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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The income tax provision from continuing operations consisted of the following amounts:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (In millions, except percentages)
Current |  |  |  |  |
State | $ | 6 |  |  | $ | 19 |  |  | $ | 6 |
Total — current | 6 |  |  | 19 |  |  | 6 |
Deferred |  |  |  |  |
U.S. Federal | (16 | ) |  | (60 | ) |  | 23 |
State | 16 |  |  | (5 | ) |  | (6 | )
Foreign | 1 |  |  | 2 |  |  | 2 |
Total — deferred | 1 |  |  | (63 | ) |  | 19 |
Total income tax expense/(benefit) | $ | 7 |  |  | $ | (44 | ) |  | $ | 25 |
Effective income tax rate | 1.5 | % |  | 3.2 | % |  | (2.7 | )%
The following represents the domestic and foreign components of income/(loss) from continuing operations before income taxes:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (In millions)
U.S. | $ | 468 |  |  | $ | (1,406 | ) |  | $ | (942 | )
Foreign | (1 | ) |  | 17 |  |  | 11 |
Total | $ | 467 |  |  | $ | (1,389 | ) |  | $ | (931 | )
A reconciliation of the U.S. federal statutory tax rate to NRG's effective tax rate is as follows:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
| (In millions, except percentages)
Income/(loss) from continuing operations before income taxes | $ | 467 |  |  | $ | (1,389 | ) |  | $ | (931 | )
Tax at federal statutory tax rate | 98 |  |  | (486 | ) |  | (326 | )
State taxes | 18 |  |  | 19 |  |  | — |
Foreign operations | — |  |  | 2 |  |  | 10 |
Permanent differences | 7 |  |  | — |  |  | — |
Tax Act - corporate income tax rate change | — |  |  | 665 |  |  | — |
Valuation allowance due to corporate income tax rate change | — |  |  | (660 | ) |  | — |
Valuation allowance - current period activities | (106 | ) |  | 455 |  |  | 382 |
Impact of non-taxable equity earnings | — |  |  | (5 | ) |  | 22 |
Book goodwill impairment | — |  |  | 30 |  |  | — |
Net interest accrued on uncertain tax positions | — |  |  | — |  |  | 1 |
Production tax credits ("PTC") | (7 | ) |  | (8 | ) |  | (7 | )
Recognition of uncertain tax benefits | 1 |  |  | (5 | ) |  | 2 |
State rate change including true-up to current period activity | — |  |  | — |  |  | (59 | )
Alternative minimum tax ("AMT") refundable credit | (4 | ) |  | (64 | ) |  | — |
Other | — |  |  | 13 |  |  | — |
Income tax expense/(benefit) | $ | 7 |  |  | $ | (44 | ) |  | $ | 25 |
Effective income tax rate | 1.5 | % |  | 3.2 | % |  | (2.7 | )%
For the year ended December 31, 2018, NRG's overall effective tax rate was different than the federal statutory tax rate of 21% primarily due to a tax benefit for the change in valuation allowance, the generation of PTCs from various wind facilities and establishment of the previously sequestered AMT credit receivable, partially offset by current state tax expense. For the year ended December 31, 2017, NRG's overall effective tax rate was different than the federal statutory tax rate of 35% primarily due to tax expense recorded from the revaluation of the existing net deferred tax asset and state taxes, partially offset by the change in valuation allowance, establishing the AMT credit and the generation of PTCs from various wind facilities. The tax expense recorded for revaluation of the net deferred tax asset is required to reflect the reduction in the corporate income tax rate from 35% to 21% in accordance with the Tax Act. For the year ended December 31, 2016, NRG's overall effective tax rate was different than the federal statutory tax rate of 35% primarily due to the change in valuation allowance and the impact of non-taxable equity earnings, partially offset by the state tax rate change and the generation of PTCs from various wind facilities. The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following:
| As of December 31,
| 2018 |  | 2017
| (In millions)
Deferred tax liabilities: |  |  |
Emissions allowances | $ | 15 |  |  | $ | 15 |
Derivatives, net | 37 |  |  | 17 |
Investment in projects | 180 |  |  | 337 |
Discount/premium on notes | — |  |  | 1 |
Deferred financing costs | 21 |  |  | 2 |
Other | 1 |  |  | 5 |
Discontinued operations | 36 |  |  | 49 |
Total deferred tax liabilities | 290 |  |  | 426 |
Deferred tax assets: |  |  |
Deferred compensation, accrued vacation and other reserves | 134 |  |  | 141 |
Difference between book and tax basis of property | 554 |  |  | 611 |
Goodwill | 11 |  |  | 38 |
Differences between book and tax basis of contracts | 38 |  |  | 52 |
Pension and other postretirement benefits | 87 |  |  | 74 |
Equity compensation | 9 |  |  | 10 |
Bad debt reserve | 14 |  |  | 14 |
U.S. capital loss carryforwards | — |  |  | 1 |
U.S. Federal net operating loss carryforwards | 2,241 |  |  | 596 |
Foreign net operating loss carryforwards | 62 |  |  | 66 |
State net operating loss carryforwards | 379 |  |  | 128 |
Foreign capital loss carryforwards | 1 |  |  | 1 |
Federal and state tax credit carryforwards | 381 |  |  | 368 |
Federal benefit on state uncertain tax positions | 6 |  |  | 7 |
