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Taxes | 12 Months Ended
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Dec. 31, 2017
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. On December 22, 2017, the President signed into law the Tax Act. Substantially all of the provisions of the Tax Act are effective for taxable years beginning after December 31, 2017. The Tax Act includes significant changes to the Internal Revenue Code of 1986 (as amended, the Code), including amendments which significantly change the taxation of business entities and includes specific provisions related to regulated public utilities including FirstEnergy’s regulated distribution and transmission subsidiaries. The more significant changes that impact FirstEnergy included in the Tax Act are the following:
• | 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;
• | 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.
The most significant change that impacts FirstEnergy in the current year is the reduction of the corporate federal income tax rate. Other provisions are not expected to have a significant impact on the financial statements, but may impact the effective tax rate in future years. Under US GAAP, specifically ASC Topic 740, Income Taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December 22, 2017, for the Tax Act. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, FirstEnergy’s deferred taxes were re-measured based upon the new tax rate, which resulted in a material decrease to FirstEnergy’s net deferred income tax liabilities. For FirstEnergy’s unregulated operations, the change in deferred taxes are recorded as an adjustment to FirstEnergy’s deferred income tax provision. FirstEnergy’s regulated entities recorded a corresponding net regulatory liability to the extent the change in deferred taxes would result in amounts previously collected from utility customers to be subject to refunds to such customers, generally through reductions in future rates. All other amounts were recorded as an adjustment to FirstEnergy’s regulated entities’ deferred income tax provision. FirstEnergy has completed its assessment of the accounting for certain effects of the provisions in the Tax Act, and as allowed under SEC Staff Accounting Bulletin 118 (SAB 118), has recorded provisional income tax amounts as of December 31, 2017 related to depreciation for which the impacts of the Tax Act could not be finalized, but for which a reasonable estimate could be determined. Under the new law, property acquired and placed into service after September 27, 2017, will be eligible for full expensing for all taxpayers other than regulated utilities. As a result, FirstEnergy will need to evaluate the contractual terms of its capital expenditures to determine eligibility for full expensing. As of December 31, 2017, FirstEnergy has not yet completed this analysis, but has recorded a reasonable estimate of the effects of these changes based on capital costs incurred prior to year-end. In addition, SAB 118 allows for a measurement period for companies to finalize the provisional amounts recorded as of December 31, 2017. FirstEnergy expects to record any final adjustments to the provisional amounts by the fourth quarter of 2018, which could result in a material impact to FirstEnergy’s income tax provision or financial position. FirstEnergy’s assessment of accounting for the Tax Act are based upon management’s current understanding of the Tax Act. However, it is expected that further guidance will be issued during 2018, which may result in adjustments that could have a material impact to FirstEnergy’s future results of operations, cash flows, or financial position. As a result of the Tax Act, FirstEnergy recognized a non-cash charge to income tax expense of $1.2 billion (FES - $1.1 billion) and resulted in excess deferred taxes of $2.3 billion for the regulated business, of which the revenue impact was recorded as a regulatory liability. These adjustments had no impact on our 2017 cash flows.
INCOME TAXES (BENEFITS) |  | 2017 |  | 2016 |  | 2015
|  | (In millions)
FirstEnergy |  |  |  |  |  |
Currently payable (receivable)- |  |  |  |  |  |
Federal |  | $ | 14 |  |  | $ | (1 | ) |  | $ | 1 |
State |  | 42 |  |  | 9 |  |  | 30 |
|  | 56 |  |  | 8 |  |  | 31 |
Deferred, net- |  |  |  |  |  |
Federal |  | 876 |  |  | (3,114 | ) |  | 277 |
State |  | (29 | ) |  | 59 |  |  | 15 |
|  | 847 |  |  | (3,055 | ) |  | 292 |
Investment tax credit amortization |  | (8 | ) |  | (8 | ) |  | (8 | )
Total provision for income taxes (benefits) |  | $ | 895 |  |  | $ | (3,055 | ) |  | $ | 315 |
FES |  |  |  |  |  |
Currently payable (receivable)- |  |  |  |  |  |
Federal |  | $ | (159 | ) |  | $ | (67 | ) |  | $ | (56 | )
State |  | (1 | ) |  | (1 | ) |  | 2 |
|  | (160 | ) |  | (68 | ) |  | (54 | )
