XML 33 R16.htm IDEA: XBRL DOCUMENT
v3.20.4

TAXES | 12 Months Ended
--- | ---
Dec. 31, 2020
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 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. Effective as of their emergence from bankruptcy, February 27, 2020, the FES Debtors no longer are part of FirstEnergy's consolidated federal income tax group or the intercompany income tax allocation agreement. Upon emergence, FirstEnergy paid the FES Debtors $125 million to settle all reconciliations under the Intercompany Tax Allocation Agreement for 2018, 2019 and 2020 tax years, including all issues regarding nondeductible interest. On March 27, 2020, President Trump signed into law the CARES Act, an economic stimulus package in response to the COVID-19 pandemic containing several corporate income tax provisions, including making remaining AMT credits immediately refundable; providing a 5-year carryback of NOLs generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021; and temporarily liberalizing the interest deductibility rules under Section 163(j) of the Tax Act, by raising the adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility. FirstEnergy has applied for refund of its remaining approximately $18 million refundable AMT credits. FirstEnergy does not expect to generate additional income tax refunds from the carryback of NOLs and expects interest to be fully deductible in the 2020 consolidated federal income tax return and going forward. FirstEnergy does not currently expect the other provisions of the CARES Act to have a material effect on current income tax expense or the realizability of deferred income tax assets. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021, an additional stimulus package providing financial relief for individuals and small businesses. The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, extensions of various energy tax incentives (including the ITC), and expansion of the employee retention tax credit. FirstEnergy does not currently expect the Appropriations Act to have a material tax impact. On July 28, 2020, the IRS issued final regulations implementing interest expense deduction limitation rules under section 163(j) of the Internal Revenue Code. The final regulations changed certain rules on the computation of interest expense and limitation amount, as well as rules relevant to status as a regulated utility business and the allocation of consolidated group interest expense between utility and non-utility businesses. After reviewing the final regulations, FirstEnergy recorded a true-up to prior years’ reserve estimates during the third quarter of 2020, which did not have a material impact to FirstEnergy’s income statement. On January 6, 2021, the IRS released an additional set of final regulations under Section 163(j) primarily addressing partnership, real estate, and certain controlled foreign corporation issues, which do not materially impact FirstEnergy.
|  | For the Years Ended December 31,
INCOME TAXES(1) |  | 2020 |  | 2019 |  | 2018
|  | (In millions)
Currently payable (receivable)- |  |  |  |  |  |
Federal (2) |  | $ | (14) |  |  | $ | (16) |  |  | $ | (16) |
State(3) |  | 21 |  |  | 24 |  |  | 17 |
|  | 7 |  |  | 8 |  |  | 1 |
Deferred, net- |  |  |  |  |  |
Federal(4) |  | 171 |  |  | 150 |  |  | 252 |
State(5) |  | (38) |  |  | 60 |  |  | 243 |
|  | 133 |  |  | 210 |  |  | 495 |
Investment tax credit amortization |  | (14) |  |  | (5) |  |  | (6) |
Total income taxes |  | $ | 126 |  |  | $ | 213 |  |  | $ | 490 |
(1)Income Taxes on Income from Continuing Operations. (2)Excludes $6 million of federal tax expense associated with discontinued operations for the year ended December 31, 2020. (3)Excludes $1 million of state tax expense associated with discontinued operations for the year ended December 31, 2018. (4)Excludes $66 million, $9 million and $1.3 billion of federal tax benefit associated with discontinued operations for the years ended December 31, 2020, 2019 and 2018, respectively. (5)Excludes $1 million, $4 million and $12 million of state tax expense associated with discontinued operations for the years ended December 31, 2020, 2019 and 2018, 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, 2020, 2019 and 2018:
| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
| (In millions)
Income from Continuing Operations, before income taxes | $ | 1,129 |  |  | $ | 1,117 |  |  | $ | 1,512 |
Federal income tax expense at statutory rate (21%) | $ | 237 |  |  | $ | 235 |  |  | $ | 318 |
Increases (reductions) in taxes resulting from- |  |  |  |  |
State income taxes, net of federal tax benefit | 75 |  |  | 96 |  |  | 90 |
AFUDC equity and other flow-through | (38) |  |  | (36) |  |  | (31) |
Amortization of investment tax credits | (14) |  |  | (5) |  |  | (5) |
Remeasurement of deferred taxes | — |  |  | — |  |  | 24 |
WV unitary group remeasurement | — |  |  | — |  |  | 126 |
Excess deferred tax amortization due to the Tax Act | (56) |  |  | (74) |  |  | (60) |
TMI-2 reversal of tax regulatory liabilities | (40) |  |  | — |  |  | — |
Uncertain tax positions | (1) |  |  | (11) |  |  | 2 |
Valuation allowances | (49) |  |  | 5 |  |  | 21 |
Other, net | 12 |  |  | 3 |  |  | 5 |
Total income taxes | $ | 126 |  |  | $ | 213 |  |  | $ | 490 |
Effective income tax rate | 11.2 | % |  | 19.1 | % |  | 32.4 | %
