 500 Index, MSCI World Index and MSCI AC World IMI Index.

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

(4)Excludes $(16) million and $4 million as of December 31, 2019, and December 31, 2018, 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 and FTRs that are classified as Level 3 in the fair value hierarchy for the years ended December 31, 2019 and December 31, 2018:

			NUG Contracts(1)																								FTRs(1)
			Derivative Assets						Derivative Liabilities						Net																								Derivative Assets						Derivative Liabilities						Net
			(In millions)
January 1, 2018 Balance			$	—					$	(79)					$	(79)																							$	3					$	—					$	3
Unrealized gain (loss)			—						2						2																								8						1						9
Purchases			—						—						—																								5						(5)						—
Settlements			—						33						33																								(6)						3						(3)
December 31, 2018 Balance			$	—					$	(44)					$	(44)																							$	10					$	(1)					$	9
Unrealized gain (loss)			—						(11)						(11)																								(1)						—						(1)
Purchases			—						—						—																								6						(4)						2
Settlements			—						39						39																								(11)						4						(7)
December 31, 2019 Balance			$	—					$	(16)					$	(16)																							$	4					$	(1)					$	3

(1)Contracts are subject to regulatory accounting treatment and changes in market values do not impact earnings.

Level 3 Quantitative Information

The following table provides quantitative information for FTRs and NUG contracts that are classified as Level 3 in the fair value hierarchy for the year ended December 31, 2019:

Fair Value, Net (In millions)

Valuation Technique

Significant Input

Range

Weighted Average

Units

FTRs

$

3

Model

RTO auction clearing prices

$0.70 to $3.40

$1.30

Dollars/MWH

NUG Contracts

$

(16)

Model

Generation Regional electricity prices

400 to 330,000 $25.30 to $35.20

115,000 $26.30

MWH Dollars/MWH

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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 NDTs of JCP&L, ME and PN are subject to regulatory accounting with all gains and losses on equity and AFS debt securities offset against regulatory assets.

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

Nuclear Decommissioning and Nuclear Fuel Disposal Trusts

JCP&L, ME and PN hold debt and equity securities within their respective NDT and nuclear fuel disposal trusts. The debt securities are classified as AFS securities, recognized at fair market value. As further discussed in Note 15, "Commitments, Guarantees and Contingencies", assets and liabilities held for sale on the FirstEnergy Consolidated Balance Sheets associated with the TMI-2 transaction consist of an ARO of $691 million , NDTs of $882 million, as well as property, plant and equipment with a net book value of zero, which are included in the regulated distribution segment.

The following table summarizes the amortized cost basis, unrealized gains, unrealized losses and fair values of investments held in NDT and nuclear fuel disposal trusts as of December 31, 2019 and December 31, 2018:

						December 31, 2019(1)																								December 31, 2018(2)
						Cost Basis						Unrealized Gains						Unrealized Losses						Fair Value(3)						Cost Basis						Unrealized Gains						Unrealized Losses						Fair Value
						(In millions)
Debt securities						$	403					$	9					$	(11)					$	401					$	714					$	2					$	(28)					$	688
Equity securities						$	—					$	—					$	—					$	—					$	339					$	15					$	(16)					$	338

(1)Excludes short-term cash investments of $751 million, of which $747 million is classified as held for sale.

(2)Excludes short-term cash investments of $20 million.

(3)Includes $135 million classified as held for sale.

Proceeds from the sale of investments in equity and AFS debt securities, realized gains and losses on those sales and interest and dividend income for the years ended December 31, 2019, 2018 and 2017, were as follows:

						For the Years Ended December 31,
						2019						2018(1)						2017(1)
						(In millions)
Sale Proceeds						$	1,637					$	800					$	1,230
Realized Gains						98						41						74
Realized Losses						(31)						(48)						(58)
Interest and Dividend Income						38						41						39

    (1) Excludes amounts classified as discontinued operations.

Other Investments

Other investments include employee benefit trusts, which are primarily invested in corporate-owned life insurance policies, and equity method investments. Other investments were $299 million and $253 million as of December 31, 2019 and December 31, 2018, respectively, and 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 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, premiums and discounts as of December 31, 2019 and 2018:

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			As of December 31,
			2019						2018
			(In millions)
Carrying Value (1)			$	20,074								$	18,315
Fair Value			22,928									19,266

(1) The carrying value as of December 31, 2019, includes $2.3 billion of debt issuances and $789 million of redemptions that occurred during 2019.

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 December 31, 2019 and December 31, 2018.

11. CAPITALIZATION

COMMON STOCK

Retained Earnings and Dividends

As of December 31, 2019, FirstEnergy had an accumulated deficit of $4.0 billion. Dividends declared in 2019 and 2018 were $1.53 and $1.82 per share, respectively. Dividends of $0.38 per share and $0.36 per share were paid in the first, second, third and fourth quarters in 2019 and 2018, respectively. On November 8, 2019, the Board of Directors declared a quarterly dividend of $0.39 per share to be paid from OPIC in the first quarter of 2020. The amount and timing of all dividend declarations are subject to the discretion of the Board of Directors and its consideration of business conditions, results of operations, financial condition and other factors.

In addition to paying dividends from retained earnings, OE, CEI, TE, Penn, JCP&L, ME and PN have authorization from FERC to pay cash dividends to FirstEnergy from paid-in capital accounts, as long as their FERC-defined equity-to-total-capitalization ratio remains above 35%. In addition, AGC has authorization from FERC to pay cash dividends to its parent from paid-in capital accounts, as long as its FERC-defined equity-to-total-capitalization ratio remains above 45%. The articles of incorporation, indentures, regulatory limitations and various other agreements relating to the long-term debt of certain FirstEnergy subsidiaries contain provisions that could further restrict the payment of dividends on their common stock. None of these provisions materially restricted FirstEnergy’s subsidiaries’ abilities to pay cash dividends to FE as of December 31, 2019.

Common Stock Issuance

Additionally, FE issued approximately 3 million shares of common stock in 2019, 3.2 million shares of common stock in 2018 and 3.0 million shares of common stock in 2017 to registered shareholders and its directors and the employees of its subsidiaries under its Stock Investment Plan and certain share-based benefit plans.

On January 22, 2018, FE entered into a Common Stock Purchase Agreement for the private placement of 30,120,482 shares of FE’s common stock, par value $0.10 per share, representing an investment of $850 million ($3 million of common shares and $847 million of OPIC). Please see below for information on preferred stock converted into shares of common stock during 2018 and 2019.

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PREFERRED AND PREFERENCE STOCK

FirstEnergy and the Utilities were authorized to issue preferred stock and preference stock as of December 31, 2019, as follows:

						Preferred Stock												Preference Stock
						Shares Authorized						Par Value						Shares Authorized						Par Value
FE						5,000,000						$	100
OE						6,000,000						$	100					8,000,000						no par
OE						8,000,000						$	25
Penn						1,200,000						$	100
CEI						4,000,000						no par						3,000,000						no par
TE						3,000,000						$	100					5,000,000						$	25
TE						12,000,000						$	25
JCP&L						15,600,000						no par
ME						10,000,000						no par
PN						11,435,000						no par
MP						940,000						$	100
PE						10,000,000						$	0.01
WP						32,000,000						no par

As of December 31, 2019, there were no preferred stock outstanding. As of December 31, 2019 and 2018, there were no preference stock outstanding.

Preferred Stock Issuance

FE entered into a Preferred Stock Purchase Agreement for the private placement of 1,616,000 shares of mandatorily convertible preferred stock, designated as the Series A Convertible Preferred Stock, par value $100 per share, representing an investment of nearly $1.62 billion ($162 million of mandatorily convertible preferred stock and $1.46 billion of OPIC).

The preferred stock participated in dividends on the common stock on an as-converted basis based on the number of shares of common stock a holder of preferred stock would have received if its shares of preferred stock were converted on the dividend record date at the conversion price in effect at that time. Such dividends were paid at the same time that the dividends on common stock were paid.

During 2018, 911,411 shares of preferred stock were converted into 33,238,910 shares of common stock at the option of the preferred stockholders. Also, at the option of the preferred stockholders, 494,767 shares of preferred stock were converted into 18,044,018 shares of common stock in January 2019. On July 22, 2019, 28,302 shares of preferred stock automatically converted into 1,032,165 shares of common stock, and 181,520 shares of preferred stock remained unconverted as the holder reached the 4.9% cap as outlined in the terms of the preferred stock. The remaining 181,520 preferred stock shares were converted on August 1, 2019, into 6,619,985 shares of common stock. As of December 31, 2019, 1,616,000 shares of preferred stock were converted into 58,935,078 shares of common stock and as a result, there are no preferred shares outstanding.

The preferred stock included an embedded conversion option at a price that was below the fair value of the common stock on the commitment date. This beneficial conversion feature, which was approximately $296 million, represents the difference between the fair value per share of the common stock and the conversion price, multiplied by the number of common shares issuable upon conversion. The beneficial conversion feature was amortized as a deemed dividend over the period from the issue date to the first allowable conversion date (July 22, 2018) as a charge to OPIC, since FE is in an accumulated deficit position with no retained earnings to declare a dividend. As noted above, for EPS reporting purposes, this beneficial conversion feature was reflected in net income attributable to common stockholders as a deemed dividend. The beneficial conversion feature ($296 million) was fully amortized during the third quarter of 2018.

Each share of preferred stock was convertible at the holder’s option into a number of shares of common stock equal to the $1,000 liquidation preference, divided by the conversion price then in effect ($27.42 per share). The conversion price was subject to anti-dilution adjustments and adjustments for subdivisions and combinations of the common stock, as well as dividends on the common stock paid in common stock and for certain equity issuances below the conversion price then in effect.

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LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS

The following tables present outstanding long-term debt and finance lease obligations for FirstEnergy as of December 31, 2019 and 2018:

						As of December 31, 2019												As of December 31,
(Dollar amounts in millions)						Maturity Date						Interest Rate						2019						2018
FMBs and secured notes - fixed rate						2020-2059						1.726% - 8.250%						$	4,741					$	4,355
Unsecured notes - fixed rate						2020-2049						2.850% - 7.375%						14,575						13,450
Unsecured notes - variable rate						2021						2.480%						750						500
Finance lease obligations																		60						73
Unamortized debt discounts																		(33)						(39)
Unamortized debt issuance costs																		(103)						(95)
Unamortized fair value adjustments																		8						10
Currently payable long-term debt																		(380)						(503)
Total long-term debt and other long-term obligations																		$	19,618					$	17,751

On January 10, 2019, ME issued $500 million of 4.30% senior notes due 2029. Proceeds from the issuance of senior notes were primarily used to refinance existing indebtedness, including ME’s $300 million of 7.70% senior notes due 2019, and borrowings outstanding under the FE regulated utility money pool and the FE Facility, to fund capital expenditures, and for other general corporate purposes.

On February 8, 2019, JCP&L issued $400 million of 4.30% senior notes due 2026. Proceeds from the issuance of the senior notes were primarily used to refinance existing indebtedness, including amounts outstanding under the FE regulated utility money pool incurred in connection with the repayment at maturity of JCP&L’s $300 million of 7.35% senior notes due 2019 and the funding of storm recovery and restoration costs and expenses, to fund capital expenditures and working capital requirements and for other general corporate purposes.

On March 28, 2019, FET issued $500 million of 4.55% senior notes due 2049. Proceeds from the issuance of the senior notes were used primarily to support FET’s capital structure, to repay short-term borrowings outstanding under the FE unregulated money pool, to finance capital improvements, and for other general corporate purposes, including funding working capital needs and day-to-day operations.

On April 15, 2019, ATSI issued $100 million of 4.38% senior notes due 2031. Proceeds from the issuance of the senior notes were used primarily to repay short-term borrowings, to fund capital expenditures and working capital needs, and for other general corporate purposes.

On May 21, 2019, WP issued $100 million of 4.22% FMBs due 2059. Proceeds from the issuance of the FMBs were or are, as the case may be, used to refinance existing indebtedness, to fund capital expenditures, and for other general corporate purposes.

On June 3, 2019, PN issued $300 million of 3.60% senior notes due 2029. Proceeds from the issuance of the senior notes were used to refinance existing indebtedness, including amounts outstanding under the FE regulated companies’ money pool incurred in connection with the repayment at maturity of PN’s $125 million of 6.63% senior notes due 2019, to fund capital expenditures, and for other general corporate purposes.

On June 5, 2019, AGC issued $50 million of 4.47% senior unsecured notes due 2029. Proceeds from the issuance of the senior notes were used to improve liquidity, re-establish the debt component within its capital structure following the recent redemption of all of its existing long-term debt, and satisfy working capital requirements and other general corporate purposes.

