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Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Taxes | 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 are party to an intercompany income tax allocation agreement that provides for the allocation of consolidated tax liabilities. Net tax benefits attributable to FirstEnergy, excluding any tax benefits derived from interest expense associated with acquisition indebtedness from the merger with GPU, are 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.
INCOME TAXES (BENEFITS)(1) |  | 2016 |  | 2015 |  | 2014
|  | (In millions)
FirstEnergy |  |  |  |  |  |
Currently payable (receivable)- |  |  |  |  |  |
Federal |  | $ | (1 | ) |  | $ | 1 |  |  | $ | (132 | )
State |  | 9 |  |  | 30 |  |  | (72 | )
|  | 8 |  |  | 31 |  |  | (204 | )
Deferred, net- |  |  |  |  |  |
Federal |  | (3,114 | ) |  | 277 |  |  | 214 |
State |  | 59 |  |  | 15 |  |  | (42 | )
|  | (3,055 | ) |  | 292 |  |  | 172 |
Investment tax credit amortization |  | (8 | ) |  | (8 | ) |  | (10 | )
Total provision for income taxes (benefits) |  | $ | (3,055 | ) |  | $ | 315 |  |  | $ | (42 | )
FES |  |  |  |  |  |
Currently payable (receivable)- |  |  |  |  |  |
Federal |  | $ | (67 | ) |  | $ | (56 | ) |  | $ | (222 | )
State |  | (1 | ) |  | 2 |  |  | (13 | )
|  | (68 | ) |  | (54 | ) |  | (235 | )
Deferred, net- |  |  |  |  |  |  |
Federal |  | (2,861 | ) |  | 103 |  |  | 25 |
State |  | (57 | ) |  | 18 |  |  | (14 | )
|  | (2,918 | ) |  | 121 |  |  | 11 |
Investment tax credit amortization |  | (2 | ) |  | (2 | ) |  | (4 | )
Total provision for income taxes (benefits) |  | $ | (2,988 | ) |  | $ | 65 |  |  | $ | (228 | )
(1) Provision for Income Taxes (Benefits) on Income from Continuing Operations. Currently payable (receivable) in 2014 excludes $106 million and $12 million of federal and state taxes, respectively, associated with discontinued operations. Deferred, net in 2014 excludes $44 million and $5 million of federal and state tax benefits, respectively, associated with discontinued operations.
FirstEnergy and FES 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 at the federal statutory rate to the total income taxes on continuing operations for the three years ended December 31:
| 2016 |  | 2015 |  | 2014
| (In millions)
FirstEnergy |  |  |  |  |
Income (loss) from Continuing Operations before income taxes (benefits) | $ | (9,232 | ) |  | $ | 893 |  |  | $ | 171 |
Federal income tax expense (benefit) at statutory rate (35%) | $ | (3,231 | ) |  | $ | 313 |  |  | $ | 60 |
Increases (reductions) in taxes resulting from- |  |  |  |  |
State income taxes, net of federal tax benefit | (192 | ) |  | 17 |  |  | (21 | )
AFUDC equity and other flow-through | (13 | ) |  | (16 | ) |  | (13 | )
Amortization of investment tax credits | (8 | ) |  | (8 | ) |  | (10 | )
Change in accounting method | — |  |  | (8 | ) |  | (27 | )
ESOP dividend | (6 | ) |  | (6 | ) |  | (6 | )
Impairment of non-deductible goodwill | 157 |  |  | — |  |  | — |
Tax basis balance sheet adjustments | — |  |  | — |  |  | (25 | )
Uncertain tax positions | (16 | ) |  | 1 |  |  | (35 | )
Valuation allowances | 246 |  |  | 18 |  |  | 33 |
Other, net | 8 |  |  | 4 |  |  | 2 |
Total income taxes (benefits) | $ | (3,055 | ) |  | $ | 315 |  |  | $ | (42 | )
Effective income tax rate | 33.1 | % |  | 35.3 | % |  | (24.6 | )%
FES |  |  |  |  |
Income (loss) from Continuing Operations before income taxes (benefits) | $ | (8,444 | ) |  | $ | 147 |  |  | $ | (588 | )
Federal income tax expense (benefit) at statutory rate (35%) | $ | (2,955 | ) |  | $ | 51 |  |  | $ | (206 | )
Increases (reductions) in taxes resulting from- |  |  |  |  |
State income taxes, net of federal tax benefit | (188 | ) |  | 2 |  |  | (28 | )
Amortization of investment tax credits | (2 | ) |  | (2 | ) |  | (4 | )
ESOP dividend | (1 | ) |  | (1 | ) |  | (1 | )
Impairment of non-deductible goodwill | 9 |  |  | — |  |  | — |
Uncertain tax positions | (8 | ) |  | 5 |  |  | — |
Valuation allowances | 151 |  |  | 14 |  |  | 14 |
Other, net | 6 |  |  | (4 | ) |  | (3 | )
Total income taxes (benefits) | $ | (2,988 | ) |  | $ | 65 |  |  | $ | (228 | )
Effective income tax rate | 35.4 | % |  | 44.2 | % |  | 38.8 | %
