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Taxes | 12 Months Ended
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Dec. 31, 2019
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, 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.
(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, 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 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 |

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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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