On August 15, 2019, WP issued $150 million of 4.22% FMBs due 2059. Proceeds were used to refinance existing indebtedness, fund capital expenditures and for other general corporate purposes.

On November 14, 2019, MP issued $155 million of 3.23% FMBs due 2029 and $45 million of 3.93% FMBs due 2049. Proceeds were used to refinance existing debt, to fund capital expenditures, and for other general corporate purposes.

See Note 8, "Leases," for additional information related to finance leases.

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Securitized Bonds

Environmental Control Bonds

The consolidated financial statements of FirstEnergy include environmental control bonds issued by two bankruptcy remote, special purpose limited liability companies that are indirect subsidiaries of MP and PE. Proceeds from the bonds were used to construct environmental control facilities. Principal and interest owed on the environmental control bonds is secured by, and payable solely from, the proceeds of the environmental control charges. Creditors of FirstEnergy, other than the limited liability company SPEs, have no recourse to any assets or revenues of the special purpose limited liability companies. As of December 31, 2019 and 2018, $333 million and $358 million of environmental control bonds were outstanding, respectively.

Transition Bonds

In August 2006, JCP&L Transition Funding II sold transition bonds to securitize the recovery of deferred costs associated with JCP&L’s supply of BGS. JCP&L did not purchase and does not own any of the transition bonds, which are included as long-term debt on FirstEnergy’s Consolidated Balance Sheets. The transition bonds are the sole obligations of JCP&L Transition Funding II and are collateralized by its equity and assets, which consist primarily of bondable transition property. As of December 31, 2019 and 2018, $25 million and $41 million of the transition bonds were outstanding, respectively.

Phase-In Recovery Bonds

In June 2013, the SPEs formed by the Ohio Companies issued approximately $445 million of pass-through trust certificates supported by phase-in recovery bonds to securitize the recovery of certain all electric customer heating discounts, fuel and purchased power regulatory assets. The phase-in recovery bonds are payable only from, and secured by, phase in recovery property owned by the SPEs. The bondholder has no recourse to the general credit of FirstEnergy or any of the Ohio Companies. Each of the Ohio Companies, as servicer of its respective SPE, manages and administers the phase in recovery property including the billing, collection and remittance of usage-based charges payable by retail electric customers. In the aggregate, the Ohio Companies are entitled to annual servicing fees of $445 thousand that are recoverable through the usage-based charges. The SPEs are considered VIEs and each one is consolidated into its applicable utility. As of December 31, 2019 and 2018, $268 million and $292 million of the phase-in recovery bonds were outstanding, respectively.

Other Long-term Debt

The Ohio Companies and Penn each have a first mortgage indenture under which they can issue FMBs secured by a direct first mortgage lien on substantially all of their property and franchises, other than specifically excepted property.

Based on the amount of FMBs authenticated by the respective mortgage bond trustees as of December 31, 2019, the sinking fund requirement for all FMBs issued under the various mortgage indentures was zero.

The following table presents scheduled debt repayments for outstanding long-term debt, excluding finance leases, fair value purchase accounting adjustments and unamortized debt discounts and premiums, for the next five years as of December 31, 2019. PCRBs that are scheduled to be tendered for mandatory purchase prior to maturity are reflected in the applicable year in which such PCRBs are scheduled to be tendered.

Year
						(In millions)
2020						$	364
2021						$	882
2022						$	1,142
2023						$	1,194
2024						$	1,246

Certain PCRBs allow bondholders to tender their PCRBs for mandatory purchase prior to maturity. As of December 31, 2019, MP has a $73.5 million PCRB classified as long-term debt, which the debt holders may exercise their right to tender in 2021.

Debt Covenant Default Provisions

FirstEnergy has various debt covenants under certain financing arrangements, including its revolving credit facilities and term loans. The most restrictive of the debt covenants relate to the nonpayment of interest and/or principal on such debt and the maintenance of certain financial ratios. The failure by FirstEnergy to comply with the covenants contained in its financing arrangements could result in an event of default, which may have an adverse effect on its financial condition. As of December 31, 2019, FirstEnergy remains in compliance with all debt covenant provisions.

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Additionally, there are cross-default provisions in a number of the financing arrangements. These provisions generally trigger a default in the applicable financing arrangement of an entity if it or any of its significant subsidiaries, excluding AE Supply, default under another financing arrangement in excess of a certain principal amount, typically $100 million. Although such defaults by any of the Utilities, ATSI, TrAIL or MAIT would generally cross-default FE financing arrangements containing these provisions, defaults by AE Supply would generally not cross-default to applicable financing arrangements of FE. Also, defaults by FE would generally not cross-default applicable financing arrangements of any of FE’s subsidiaries. Cross-default provisions are not typically found in any of the senior notes or FMBs of FE or the Utilities.

12. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT

FirstEnergy had $1,000 million and $1,250 million of short-term borrowings as of December 31, 2019 and 2018, respectively.

FE and the Utilities and FET and certain of its subsidiaries participate in two separate five-year syndicated revolving credit facilities providing for aggregate commitments of $3.5 billion, which are available until December 6, 2022. Under the FE credit facility, an aggregate amount of $2.5 billion is available to be borrowed, repaid and reborrowed, subject to separate borrowing sub-limits for each borrower including FE and its regulated distribution subsidiaries. Under the FET credit facility, an aggregate amount of $1.0 billion is available to be borrowed, repaid and reborrowed under a syndicated credit facility, subject to separate borrowing sub-limits for each borrower including FE's transmission subsidiaries. As of December 31, 2019, available liquidity under the FE and FET revolving credit facilities was $2,496 million (reflecting $4 million of LOCs issued under various terms) and $1,000 million respectively.

$250 million of the FE Facility and $100 million of the FET Facility, subject to each borrower's sub-limit, is available for the issuance of LOCs (subject to borrowings drawn under the Facilities) expiring up to one year from the date of issuance. The stated amount of outstanding LOCs will count against total commitments available under each of the Facilities and against the applicable borrower’s borrowing sub-limit.

Borrowings under the credit facilities may be used for working capital and other general corporate purposes, including intercompany loans and advances by a borrower to any of its subsidiaries. Generally, borrowings under each of the credit facilities are available to each borrower separately and mature on the earlier of 364 days from the date of borrowing or the commitment termination date, as the same may be extended. Each of the credit facilities contains financial covenants requiring each borrower to maintain a consolidated debt-to-total-capitalization ratio (as defined under each of the credit facilities) of no more than 65%, and 75% for FET, measured at the end of each fiscal quarter.

The Facilities do not contain provisions that restrict the ability to borrow or accelerate payment of outstanding advances in the event of any change in credit ratings of the borrowers. Pricing is defined in “pricing grids,” whereby the cost of funds borrowed under the Facilities is related to the credit ratings of the company borrowing the funds. Additionally, borrowings under each of the Facilities are subject to the usual and customary provisions for acceleration upon the occurrence of events of default, including a cross-default for other indebtedness in excess of $100 million.

As of December 31, 2019, the borrowers were in compliance with the applicable debt-to-total-capitalization ratio covenants in each case as defined under the respective Facilities. The minimum interest charge coverage ratio no longer applies following FE's upgrade to an investment grade credit rating.

Term Loans

On October 19, 2018, FE entered into two separate syndicated term loan credit agreements, the first being a $1.25 billion 364-day facility with The Bank of Nova Scotia, as administrative agent, and the lenders identified therein, and the second being a $500 million two-year facility with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders identified therein, respectively, the proceeds of each were used to reduce short-term debt. The term loans contain covenants and other terms and conditions substantially similar to those of the FE revolving credit facility described above, including a consolidated debt-to-total-capitalization ratio. Effective September 11, 2019, the two credit agreements noted above were amended to change the amounts available under the existing facilities from $1.25 billion and $500 million to $1 billion and $750 million, respectively, and extend the maturity dates until September 9, 2020, and September 11, 2021, respectively.

The borrowing of $1.75 billion under the term loans, which took the form of a Eurodollar rate advance, may be converted from time to time, in whole or in part, to alternate base rate advances or other Eurodollar rate advances. Outstanding alternate base rate advances will bear interest at a fluctuating interest rate per annum equal to the sum of an applicable margin for alternate base rate advances determined by reference to FE’s reference ratings plus the highest of (i) the administrative agent’s publicly-announced “prime rate,” (ii) the sum of 1/2 of 1% per annum plus the Federal Funds Rate in effect from time to time and (iii) the rate of interest per annum appearing on a nationally-recognized service such as the Dow Jones Market Service (Telerate) equal to one-month LIBOR on each day plus 1%. Outstanding Eurodollar rate advances will bear interest at LIBOR for interest periods of one week or one, two, three or six months plus an applicable margin determined by reference to FE’s reference ratings. Changes in FE’s reference ratings would lower or raise its applicable margin depending on whether ratings improved or were lowered, respectively.

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FirstEnergy Money Pools

FirstEnergy’s utility operating subsidiary companies also have the ability to borrow from each other and FE to meet their short-term working capital requirements. Similar but separate arrangements exist among FirstEnergy’s unregulated companies with AE Supply, FE, FET, FEV and certain other unregulated subsidiaries. FESC administers these money pools and tracks surplus funds of FE and the respective regulated and unregulated subsidiaries, as the case may be, as well as proceeds available from bank borrowings. Companies receiving a loan under the money pool agreements must repay the principal amount of the loan, together with accrued interest, within 364 days of borrowing the funds. The rate of interest is the same for each company receiving a loan from their respective pool and is based on the average cost of funds available through the pool. The average interest rate for borrowings in 2019 was 2.27% per annum for the regulated companies’ money pool and 2.74% per annum for the unregulated companies’ money pool.

Weighted Average Interest Rates

The weighted average interest rates on short-term borrowings outstanding, including borrowings under the FirstEnergy Money Pools, as of December 31, 2019 and 2018, were 2.88% and 3.07%, respectively.

13. ASSET RETIREMENT OBLIGATIONS

FirstEnergy has recognized applicable legal obligations for AROs and their associated cost, primarily for the decommissioning of the TMI-2 nuclear generating facility and environmental remediation, including reclamation of sludge disposal ponds, closure of coal ash disposal sites, underground and above-ground storage tanks and wastewater treatment lagoons. In addition, FirstEnergy has recognized conditional retirement obligations, primarily for asbestos remediation.

The following table summarizes the changes to the ARO balances during 2019 and 2018:

ARO Reconciliation						(In millions)
Balance, January 1, 2018						$	570
Changes in timing and amount of estimated cash flows						203
Liabilities settled						(1)
Accretion						40
Balance, December 31, 2018						$	812
Liabilities settled						(2)
Accretion						46
Balance, December 31, 2019 (1)						$	856

(1) Includes $691 million related to TMI-2 classified as held for sale. See Note 15, "Commitments,

Guarantees and Contingencies," for further information.

In April 2015, the EPA finalized regulations for the disposal of CCRs (non-hazardous), establishing national standards for landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to assure the safe disposal of CCRs from electric generating plants. On September 13, 2017, the EPA announced that it would reconsider certain provisions of the final regulations. On July 17, 2018, the EPA Administrator signed a final rule extending the deadline for certain CCR facilities to cease disposal and commence closure activities, as well as, establishing less stringent groundwater monitoring and protection requirements. On August 21, 2018, the D.C. Circuit remanded sections of the CCR Rule to the EPA to provide additional safeguards for unlined CCR impoundments that are more protective of human health and the environment. On November 4, 2019, the EPA issued a proposed rule accelerating the date that certain CCR impoundments must cease accepting waste and initiate closure to August 31, 2020. The proposed rule, which includes a 60-day comment period, provides exceptions, which could allow extensions to closure dates.

During the fourth quarter of 2018, based on studies completed by a third-party to reassess the estimated costs and timing to decommission TMI-2, JCP&L, ME and PN increased their ARO by a total of approximately $172 million, with a regulatory offset. The increase in the ARO resulted primarily from accelerated timing of the estimated cash flows associated with decommissioning.

14. REGULATORY MATTERS

STATE REGULATION

Each of the Utilities' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the states in which it operates - in Maryland by the MDPSC, in New Jersey by the NJBPU, in Ohio by the PUCO, in Pennsylvania by the PPUC, in West Virginia by the WVPSC and in New York by the NYPSC. The transmission operations of PE in Virginia are subject to certain regulations of the VSCC. In addition, under Ohio law, municipalities may regulate rates of a public utility,

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subject to appeal to the PUCO if not acceptable to the utility. Further, if any of the FirstEnergy affiliates were to engage in the construction of significant new transmission facilities, depending on the state, they may be required to obtain state regulatory authorization to site, construct and operate the new transmission facility.