Deferred, net- |  |  |  |  |  |  |
Federal |  | 509 |  |  | (2,861 | ) |  | 103 |
State |  | (52 | ) |  | (57 | ) |  | 18 |
|  | 457 |  |  | (2,918 | ) |  | 121 |
Investment tax credit amortization |  | (2 | ) |  | (2 | ) |  | (2 | )
Total provision for income taxes (benefits) |  | $ | 295 |  |  | $ | (2,988 | ) |  | $ | 65 |
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 (benefit) at the federal statutory rate to the total income taxes (benefits) for the three years ended December 31:
| 2017 |  | 2016 |  | 2015
| (In millions)
FirstEnergy |  |  |  |  |
Income (loss) before income taxes (benefits) | $ | (829 | ) |  | $ | (9,232 | ) |  | $ | 893 |
Federal income tax expense (benefit) at statutory rate (35%) | $ | (290 | ) |  | $ | (3,231 | ) |  | $ | 313 |
Increases (reductions) in taxes resulting from- |  |  |  |  |
State income taxes, net of federal tax benefit | (4 | ) |  | (192 | ) |  | 17 |
AFUDC equity and other flow-through | (15 | ) |  | (13 | ) |  | (16 | )
Amortization of investment tax credits | (8 | ) |  | (8 | ) |  | (8 | )
Change in accounting method | — |  |  | — |  |  | (8 | )
ESOP dividend | (6 | ) |  | (6 | ) |  | (6 | )
Impairment of non-deductible goodwill | — |  |  | 157 |  |  | — |
Remeasurement of deferred taxes | 1,193 |  |  | — |  |  | — |
Uncertain tax positions | (3 | ) |  | (16 | ) |  | 1 |
Valuation allowances | 29 |  |  | 246 |  |  | 18 |
Other, net | (1 | ) |  | 8 |  |  | 4 |
Total income taxes (benefits) | $ | 895 |  |  | $ | (3,055 | ) |  | $ | 315 |
Effective income tax rate | (108.0 | )% |  | 33.1 | % |  | 35.3 | %
FES |  |  |  |  |
Income (loss) before income taxes (benefits) | $ | (2,096 | ) |  | $ | (8,443 | ) |  | $ | 147 |
Federal income tax expense (benefit) at statutory rate (35%) | $ | (734 | ) |  | $ | (2,955 | ) |  | $ | 51 |
Increases (reductions) in taxes resulting from- |  |  |  |  |
State income taxes, net of federal tax benefit | (52 | ) |  | (188 | ) |  | 2 |
Amortization of investment tax credits | (2 | ) |  | (2 | ) |  | (2 | )
ESOP dividend | — |  |  | (1 | ) |  | (1 | )
Impairment of non-deductible goodwill | — |  |  | 9 |  |  | — |
Remeasurement of deferred taxes | 1,067 |  |  | — |  |  | — |
Uncertain tax positions | — |  |  | (8 | ) |  | 5 |
Valuation allowances | 18 |  |  | 151 |  |  | 14 |
Other, net | (2 | ) |  | 6 |  |  | (4 | )
Total income taxes (benefits) | $ | 295 |  |  | $ | (2,988 | ) |  | $ | 65 |
Effective income tax rate | (14.1 | )% |  | 35.4 | % |  | 44.2 | %
Absent the impact from the Tax Act, discussed above, FirstEnergy’s effective tax rate on pre-tax losses for 2017 and 2016 was 35.9% and 33.1%, respectively. The change in the effective tax rate resulted primarily from the absence of 2016 charges, including $246 million of valuation allowances recorded against state and local deferred tax assets, that management believes, more likely than not, will not be realized, as well as the impairment of $800 million of goodwill, of which $433 million was non-deductible for tax purposes. Absent the impact from the Tax Act, discussed above, FES’ 2017 effective tax rate on pre-tax losses for 2017 and 2016 was 36.8%, and 35.4%, respectively. The change in the effective tax resulted primarily from the absence of $151 million of valuation allowances recorded against state and local 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 was non-deductible for tax purposes. Accumulated deferred income taxes as of December 31, 2017 and 2016, are as follows:
|  | 2017 |  | 2016
|  | (In millions)
FirstEnergy |  |  |  |
Property basis differences |  | $ | 3,662 |  |  | $ | 7,088 |
Deferred sale and leaseback gain |  | (231 | ) |  | (351 | )
Pension and OPEB |  | (952 | ) |  | (1,347 | )
Nuclear decommissioning activities |  | 450 |  |  | 635 |
Asset retirement obligations |  | (453 | ) |  | (669 | )
Regulatory asset/liability |  | 416 |  |  | 545 |
Deferred compensation |  | (177 | ) |  | (269 | )
Nuclear Fuel |  | (375 | ) |  | (90 | )
Loss carryforwards and AMT credits |  | (1,467 | ) |  | (2,251 | )
Valuation reserve |  | 580 |  |  | 438 |
All other |  | (94 | ) |  | 36 |
Net deferred income tax liability |  | $ | 1,359 |  |  | $ | 3,765 |
FES |  |  |  |
Property basis differences |  | $ | (677 | ) |  | $ | (1,009 | )
Deferred sale and leaseback gain |  | (219 | ) |  | (328 | )
Pension and OPEB |  | (244 | ) |  | (366 | )
Lease market valuation liability |  | 75 |  |  | 111 |
Nuclear decommissioning activities |  | 411 |  |  | 540 |
Asset retirement obligations |  | (296 | ) |  | (453 | )
Nuclear Fuel |  | (375 | ) |  | (90 | )
Loss carryforwards and AMT credits |  | (587 | ) |  | (830 | )
Valuation reserve |  | 268 |  |  | 197 |
All other |  | (110 | ) |  | (51 | )
Net deferred income tax asset |  | $ | (1,754 | ) |  | $ | (2,279 | )
