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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense (Benefit) The jurisdictional components of income (loss) from continuing operations before income tax expense (benefit), attributable to Calpine, for the years ended December 31, 2011, 2010 and 2009, are as follows (in millions):
| 2011 |  | 2010 |  | 2009
U.S. | $ | (232 | ) |  | $ | (226 | ) |  | $ | 116 |
International | 20 |  |  | (4 | ) |  | 13 |
Total | $ | (212 | ) |  | $ | (230 | ) |  | $ | 129 |
The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2011, 2010 and 2009, consisted of the following (in millions):
| 2011 |  | 2010 |  | 2009
Current: |  |  |  |  |
Federal | $ | (16 | ) |  | $ | (1 | ) |  | $ | (2 | )
State | 12 |  |  | 10 |  |  | (2 | )
Foreign | 3 |  |  | 3 |  |  | 3 |
Total current | (1 | ) |  | 12 |  |  | (1 | )
Deferred: |  |  |  |  |
Federal | (33 | ) |  | (70 | ) |  | 13 |
State | 9 |  |  | — |  |  | 4 |
Foreign | 3 |  |  | (10 | ) |  | (1 | )
Total deferred | (21 | ) |  | (80 | ) |  | 16 |
Total income tax expense (benefit) | $ | (22 | ) |  | $ | (68 | ) | (1) | $ | 15 |
_________
(1) | Includes approximately $13 million in intraperiod tax expense related to a prior period with an offsetting benefit in OCI.
For the years ended December 31, 2011, 2010 and 2009, our income tax rates did not bear a customary relationship to statutory income tax rates, primarily as a result of the impact of our valuation allowance, state income taxes and changes in unrecognized tax benefits. A reconciliation of the federal statutory rate of 35% to our effective rate from continuing operations for the years ended December 31, 2011, 2010 and 2009, is as follows:
| 2011 |  | 2010 |  | 2009
Federal statutory tax expense (benefit) rate | (35.0 | )% |  | (35.0 | )% |  | 35.0 | %
State tax expense (benefit), net of federal benefit | 6.5 |  |  | 2.8 |  |  | 1.0 |
Depletion in excess of basis | — |  |  | (1.3 | ) |  | — |
Valuation allowances against future tax benefits | 56.7 |  |  | 33.6 |  |  | (139.2 | )
Valuation allowances related to reconsolidation of CCFC | (36.0 | ) |  | — |  |  | — |
Foreign taxes | (0.9 | ) |  | 9.9 |  |  | (9.2 | )
Non-deductible reorganization items | 0.5 |  |  | 0.3 |  |  | 1.3 |
Income from cancellation of indebtedness | — |  |  | — |  |  | 69.0 |
Intraperiod allocation | 19.9 |  |  | (40.1 | ) |  | 45.4 |
Bankruptcy settlement | (15.7 | ) |  | — |  |  | — |
Change in unrecognized tax benefits | (6.6 | ) |  | 0.6 |  |  | 1.4 |
Permanent differences and other items | 0.2 |  |  | (0.4 | ) |  | 6.9 |
Effective income tax expense (benefit) rate | (10.4 | )% |  | (29.6 | )% |  | 11.6 | %
Deferred Tax Assets and Liabilities The components of the deferred income taxes as of December 31, 2011 and 2010, are as follows (in millions):
| 2011 |  | 2010
Deferred tax assets: |  |  |
NOL and credit carryforwards | $ | 3,290 |  |  | $ | 3,138 |
Taxes related to risk management activities and derivatives | 58 |  |  | 18 |
Reorganization items and impairments | 318 |  |  | 422 |
Foreign capital losses | 24 |  |  | 25 |
Other differences | 26 |  |  | 12 |
Deferred tax assets before valuation allowance | 3,716 |  |  | 3,615 |
Valuation allowance | (2,336 | ) |  | (2,386 | )
Total deferred tax assets | 1,380 |  |  | 1,229 |
Deferred tax liabilities: property, plant and equipment | (1,364 | ) |  | (1,280 | )
Net deferred tax asset (liability) | 16 |  |  | (51 | )
Less: Current portion deferred tax asset (liability) | (2 | ) |  | (4 | )
Less: Non-current deferred tax asset | 18 |  |  | 30 |
Deferred income tax liability, non-current | $ | — |  |  | $ | (77 | )
Consolidation of CCFC and Calpine Tax Reporting Groups — For federal income tax reporting purposes, our historical tax reporting group was comprised primarily of two separate groups, CCFC and its subsidiaries, which we referred to as the CCFC group, and Calpine Corporation and its subsidiaries other than CCFC, which we referred to as the Calpine group. During the first quarter of 2011, we elected to consolidate our CCFC and Calpine groups for federal income tax reporting purposes and Calpine will file a consolidated federal income tax return for the year ended December 31, 2011 that will include the CCFC group. As a result of the consolidation, the CCFC group deferred tax liabilities will be eligible to offset existing Calpine group NOLs that were reserved by a valuation allowance. Accordingly, we recorded a one-time federal deferred income tax benefit of approximately $76 million during the first quarter of 2011 to reduce our valuation allowance. For the years ended December 31, 2010 and 2009, the CCFC group was deconsolidated from the Calpine group for federal income tax reporting purposes. Intraperiod Tax Allocation — In accordance with U.S. GAAP, intraperiod tax allocation provisions require allocation of a tax expense (benefit) to continuing operations due to current OCI gains (losses) and income from discontinued operations with a partial offsetting amount recognized in OCI and discontinued operations. The following table details the effects of our intraperiod tax allocations for the year ended December 31, 2011, 2010 and 2009 (in millions).
