FET P&SA II and in connection with the closing thereof, Brookfield, FET and FE will enter into the A&R FET LLC Agreement, which will amend and restate in its entirety the FET LLC Agreement. 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 financing 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, 2022 and 2021, were as follows: December 31, 2022 Property, Plant and Equipment In Service(1) Accum. Depr. Net Plant CWIP Total (In millions) Regulated Distribution $ 32,257 $ (9,636) $ 22,621 $ 828 $ 23,449 Regulated Transmission 14,468 (2,978) 11,490 818 12,308 Corporate/Other 1,125 (644) 481 47 528 Total $ 47,850 $ (13,258) $ 34,592 $ 1,693 $ 36,285 December 31, 2021 Property, Plant and Equipment In Service(1) Accum. Depr. Net Plant CWIP Total (In millions) Regulated Distribution $ 31,154 $ (9,284) $ 21,870 $ 774 $ 22,644 Regulated Transmission 13,744 (2,789) 10,955 580 11,535 Corporate/Other 1,104 (599) 505 60 565 Total $ 46,002 $ (12,672) $ 33,330 $ 1,414 $ 34,744 (1) Includes finance leases of $105 million and $143 million as of December 31, 2022 and 2021, respectively. Regulated Distribution has approximately $2.2 billion of total regulated generation property, plant and equipment as of December 31, 2022. 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 approximately 2.7% in each 2022, 2021 and 2020. For the years ended December 31, 2022, 2021 and 2020, capitalized financing costs on FirstEnergy's Consolidated Statements of Income include $56 million, $48 million and $49 million, respectively, of allowance for equity funds used during construction and $28 million, $27 million and $28 million, respectively, of capitalized interest. 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. Asset Retirement Obligations FirstEnergy recognizes an ARO for its legal obligation to perform asset retirement activities associated with its long-lived assets. The ARO liability represents an estimate of the fair value of FirstEnergy's current obligation such that the ARO is accreted monthly to reflect the time value of money. 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 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 84
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