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TAXES | 12 Months Ended
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Dec. 31, 2024
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, other than FET and its subsidiaries, are parties to an intercompany income tax allocation agreement that provides for the allocation of consolidated tax liabilities. For periods subsequent to the closing of the FET Equity Interest Sale, FET and its subsidiaries are no longer members of the FirstEnergy consolidated group for federal income tax purposes and, instead, will file their own consolidated federal income tax return and have their own income tax allocation agreement. 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. The IRA of 2022 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. On September 12, 2024, the U.S. Treasury issued proposed regulations for the AMT for comments. FirstEnergy is assessing the proposed regulations but continues to believe that it is more likely than not it will be subject to AMT, however, the completion of the U.S. Treasury’s rulemaking process and the future issuance of final regulations, as well as potential future federal tax legislation or presidential executive orders, could significantly change FirstEnergy’s AMT estimates or its conclusion as to whether it is an AMT payer at all. As further discussed below, FirstEnergy expects to pay regular federal corporate income tax for the 2024 tax year, due in large part to the gain realized from closing the FET Equity Interest Sale. The regulatory treatment of the IRA of 2022 may also be subject to regulation by FERC and/or applicable state regulatory authorities. Any adverse development in the IRA of 2022, 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 discussed above, on March 25, 2024, FirstEnergy closed on the FET Equity Interest Sale realizing an approximate $7 billion tax gain from the combined sale of 49.9% of the equity interests of FET for consideration received and recapture of negative tax basis in FET. As of December 31, 2023, FirstEnergy had approximately $8.1 billion of gross federal NOL carryforwards available to offset a majority of the tax gain and expected taxable income in 2024. Due to certain limitations on NOL utilization enacted in the Tax Act, approximately $1.6 billion NOL will carry forward into 2025 and possibly beyond. 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% FET equity interest sale 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, and recognized a reduction to OPIC of approximately $803 million for federal and state income tax associated with the tax gain from closing on the FET Equity Interest Sale. Previously, in the fourth quarter of 2023, FirstEnergy recognized a charge to income tax expense of approximately $58 million as a true-up of the deferred tax liability associated with the deferred tax gain. FirstEnergy is continuing to evaluate the potential requirement to transition certain of its Electric Companies and Transmission Companies to standalone treatment for computing NOL carryforward deferred tax assets for rate making purposes and 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. The following table provides the composite of income taxes on income from continuing operations for the years ended 2024, 2023 and 2022:
INCOME TAXES ON INCOME FROM CONTINUING OPERATIONS |  | For the Years Ended December 31,
| 2024 |  | 2023 |  | 2022
|  | (In millions)
Currently payable - |  |  |  |  |  |
Federal |  | $ | 32 |  |  | $ | 14 |  |  | $ | — |
State |  | 29 |  |  | 1 |  |  | 11 |
|  | 61 |  |  | 15 |  |  | 11 |
Deferred, net - |  |  |  |  |  |
Federal(1) |  | 190 |  |  | 279 |  |  | 946 |
State |  | 130 |  |  | (24) |  |  | 47 |
|  | 320 |  |  | 255 |  |  | 993 |
Investment tax credit amortization |  | (4) |  |  | (3) |  |  | (4) |
Total income taxes on income from continuing operations |  | $ | 377 |  |  | $ | 267 |  |  | $ | 1,000 |
(1) Excludes $21 million of federal tax expense associated with discontinued operations for the year ended December 31, 2023. 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 table provides a reconciliation of federal income tax expense at the federal statutory rate to the total income taxes on income from continuing operations for the years ended December 31, 2024, 2023 and 2022:
| For the Years Ended December 31,
| 2024 |  | 2023 |  | 2022
| (In millions)
Income from continuing operations, before income taxes | $ | 1,504 |  |  | $ | 1,464 |  |  | $ | 1,439 |
Federal income tax expense at the 21% statutory rate | $ | 316 |  |  | $ | 307 |  |  | $ | 302 |
Increases (reductions) in taxes resulting from- |  |  |  |  |
State and municipal income taxes, net of federal tax benefit | 140 |  |  | 80 |  |  | 56 |
AFUDC equity and other flow-through | (30) |  |  | (30) |  |  | (26) |
Amortization of investment tax credits | (4) |  |  | (3) |  |  | (4) |
Deductions associated with certain equity method investments | (19) |  |  | — |  |  | — |
Taxes related to the combined sale of 49.9% of the equity interests of FET | 6 |  |  | 58 |  |  | 752 |