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 2009-2016. In February 2017, the IRS completed its examination of FirstEnergy's 2015 federal income tax return and issued a Full Acceptance Letter with no changes or adjustments to FirstEnergy's taxable income. In August 2017, the IRS substantially completed its examination of FirstEnergy’s 2016 federal income tax return and, on January 18, 2018, issued a Full Acceptance Letter with no changes or adjustments to FirstEnergy’s taxable income. FirstEnergy and FES have 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, 2017, FirstEnergy's loss carryforwards and AMT credits consisted of $4.3 billion ($908 million, net of tax) of Federal NOL carryforwards that will begin to expire in 2031 and Federal AMT credits of $39 million that have an indefinite carryforward period. As of December 31, 2017, FES' loss carryforwards consisted of $2.0 billion ($429 million, net of tax) of Federal NOL carryforwards that will begin to expire in 2031. The table below summarizes pre-tax NOL carryforwards for state and local income tax purposes of approximately $10.5 billion ($496 million, net of tax) for FirstEnergy, of which approximately $1.8 billion ($81 million, net of 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 $3.7 billion ($154 million, net of tax), of which $2 million 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
2018-2022 |  | $ | 806 |  |  | $ | 3,472 |  |  | $ | 2 |  |  | $ | 1,954 |
2023-2027 |  | 1,963 |  |  | — |  |  | 32 |  |  | — |
2028-2032 |  | 2,382 |  |  | — |  |  | 703 |  |  | — |
2033-2037 |  | 1,896 |  |  | — |  |  | 982 |  |  | — |
|  | $ | 7,047 |  |  | $ | 3,472 |  |  | $ | 1,719 |  |  | $ | 1,954 |
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, 2017 and 2016, FirstEnergy's total unrecognized income tax benefits were approximately $80 million and $84 million, respectively. If ultimately recognized in future years, approximately $24 million of unrecognized income tax benefits would impact the effective tax rate. On October 18, 2017, the Supreme Court of Pennsylvania affirmed the Commonwealth Court’s holding that the state’s net loss carryover provision violated the Pennsylvania Uniformity Clause and was unconstitutional. However, the supreme court also opined that the portion of the net loss carryover provision that created the violation may be severed from the statute, enabling the statute to operate as the legislature intended, and on October 30, 2017, the Pennsylvania Governor signed House Bill 542 into law which, among other things, amended Pennsylvania’s limitation on net loss deductions to remove the flat-dollar limitation. On January 4, 2018, the supreme court denied to further hear any arguments related to the matter and, as a result, FirstEnergy withdrew its protective refund claims from the state of Pennsylvania on January 30, 2018. Upon doing so, FirstEnergy will reverse a previously recorded unrecognized tax benefit of approximately $45 million in the first quarter of 2018, none of which will impact FirstEnergy’s effective tax rate. As of December 31, 2017, it is reasonably possible that approximately $2 million of additional unrecognized tax benefits may be resolved during 2018 as a result of the statute of limitations expiring, none of which would affect FirstEnergy's effective tax rate. The following table summarizes the changes in unrecognized tax positions for the years ended 2017, 2016 and 2015:
|  | FirstEnergy |  | FES
|  | (In millions)
Balance, January 1, 2015 |  | $ | 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 |  |  | $ | — |
Current year increases |  | 2 |  |  | — |
Decrease for lapse in statute |  | (6 | ) |  | — |
Balance, December 31, 2017 |  | $ | 80 |  |  | $ | — |
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 2017, 2016, and 2015 was not material. For the years ended December 31, 2017 and 2016, the cumulative net interest payable recorded by FirstEnergy was not material. General Taxes General tax expense for 2017, 2016 and 2015, is summarized as follows:
|  | 2017 |  | 2016 |  | 2015
|  | (In millions)
FirstEnergy |  |  |  |  |  |
KWH excise |  | $ | 188 |  |  | $ | 196 |  |  | $ | 193 |
State gross receipts |  | 204 |  |  | 212 |  |  | 224 |
Real and personal property |  | 486 |  |  | 472 |  |  | 410 |
Social security and unemployment |  | 131 |  |  | 127 |  |  | 119 |
Other |  | 34 |  |  | 35 |  |  | 32 |
Total general taxes |  | $ | 1,043 |  |  | $ | 1,042 |  |  | $ | 978 |
FES |  |  |  |  |  |
State gross receipts |  | $ | 20 |  |  | $ | 28 |  |  | $ | 44 |
Real and personal property |  | 27 |  |  | 42 |  |  | 36 |
Social security and unemployment |  | 11 |  |  | 15 |  |  | 16 |
Other |  | — |  |  | 3 |  |  | 2 |
Total general taxes |  | $ | 58 |  |  | $ | 88 |  |  | $ | 98 |

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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