Intangibles amortization (excluding goodwill) | 21 |  |  | 98 |
Interest disallowance carryforward per §163(j) of the Tax Act | 102 |  |  | — |
Inventory obsolescence | 7 |  |  | 12 |
Discontinued operations | 17 |  |  | 185 |
Total deferred tax assets | 4,064 |  |  | 2,402 |
Valuation allowance | (3,812 | ) |  | (1,855 | )
Discontinued operations | 19 |  |  | (8 | )
Total deferred tax assets, net of valuation allowance | 271 |  |  | 539 |
Net deferred tax (liability)/asset | $ | (19 | ) |  | $ | 113 |
The following table summarizes NRG's net deferred tax position:
| As of December 31,
| 2018 |  | 2017
| (In millions)
Deferred tax asset — continuing operations | $ | 46 |  |  | $ | 6 |
Deferred tax asset — discontinued operations | — |  |  | 128 |
Deferred tax liability— continuing operations | (65 | ) |  | (21 | )
Net deferred tax (liability)/asset | $ | (19 | ) |  | $ | 113 |
The primary driver for the decrease in the net deferred tax asset from $113 million as of December 31, 2017 to a net deferred tax liability of $19 million as of December 31, 2018 is the removal of NRG Yield, Inc.'s net deferred tax asset upon their sale in 2018. The 2017 beginning deferred balance included $128 million of NRG Yield Inc.'s net deferred tax assets, which were subsequently moved to discontinued operations prior to the sale. Deferred tax assets and valuation allowance Net deferred tax balance — As of December 31, 2018 and 2017, NRG recorded a net deferred tax asset of $3.8 billion and $2.0 billion, respectively. The Company believes the federal and certain state net deferred tax assets may not be realizable under a "more likely than not" measurement and as such, a valuation allowance has been recorded to reduce the asset accordingly. The determination is based on the Company's assessment of cumulative and forecasted pretax book earnings and the future reversal of existing taxable temporary differences. Based on the Company's assessment of positive and negative evidence, including available tax planning strategies, NRG believes that it is more likely than not that a benefit will not be realized on $3.8 billion and $1.9 billion of tax assets as of December 31, 2018, and 2017, respectively, thus a valuation allowance has been recorded. The net deferred tax liability of $19 million as of December 31, 2018 is predominantly due to a foreign net deferred tax liability of $16 million and a net deferred tax liability for the state of Texas. NOL carryforwards — At December 31, 2018, the Company had tax effected cumulative domestic NOLs consisting of carryforwards for federal income tax purposes of $2.2 billion and state of $379 million. The Company estimates it will need to generate future taxable income to fully realize the net federal deferred tax asset before expiration commencing in 2031. In addition, NRG has cumulative foreign NOL carryforwards of $62 million with no expiration date. Valuation allowance — As of December 31, 2018, the Company's tax effected valuation allowance was $3.8 billion, consisting of domestic federal net deferred tax assets of approximately $3.3 billion, domestic state net deferred tax assets of $454 million, foreign NOL carryforwards of $62 million and foreign capital loss carryforwards of approximately $1 million. Based upon the assessment of cumulative and forecasted pretax book earnings, and the future reversal of existing taxable temporary differences, it was determined that a valuation allowance was required to be recorded during the year. Taxes Receivable and Payable As of December 31, 2018, NRG recorded a current tax payable of $3 million that represents a tax liability due for state income taxes. NRG has a tax receivable of $1 million, comprised of refunds due from state income tax estimated payments and return filings. Uncertain tax benefits NRG has identified uncertain tax benefits whose after-tax value is $26 million and $30 million, as of December 31, 2018 and 2017, for which NRG has recorded a non-current tax liability of $30 million and $33 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. During the year ended December 31, 2018, the Company recognized an expense of $1 million in interest. As of December 31, 2018 and 2017, NRG had cumulative interest and penalties related to these uncertain tax benefits of $4 million and $3 million, respectively. Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2015. With few exceptions, state and local income tax examinations are no longer open for years before 2010. The following table reconciles the total amounts of uncertain tax benefits:
| As of December 31,
| 2018 |  | 2017
| (In millions)
Balance as of January 1 | $ | 30 |  |  | $ | 34 |
Increase due to current year positions | 4 |  |  | 4 |
Decrease due to prior year positions | — |  |  | (8 | )
Decrease due to settlements and payments | (8 | ) |  | — |
Uncertain tax benefits as of December 31 | $ | 26 |  |  | $ | 30 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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