Federal tax credits claimed | (2) |  |  | (3) |  |  | (3) |
Tax on distributions from FET | 16 |  |  | — |  |  | — |
Excess deferred tax amortization due to the Tax Act | (52) |  |  | (46) |  |  | (51) |
Nondeductible SEC and OAG settlements | 27 |  |  | — |  |  | — |
Remeasurement of excess deferred income taxes | (43) |  |  | — |  |  | — |
Uncertain tax positions | — |  |  | 41 |  |  | 2 |
Valuation allowances | 16 |  |  | (146) |  |  | (47) |
Other, net | 6 |  |  | 9 |  |  | 19 |
Total income taxes on income from continuing operations | $ | 377 |  |  | $ | 267 |  |  | $ | 1,000 |
Effective income tax rate (continuing operations) | 25.1 | % |  | 18.2 | % |  | 69.5 | %
Net accumulated deferred income tax liabilities (assets) as of December 31, 2024 and 2023, are as follows:
|  | As of December 31,
|  | 2024 |  | 2023
|  | (In millions)
Property basis differences |  | $ | 6,079 |  |  | $ | 5,787 |
Pension and OPEB |  | (322) |  |  | (331) |
Regulatory asset/liability |  | 744 |  |  | 647 |
Deferred compensation |  | (127) |  |  | (153) |
Deferred gain on 19.9% FET equity interest sale |  | — |  |  | 810 |
Loss carryforwards and tax credits |  | (762) |  |  | (2,192) |
Valuation allowances |  | 240 |  |  | 226 |
Other |  | (239) |  |  | (264) |
Net accumulated deferred income tax liability |  | $ | 5,613 |  |  | $ | 4,530 |
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, 2024, FirstEnergy's loss carryforwards primarily consisted of $1.6 billion ($343 million, net of tax) of federal NOL carryforwards, all of which have no expiration. The table below summarizes pre-tax NOL carryforwards and their respective anticipated expirations for state and local income tax purposes of approximately $12.9 billion ($403 million, million net of tax) for FirstEnergy, of which approximately $4.7 billion ($185 million, 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)
2025-2029 |  | $ | 1,569 |  |  | $ | 5,706 |
2030-2034 |  | 1,279 |  |  | — |
2035-2039 |  | 881 |  |  | — |
2040-2044 |  | 978 |  |  | — |
Indefinite |  | 2,450 |  |  | — |
|  | $ | 7,157 |  |  | $ | 5,706 |
The following table summarizes the changes in valuation allowances on federal, state, and local deferred tax assets related to business interest expense carryforwards and employee compensation deduction limitations under section 162(m), in addition to state and local NOLs discussed above for the years ended December 31, 2024, 2023 and 2022:
(In millions) |  | 2024 |  | 2023 |  | 2022
Beginning of year balance |  | $ | 226 |  |  | $ | 440 |  |  | $ | 484 |
Charged to income |  | 14 |  |  | (214) |  |  | (44) |
Charged to other accounts |  | — |  |  | — |  |  | — |
Write-offs |  | — |  |  | — |  |  | — |
End of year balance |  | $ | 240 |  |  | $ | 226 |  |  | $ | 440 |
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. If ultimately recognized in future years, all of the unrecognized income tax benefits would impact the effective tax rate. The following table summarizes the changes (gross) in uncertain tax positions for the years ended December 31, 2024, 2023 and 2022:
|  | (In millions)
Balance, January 1, 2022 |  | $ | 47 |
Prior year increases |  | 2 |
Decrease for lapse in statute |  | (7) |
Balance, December 31, 2022 |  | $ | 42 |
Prior year increases |  | 88 |
Effectively settled with taxing authorities |  | (24) |
Decrease for lapse in statute |  | (1) |
Balance, December 31, 2023 |  | $ | 105 |
Prior years increases |  | — |
Effectively settled with taxing authorities |  | — |
Decrease for lapse in statute |  | — |
Balance, December 31, 2024 |  | $ | 105 |
As of December 31, 2024, none of the unrecognized tax benefits are expected to be resolved during 2025. 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 includes interest expense or income and penalties in the provision for income taxes. Due to uncertain tax positions that were effectively settled with tax authorities during 2023, approximately $9 million in net interest was reversed. There was no material interest expense or income, or penalties, related to uncertain tax positions in 2024, nor does FirstEnergy have a cumulative net interest payable as of December 31, 2024. IRS review of FirstEnergy's federal income tax return is complete through the 2020 tax year with no pending adjustments. FirstEnergy's tax returns for some state jurisdictions are open from tax years 2015-2023. General Taxes General tax expense for the years ended December 31, 2024, 2023 and 2022, recognized in continuing operations is summarized as follows:
|  | For the Years Ended December 31,
|  | 2024 |  | 2023 |  | 2022
|  | (In millions)
kWh excise |  | $ | 186 |  |  | $ | 185 |  |  | $ | 191 |
State gross receipts |  | 247 |  |  | 235 |  |  | 219 |
Real and personal property |  | 642 |  |  | 615 |  |  | 596 |
Social security and unemployment |  | 113 |  |  | 113 |  |  | 105 |
Other |  | 24 |  |  | 16 |  |  | 18 |
Total general taxes |  | $ | 1,212 |  |  | $ | 1,164 |  |  | $ | 1,129 |

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