The following table summarizes the key terms of base distribution rate orders in effect for the Utilities as of December 31, 2019:

Company

Rates Effective

Allowed Debt/Equity

Allowed ROE

CEI

May 2009

51% / 49%

10.5%

ME(1)

January 2017

48.8% / 51.2%

Settled(2)

MP

February 2015

54% / 46%

Settled(2)

JCP&L

January 2017

55% / 45%

9.6%

OE

January 2009

51% / 49%

10.5%

PE (West Virginia)

February 2015

54% / 46%

Settled(2)

PE (Maryland)

March 2019

47% / 53%

9.65%

PN(1)

January 2017

47.4% / 52.6%

Settled(2)

Penn(1)

January 2017

49.9% / 50.1%

Settled(2)

TE

January 2009

51% / 49%

10.5%

WP(1)

January 2017

49.7% / 50.3%

Settled(2)

(1) Reflects filed debt/equity as final settlement/orders do not specifically include capital structure.

(2) Commission-approved settlement agreements did not disclose ROE rates.

MARYLAND

PE operates under MDPSC approved base rates that were effective as of March 23, 2019. PE also provides SOS pursuant to a combination of settlement agreements, MDPSC orders and regulations, and statutory provisions. SOS supply is competitively procured in the form of rolling contracts of varying lengths through periodic auctions that are overseen by the MDPSC and a third-party monitor. Although settlements with respect to SOS supply for PE customers have expired, service continues in the same manner until changed by order of the MDPSC. PE recovers its costs plus a return for providing SOS.

The EmPOWER Maryland program requires each electric utility to file a plan to reduce electric consumption and demand 0.2% per year, up to the ultimate goal of 2% annual savings, for the duration of the 2018-2020 and 2021-2023 EmPOWER Maryland program cycles, to the extent the MDPSC determines that cost-effective programs and services are available. PE's approved 2018-2020 EmPOWER Maryland plan continues and expands upon prior years' programs, and adds new programs, for a projected total cost of $116 million over the three-year period. PE recovers program costs subject to a five-year amortization. Maryland law only allows for the utility to recover lost distribution revenue attributable to energy efficiency or demand reduction programs through a base rate case proceeding, and to date, such recovery has not been sought or obtained by PE.

On January 19, 2018, PE filed a joint petition along with other utility companies, work group stakeholders and the MDPSC electric vehicle work group leader to implement a statewide electric vehicle portfolio in connection with a 2016 MDPSC proceeding to consider an array of issues relating to electric distribution system design, including matters relating to electric vehicles, distributed energy resources, advanced metering infrastructure, energy storage, system planning, rate design, and impacts on low-income customers. PE proposed an electric vehicle charging infrastructure program at a projected total cost of $12 million, to be recovered over a five-year amortization. On January 14, 2019, the MDPSC approved the petition subject to certain reductions in the scope of the program. The MDPSC approved PE’s compliance filing, which implements the pilot program, with minor modifications, on July 3, 2019.

On August 24, 2018, PE filed a base rate case with the MDPSC, which it supplemented on October 22, 2018, to update the partially forecasted test year with a full twelve months of actual data. The rate case requested an annual increase in base distribution rates of $19.7 million, plus creation of an EDIS to fund four enhanced service reliability programs. In responding to discovery, PE revised its request for an annual increase in base rates to $17.6 million. The proposed rate increase reflected $7.3 million in annual savings for customers resulting from the recent federal tax law changes. On March 22, 2019, the MDPSC issued a final order that approved a rate increase of $6.2 million, approved three of the four EDIS programs for four years, directed PE to file a new depreciation study within 18 months, and ordered the filing of a new base rate case in four years to correspond to the ending of the approved EDIS programs.

NEW JERSEY

JCP&L operates under NJBPU approved rates that were effective as of January 1, 2017. JCP&L provides BGS for retail customers who do not choose a third-party EGS and for customers of third-party EGSs that fail to provide the contracted service. All New Jersey EDCs participate in this competitive BGS procurement process and recover BGS costs directly from customers as a charge separate from base rates.

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On April 18, 2019, pursuant to the May 2018 New Jersey enacted legislation establishing a ZEC program to provide ratepayer funded subsidies of New Jersey nuclear energy supply, the NJBPU approved the implementation of a non-bypassable, irrevocable ZEC charge for all New Jersey electric utility customers, including JCP&L’s customers. Once collected from customers by JCP&L, these funds will be remitted to eligible nuclear energy generators.

In December 2017, the NJBPU issued proposed rules to modify its current CTA policy in base rate cases to: (i) calculate savings using a five-year look back from the beginning of the test year; (ii) allocate savings with 75% retained by the company and 25% allocated to ratepayers; and (iii) exclude transmission assets of electric distribution companies in the savings calculation, which were published in the NJ Register in the first quarter of 2018. JCP&L filed comments supporting the proposed rulemaking. On January 17, 2019, the NJBPU approved the proposed CTA rules with no changes. On May 17, 2019, the Rate Counsel filed an appeal with the Appellate Division of the Superior Court of New Jersey. JCP&L is contesting this appeal but is unable to predict the outcome of this matter.

Also in December 2017, the NJBPU approved its IIP rulemaking. The IIP creates a financial incentive for utilities to accelerate the level of investment needed to promote the timely rehabilitation and replacement of certain non-revenue producing components that enhance reliability, resiliency, and/or safety. On July 13, 2018, JCP&L filed an infrastructure plan, JCP&L Reliability Plus, which proposed to accelerate $386.8 million of electric distribution infrastructure investment over four years to enhance the reliability and resiliency of its distribution system and reduce the frequency and duration of power outages. On April 23, 2019, JCP&L filed a Stipulation of Settlement with the NJBPU on behalf of the JCP&L, Rate Counsel, NJBPU Staff and New Jersey Large Energy Users Coalition, which provides that JCP&L will invest up to approximately $97 million in capital investments beginning on June 1, 2019 through December 31, 2020. JCP&L shall seek recovery of the capital investment through an accelerated cost recovery mechanism, provided for in the rules, that includes a revenue adjustment calculation and a process for two rate adjustments. On May 8, 2019, the NJBPU issued an order approving the Stipulation of Settlement without modifications. Pursuant to the Stipulation, JCP&L filed a petition on September 16, 2019, to seek approval of rate adjustments to provide for cost recovery established with JCP&L Reliability Plus.

On January 31, 2018, the NJBPU instituted a proceeding to examine the impacts of the Tax Act on the rates and charges of New Jersey utilities. The NJBPU ordered New Jersey utilities to: (1) defer on their books the impacts of the Tax Act effective January 1, 2018; (2) to file tariffs effective April 1, 2018, reflecting the rate impacts of changes in current taxes; and (3) to file tariffs effective July 1, 2018, reflecting the rate impacts of changes in deferred taxes. On March 2, 2018, JCP&L filed a petition with the NJBPU, which included proposed tariffs for a base rate reduction of $28.6 million effective April 1, 2018, and a rider to reflect $1.3 million in rate impacts of changes in deferred taxes. On March 26, 2018, the NJBPU approved JCP&L’s rate reduction effective April 1, 2018, on an interim basis subject to refund, pending the outcome of this proceeding. On April 23, 2019, JCP&L filed a Stipulation of Settlement on behalf of the Rate Counsel, NJBPU Staff, and the New Jersey Large Energy Users Coalition with the NJBPU. The terms of the Stipulation of Settlement provide that between January 1, 2018 and March 31, 2018, JCP&L’s refund obligation is estimated to be approximately $7 million, which was refunded to customers in 2019. The Stipulation of Settlement also provides for a base rate reduction of $28.6 million, which was reflected in rates on April 1, 2018, and a Rider Tax Act Adjustment for certain items over a five-year period. On May 8, 2019, the NJBPU issued an order approving the Stipulation of Settlement without modification.

JCP&L expects to file a distribution base rate case in New Jersey in February 2020, which will seek to recover certain costs associated with providing safe and reliable electric service to JCP&L customers, along with recovery of previously incurred storm costs.

OHIO

The Ohio Companies operate under base distribution rates approved by the PUCO effective in 2009. The Ohio Companies’ residential and commercial base distribution revenues are decoupled, through a mechanism that took effect on February 1, 2020, to the base distribution revenue and lost distribution revenue associated with energy efficiency and peak demand reduction programs recovered as of the twelve-month period ending on December 31, 2018. The Ohio Companies currently operate under ESP IV effective June 1, 2016, and continuing through May 31, 2024, that continues the supply of power to non-shopping customers at a market-based price set through an auction process. ESP IV also continues Rider DCR, which supports continued investment related to the distribution system for the benefit of customers, with increased revenue caps of $20 million per year from June 1, 2019 through May 31, 2022; and $15 million per year from June 1, 2022 through May 31, 2024. In addition, ESP IV includes: (1) continuation of a base distribution rate freeze through May 31, 2024; (2) the collection of lost distribution revenues associated with energy efficiency and peak demand reduction programs; (3) a goal across FirstEnergy to reduce CO2 emissions by 90% below 2005 levels by 2045; and (4) contributions, totaling $51 million to: (a) fund energy conservation programs, economic development and job retention in the Ohio Companies’ service territories; (b) establish a fuel-fund in each of the Ohio Companies’ service territories to assist low-income customers; and (c) establish a Customer Advisory Council to ensure preservation and growth of the competitive market in Ohio.

ESP IV further provided for the Ohio Companies to collect through Rider DMR $132.5 million annually for three years beginning in 2017, grossed up for federal income taxes, resulting in an approved amount of approximately $168 million annually in 2018 and 2019. Revenues from Rider DMR are excluded from the significantly excessive earnings test. On appeal, the SCOH, on June 19, 2019, reversed the PUCO’s determination that Rider DMR is lawful, and remanded the matter to the PUCO with

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instructions to remove Rider DMR from ESP IV. On August 20, 2019, the SCOH denied the Ohio Companies’ motion for reconsideration. The PUCO entered an Order directing the Ohio Companies to cease further collection through Rider DMR, credit back to customers a refund of Rider DMR funds collected since July 2, 2019, and remove Rider DMR from ESP IV. On October 1, 2019, the Ohio Companies implemented PUCO approved tariffs to refund approximately $28 million to customers, including Rider DMR revenues billed from July 2, 2019 through August 31, 2019.

On July 15, 2019, OCC filed a Notice of Appeal with the SCOH, challenging the PUCO’s exclusion of Rider DMR revenues from the determination of the existence of significantly excessive earnings under ESP IV for calendar year 2017 and claiming a $42 million refund is due to OE customers. The Ohio Companies are contesting this appeal but are unable to predict the outcome of this matter.

Under Ohio law, the Ohio Companies are required to implement energy efficiency programs that achieve certain annual energy savings and total peak demand reductions. The Ohio Companies’ 2017-2019 plan includes a portfolio of energy efficiency programs targeted to a variety of customer segments. The Ohio Companies anticipate the cost of the plan will be approximately $268 million over the life of the plan and such costs are expected to be recovered through the Ohio Companies’ existing rate mechanisms. On November 21, 2017, the PUCO issued an order that approved the proposed plan with several modifications, including a cap on the Ohio Companies’ collection of program costs and shared savings set at 4% of the Ohio Companies’ total sales to customers. On October 15, 2019, the SCOH reversed the PUCO’s decision to impose the 4% cost-recovery cap and remanded the matter to the PUCO for approval of the portfolio plans without the cost-recovery cap.

On July 23, 2019, Ohio enacted legislation establishing support for nuclear energy supply in Ohio. In addition to the provisions supporting nuclear energy, the legislation included a provision implementing a decoupling mechanism for Ohio electric utilities. The legislation also is ending current energy efficiency program mandates on December 31, 2020, provided statewide energy efficiency mandates are achieved as determined by the PUCO. On October 23, 2019, the PUCO solicited comments on whether the PUCO should terminate the energy efficiency programs once the statewide energy efficiency mandates are achieved. Opponents to the legislation sought to submit it to a statewide referendum, and stay its effect unless and until approved by a majority of Ohio voters. Petitioners filed a lawsuit in the U.S. District Court for the Southern District of Ohio seeking additional time to gather signatures in support of a referendum. Petitioners failed to file the necessary number of petition signatures, and the legislation took effect on October 22, 2019. On October 23, 2019, the U.S. District Court denied petitioners’ request for more time, and certified questions of state law to the SCOH to answer. Petitioners appealed the U.S. District Court’s decision to the U.S. Court of Appeals for the Sixth Circuit. The Petitioners ended their challenge to the legislation voluntarily at the end of January 2020 causing the dismissal of the appeal, the lawsuit before the U.S District Court, and the proceedings before the SCOH.