| 2011 |  | 2010 |  | 2009
Intraperiod tax allocation expense (benefit) included in continuing operations | $ | 42 |  |  | $ | (86 | ) |  | $ | 43 |
Intraperiod tax allocation expense (benefit) included in discountinued operations | $ | — |  |  | $ | 59 |  |  | $ | — |
Intraperiod tax allocation expense (benefit) included in OCI | $ | (45 | ) |  | $ | 27 |  |  | $ | (43 | )
NOL Carryforwards — Our NOL carryforwards consist primarily of federal NOL carryforwards of approximately $7.9 billion, which expire between 2023 and 2031, and NOL carryforwards in 33 states and the District of Columbia totaling approximately $4.2 billion, which expire between 2012 and 2032, substantially all of which are offset with a full valuation allowance. We also have approximately $1.0 billion in foreign NOLs, substantially all of which are offset with a full valuation allowance. The NOL carryforwards available are subject to limitations on their annual usage. Under federal and applicable state income tax laws, a corporation is generally permitted to deduct from taxable income in any year NOLs carried forward from prior years subject to certain time limitations as prescribed by the taxing authorities. Under federal income tax law, our NOL carryforwards can be utilized to reduce future taxable income subject to certain limitations, including if we were to undergo an ownership change as defined by Section 382 of the IRC. We experienced an ownership change on the Effective Date as a result of the cancellation of our old common stock and the distribution of our new common stock pursuant to our Plan of Reorganization. However, this ownership change and the resulting annual limitations are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward periods. At December 31, 2011, approximately $2.4 billion of our $7.9 billion federal NOLs are not subject to annual Section 382 limitations. When considering our cumulative annual Section 382 limitations, in addition to our post-Effective Date NOLs that are not limited, our total unrestricted NOLs are approximately $6.3 billion. If a subsequent ownership change were to occur as a result of future transactions in our common stock, accompanied by a significant reduction in our market value immediately prior to the ownership change, our ability to utilize the NOL carryforwards may be significantly limited. Under state income tax laws, our NOL carryforwards can be utilized to reduce future taxable income subject to certain limitations, including if we were to undergo an ownership change as defined by Section 382 of the IRC. During 2011, we analyzed the effect of our change in ownership on the Effective Date for each of our significant states to determine the amount of our NOL limitation. The analysis determined that $640 million of our state NOLs are expected to expire unutilized as a result of statutory limitations on the use of some of our pre-emergence state NOLs as of the Effective Date or the cessation of business operations in various tax jurisdictions. We reduced our deferred tax asset for state NOLs that we are unable to utilize and made an equal reduction in our valuation allowance. The result did not have an impact on our income tax expense in 2011. In 2012 we will continue with our analysis and adjust our state NOLs where appropriate. To manage the risk of significant limitations on our ability to utilize our tax NOL carryforwards, our amended and restated certificate of incorporation requires our Board of Directors to meet to determine whether to impose certain transfer restrictions on our common stock if, prior to February 1, 2013, our Market Capitalization declines by at least 35% from our Emergence Date Market Capitalization of approximately $8.6 billion (in each case, as defined in and calculated pursuant to our amended and restated certificate of incorporation) and at least 25 percentage points of shift in ownership has occurred with respect to our equity for purposes of Section 382 of the IRC. We believe as of the filing of this Report, neither circumstance was met. Accordingly, the transfer restrictions have not been put in place by our Board of Directors; however, if both of the foregoing events were to occur together and our Board of Directors was to elect to impose them, they could become operative in the future. There can be no assurance that the circumstances will not be met in the future, or in the event that they are met, that our Board of Directors would choose to impose these restrictions or that, if imposed, such restrictions would prevent an ownership change from occurring. Should our Board of Directors elect to impose these restrictions, it will have the authority and discretion to determine and establish the definitive terms of the transfer restrictions, provided that the transfer restrictions apply to purchases by owners of 5% or more of our common stock, including any owners who would become owners of 5% or more of our common stock via such purchase. The transfer restrictions will not apply to the disposition of shares provided they are not purchased by a 5% or more owner. We had certain intercompany accounts payable/receivable balances that were eliminated as part of the final steps of our emergence from bankruptcy. There was no effect to our federal NOLs, however, there was a reduction in our state NOLs of $44 million which was partially offset by a reduction in current state taxable income of $24 million. The resulting net reduction to our state NOLs was offset by an equal reduction in our valuation allowance. The reduction did not have an impact on our income tax expense in 2011. As a result of the settlement with holders of the CalGen Third Lien Debt and the final distribution to the holders of allowed unsecured claims in accordance with our Plan of Reorganization in 2011, we recognized approximately $66 million and $39 million for federal and state income tax purposes, respectively, in cancellation of debt income related to this distribution for federal income tax reporting. Income Tax Audits — We remain subject to various audits and reviews by taxing authorities; however, we do not expect these will have a material effect on our tax provision. Any NOLs we claim in future years to reduce taxable income could be subject to U.S. Internal Revenue Service examination regardless of when the NOLs occurred. Due to significant NOLs, any adjustment of state returns or federal returns from 2007 and forward would likely result in a reduction of deferred tax assets rather than a cash payment of income taxes. Canadian Tax Audits — In September 2009, we received notice from the Canadian Revenue Authority, or CRA, of their intent to conduct a limited scope income tax audit on four of our Canadian subsidiaries for the tax years 2005 through 2008. CRA concluded that there were no adjustments on two of the entities but further review was required on the remaining two entities. We have timely provided all supporting documentation and any additional documents requested by the CRA on the remaining two entities, and we believe that the CRA will conclude their audit within the first six months of 2012. Although no formal assessment has been received, based on recent communications, we believe that the CRA may be planning a reassessment; however, we are not currently aware of the nature or amount of the adjustments, if any, and accordingly we have not established a tax reserve. If a reassessment should occur, any adjustment to taxable income would first be offset against any existing NOLs that are available. At this time, we are unable to determine the likelihood whether the outcome would have a material adverse effect on our financial position, results of operations or cash flow. Valuation Allowance — U.S. GAAP requires that we consider all available evidence, both positive and negative, and tax planning strategies to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce the value of deferred tax assets. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward periods available under the tax law. Due to our history of losses, we were unable to assume future profits; however, since our emergence from Chapter 11, we are able to consider available tax planning strategies. As of December 31, 2011, we have provided a valuation allowance of approximately $2.3 billion on certain federal, state and foreign tax jurisdiction deferred tax assets to reduce the amount of these assets to the extent necessary to result in an amount that is more likely than not to be realized. The net change in our valuation allowance was a decrease of $50 million, $186 million and $113 million for the years ended December 31, 2011, 2010 and 2009, respectively; all primarily related to changes in our estimates of our ability to utilize our NOL carryforwards. Unrecognized Tax Benefits At December 31, 2011, we had unrecognized tax benefits of $74 million. If recognized, $28 million of our unrecognized tax benefits could impact the annual effective tax rate and $46 million related to deferred tax assets could be offset against the recorded valuation allowance resulting in no impact to our effective tax rate. We also had accrued interest and penalties of $20 million for income tax matters at December 31, 2011. We recognize interest and penalties related to unrecognized tax benefits in income tax expense (benefit). A reconciliation of the beginning and ending amounts of our unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009, is as follows (in millions):
| 2011 |  | 2010 |  | 2009
Balance, beginning of period | $ | (88 | ) |  | $ | (98 | ) |  | $ | (90 | )
Increases related to prior year tax positions | — |  |  | (1 | ) |  | (11 | )
Decreases related to prior year tax positions | 1 |  |  | 11 |  |  | 2 |
Settlements | — |  |  | — |  |  | 1 |
Decrease related to lapse of statute of limitations | 13 |  |  | — |  |  | — |
Balance, end of period | $ | (74 | ) |  | $ | (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 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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