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INCOME TAXES
 6 Months Ended
Jun. 30, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
FirstEnergy’s interim effective income tax rates reflect the estimated annual effective income tax rates for 2024 and 2023. These tax rates are affected by estimated annual permanent items, such as AFUDC equity and other flow-through items, as well as certain discrete items. The following tables reconcile the effective income tax rate to the federal income tax statutory rate for the three and six months ended June 30, 2024 and 2023:

For the Three Months Ended June 30,For the Six Months Ended June 30,
2024202320242023
(In millions)
Income before income taxes$163 $328 $565 $728 
Federal income tax expense at statutory rate (21%)$34 $69 $119 $153 
Increases (reductions) in tax expense resulting from:
Nondeductible SEC and OOCIC loss contingencies27 — 27 — 
State and municipal income taxes, net of federal tax benefit21 19 43 43 
AFUDC equity and other flow-through(8)(4)(16)(9)
Deferred taxes related to sale of equity interest in FET, net— — 7 — 
Excess deferred tax amortization due to the Tax Act(13)(16)(26)(32)
Valuation allowances (3)— 36 — 
Other, net7 6 10 9 
Total income taxes$65 $74 $200 $164 
Effective income tax rate39.9 %22.6 %35.4 %22.5 %

The IRA of 2022, among other things, imposes a new 15% corporate AMT based on AFSI applicable to corporations with a three-year average AFSI over $1 billion. The AMT is effective for the 2023 tax year and, if applicable, corporations must pay the greater of the regular corporate income tax or the AMT. Although NOL carryforwards created through the regular corporate income tax system cannot be used to reduce the AMT, financial statement NOLs can be used to reduce AFSI and the amount of AMT owed. The IRA of 2022 as enacted requires the U.S. Treasury to provide regulations and other guidance necessary to administer the AMT, including further defining allowable adjustments to determine AFSI, which directly impacts the amount of AMT to be paid. Based on interim guidance issued by the U.S. Treasury during 2022 and 2023, FirstEnergy continues to believe that it is more likely than not that AMT will be applicable beginning with 2023. The future issuance of U.S. Treasury regulations could
significantly change FirstEnergy’s AMT estimates or its conclusion as to whether it is an AMT payer at all. Additionally, the regulatory treatment of the impacts of this legislation may also be subject to regulation by FERC and/or applicable state regulatory authorities. Any adverse development in this legislation, including guidance from the U.S. Treasury and/or the IRS or unfavorable regulatory treatment, could negatively impact FirstEnergy’s cash flows, results of operations, and financial condition. As further discussed below, FirstEnergy expects to pay regular federal corporate income tax in 2024, due in large part to the gain realized from closing the FET Equity Interest Sale.

As discussed above, on March 25, 2024, FirstEnergy closed on the FET Equity Interest Sale, realizing an approximate $7.3 billion tax gain from the combined sale of 49.9% of the membership interests in FET for the consideration received and recapture of negative tax basis in FET. In the first quarter of 2024, FirstEnergy recognized a net tax charge of approximately $46 million, comprised of updates to estimated deferred tax liability for the deferred gain from the 19.9% sale of FET in May 2022, deferred tax liability related to its ongoing investment in FET, and valuation allowance associated with the expected utilization of certain state NOL carryforwards impacted by the sale and the PA Consolidation. During the first quarter of 2024, FirstEnergy also recognized a reduction to OPIC of approximately $797 million for federal and state income tax associated with the tax gain from closing on the FET Equity Interest Sale. As of December 31, 2023, FirstEnergy had approximately $8.1 billion of gross federal NOL carryforwards that will be used to offset a majority of the tax gain from the FET Equity Interest Sale and expected taxable income in 2024, however, due to certain limitations on NOL utilization enacted in the Tax Act, FirstEnergy expects that a portion of the NOL will carry into 2025 and possibly beyond. As a result of the FET Equity Interest Sale, FET and its subsidiaries deconsolidated from FirstEnergy’s consolidated federal income tax group and now constitute their own consolidated federal income tax group subject to their own income tax allocation agreement.

Due to a private letter ruling recently issued by the IRS to an unaffiliated utility company, FirstEnergy is evaluating the potential requirement to transition certain of its Electric Companies and Transmission Companies to stand-alone treatment of NOL carryforwards for ratemaking purposes. Currently, none of FirstEnergy’s Electric Companies or Transmission Companies have transitioned to stand-alone treatment. FirstEnergy expects that if and where transitioning is required, those impacted Electric Companies and Transmission Companies will make the appropriate regulatory filing(s) in their applicable jurisdiction to include the NOL carryforward deferred tax asset in rate base and revenue requirement, which could have a material, favorable impact on future net income.