On November 21, 2019, the Ohio Companies applied to the PUCO for approval of a decoupling mechanism, which would set residential and commercial base distribution related revenues at the levels collected in 2018. As such, those base distribution revenues would no longer be based on electric consumption, which allows continued support of energy efficiency initiatives while also providing revenue certainty to the Ohio Companies. On January 15, 2020, the PUCO approved the Ohio Companies’ decoupling application, and the decoupling mechanism took effect on February 1, 2020.

In February 2016, the Ohio Companies filed a Grid Modernization Business Plan for PUCO consideration and approval, as required by the terms of ESP IV. On December 1, 2017, the Ohio Companies filed an application with the PUCO for approval of a DPM Plan, a portfolio distribution platform investment projects, which are designed to modernize the Ohio Companies’ distribution grid, prepare it for further grid modernization projects, and provide customers with immediate reliability benefits. Also, on January 10, 2018, the PUCO opened a case to consider the impacts of the Tax Act on Ohio utilities’ rates and determine the appropriate course of action to pass benefits on to customers. On November 9, 2018, the Ohio Companies filed a settlement agreement that provides for the implementation of the first phase of grid modernization plans, including the investment of $516 million over three years to modernize the Ohio Companies’ electric distribution system, and for all tax savings associated with the Tax Act to flow back to customers. As part of the agreement, the Ohio Companies also filed an application for approval of a rider to return the remaining tax savings to customers following PUCO approval of the settlement. On January 25, 2019, the Ohio Companies filed a supplemental settlement agreement that keeps intact the provisions of the settlement described above and adds further customer benefits and protections, which broadened support for the settlement. The settlement had broad support, including PUCO Staff, the OCC, representatives of industrial and commercial customers, a low-income advocate, environmental advocates, hospitals, competitive generation suppliers and other parties. On July 17, 2019, the PUCO approved the settlement agreement with no material modifications. On September 11, 2019, the PUCO denied the application for rehearing of environmental advocates who were not parties to the settlement.

The Ohio Companies’ Rider NMB is designed to recover NMB transmission-related costs imposed on or charged to the Ohio Companies by FERC or PJM. On December 14, 2018, the Ohio Companies filed an application for a review of their 2019 Rider NMB, including recovery of future Legacy RTEP costs and previously absorbed Legacy RTEP costs, net of refunds received from PJM. On February 27, 2018, the PUCO issued an order directing the Ohio Companies to file revised final tariffs recovering Legacy RTEP costs incurred since May 31, 2018, but excluding recovery of approximately $95 million in Legacy RTEP costs incurred prior to May 31, 2018, net of refunds received from PJM. The PUCO solicited comments on whether the Ohio Companies should be permitted to recover the Legacy RTEP charges incurred prior to May 31, 2018. On October 9, 2019, the PUCO approved the recovery of the $95 million of previously excluded Legacy RTEP charges.

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PENNSYLVANIA

The Pennsylvania Companies operate under rates approved by the PPUC, effective as of January 27, 2017. These rates were adjusted for the net impact of the Tax Act, effective March 15, 2018. The net impact of the Tax Act for the period January 1, 2018 through March 14, 2018 must also be separately tracked for treatment in a future rate proceeding. The Pennsylvania Companies operate under DSPs for the June 1, 2019 through May 31, 2023 delivery period, which provide for the competitive procurement of generation supply for customers who do not choose an alternative EGS or for customers of alternative EGSs that fail to provide the contracted service.

Under the 2019-2023 DSPs, supply will be provided by wholesale suppliers through a mix of 3, 12 and 24-month energy contracts, as well as two RFPs for 2-year SREC contracts for ME, PN and Penn. The 2019-2023 DSPs also include modifications to the Pennsylvania Companies’ POR programs in order to continue their clawback pilot program as a long-term, permanent program term, modifications to the Pennsylvania Companies’ customer class definitions to allow for the introduction of hourly priced default service to customers at or above 100kW, customer assistance program shopping limitations, and script modifications related to the Pennsylvania Companies' customer referral programs. 

Pursuant to Pennsylvania Act 129 of 2008 and PPUC orders, Pennsylvania EDCs implement energy efficiency and peak demand reduction programs. The Pennsylvania Companies’ Phase III EE&C plans for the June 2016 through May 2021 period, which were approved in March 2016, with expected costs up to $390 million, are designed to achieve the targets established in the PPUC’s Phase III Final Implementation Order with full recovery through the reconcilable EE&C riders.

Pennsylvania EDCs may establish a DSIC to recover costs of infrastructure improvements and costs related to highway relocation projects with PPUC approval. LTIIPs outlining infrastructure improvement plans for PPUC review and approval must be filed prior to approval of a DSIC. The PPUC approved modified LTIIPs for ME, PN and Penn for the remaining years of 2017 through 2020 to provide additional support for reliability and infrastructure investments. Following a periodic review of the LTIIPs in 2018 as required by regulation once every five years, the PPUC entered an Order concluding that the Pennsylvania Companies have substantially adhered to the schedules and expenditures outlined in their LTIIPs, but that changes to the LTIIPs as designed are necessary to maintain and improve reliability and directed the Pennsylvania Companies to file modified or new LTIIPs. On May 23, 2019, the PPUC approved the Pennsylvania Companies’ Modified LTIIPs that revised LTIIP spending in 2019 of approximately $45 million by ME, $25 million by PN, $26 million by Penn and $51 million by WP, and terminating at the end of 2019. On August 30, 2019, the Pennsylvania Companies filed Petitions for approval of proposed LTIIPs for the five-year period beginning January 1, 2020 and ending December 31, 2024 for a total capital investment of approximately $572 million for certain infrastructure improvement initiatives. On January 16, 2020, the PPUC approved the LTIIPs without modification, as well as directed the Pennsylvania Companies to submit corrective action plans by March 16, 2020, which outline how they will reduce their pole replacement backlogs over a five-year period to a rolling two-year backlog.

The Pennsylvania Companies’ approved DSIC riders for quarterly cost recovery went into effect July 1, 2016, subject to hearings and refund or reallocation among customer classes. In the January 19, 2017 order approving the Pennsylvania Companies’ general rate cases, the PPUC added an additional issue to the DSIC proceeding to include whether ADIT should be included in DSIC calculations. The parties to the DSIC proceeding submitted a Joint Settlement that resolved the issues that were pending from the order issued on June 9, 2016, and the PPUC approved the Joint Settlement without modification and reversed the ALJ’s previous decision that would have required the Pennsylvania Companies to reflect all federal and state income tax deductions related to DSIC-eligible property in currently effective DSIC rates. The Pennsylvania OCA filed an appeal with the Pennsylvania Commonwealth Court of the PPUC’s decision, and the Pennsylvania Companies contested the appeal. The Commonwealth Court reversed the PPUC’s decision of April 19, 2018 and remanded the matter to the PPUC to require the Pennsylvania Companies to revise their tariffs and DSIC calculations to include ADIT and state income taxes. The Commonwealth Court denied Applications for Reargument in the Court’s July 11, 2019 Opinion and Order filed by the PPUC and the Pennsylvania Companies. On October 7, 2019, the PPUC and the Pennsylvania Companies filed separate Petitions for Allowance of Appeal of the Commonwealth Court’s Opinion and Order to the Pennsylvania Supreme Court.

On August 30, 2019, Penn filed a Petition seeking approval of a waiver of the statutory DSIC cap of 5% of distribution rate revenue and approval to increase the maximum allowable DSIC to 11.81% of distribution rate revenue for the five-year period of its proposed LTIIP. The Pennsylvania Office of Small Business Advocate, the PPUC’s Bureau of Investigation, and the Pennsylvania OCA opposed Penn’s Petition. On January 17, 2020, the parties filed a petition seeking approval of settlement that provides for a temporary increase in the recoverability cap from 5% to 7.5%, which will expire on the earlier of the effective date of new base rates following Penn’s next base rate case or the expiration of its LTIIP II program. The settlement is subject to PPUC approval.

WEST VIRGINIA

MP and PE provide electric service to all customers through traditional cost-based, regulated utility ratemaking and operates under rates approved by the WVPSC effective February 2015. MP and PE recover net power supply costs, including fuel costs,

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purchased power costs and related expenses, net of related market sales revenue through the ENEC. MP's and PE's ENEC rate is updated annually.

On August 21, 2019, MP and PE filed with the WVPSC their annual ENEC case requesting a decrease in ENEC rates of $6.1 million beginning January 1, 2020, representing a 0.4% decrease in rates versus those in effect on August 21, 2019. On October 11, 2019, MP and PE filed a supplement requesting approval of the termination of the 50 MW PPA with Morgantown Energy Associates, a NUG entity. A settlement between MP, PE, and the majority of the intervenors fully resolving the ENEC case, which maintains 2019 ENEC rates into 2020, and supports the termination of the Morgantown Energy Associates PPA, was filed with the WVPSC on October 18, 2019. An order was issued on December 20, 2019, approving the ENEC settlement and termination of the PPA with Morgantown Energy Associates.

On August 21, 2019, MP and PE filed with the WVPSC for a reconciliation of their VMS and a periodic review of its vegetation management program requesting an increase in VMS rates of $7.6 million beginning January 1, 2020. The increase is due to moving from a 5-year maintenance cycle to a 4-year cycle and performing more operation and maintenance work and less capital work on the rights of way. The increase is a 0.5% increase in rates versus those in effect on August 21, 2019. All the parties reached a settlement in the case, and the WVPSC issued its order approving the settlement without change on December 20, 2019.

FERC REGULATORY MATTERS

Under the FPA, FERC regulates rates for interstate wholesale sales, transmission of electric power, accounting and other matters, including construction and operation of hydroelectric projects. With respect to their wholesale services and rates, the Utilities, AE Supply and the Transmission Companies are subject to regulation by FERC. FERC regulations require JCP&L, MP, PE, WP and the Transmission Companies to provide open access transmission service at FERC-approved rates, terms and conditions. Transmission facilities of JCP&L, MP, PE, WP and the Transmission Companies are subject to functional control by PJM and transmission service using their transmission facilities is provided by PJM under the PJM Tariff.

The following table summarizes the key terms of rate orders in effect for transmission customer billings for FirstEnergy's transmission owner entities as of December 31, 2019:

Company

Rates Effective

Capital Structure

Allowed ROE

ATSI

January 1, 2015

Actual (13 month average)

10.38%

JCP&L

June 1, 2017(1)

Settled(1)(3)

Settled(1)(3)

MP

March 21, 2018(2)

Settled(3)

Settled(3)

PE

March 21, 2018(2)

Settled(3)

Settled(3)

WP

March 21, 2018(2)

Settled(3)

Settled(3)

MAIT

July 1, 2017

Lower of Actual (13 month average) or 60%

10.3%

TrAIL

July 1, 2008

Actual (year-end)

12.7% (TrAIL the Line & Black Oak SVC) 11.7% (All other projects)

(1) Effective on January 1, 2020, JCP&L has implemented a forward-looking formula rate, which has been accepted by FERC, subject to refund, pending further hearing and settlement proceedings.

(2) See FERC Actions on Tax Act below.

(3) FERC-approved settlement agreements did not specify.

FERC regulates the sale of power for resale in interstate commerce in part by granting authority to public utilities to sell wholesale power at market-based rates upon showing that the seller cannot exert market power in generation or transmission or erect barriers to entry into markets. The Utilities and AE Supply each have been authorized by FERC to sell wholesale power in interstate commerce at market-based rates and have a market-based rate tariff on file with FERC, although major wholesale purchases remain subject to regulation by the relevant state commissions.

Federally-enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping and reporting requirements on the Utilities, AE Supply, and the Transmission Companies. NERC is the ERO designated by FERC to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and enforcement of these reliability standards to six regional entities, including RFC. All of the facilities that FirstEnergy operates are located within the RFC region. FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages its companies in response to the ongoing development, implementation and enforcement of the reliability standards implemented and enforced by RFC.

FirstEnergy believes that it is in material compliance with all currently-effective and enforceable reliability standards. Nevertheless, in the course of operating its extensive electric utility systems and facilities, FirstEnergy occasionally learns of isolated facts or circumstances that could be interpreted as excursions from the reliability standards. If and when such occurrences are found, FirstEnergy develops information about the occurrence and develops a remedial response to the specific

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circumstances, including in appropriate cases “self-reporting” an occurrence to RFC. Moreover, it is clear that NERC, RFC and FERC will continue to refine existing reliability standards as well as to develop and adopt new reliability standards. Any inability on FirstEnergy's part to comply with the reliability standards for its bulk electric system could result in the imposition of financial penalties, or obligations to upgrade or build transmission facilities, that could have a material adverse effect on its financial condition, results of operations and cash flows.

