Operating loss carryforwards, subject to expiration

  
FirstEnergy's effective tax rate on continuing operations for 2021 and 2020 was 20.5% and 11.2%, respectively. The increase in effective tax rate was primarily due to:   
•The non-deductibility of the DPA monetary penalty;•The absence of a $52 million benefit for reduction in valuation allowances in 2020 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;•Lower amortization of investment tax credits due to the absence of a $10 million benefit from accelerated amortization of certain investment credits in 2020;•The absence of a $40 million benefit related to reversals of certain tax regulatory liabilities resulting from the transfer of TMI-2 in 2020;•Additional tax expense of $9 million as a result of the West Virginia legislation that changed income tax apportionment rules discussed above;•Partially offset by a net $81 million increase in uncertain tax position benefits primarily related to reserves on the worthless stock deduction, nondeductible interest under Section 163(j), and certain federal tax credits, discussed below; and •A $34 million benefit in federal tax credits claimed on FirstEnergy’s federal income tax return in 2021.Accumulated deferred income taxes as of December 31, 2021 and 2020, are as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | As of December 31, |
|  |  | 2021 |  | 2020 |
|  |  | (In millions) |
|  |  |  |  |  |
| Property basis differences |  | $ | 5,670  |  |  | $ | 5,396  |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
| Pension and OPEB |  | (570) |  |  | (769) |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
| AROs |  | (21) |  |  | (28) |  |
| Regulatory asset/liability |  | 322  |  |  | 440  |  |
|  |  |  |  |  |
| Deferred compensation |  | (155) |  |  | (165) |  |
|  |  |  |  |  |
|  |  |  |  |  |
|  |  |  |  |  |
| Loss carryforwards and tax credits |  | (2,040) |  |  | (1,995) |  |
| Valuation reserve |  | 484  |  |  | 496  |  |
|  |  |  |  |  |
|  |  |  |  |  |
| All other |  | (253) |  |  | (280) |  |
| Net deferred income tax liability |  | $ | 3,437  |  |  | $ | 3,095  |  |

  
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, 2021, FirstEnergy's loss carryforwards primarily consisted of $6.9 billion ($1.5 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 $11.9 billion ($544 million, net of tax) for FirstEnergy, of which approximately $2.7 billion ($136 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) |
| 2022-2026 |  | $ | 2,603  |  |  | $ | 3,783  |  |
| 2027-2031 |  | 1,390  |  |  | —  |  |
| 2032-2036 |  | 992  |  |  | —  |  |
| 2037-2041 |  | 959  |  |  | —  |  |
| Indefinite |  | 2,157  |  |  | —  |  |
|  |  | $ | 8,101  |  |  | $ | 3,783  |  |

  
  
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