In 2016, FirstEnergy’s effective tax rate was 33.1% compared to 35.3% in 2015. The change in the effective tax rate year-over-year resulted from the impairment of $800 million of goodwill (as described in Note 2, Asset Impairments), of which $433 million is non-deductible for tax purposes. Additionally, $168 million of valuation allowances were recorded against state and local NOL carryforwards and $78 million of valuation allowances were recorded against state and local property deferred tax assets, that management believes, more likely than not, will not be realized. In 2016, FES’ effective tax rate on income from continuing operations was 35.4% compared to 44.2% in 2015. The change in the effective tax rate primarily resulted from $73 million of valuation allowances recorded against state and local NOL carryforwards and $78 million of valuation allowances recorded against state and local property deferred tax assets, that management believes, more likely than not, will not be realized, as well as the impairment of $23 million of goodwill, which is non-deductible for tax purposes. Accumulated deferred income taxes as of December 31, 2016 and 2015 are as follows:
|  | 2016 |  | 2015
|  | (In millions)
FirstEnergy |  |  |  |
Property basis differences |  | $ | 7,088 |  |  | $ | 9,920 |
Deferred sale and leaseback gain |  | (351 | ) |  | (360 | )
Pension and OPEB |  | (1,347 | ) |  | (1,541 | )
Nuclear decommissioning activities |  | 635 |  |  | 480 |
Asset retirement obligations |  | (669 | ) |  | (731 | )
Regulatory asset/liability |  | 545 |  |  | 763 |
Deferred compensation |  | (269 | ) |  | (239 | )
Loss carryforwards and AMT credits |  | (2,251 | ) |  | (1,965 | )
Valuation reserve |  | 438 |  |  | 192 |
All other |  | (54 | ) |  | 254 |
Net deferred income tax liability |  | $ | 3,765 |  |  | $ | 6,773 |
FES |  |  |  |
Property basis differences |  | $ | (1,009 | ) |  | $ | 1,901 |
Deferred sale and leaseback gain |  | (328 | ) |  | (342 | )
Pension and OPEB |  | (366 | ) |  | (393 | )
Lease market valuation liability |  | 111 |  |  | 95 |
Nuclear decommissioning activities |  | 540 |  |  | 483 |
Asset retirement obligations |  | (453 | ) |  | (509 | )
Loss carryforwards and AMT credits |  | (830 | ) |  | (687 | )
Valuation reserve |  | 197 |  |  | 46 |
All other |  | (141 | ) |  | 6 |
Net deferred income tax liability (asset) |  | $ | (2,279 | ) |  | $ | 600 |
FirstEnergy has tax returns that are under review at the audit or appeals level by the IRS and state taxing authorities. FirstEnergy's tax returns for all state jurisdictions are open from 2012-2015. In February 2016, the IRS completed its examination of the 2014 federal income tax return and issued a Full Acceptance Letter with no changes or adjustments to FirstEnergy’s taxable income or effective tax rate. Tax year 2015 is currently under review by the IRS. FirstEnergy has recorded as deferred income tax assets the effect of 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, 2016, the deferred income tax assets, before any valuation allowances, for loss carryforwards and AMT credits consisted of $1.8 billion of Federal NOL carryforwards that will begin to expire in 2030, Federal AMT credits of $25 million that have an indefinite carryforward period, and $407 million of state and local NOL carryforwards that will begin to expire in 2017. FES has recorded as deferred income tax assets the effect of 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, 2016, the deferred income tax assets, before any valuation allowances, for loss carryforwards consisted of $706 million of Federal NOL carryforwards that will begin to expire in 2031 and $120 million of state and local NOL carryforwards that will begin to expire in 2017. The table below summarizes pre-tax NOL carryforwards for state and local income tax purposes of approximately $10.1 billion ($407 million after-tax) for FirstEnergy, of which approximately $2.1 billion ($87 million after-tax) is expected to be utilized based on current estimates and assumptions. FES’ pre-tax NOL carryforwards for state and local income tax purposes is approximately $3.4 billion ($120 million after-tax), of which none 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.