RTO Realignment

On June 1, 2011, ATSI and the ATSI zone transferred from MISO to PJM. While many of the matters involved with the move have been resolved, FERC denied recovery under ATSI's transmission rate for certain charges that collectively can be described as "exit fees" and certain other transmission cost allocation charges totaling approximately $78.8 million until such time as ATSI submits a cost/benefit analysis demonstrating net benefits to customers from the transfer to PJM. Subsequently, FERC rejected a proposed settlement agreement to resolve the exit fee and transmission cost allocation issues, stating that its action is without prejudice to ATSI submitting a cost/benefit analysis demonstrating that the benefits of the RTO realignment decisions outweigh the exit fee and transmission cost allocation charges. In a subsequent order, FERC affirmed its prior ruling that ATSI must submit the cost/benefit analysis. ATSI is evaluating the cost/benefit approach.

FERC Actions on Tax Act

On March 15, 2018, FERC initiated proceedings on the question of how to address possible changes to ADIT and bonus depreciation as a result of the Tax Act. Such possible changes could impact FERC-jurisdictional rates, including transmission rates. On November 21, 2019, FERC issued a final rule (Order 864). Order 864 requires utilities with transmission formula rates to update their formula rate templates to include mechanisms to (i) deduct any excess ADIT from or add any deficient ADIT to their rate base; (ii) raise or lower their income tax allowances by any amortized excess or deficient ADIT; and (iii) incorporate a new permanent worksheet into their rates that will annually track information related to excess or deficient ADIT. Alternatively, formula rate utilities can demonstrate to FERC that their formula rate template already achieves these outcomes. Utilities with transmission stated rates are required to address these new requirements as part of their next transmission rate case. To assist with implementation of the proposed rule, FERC also issued on November 15, 2018, a policy statement providing accounting and ratemaking guidance for treatment of ADIT for all FERC-jurisdictional public utilities. The policy statement also addresses the accounting and ratemaking treatment of ADIT following the sale or retirement of an asset after December 31, 2017. FirstEnergy’s formula rate transmission utilities will make the required filings on or before the deadlines established in FERC’s order. FirstEnergy’s stated rate transmission utilities will address the requirements as part of their next transmission rate case. JCP&L is addressing the requirements in the course of its pending transmission rate case.

Transmission ROE Methodology

FERC’s methodology for calculating electric transmission utility ROE has been in transition as a result of an April 14, 2017 ruling by the D.C. Circuit that vacated FERC’s then-effective methodology. On October 16, 2018, FERC issued an order in which it proposed a revised ROE methodology. FERC proposed that, for complaint proceedings alleging that an existing ROE is not just and reasonable, FERC will rely on three financial models - discounted cash flow, capital-asset pricing, and expected earnings - to establish a composite zone of reasonableness to identify a range of just and reasonable ROEs. FERC then will utilize the transmission utility’s risk relative to other utilities within that zone of reasonableness to assign the transmission utility to one of three quartiles within the zone. FERC would take no further action (i.e., dismiss the complaint) if the existing ROE falls within the identified quartile. However, if the replacement ROE falls outside the quartile, FERC would deem the existing ROE presumptively unjust and unreasonable and would determine the replacement ROE. FERC would add a fourth financial model risk premium to the analysis to calculate a ROE based on the average point of central tendency for each of the four financial models. On March 21, 2019, FERC established NOIs to collect industry and stakeholder comments on the revised ROE methodology that is described in the October 16, 2018 decision, and also whether to make changes to FERC’s existing policies and practices for awarding transmission rates incentives. On November 21, 2019, FERC announced in a complaint proceeding involving MISO utilities that FERC would rely on the discounted cash flow and capital-asset pricing models as the basis for establishing ROE. It is not clear at this time whether FERC’s November ruling will be applied more broadly. Any changes to FERC’s transmission rate ROE and incentive policies would be applied on a prospective basis. FirstEnergy currently is participating through various trade groups in the FERC dockets where the ROE methodology is being reviewed, and on December 23, 2019, JCP&L filed a request for rehearing of FERC’s November decision in the MISO utilities docket.

JCP&L Transmission Formula Rate

On October 30, 2019, JCP&L filed tariff amendments with FERC to convert JCP&L’s existing stated transmission rate to a forward-looking formula transmission rate. JCP&L requested that the tariff amendments become effective January 1, 2020. On December 19, 2019, FERC issued its initial order in the case, allowing JCP&L to transition to a forward-looking formula rate as of January 1, 2020 as requested, subject to refund, pending further hearing and settlement proceedings. JCP&L is engaged in settlement negotiations.

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15. COMMITMENTS, GUARANTEES AND CONTINGENCIES

NUCLEAR INSURANCE

JCP&L, ME and PN maintain property damage insurance provided by NEIL for their interest in the retired TMI- 2 nuclear facility, a permanently shut down and defueled facility. Under these arrangements, up to $150 million of coverage for decontamination costs, decommissioning costs, debris removal and repair and/or replacement of property is provided. JCP&L, ME and PN pay annual premiums and are subject to retrospective premium assessments of up to approximately $1.2 million during a policy year.

JCP&L, ME and PN intend to maintain insurance against nuclear risks as long as it is available. To the extent that property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of JCP&L, ME or PN’s plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by JCP&L, ME or PN’s insurance policies, or to the extent such insurance becomes unavailable in the future, JCP&L, ME or PN would remain at risk for such costs.

The Price-Anderson Act limits public liability relative to a single incident at a nuclear power plant. In connection with TMI-2, JCP&L, ME and PN carry the required ANI third party liability coverage and also have coverage under a Price Anderson indemnity agreement issued by the NRC. The total available coverage in the event of a nuclear incident is $560 million, which is also the limit of public liability for any nuclear incident involving TMI-2.

GUARANTEES AND OTHER ASSURANCES

FirstEnergy has various financial and performance guarantees and indemnifications which are issued in the normal course of business. These contracts include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. FirstEnergy enters into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party.

As of December 31, 2019, outstanding guarantees and other assurances aggregated approximately $1.6 billion, consisting of guarantees on behalf of the FES Debtors ($350 million), parental guarantees on behalf of its consolidated subsidiaries' guarantees ($1.0 billion), other guarantees ($114 million) and other assurances ($151 million). FirstEnergy has also committed to provide certain additional guarantees to the FES Debtors for retained environmental liabilities of AE Supply related to the Pleasants Power Station and McElroy's Run CCR disposal facility as part of the settlement agreement in connection with the FES Bankruptcy.

COLLATERAL AND CONTINGENT-RELATED FEATURES

In the normal course of business, FE and its subsidiaries routinely enter into physical or financially settled contracts for the sale and purchase of electric capacity, energy, fuel and emission allowances. Certain bilateral agreements and derivative instruments contain provisions that require FE or its subsidiaries to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon FE's or its subsidiaries' credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. The incremental collateral requirement allows for the offsetting of assets and liabilities with the same counterparty, where the contractual right of offset exists under applicable master netting agreements.

Bilateral agreements and derivative instruments entered into by FE and its subsidiaries have margining provisions that require posting of collateral. Based on AE Supply's power portfolio exposure as of December 31, 2019, AE Supply has posted no collateral. The Utilities and Transmission Companies have posted no collateral.

These credit-risk-related contingent features, or the margining provisions within bilateral agreements, stipulate that if the subsidiary were to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating), it would be required to provide additional collateral. Depending on the volume of forward contracts and future price movements, higher amounts for margining, which is the ability to secure additional collateral when needed, could be required. The following table discloses the potential additional credit rating contingent contractual collateral obligations as of December 31, 2019:

Potential Collateral Obligations												AE Supply						Utilities and FET						FE						Total
												(In millions)
Contractual Obligations for Additional Collateral
At Current Credit Rating												$	1					$	—					$	—					$	1
Upon Further Downgrade												—						36						—						36
Surety Bonds (Collateralized Amount)(1)												—						63						257						320
Total Exposure from Contractual Obligations												$	1					$	99					$	257					$	357

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Surety Bonds are not tied to a credit rating. Surety Bonds' impact assumes maximum contractual obligations (typical obligations require 30 days to cure). FE provides credit support for FG surety bonds for $169 million and $31 million for the benefit of the PA DEP with respect to LBR CCR impoundment closure and post-closure activities and the Hatfield's Ferry CCR disposal site, respectively.

OTHER COMMITMENTS AND CONTINGENCIES

FE is a guarantor under a $120 million syndicated senior secured term loan facility due November 12, 2024, under which Global Holding's outstanding principal balance is $114 million as of December 31, 2019. In addition to FE, Signal Peak, Global Rail, Global Mining Group, LLC and Global Coal Sales Group, LLC, each being a direct or indirect subsidiary of Global Holding, continue to provide their joint and several guaranties of the obligations of Global Holding under the facility.

In connection with the facility, 69.99% of Global Holding's direct and indirect membership interests in Signal Peak, Global Rail and their affiliates along with FEV's and WMB Marketing Ventures, LLC's respective 33-1/3% membership interests in Global Holding, are pledged to the lenders under the current facility as collateral.

ENVIRONMENTAL MATTERS

Various federal, state and local authorities regulate FirstEnergy with regard to air and water quality, hazardous and solid waste disposal, and other environmental matters. While FirstEnergy's environmental policies and procedures are designed to achieve compliance with applicable environmental laws and regulations, such laws and regulations are subject to periodic review and potential revision by the implementing agencies. FirstEnergy cannot predict the timing or ultimate outcome of any of these reviews or how any future actions taken as a result thereof may materially impact its business, results of operations, cash flows and financial condition.

Clean Air Act

FirstEnergy complies with SO2 and NOx emission reduction requirements under the CAA and SIP(s) by burning lower-sulfur fuel, utilizing combustion controls and post-combustion controls and/or using emission allowances.

CSAPR requires reductions of NOx and SO2 emissions in two phases (2015 and 2017), ultimately capping SO2 emissions in affected states to 2.4 million tons annually and NOx emissions to 1.2 million tons annually. CSAPR allows trading of NOx and SO2 emission allowances between power plants located in the same state and interstate trading of NOx and SO2 emission allowances with some restrictions. The D.C. Circuit ordered the EPA on July 28, 2015, to reconsider the CSAPR caps on NOx and SO2 emissions from power plants in 13 states, including Ohio, Pennsylvania and West Virginia. This follows the 2014 U.S. Supreme Court ruling generally upholding the EPA’s regulatory approach under CSAPR, but questioning whether the EPA required upwind states to reduce emissions by more than their contribution to air pollution in downwind states. The EPA issued a CSAPR update rule on September 7, 2016, reducing summertime NOx emissions from power plants in 22 states in the eastern U.S., including Ohio, Pennsylvania and West Virginia, beginning in 2017. Various states and other stakeholders appealed the CSAPR update rule to the D.C. Circuit in November and December 2016. On September 6, 2017, the D.C. Circuit rejected the industry's bid for a lengthy pause in the litigation and set a briefing schedule. On September 13, 2019, the D.C. Circuit remanded the CSAPR update rule to the EPA citing that the rule did not eliminate upwind states’ significant contributions to downwind states’ air quality attainment requirements within applicable attainment deadlines. Depending on the outcome of the appeals, the EPA’s reconsideration of the CSAPR update rule and how the EPA and the states ultimately implement CSAPR, the future cost of compliance may materially impact FirstEnergy's operations, cash flows and financial condition.

In February 2019, the EPA announced its final decision to retain without changes the NAAQS for SO2, specifically retaining the 2010 primary (health-based) 1-hour standard of 75 PPB. As of September 30, 2019, FirstEnergy has no power plants operating in areas designated as non-attainment by the EPA.

