Income Taxes

The income tax provision from continuing operations consisted of the following amounts:



	Year Ended December 31,
	2014			2013			2012
	(In millions, except percentages)
Current
State	$	8		$	11		$	20
Foreign	—			—			13
Total — current	8			11			33
Deferred
U.S. Federal	(50		)	(207		)	(326		)
State	41			(57		)	(24		)
Foreign	4			(29		)	(10		)
Total — deferred	(5		)	(293		)	(360		)
Total income tax expense/(benefit)	$	3		$	(282	)	$	(327	)
Effective tax rate	2.2		%	44.5		%	2,725.0		%

The following represents the domestic and foreign components of income/(loss) before income tax expense/(benefit):



	Year Ended December 31,
	2014		2013			2012
	(In millions)
U.S.	$	126	$	(549	)	$	(41	)
Foreign	9		(85		)	29
Total	$	135	$	(634	)	$	(12	)

A reconciliation of the U.S. federal statutory rate of 35% to NRG's effective rate is as follows:



	Year Ended December 31,
	2014			2013			2012
	(In millions, except percentages)
Income/(Loss) Before Income Taxes	$	135		$	(634	)	$	(12	)
Tax at 35%	47			(222		)	(4		)
State taxes	9			19			1
Foreign operations	1			5			(24		)
Federal and state tax credits, excluding PTCs	(1		)	(36		)	(158		)
Valuation allowance	6			(5		)	5
Expiration/utilization of capital losses	—			10			—
Reversal of valuation allowance on expired/utilized capital losses	—			(10		)	—
Impact of non-taxable equity earnings	(11		)	(14		)	(7		)
Bargain purchase gain related to GenOn acquisition	—			—			(104		)
Net interest accrued on uncertain tax positions	(2		)	(3		)	2
Production tax credit	(48		)	(14		)	(14		)
Recognition of uncertain tax benefits	(30		)	(11		)	(13		)
Tax expense attributable to consolidated partnerships	4			8			—
Impact of change in effective state tax rate	22			(21		)	(12		)
Other	6			12			1
Income tax expense/(benefit)	$	3		$	(282	)	$	(327	)
Effective income tax rate	2.2		%	44.5		%	2,725.0		%

For the year ended December 31, 2014, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the generation of PTCs generated from various wind facilities including assets acquired in the EME transaction, and a benefit resulting from the recognition of uncertain tax benefits, partially offset by state and local income taxes including a change in the effective state rate.

For the year ended December 31, 2013, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the generation of ITCs from the Company's Agua Caliente solar project in Arizona of $36 million and PTCs generated from certain Gulf Coast wind facilities of $14 million.

For the year ended December 31, 2012, NRG's overall effective tax rate was different than the statutory rate of 35% primarily due to the generation of ITCs from the Company's Agua Caliente solar project in Arizona of $158 million, a benefit of $104 million resulting from the gain on bargain purchase of GenOn, and PTCs generated from certain Gulf Coast wind facilities of $14 million.

The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following:



	As of December 31,
	2014			2013
	(In millions)
Deferred tax liabilities:
Emissions allowances	$	25		$	15
Difference between book and tax basis of property	127			22
Derivatives, net	320			334
Goodwill	202			191
Cumulative translation adjustments	8			9
Investment in projects	849			540
Intangibles amortization (excluding goodwill)	99			—
Other	2			—
Total deferred tax liabilities	1,632			1,111
Deferred tax assets:
Deferred compensation, pension, accrued vacation and other reserves	266			203
Discount/premium on notes	99			111
Differences between book and tax basis of contracts	531			285
Pension and other postretirement benefits	157			168
Equity compensation	77			57
Bad debt reserve	9			18
U.S. capital loss carryforwards	—			1
U.S. Federal net operating loss carryforwards	1,523			1,381
Foreign net operating loss carryforwards	65			77
State net operating loss carryforwards	302			161
Foreign capital loss carryforwards	1			1
Deferred financing costs	23			3
Federal and state tax credit carryforwards	357			308
Federal benefit on state uncertain tax positions	17			23
Intangibles amortization (excluding goodwill)	—			20
Inventory obsolescence	29			8
Other	—			15
Total deferred tax assets	3,456			2,840
Valuation allowance	(265		)	(291		)
Total deferred tax assets, net of valuation allowance	3,191			2,549
Net deferred tax asset	$	1,559		$	1,438

The following table summarizes NRG's net deferred tax position:



	As of December 31,
	2014			2013
	(In millions)
Net deferred tax asset — current	$	174		$	258
Net deferred tax asset — noncurrent	1,406			1,202
Net deferred tax liability — noncurrent	$	(21	)	$	(22	)
Net deferred tax asset	$	1,559		$	1,438

Deferred tax assets and valuation allowance

Net deferred tax balance — As of December 31, 2014, and 2013, NRG recorded a net deferred tax asset of $1.5 billion and $1.4 billion, respectively. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income which includes the future reversal of existing taxable temporary differences to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion to utilize projections of future profit before tax in the Company's estimate of future taxable income, the Company considered the profit before tax generated in recent years. Based on the Company's assessment of positive and negative evidence, including available tax planning strategies, NRG believes that it is more likely than not that a benefit will not be realized on $265 million and $291 million of tax assets as of December 31, 2014 and 2013, respectively, thus a valuation allowance has been recorded. The Company estimates it will need to generate future taxable income of approximately $4.3 billion, to fully realize the net federal deferred tax asset before expiration commencing in 2026.

NOL carryforwards — At December 31, 2014, the Company had tax effected cumulative domestic NOLs consisting of carryforwards for federal income tax purposes of $1.6 billion and state of $302 million. In addition, NRG has cumulative foreign NOL carryforwards of $65 million of which $1 million will expire through 2016 and of which $64 million do not have an expiration date.

Valuation allowance — As of December 31, 2014, the Company's tax effected valuation allowance was $265 million, consisting of $200 million for state deferred tax assets, primarily operating loss carryovers, and $65 million for foreign deferred tax assets, primarily operating loss carryovers for which there is insufficient earnings to support future realization.

Taxes Receivable and Payable

As of December 31, 2014, NRG recorded a current tax payable of $16 million that represents a tax liability due for domestic state taxes of $14 million, as well as foreign taxes payable of $2 million. NRG has a domestic tax receivable of $174 million, of which $135 million relates to federal cash grants applied for eligible solar energy projects, net of sequestration, the remaining balance of $39 million is primarily related to current tax refunds due from the New York State Empire Zone program generated in years 2010 through 2013.

Uncertain tax benefits

NRG has identified uncertain tax benefits whose after-tax value was $71 million that if recognized, would impact the Company's income tax expense.

As of December 31, 2014, and 2013, NRG has recorded a non-current tax liability of $53 million and $61 million, respectively.

The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. During the year ended December 31, 2014, the Company recognized a benefit of $3 million in interest and penalties and accrued interest of $1 million. As of December 31, 2014 and 2013, NRG had cumulative interest and penalties related to these uncertain tax benefits of $5 million and $14 million, respectively.

Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia.

The Company is no longer subject to U.S. federal income tax examinations for years prior to 2010. With few exceptions, state and local income tax examinations are no longer open for years before 2009.

The following table reconciles the total amounts of uncertain tax benefits:



	As of December 31,
	2014			2013
	(In millions)
Balance as of January 1	$	115		$	193
Increase due to current year positions	—			2
Increase due to prior year positions	10			4
Decrease due to prior year positions	(27		)	(40		)
Decrease due to settlements and payments	(27		)	(44		)
Uncertain tax benefits as of December 31	$	71		$	115