Expiration Period |  | FirstEnergy |  | FES
|  | (In millions)
|  | State |  | Local |  | State |  | Local
2017-2021 |  | $ | 166 |  |  | $ | 2,998 |  |  | $ | 2 |  |  | $ | 1,795 |
2022-2026 |  | 1,327 |  |  | — |  |  | — |  |  | — |
2027-2031 |  | 2,817 |  |  | — |  |  | 410 |  |  | — |
2032-2036 |  | 2,752 |  |  | — |  |  | 1,172 |  |  | — |
|  | $ | 7,062 |  |  | $ | 2,998 |  |  | $ | 1,584 |  |  | $ | 1,795 |
FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements. A recognition threshold and measurement attribute is utilized for financial statement recognition and measurement of tax positions taken or expected to be taken on a company's tax return. As of December 31, 2016 and 2015, FirstEnergy's total unrecognized income tax benefits were approximately $84 million and $34 million, respectively. If ultimately recognized in future years, approximately $50 million of unrecognized income tax benefits would impact the effective tax rate. As of December 31, 2016, it is reasonably possible that approximately $51 million of unrecognized tax benefits may be resolved during 2017 as a result of the statute of limitations expiring and expected resolution with respect to certain claims, of which approximately $26 million would affect FirstEnergy's effective tax rate. The following table summarizes the changes in unrecognized tax positions for the years ended 2016, 2015 and 2014:
|  | FirstEnergy |  | FES
|  | (In millions)
Balance, January 1, 2014 |  | $ | 48 |  |  | $ | 3 |
Current year increases |  | 4 |  |  | — |
Prior years increases |  | 5 |  |  | — |
Prior years decreases |  | (23 | ) |  | — |
Balance, December 31, 2014 |  | $ | 34 |  |  | $ | 3 |
Current year increases |  | 3 |  |  | — |
Prior years increases |  | 7 |  |  | 5 |
Prior years decreases |  | (10 | ) |  | — |
Balance, December 31, 2015 |  | $ | 34 |  |  | $ | 8 |
Current year increases |  | 2 |  |  | — |
Prior years increases |  | 69 |  |  | — |
Prior years decreases |  | (21 | ) |  | (8 | )
Balance, December 31, 2016 |  | $ | 84 |  |  | $ | — |
FirstEnergy recognizes interest expense or income and penalties related to uncertain tax positions in income taxes. That amount is computed 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 federal income tax return. FirstEnergy's recognition of net interest associated with unrecognized tax benefits in 2016, 2015, and 2014 was not material. For the years ended December 31, 2016 and 2015, the cumulative net interest payable recorded by FirstEnergy was not material. General Taxes General tax expense for 2016, 2015 and 2014, is summarized as follows:
|  | 2016 |  | 2015 |  | 2014
|  | (In millions)
FirstEnergy |  |  |  |  |  |
KWH excise |  | $ | 196 |  |  | $ | 193 |  |  | $ | 194 |
State gross receipts |  | 212 |  |  | 224 |  |  | 226 |
Real and personal property |  | 472 |  |  | 410 |  |  | 393 |
Social security and unemployment |  | 127 |  |  | 119 |  |  | 112 |
Other |  | 35 |  |  | 32 |  |  | 37 |
Total general taxes |  | $ | 1,042 |  |  | $ | 978 |  |  | $ | 962 |
FES |  |  |  |  |  |
State gross receipts |  | $ | 28 |  |  | $ | 44 |  |  | $ | 69 |
Real and personal property |  | 42 |  |  | 36 |  |  | 39 |
Social security and unemployment |  | 15 |  |  | 16 |  |  | 17 |
Other |  | 3 |  |  | 2 |  |  | 3 |
Total general taxes |  | $ | 88 |  |  | $ | 98 |  |  | $ | 128 |

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