In August 2016, the State of Delaware filed a CAA Section 126 petition with the EPA alleging that the Harrison generating facility's NOx emissions significantly contribute to Delaware's inability to attain the ozone NAAQS. The petition sought a short-term NOx emission rate limit of 0.125 lb/mmBTU over an averaging period of no more than 24 hours. In November 2016, the State of Maryland filed a CAA Section 126 petition with the EPA alleging that NOx emissions from 36 EGUs, including Harrison Units 1, 2 and 3 and Pleasants Units 1 and 2, significantly contribute to Maryland's inability to attain the ozone NAAQS. The petition sought NOx emission rate limits for the 36 EGUs by May 1, 2017. On September 14, 2018, the EPA denied both the States of Delaware and Maryland's petitions under CAA Section 126. In October 2018, Delaware and Maryland appealed the denials of their petitions to the D.C. Circuit. In March 2018, the State of New York filed a CAA Section 126 petition with the EPA alleging that NOx emissions from nine states (including Ohio, Pennsylvania and West Virginia) significantly contribute to New York’s inability to attain the ozone NAAQS. The petition seeks suitable emission rate limits for large stationary sources that are affecting New York’s air quality within the three years allowed by CAA Section 126. On May 3, 2018, the EPA extended the time frame for acting on the CAA Section 126 petition by six months to November 9, 2018. On September 20, 2019, the EPA denied New York’s CAA Section 126 petition. On October 29, 2019, the State of New York appealed the denial of its petition to the D.C. Circuit. FirstEnergy is unable to predict the outcome of these matters or estimate the loss or range of loss.

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Climate Change

There are a number of initiatives to reduce GHG emissions at the state, federal and international level. Certain northeastern states are participating in the RGGI and western states led by California, have implemented programs, primarily cap and trade mechanisms, to control emissions of certain GHGs. Additional policies reducing GHG emissions, such as demand reduction programs, renewable portfolio standards and renewable subsidies have been implemented across the nation.

At the international level, the United Nations Framework Convention on Climate Change resulted in the Kyoto Protocol requiring participating countries, which does not include the U.S., to reduce GHGs commencing in 2008 and has been extended through 2020. The Obama Administration submitted in March 2015, a formal pledge for the U.S. to reduce its economy-wide GHG emissions by 26 to 28 percent below 2005 levels by 2025. In 2015, FirstEnergy set a goal of reducing company-wide CO2 emissions by at least 90 percent below 2005 levels by 2045. As of December 31, 2018, FirstEnergy has reduced its CO2 emissions by approximately 62 percent. In September 2016, the U.S. joined in adopting the agreement reached on December 12, 2015, at the United Nations Framework Convention on Climate Change meetings in Paris. The Paris Agreement’s non-binding obligations to limit global warming to below two degrees Celsius became effective on November 4, 2016. On June 1, 2017, the Trump Administration announced that the U.S. would cease all participation in the Paris Agreement. FirstEnergy cannot currently estimate the financial impact of climate change policies, although potential legislative or regulatory programs restricting CO2 emissions, or litigation alleging damages from GHG emissions, could require material capital and other expenditures or result in changes to its operations.

In December 2009, the EPA released its final “Endangerment and Cause or Contribute Findings for GHG under the Clean Air Act,” concluding that concentrations of several key GHGs constitutes an "endangerment" and may be regulated as "air pollutants" under the CAA and mandated measurement and reporting of GHG emissions from certain sources, including electric generating plants. The EPA released its final CPP regulations in August 2015 to reduce CO2 emissions from existing fossil fuel-fired EGUs and finalized separate regulations imposing CO2 emission limits for new, modified, and reconstructed fossil fuel fired EGUs. Numerous states and private parties filed appeals and motions to stay the CPP with the D.C. Circuit in October 2015. On February 9, 2016, the U.S. Supreme Court stayed the rule during the pendency of the challenges to the D.C. Circuit and U.S. Supreme Court. On March 28, 2017, an executive order, entitled “Promoting Energy Independence and Economic Growth,” instructed the EPA to review the CPP and related rules addressing GHG emissions and suspend, revise or rescind the rules if appropriate. On October 16, 2017, the EPA issued a proposed rule to repeal the CPP. To replace the CPP, the EPA proposed the ACE rule on August 21, 2018, which would establish emission guidelines for states to develop plans to address GHG emissions from existing coal-fired power plants. On June 19, 2019, the EPA repealed the CPP and replaced it with the ACE rule that establishes guidelines for states to develop standards of performance to address GHG emissions from existing coal-fired power plants. Depending on the outcomes of further appeals and how any final rules are ultimately implemented, the future cost of compliance may be material.

Clean Water Act

Various water quality regulations, the majority of which are the result of the federal CWA and its amendments, apply to FirstEnergy's facilities. In addition, the states in which FirstEnergy operates have water quality standards applicable to FirstEnergy's operations.

The EPA finalized CWA Section 316(b) regulations in May 2014, requiring cooling water intake structures with an intake velocity greater than 0.5 feet per second to reduce fish impingement when aquatic organisms are pinned against screens or other parts of a cooling water intake system to a 12% annual average and requiring cooling water intake structures exceeding 125 million gallons per day to conduct studies to determine site-specific controls, if any, to reduce entrainment, which occurs when aquatic life is drawn into a facility's cooling water system. Depending on any final action taken by the states with respect to impingement and entrainment, the future capital costs of compliance with these standards may be material.

On September 30, 2015, the EPA finalized new, more stringent effluent limits for the Steam Electric Power Generating category (40 CFR Part 423) for arsenic, mercury, selenium and nitrogen for wastewater from wet scrubber systems and zero discharge of pollutants in ash transport water. The treatment obligations phase-in as permits are renewed on a five-year cycle from 2018 to 2023. On April 13, 2017, the EPA granted a Petition for Reconsideration and on September 18, 2017, the EPA postponed certain compliance deadlines for two years. On November 4, 2019, the EPA issued a proposed rule revising the effluent limits for discharges from wet scrubber systems and extending the deadline for compliance to December 31, 2025. The EPA’s proposed rule retains the zero discharge standard and 2023 compliance date for ash transport water, but adds some allowances for discharge under certain circumstances. In addition, the EPA allows for less stringent limits for sub-categories of generating units based on capacity utilization, flow volume from the scrubber system, and unit retirement date. Depending on the outcome of appeals and how any final rules are ultimately implemented, the future costs of compliance with these standards may be substantial and changes to FirstEnergy's operations may result.

On September 29, 2016, FirstEnergy received a request from the EPA for information pursuant to CWA Section 308(a) for information concerning boron exceedances of effluent limitations established in the NPDES Permit for the former Mitchell Power Station’s Mingo landfill, owned by WP. On November 1, 2016, WP provided an initial response that contained information related to a similar boron issue at the former Springdale Power Station’s landfill. The EPA requested additional information regarding the

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Springdale landfill and on November 15, 2016, WP provided a response and intends to fully comply with the Section 308(a) information request. On March 3, 2017, WP proposed to the PA DEP a re-route of its wastewater discharge to eliminate potential boron exceedances at the Springdale landfill. On January 29, 2018, WP submitted an NPDES permit renewal application to PA DEP proposing to re-route its wastewater discharge to eliminate potential boron exceedances at the Mingo landfill. On February 20, 2018, the DOJ issued a letter and tolling agreement on behalf of EPA alleging violations of the CWA at the Mingo landfill while seeking to enter settlement negotiations in lieu of filing a complaint. On November 4, 2019, the EPA proposed a penalty of nearly $1.3 million to settle alleged past boron exceedances at the Mingo and Springdale landfills. On December 17, 2019, WP responded to the EPA's settlement proposal but is unable to predict the outcome of this matter.

Regulation of Waste Disposal

Federal and state hazardous waste regulations have been promulgated as a result of the RCRA, as amended, and the Toxic Substances Control Act. Certain CCRs, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation.

In April 2015, the EPA finalized regulations for the disposal of CCRs (non-hazardous), establishing national standards for landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to assure the safe disposal of CCRs from electric generating plants. On September 13, 2017, the EPA announced that it would reconsider certain provisions of the final regulations. On July 17, 2018, the EPA Administrator signed a final rule extending the deadline for certain CCR facilities to cease disposal and commence closure activities, as well as, establishing less stringent groundwater monitoring and protection requirements. On August 21, 2018, the D.C. Circuit remanded sections of the CCR Rule to the EPA to provide additional safeguards for unlined CCR impoundments that are more protective of human health and the environment. On November 4, 2019, the EPA issued a proposed rule accelerating the date that certain CCR impoundments must cease accepting waste and initiate closure to August 31, 2020. The proposed rule, which includes a 60-day comment period, provides exceptions, which could allow extensions to closure dates.

FirstEnergy or its subsidiaries have been named as potentially responsible parties at waste disposal sites, which may require cleanup under the CERCLA. Allegations of disposal of hazardous substances at historical sites and the liability involved are often unsubstantiated and subject to dispute; however, federal law provides that all potentially responsible parties for a particular site may be liable on a joint and several basis. Environmental liabilities that are considered probable have been recognized on the Consolidated Balance Sheets as of December 31, 2019, based on estimates of the total costs of cleanup, FirstEnergy's proportionate responsibility for such costs and the financial ability of other unaffiliated entities to pay. Total liabilities of approximately $109 million have been accrued through December 31, 2019. Included in the total are accrued liabilities of approximately $77 million for environmental remediation of former MGP and gas holder facilities in New Jersey, which are being recovered by JCP&L through a non-bypassable SBC. FE or its subsidiaries could be found potentially responsible for additional amounts or additional sites, but the loss or range of losses cannot be determined or reasonably estimated at this time.

OTHER LEGAL PROCEEDINGS

Nuclear Plant Matters

Under NRC regulations, JCP&L, ME and PN must ensure that adequate funds will be available to decommission their retired nuclear facility, TMI-2. As of December 31, 2019, JCP&L, ME and PN had in total approximately $882 million invested in external trusts to be used for the decommissioning and environmental remediation of their retired TMI-2 nuclear generating facility. The values of these NDTs also fluctuate based on market conditions. If the values of the trusts decline by a material amount, the obligation to JCP&L, ME and PN to fund the trusts may increase. Disruptions in the capital markets and their effects on particular businesses and the economy could also affect the values of the NDTs.

On October 15, 2019, JCP&L, ME, PN and GPUN executed an asset purchase and sale agreement with TMI-2 Solutions, LLC, a subsidiary of EnergySolutions, LLC, concerning the transfer and dismantlement of TMI-2. This transfer of TMI-2 to TMI-2 Solutions, LLC will include the transfer of: (i) the ownership and operating NRC licenses for TMI-2; (ii) the external trusts for the decommissioning and environmental remediation of TMI-2; and (iii) related liabilities of approximately $900 million as of December 31, 2019. There can be no assurance that the transfer will receive the required regulatory approvals and, even if approved, whether the conditions to the closing of the transfer will be satisfied. On November 12, 2019, JCP&L filed a Petition with the NJBPU seeking approval of the transfer and sale of JCP&L’s entire 25% interest in TMI-2 to TMI-2 Solutions, LLC. Also on November 12, 2019, JCP&L, ME, PN, GPUN and TMI-2 Solutions, LLC filed an application with the NRC seeking approval to transfer the NRC license for TMI-2 to TMI-2 Solutions, LLC. Both proceedings are ongoing. Assets and liabilities held for sale on the FirstEnergy Consolidated Balance Sheet associated with the transaction consist of asset retirement obligations of $691 million, NDTs of $882 million as well as property, plant and equipment with a net book value of zero, which are included in the regulated distribution segment.

FES Bankruptcy

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On March 31, 2018, FES, including its consolidated subsidiaries, FG, NG, FE Aircraft Leasing Corp., Norton Energy Storage L.L.C. and FGMUC, and FENOC filed voluntary petitions for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court. See Note 3, "Discontinued Operations," for additional information.

Other Legal Matters

There are various lawsuits, claims (including claims for asbestos exposure) and proceedings related to FirstEnergy's normal business operations pending against FE or its subsidiaries. The loss or range of loss in these matters is not expected to be material to FE or its subsidiaries. The other potentially material items not otherwise discussed above are described under Note 14, "Regulatory Matters."

FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an obligation for such costs and can reasonably estimate the amount of such costs. In cases where FirstEnergy determines that it is not probable, but reasonably possible that it has a material obligation, it discloses such obligations and the possible loss or range of loss if such estimate can be made. If it were ultimately determined that FE or its subsidiaries have legal liability or are otherwise made subject to liability based on any of the matters referenced above, it could have a material adverse effect on FE's or its subsidiaries' financial condition, results of operations and cash flows.

16. TRANSACTIONS WITH AFFILIATED COMPANIES

FE does not bill directly or allocate any of its costs to any subsidiary company. Costs are charged to FE's subsidiaries, as well as FES and FENOC, for services received from FESC. The majority of costs are directly billed or assigned at no more than cost. The remaining costs are for services that are provided on behalf of more than one company, or costs that cannot be precisely identified and are allocated using formulas developed by FESC. The current allocation or assignment formulas used and their bases include multiple factor formulas: each company’s proportionate amount of FirstEnergy’s aggregate direct payroll, number of employees, asset balances, revenues, number of customers, other factors and specific departmental charge ratios. Intercompany transactions are generally settled under commercial terms within thirty days.