FirstEnergy's effective tax rate on continuing operations for 2020 and 2019 was 11.2% and 19.1%, respectively. The change in effective tax rate was primarily due to a $52 million reduction in valuation allowances from the recognition of deferred gains on prior intercompany generation asset transfers triggered by the FES Debtors’ emergence from bankruptcy and deconsolidation from FirstEnergy’s consolidated federal income tax group in the first quarter of 2020, a $10 million benefit from accelerated amortization of certain investment tax credits in the second quarter of 2020, and a $40 million benefit related to reversals of certain tax regulatory liabilities resulting from the transfer of TMI-2. See Note 3, “Discontinued Operations,” for other tax matters relating to the FES Bankruptcy that were recognized in discontinued operations. Accumulated deferred income taxes as of December 31, 2020 and 2019, are as follows:
|  | As of December 31,
|  | 2020 |  | 2019
|  | (In millions)
Property basis differences |  | $ | 5,396 |  |  | $ | 5,037 |
Pension and OPEB |  | (769) |  |  | (698) |
TMI-2 nuclear decommissioning |  | — |  |  | 89 |
AROs |  | (28) |  |  | (226) |
Regulatory asset/liability |  | 440 |  |  | 445 |
Deferred compensation |  | (165) |  |  | (154) |
Estimated worthless stock deduction |  | — |  |  | (1,007) |
Loss carryforwards and AMT credits |  | (1,995) |  |  | (836) |
Valuation reserve |  | 496 |  |  | 441 |
All other |  | (280) |  |  | (242) |
Net deferred income tax liability |  | $ | 3,095 |  |  | $ | 2,849 |
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, 2020, FirstEnergy's loss carryforwards primarily consisted of $6.8 billion ($1.4 billion, net of tax) of Federal NOL carryforwards that will begin to expire in 2031. The table below summarizes pre-tax NOL carryforwards and their respective anticipated expirations for state and local income tax purposes of approximately $12.4 billion ($540 million, net of tax) for FirstEnergy, of which approximately $3.8 billion ($155 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.
Expiration Period |  | State |  | Local
|  | (In millions)
2021-2025 |  | $ | 2,253 |  |  | $ | 4,353 |
2026-2030 |  | 1,447 |  |  | — |
2031-2035 |  | 1,152 |  |  | — |
2036-2040 |  | 1,087 |  |  | — |
Indefinite |  | 2,091 |  |  | — |
|  | $ | 8,030 |  |  | $ | 4,353 |
The following table summarizes the changes in valuation allowances on federal, state and local DTAs related to disallowed interest and certain employee remuneration, in addition to state and local NOLs discussed above for the years ended December 31, 2020, 2019 and 2018:
(In millions) |  | 2020 |  | 2019 |  | 2018
Beginning of year balance |  | $ | 441 |  |  | $ | 394 |  |  | $ | 312 |
Charged to income |  | 55 |  |  | 47 |  |  | 82 |
Charged to other accounts |  | — |  |  | — |  |  | — |
Write-offs |  | — |  |  | — |  |  | — |
End of year balance |  | $ | 496 |  |  | $ | 441 |  |  | $ | 394 |
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, 2020, and 2019, FirstEnergy's total unrecognized income tax benefits were approximately $139 million and $164 million, respectively. The change in unrecognized income tax benefits from the prior year is primarily attributable to a decrease of approximately $21 million for reserves on the estimated worthless stock deduction (see Note 3, "Discontinued Operations," for further discussion), as well as decreases of $2 million for an effective settlement with certain state taxing authorities and $2 million due to the lapse in statute in certain state taxing jurisdictions. If ultimately recognized in future years, approximately $121 million of unrecognized income tax benefits would impact the effective tax rate. As of December 31, 2020, it is reasonably possible that approximately $57 million of unrecognized tax benefits may be resolved during 2021 as a result of settlements with taxing authorities or the statute of limitations expiring, of which $55 million would affect FirstEnergy's effective tax rate. The following table summarizes the changes in unrecognized tax positions for the years ended December 31, 2020, 2019 and 2018:
|  | (In millions)
Balance, January 1, 2018 |  | $ | 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 year decreases |  | (12) |
Decrease for lapse in statute |  | (4) |
Balance, December 31, 2019 |  | $ | 164 |
Current year increases |  | 7 |
Prior years decreases |  | (28) |
Decrease for lapse in statute |  | (2) |
Effectively settled with taxing authorities |  | (2) |
Balance, December 31, 2020 |  | $ | 139 |
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 2020, 2019 and 2018, was not material. For the years ended December 31, 2020 and 2019, 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. Tax years 2018 and 2019 are currently under review by the IRS. FirstEnergy's tax returns for some state jurisdictions are open from 2009-2019. General Taxes General tax expense for the years ended December 31, 2020, 2019 and 2018, recognized in continuing operations is summarized as follows:
|  | For the Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
|  | (In millions)
KWH excise |  | $ | 183 |  |  | $ | 191 |  |  | $ | 198 |
State gross receipts |  | 182 |  |  | 185 |  |  | 192 |
Real and personal property |  | 541 |  |  | 504 |  |  | 478 |
Social security and unemployment |  | 112 |  |  | 100 |  |  | 103 |
Other |  | 28 |  |  | 28 |  |  | 22 |
Total general taxes |  | $ | 1,046 |  |  | $ | 1,008 |  |  | $ | 993 |

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration