including guidance from the U.S. Treasury and/ or the IRS or unfavorable regulatory treatment, could reduce future cash flows and impact financial condition. As discussed above, FirstEnergy expects to close on the sale of an additional 30% interest in FET in 2024, at which time FirstEnergy expects to realize an approximate $7.1 billion tax gain from the combined sale of 49.9% of the membership interests of FET, approximately $3.5 billion of which is attributable to the sale of 30% and the remainder being gain deferred from the sale of 19.9% in 2022, including consideration received and recapture of negative tax basis in FET. Upon closing in 2024, FET will be deconsolidated from FirstEnergy’s consolidated federal income tax group, however, FET will continue to be consolidated in FirstEnergy’s GAAP financial statements. As of December 31, 2022, FirstEnergy had approximately $7.1 billion of federal NOL carryforwards, all of which it expects to utilize by the end of 2024 to mostly offset taxable income and the tax gains associated with the combined 49.9% sales in FET. As a result of the expected additional sale in FET, FirstEnergy recognized a charge to income tax expense in the fourth quarter of 2022 of approximately $752 million, representing the deferred tax liability associated with the deferred tax gain on the 19.9% sale closed in May 2022. Additionally, FirstEnergy recognized a $54 million benefit to income tax expense in the fourth quarter of 2022 associated with reversal of certain valuation allowances on state income tax NOL carryforwards that are now expected to be utilized as a result of the tax gain associated with the transaction. See Note 1, "Organization, Basis of Presentation and Significant Accounting Policies", for further discussion of the additional minority interest sale in FET. On July 8, 2022, Pennsylvania’s Governor signed into law Pennsylvania House Bill 1342, which reduces Pennsylvania’s corporate net income tax rate from 9.99% to 8.99% beginning January 1, 2023, and an additional 0.5% annually through 2031, when it reaches 4.99%. As of December 31, 2022, FirstEnergy recorded a $230 million net decrease to FirstEnergy’s ADIT liabilities, with a corresponding increase in regulatory liabilities of $236 million, which are expected to be settled through future customer rates, and a $6 million increase in income tax expense. The decrease in the Pennsylvania income tax rate is not expected to have a material impact to FirstEnergy’s future financial statements. During 2022, FirstEnergy recognized an income statement benefit of approximately $38 million from remeasurement of a valuation allowance previously recorded on business interest expense carryforwards from the 2018 and 2019 tax years. The business interest expense could not be deducted previously due to certain limitations imposed on interest expense from nonutility operations under section 163(j) of the Tax Act. As provided by the Tax Act, the nondeductible interest expense can be carried forward, indefinitely, and deducted against income from non-utility operations. Due primarily to the realized and expected future earnings from FEV’s equity ownership in Global Holding, FirstEnergy expects to utilize a portion of the interest expense carryforward on its consolidated federal income tax return. For the Years Ended December 31, INCOME TAXES(1) 2022 2021 2020 (In millions) Currently payable (receivable)- Federal (2) $ — $ 2 $ (14) State 11 21 21 11 23 7 Deferred, net- Federal(3) 946 174 171 State(4) 47 127 (38) 993 301 133 Investment tax credit amortization (4) (4) (14) Total income taxes $ 1,000 $ 320 $ 126 (1) Income Taxes on Income from Continuing Operations. (2) Excludes $2 million of federal tax benefit associated with discontinued operations for the years ended December 31, 2021. (3) Excludes $46 million and $66 million of federal tax benefits associated with discontinued operations for the years ended December 31, 2021 and 2020, respectively. (4) Excludes $1 million of state tax expense associated with discontinued operations for the year ended December 31, 2020. 98
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