The Utilities and Transmission Companies are parties to an intercompany income tax allocation agreement with FE and its other subsidiaries, including FES and FENOC, that provides for the allocation of consolidated tax liabilities. Net tax benefits attributable to FE are generally reallocated to the subsidiaries of FirstEnergy that have taxable income. That allocation is accounted for as a capital contribution to the company receiving the tax benefit (see Note 7, "Taxes").

Additionally, the Utilities purchase power from FES to meet a portion of their POLR and default service requirements and provide power to certain facilities. See Note 3, "Discontinued Operations" for additional details.

17. SEGMENT INFORMATION

Regulated Distribution and Regulated Transmission are FirstEnergy's reportable segments.

On March 31, 2018, as discussed in Note 3, “Discontinued Operations,” FirstEnergy deconsolidated FES and FENOC and presented FES, FENOC, BSPC and a portion of AE Supply, representing substantially all of FirstEnergy’s operations that previously comprised the CES reportable operating segment, as discontinued operations in FirstEnergy’s consolidated financial statements resulting from actions taken as part of the strategic review to exit commodity-exposed generation. The financial information for all periods has been revised to present the discontinued operations within Reconciling Adjustments. The remaining business activities that previously comprised the CES reportable operating segment were not material and, as such, have been combined into Corporate/Other for reporting purposes.

The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York, and purchases power for its POLR, SOS, SSO and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland. This segment also controls 3,790 MWs of regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey. The segment's results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs. Included within the segment are $882 million of assets classified as held for sale associated with the asset purchase and sale agreement with TMI-2 Solutions to transfer TMI-2 to TMI-2 Solutions, LLC. See Note 15, "Commitments, Guarantees and Contingencies" for additional information.

The Regulated Transmission segment provides transmission infrastructure owned and operated by the Transmission Companies and certain of FirstEnergy's utilities (JCP&L, MP, PE and WP) to transmit electricity from generation sources to distribution facilities. The segment's revenues are primarily derived from forward-looking formula rates at the Transmission Companies as well as stated transmission rates at JCP&L, MP, PE and WP. Effective January 1, 2020, JPC&L's transmission rates became forward-looking formula rates, subject to refund, pending further hearing and settlement proceedings. Both the forward-looking formula and stated rates recover costs that the regulatory agencies determine are permitted to be recovered and provide a return on transmission capital investment. Under forward-looking formula rates, the revenue requirement is updated annually based on a projected rate base and projected costs, which is subject to an annual true-up based on actual costs. The

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segment's results also reflect the net transmission expenses related to the delivery of electricity on FirstEnergy's transmission facilities.

Corporate/Other reflects corporate support not charged to FE's subsidiaries, interest expense on FE’s holding company debt and other businesses that do not constitute an operating segment. Reconciling adjustments for the elimination of inter-segment transactions and discontinued operations are shown separately in the following table of Segment Financial Information. As of December 31, 2019, 67 MWs of electric generating capacity, representing AE Supply's OVEC capacity entitlement, was included in continuing operations of Corporate/Other. As of December 31, 2019, Corporate/Other had approximately $7.1 billion of FE holding company debt.

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Financial information for each of FirstEnergy’s reportable segments is presented in the tables below:

Segment Financial Information

For the Years Ended						Regulated Distribution						Regulated Transmission						Corporate/ Other						Reconciling Adjustments						FirstEnergy Consolidated
						(In millions)
December 31, 2019
External revenues						$	9,511					$	1,510					$	14					$	—					$	11,035
Internal revenues						187						16						—						(203)						—
Total revenues						9,698						1,526						14						(203)						11,035
Provision for depreciation						863						284						5						68						1,220
Amortization (deferral) of regulatory assets, net						(89)						10						—						—						(79)
Miscellaneous income (expense), net						174						15						80						(26)						243
Interest expense						495						192						372						(26)						1,033
Income taxes (benefits)						271						113						(171)						—						213
Income (loss) from continuing operations						1,076						447						(619)						—						904
Property additions						$	1,473					$	1,090					$	102					$	—					$	2,665
December 31, 2018
External revenues						$	9,900					$	1,335					$	26					$	—					$	11,261
Internal revenues						203						18						8						(229)						—
Total revenues						10,103						1,353						34						(229)						11,261
Provision for depreciation						812						252						3						69						1,136
Amortization (deferral) of regulatory assets, net						(163)						13						—						—						(150)
Miscellaneous income (expense), net						192						14						32						(33)						205
Interest expense						514						167						468						(33)						1,116
Income taxes (benefits)						422						122						(54)						—						490
Income (loss) from continuing operations						1,242						397						(617)						—						1,022
Property additions						$	1,411					$	1,104					$	133					$	27					$	2,675
December 31, 2017
External revenues						$	9,602					$	1,307					$	19					$	—					$	10,928
Internal revenues						158						17						24						(199)						—
Total revenues						9,760						1,324						43						(199)						10,928
Provision for depreciation						724						224						10						69						1,027
Amortization of regulatory assets, net						292						16						—						—						308
Miscellaneous income (expense), net						57						1						39						(44)						53
Interest expense						535						156						358						(44)						1,005
Income taxes						580						205						930						—						1,715
Income (loss) from continuing operations						916						336						(1,541)						—						(289)
Property additions						$	1,191					$	1,030					$	49					$	317					$	2,587
As of December 31, 2019
Total assets						$	29,642					$	11,611					$	1,015					$	33					$	42,301
Total goodwill						$	5,004					$	614					$	—					$	—					$	5,618
As of December 31, 2018
Total assets						$	28,690					$	10,404					$	944					$	25					$	40,063
Total goodwill						$	5,004					$	614					$	—					$	—					$	5,618
As of December 31, 2017
Total assets						$	27,730					$	9,525					$	1,007					$	3,995					$	42,257
Total goodwill						$	5,004					$	614					$	—					$	—					$	5,618

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18. SUBSEQUENT EVENTS

United States v. Larry Householder, et al.

On July 21, 2020, a complaint and supporting affidavit containing federal criminal allegations were unsealed against the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. Also, on July 21, 2020, and in connection with the investigation, FirstEnergy received subpoenas for records from the U.S. Attorney’s Office for the S.D. Ohio. FirstEnergy was not aware of the criminal allegations, affidavit or subpoenas before July 21, 2020.

Legal Proceedings Relating to United States v. Larry Householder, et al.

In addition to the subpoenas referenced above under “—United States v. Larry Householder, et. al.”, certain FE stockholders and FirstEnergy customers filed several lawsuits against FirstEnergy and certain current and former directors, officers and other employees, and the complaints in each of these suits is related to allegations in the complaint and supporting affidavit relating to HB 6 and the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder.

•Gendrich v. Anderson, et al. and Sloan v. Anderson, et al. (Common Pleas Court, Summit County, OH); on July 26, 2020 and July 31, 2020, respectively, purported stockholders of FE filed shareholder derivative action lawsuits against certain FE directors and officers, alleging, among other things, breaches of fiduciary duty.

•Smith v. FirstEnergy Corp. et al., Buldas v. FirstEnergy Corp. et al., and Hudock and Cameo Countertops, Inc. v. FirstEnergy Corp. et al. (Federal District Court, S.D. Ohio); on July 27, 2020, July 31, 2020, and August 5, 2020, respectively, purported customers of FirstEnergy filed putative class action lawsuits against FE and FESC, as well as certain current and former FirstEnergy officers, alleging civil Racketeer Influenced and Corrupt Organizations Act violations and related state law claims. These actions have been consolidated.

•Owens v. FirstEnergy Corp. et al. and Frand v. FirstEnergy Corp. et al. (Federal District Court, S.D. Ohio); on July 28, 2020 and August 21, 2020, purported stockholders of FE filed putative class action lawsuits against FE and certain FE officers, purportedly on behalf of all purchasers of FE common stock from February 21, 2017 through July 21, 2020, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, alleging misrepresentations or omissions by FirstEnergy concerning its business and results of operations.

•Emmons v. FirstEnergy Corp. et al. (Common Pleas Court, Cuyahoga County, OH); on August 4, 2020, a purported customer of FirstEnergy filed a putative class action lawsuit against FE, FESC, OE, TE and CEI, along with FES, alleging several causes of action, including negligence and/or gross negligence, breach of contract, unjust enrichment, and unfair or deceptive consumer acts or practices. On October 1, 2020, plaintiffs filed a First Amended Complaint, adding as a plaintiff a purported customer of FirstEnergy and alleging a civil violation of the Ohio Corrupt Activity Act and civil conspiracy against FE, FESC and FES.

•Miller v. Anderson, et al. (Federal District Court, N.D. Ohio); Bloom, et al. v. Anderson, et al.; Employees Retirement System of the City of St. Louis v. Jones, et al.; Beck v. Anderson et al.; Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Anderson et al.; Massachusetts Laborers Pension Fund v. Anderson et al.; The City of Philadelphia Board of Pensions and Retirement v. Anderson et al.; Atherton v. Dowling et al; Behar v. Anderson, et al. (U.S. District Court, S.D. Ohio); beginning on August 7, 2020, purported stockholders of FE filed shareholder derivative actions alleging the board and officers breached their fiduciary duties and committed violations of Section 14(a) of the Securities Exchange Act of 1934.

•State of Ohio ex rel. Dave Yost, Ohio Attorney General v. FirstEnergy Corp., et al. (Common Pleas Court, Franklin County, OH); on September 23, 2020, the OH AG filed a complaint against several parties including FE and FESC, alleging, one cause of action, a civil violation of the Ohio Corrupt Activity Act in connection with the passage of HB 6. The OH AG sought a preliminary injunction to prevent each of the defendants, including FE and FESC, through the end of 2020, from: (i) contributing to any groups whose purpose is to keep or modify HB 6; (ii) making any public statements for or against any repeal or modification legislation concerning HB 6; (iii) lobbying, consulting, or advising on these matters; or (iv) contributing to any Ohio legislative candidates. The court denied the OH AG’s request for preliminary injunctive relief on October 2, 2020.

•City of Cincinnati and City of Columbus v. FirstEnergy Corp. (Common Pleas Court, Franklin County, OH); on October 27, 2020, the Cities of Cincinnati and Columbus filed a complaint against several parties including FE, alleging a civil violation of the Ohio Corrupt Activity Act and seeking to enjoin the collection of the zero nuclear credit included in HB 6.

•Mitchell v. FirstEnergy Corp. et al. (Common Pleas Court, Fairfield County, OH); on October 6, 2020, an unsuccessful candidate for the Ohio legislature filed an amended complaint adding FirstEnergy Corp. to a previously filed Ohio Corrupt Activity Act civil lawsuit against now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. The amended complaint sought an amount in excess of $875,000, plus treble damages and other relief. On November 2, 2020, the plaintiff moved to voluntarily dismiss the claims without prejudice.

The plaintiffs in each of the above cases, seek, among other things, to recover an unspecified amount of damages (unless otherwise noted). In addition, on August 10, 2020, the SEC, through its Division of Enforcement, issued an order directing an investigation of possible securities laws violations by FE, and on September 1, 2020, issued subpoenas to FE and certain FE

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officers. The outcome of any of these lawsuits and investigations are uncertain and could have a material adverse effect on FE’s or its subsidiaries’ financial condition, results of operations and cash flows.

Internal Investigation Relating to United States v. Larry Householder, et al.

As previously disclosed, a committee of independent members of the Board of Directors is directing an internal investigation related to ongoing government investigations. In connection with FirstEnergy’s internal investigation, such committee determined on October 29, 2020, to terminate FirstEnergy’s Chief Executive Officer, Charles E. Jones, together with two other executives: Dennis M. Chack, Senior Vice President of Product Development, Marketing, and Branding; and Michael J. Dowling, Senior Vice President of External Affairs. Each of these terminated executives violated certain FirstEnergy policies and its code of conduct. These executives were terminated as of October 29, 2020. Such former members of senior management did not maintain and promote a control environment with an appropriate tone of compliance in certain areas of FirstEnergy’s business, nor sufficiently promote, monitor or enforce adherence to certain FirstEnergy policies and its code of conduct. Furthermore, certain former members of senior management did not reasonably ensure that relevant information was communicated within our organization and not withheld from our independent directors, our Audit Committee, and our independent auditor. Among the matters considered with respect to the determination by the committee of independent members of the Board of Directors that certain former members of senior management violated certain FirstEnergy policies and its code of conduct related to a payment of approximately $4 million made in early 2019 in connection with the termination of a purported consulting agreement, as amended, which had been in place since 2013. The counterparty to such agreement was an entity associated with an individual who subsequently was appointed to a full-time role as an Ohio government official directly involved in regulating the Ohio Companies, including with respect to distribution rates. At this time, it has not been determined if the payments were for the purposes represented within the consulting agreement. Immediately following these terminations, the independent members of its Board appointed Mr. Steven E. Strah to the position of Acting Chief Executive Officer and Mr. Christopher D. Pappas, a current member of the Board, to the temporary position of Executive Director, each effective as of October 29, 2020. Mr. Donald T. Misheff will continue to serve as Non-Executive Chairman of the Board. Additionally, on November 8, 2020, Robert Reffner, Senior Vice President and Chief Legal Officer, and Ebony Yeboah-Amankwah, Vice President, General Counsel, and Chief Ethics Officer, were separated from FirstEnergy due to inaction and conduct that the Board determined was influenced by the improper tone at the top. The matter is a subject of the ongoing internal investigation as it relates to the government investigations.

Short-Term Borrowings/ Revolving Credit Facilities

FE and the Utilities and FET and certain of its subsidiaries participate in two separate five-year syndicated revolving credit facilities providing for aggregate commitments of $3.5 billion, which are available until December 6, 2022. Under the FE credit facility, an aggregate amount of $2.5 billion is available to be borrowed, repaid and reborrowed, subject to separate borrowing sublimits for each borrower including FE and its regulated distribution subsidiaries. Under the FET credit facility, an aggregate amount of $1.0 billion is available to be borrowed, repaid and reborrowed under a syndicated credit facility, subject to separate borrowing sublimits for each borrower including FE's transmission subsidiaries. On November 17, 2020, FE and the Utilities and FET and certain of its subsidiaries entered into amendments to the FE credit facility and the FET credit facility, respectively. The amendments provide for modifications and/or waivers of (i) certain representations and warranties and (ii) certain affirmative and negative covenants, contained therein, which allowed FirstEnergy to regain compliance with such provisions. In addition, among other things, the amendment to the FE credit facility reduces the sublimit applicable to FE to $1.5 billion, and the amendments increased certain tiers of pricing applicable to borrowings under the credit facilities.

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19. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

The following summarizes certain consolidated operating results by quarter for 2019 and 2018.

FirstEnergy
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In millions, except per share amounts)			2019																								2018
			Dec. 31						Sep. 30						Jun. 30						Mar. 31						Dec. 31						Sep. 30						Jun. 30						Mar. 31
Revenues			$	2,673					$	2,963					$	2,516					$	2,883					$	2,710					$	3,064					$	2,625					$	2,862
Other operating expense			809						758						606						779						770						739						684						940
Provision for depreciation			310						304						309						297						293						283						283						277
Operating Income			615						681						585						629						512						710						700						580
Pension and OPEB mark-to-market adjustment			(674)						—						—						—						(144)						—						—						—
Income before income taxes			(249)						496						422						448						169						520						409						414
Income taxes			(68)						107						81						93						35						121						101						233
Income from continuing operations			(181)						389						341						355						134						399						308						181
Discontinued operations (1) (Note 3)			70						2						(29)						(35)						4						(857)						(9)						1,188
Net Income (Loss)			(111)						391						312						320						138						(458)						299						1,369
Income allocated to preferred stockholders (2)			—						—						4						5						10						54						165						156
Net income (loss) attributable to common stockholders			(111)						391						308						315						128						(512)						134						1,213
Earnings (loss) per share of common stock-(3)
Basic - Continuing Operations			(0.33)						0.72						0.63						0.66						0.24						0.68						0.30						0.05
Basic - Discontinued Operations (Note 3)			0.13						0.01						(0.05)						(0.07)						0.01						(1.70)						(0.02)						2.50
Basic - Net Income (Loss) Attributable to Common Stockholders			(0.20)						0.73						0.58						0.59						0.25						(1.02)						0.28						2.55
Diluted - Continuing Operations			(0.33)						0.72						0.63						0.66						0.24						0.68						0.30						0.05
Diluted - Discontinued Operations (Note 3)			0.13						—						(0.05)						(0.07)						0.01						(1.70)						(0.02)						2.49
Diluted - Net Income (Loss) Attributable to Common Stockholders			(0.20)						0.72						0.58						0.59						0.25						(1.02)						0.28						2.54
(1) Net of income taxes
(2) The sum of quarterly income allocated to preferred stockholders may not equal annual income allocated to preferred stockholders as quarter-to-date and year-to-date amounts are calculated independently.
(3) The sum of quarterly earnings per share information may not equal annual earnings per share due to the issuance of shares and conversion of preferred shares throughout the year. See the FirstEnergy Consolidated Statements of Stockholders' Equity and Note 6, "Stock-Based Compensation Plans," for additional information.

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ITEM 9A.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to provide reasonable assurance that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure, and ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2019. At the time that the Original 10-K was filed on February 10, 2020, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019. Subsequent to this evaluation, the Company’s current acting chief executive officer and current chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2019, due to the material weakness in internal control over financial reporting described below.

Notwithstanding the material weakness described below, management has concluded that its consolidated financial statements included in the Original 10-K (and as presented in this Amendment) were not materially misstated and presented fairly, in all material respects, our consolidated financial statements as of December 31, 2019 and 2018, and as of and for each of the years in the three-year period ended December 31, 2019.

Management’s Report on Internal Control over Financial Reporting (Restated)

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 based on the framework in "Internal Control-Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of FirstEnergy’s annual or interim financial statements will not be prevented or detected on a timely basis.

We did not maintain an effective control environment as our senior management failed to set an appropriate tone at the top. Specifically, certain members of senior management failed to reinforce the need for compliance with the Company’s policies and code of conduct, which resulted in inappropriate conduct that was inconsistent with the Company’s policies and code of conduct.

This control deficiency did not result in a material misstatement of our annual or interim consolidated financial statements. However, this control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected. Accordingly, our management has concluded that this control deficiency constitutes a material weakness.

In Management's Report on Internal Control over Financial Reporting included in our Original 10-K for the year ended December 31, 2019, our management, including our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was effective as of December 31, 2019. Management subsequently concluded that the material weakness described above existed as of December 31, 2019. As a result, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019 based on the framework in Internal Control-Integrated Framework (2013) issued by the COSO. Accordingly, management has restated its report on internal control over financial reporting.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

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Remediation Plans

Management and the Board of Directors take FirstEnergy’s internal control over financial reporting and the integrity of its financial statements seriously. Management, the Board of Directors, along with the Audit Committee, and its newly formed subcommittee, are currently working to remediate the material weakness identified above. While we expect to take other remedial actions, actions taken to date include:

•the appointment of a new acting chief executive officer and executive director to improve the tone at the top;

•the termination of certain members of senior management, including FirstEnergy’s former chief executive officer, for violations of certain Company policies and its code of conduct;

•the separation of two senior members of the legal department, due to inaction and conduct that the Board determined was influenced by the improper tone at the top; and

•the establishment of the new subcommittee of FirstEnergy’s Audit Committee, who, with the Board, will oversee the assessment and implementation of potential changes (as appropriate) in FirstEnergy’s compliance program.

Management currently does not have an expected timetable for the execution and completion of a remediation plan. Management and the Board of Directors are committed to maintaining a strong internal control environment and will make every effort to ensure that the material weakness described above will be promptly remediated, however, the material weakness cannot be considered remediated until the applicable remedial control is implemented and operates for a sufficient period of time to allow management to conclude, through testing, that this remediation plan is implemented and the control is operating effectively.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2019, there were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, FirstEnergy's internal control over financial reporting.

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PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULE

(a) The following documents are filed as a part of this report on Form 10-K/A:

1. Financial Statements:

Management’s Report on Internal Control Over Financial Reporting for FirstEnergy Corp. is listed under Item 9A, "Controls and Procedures" herein.

Report of Independent Registered Public Accounting Firm for FirstEnergy Corp. is listed under Item 8, "Financial Statements and Supplementary Data," herein.

The financial statements filed as a part of this report for FirstEnergy Corp. are listed under Item 8, "Financial Statements and Supplementary Data," herein.

2. Financial Statement Schedule:

Report of Independent Registered Public Accounting Firm for FirstEnergy Corp. (including the schedule referenced below) is listed under Item 8, "Financial Statements and Supplementary Data," herein on page:

Page
2

Schedule II — Consolidated Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2019, are listed herein on page:

Page
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3. Exhibits

The following exhibits are filed as part of this Amendment.
Exhibit Number
(A) 23						Consent of Independent Registered Public Accounting Firm.
(A) 31.1						Certification of acting chief executive officer, pursuant to Rule 13a-14(a)
(A) 31.2						Certification of chief financial officer, pursuant to Rule 13a-14(a).
(A) 32						Certification of acting chief executive officer and chief financial officer, pursuant to 18 U.S.C. §1350.
101						The following materials from the Annual Report on Form 10-K/A for FirstEnergy Corp. for the period ended December 31, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Income (Loss) and Consolidated Statements of Comprehensive Income (Loss), (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Common Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, (v) related notes to these financial statements and (vi) document and entity information.
104						Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
(A)						Provided herein in electronic format as an exhibit.

Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, FirstEnergy has not filed as an exhibit to this Form 10-K/A any instrument with respect to long-term debt if the respective total amount of securities authorized thereunder does not exceed 10% of its respective total assets, but hereby agrees to furnish to the SEC on request any such documents.

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SCHEDULE II

FIRSTENERGY CORP.

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

												Additions
Description						Beginning Balance						Charged to Income						Charged to Other Accounts			(1)			Deductions			(2)			Ending Balance
						(In thousands)
Year Ended December 31, 2019:
Accumulated provision for uncollectible accounts — customers						$	49,798					$	81,107					$	47,306					$	132,031					$	46,180
— other						$	1,778					$	26,654					$	1,474					$	8,509					$	21,397
— affiliated companies (4)						$	919,851					$	143,276					$	—					$	—					$	1,063,127
Valuation allowance on various DTAs (3)						$	394,112					$	46,526					$	—					$	—					$	440,638
Year Ended December 31, 2018:
Accumulated provision for uncollectible accounts — customers						$	48,937					$	77,254					$	60,307					$	136,700					$	49,798
— other						$	990					$	12,487					$	—					$	11,699					$	1,778
— affiliated companies (4)						$	—					$	—					$	—					$	919,851					$	919,851
Valuation allowance on state and local DTAs						$	312,135					$	81,977					$	—					$	—					$	394,112
Year Ended December 31, 2017:
Accumulated provision for uncollectible accounts — customers						$	48,409					$	73,486					$	49,728					$	122,686					$	48,937
— other						$	884					$	6,461					$	—					$	6,355					$	990
Valuation allowance on state and local DTAs						$	240,289					$	71,846					$	—					$	—					$	312,135

(1)Represents recoveries and reinstatements of accounts previously written off for uncollectible accounts.

(2)Represents the write-off of accounts considered to be uncollectible.

(3)Starting in 2018, valuation allowances are now being recorded against federal and state DTA's related to disallowed business interest and certain employee remuneration, in addition to the state and local DTA's in the prior years presented.

(4)Amounts relate to the FES Debtors and are included in discontinued operations. See Note 3, "Discontinued Operations" for additional information.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			FIRSTENERGY CORP.
			BY:			/s/ Jason J. Lisowski
						Jason J. Lisowski
						Vice President, Controller and Chief Accounting Officer

Date: November 19, 2020

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:

/s/ Steven E. Strah
Steven E. Strah
President and Acting Chief Executive Officer
(Principal Executive Officer)
/s/ Donald T. Misheff
Donald T. Misheff
Director
(Non-Executive Chairman of Board)
/s/ K. Jon Taylor						/s/ Jason J. Lisowski
K. Jon Taylor						Jason J. Lisowski
Senior Vice President and Chief Financial Officer						Vice President, Controller and Chief Accounting Officer
(Principal Financial Officer)						(Principal Accounting Officer)
/s/ Michael J. Anderson						/s/ Christopher D. Pappas
Michael J. Anderson						Christopher D. Pappas
Director						Director
/s/ Steven J. Demetriou						/s/ Sandra Pianalto
Steven J. Demetriou						Sandra Pianalto
Director						Director
/s/ Julia L. Johnson						/s/ Luis A. Reyes
Julia L. Johnson						Luis A. Reyes
Director						Director
/s/ Thomas N. Mitchell						/s/ Leslie M. Turner
Thomas N. Mitchell						Leslie M. Turner
Director						Director
/s/ James F. O'Neil III
James F. O'Neil III
Director

Date: November 19, 2020

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