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Income Taxes
 9 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
FirstEnergy’s interim effective tax rates reflect the estimated annual effective tax rates for 2022 and 2021. These tax rates are affected by estimated annual permanent items, such as AFUDC equity and other flow-through items, as well as certain discrete items. The following tables reconcile the effective tax rate to the federal income tax statutory rate for the three and nine months ended September 30, 2022 and 2021:

For the Three MonthsFor the Nine Months
Ended September 30,Ended September 30,
Reconciliation of federal income tax expense:2022202120222021
(In millions)
Income from Continuing Operations, before income taxes$449 $504 $1,061 $1,080 
Federal income tax expense at statutory rate (21%)$94 $106 $223 $227 
Increases (reductions) in taxes resulting from:
State income taxes, net of federal tax benefit25 31 68 80 
AFUDC equity and other flow-through(8)(9)(23)(26)
Excess deferred tax amortization due to the Tax Act(15)(13)(46)(39)
Federal tax credits claimed(3)(6)(3)(34)
Valuation allowances (8)— 26 — 
Remeasurement of state deferred taxes4 — (22)9 
Nondeductible DPA monetary penalty— — — 52 
Uncertain tax positions2 (25)2 (19)
Other, net14 4 12 21 
Total income taxes$105 $88 $237 $271 
Effective income tax rate23.4 %17.5 %22.3 %25.1 %

During the three months ended September 30, 2022, FirstEnergy recorded a $2 million increase to the reserve for uncertain tax positions related to certain federal tax credits claimed on FirstEnergy’s 2021 federal income tax return. As of September 30, 2022, it remains reasonably possible that approximately $31 million of unrecognized tax benefits may be resolved in the next twelve months as a result of settlements with taxing authorities or the statute of limitations expiring, of which $24 million would ultimately affect FirstEnergy’s effective tax rate.
In February 2022, the IRS completed its examination of FirstEnergy’s 2020 federal income tax return and issued a Full Acceptance Letter with no adjustment to FirstEnergy’s taxable income.

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%. Enactment of the law during the third quarter resulted in a $225 million net decrease to FirstEnergy’s ADIT liabilities, with a corresponding increase in regulatory liabilities of $229 million, which are expected to be settled through future customer rates, and a $4 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.

On August 16, 2022, President Biden signed into law the IRA of 2022, which, among other things, imposes a new 15% corporate alternative minimum tax based on “adjusted financial statement income”, applicable to corporations with a three-year average adjusted financial statement income over $1 billion. The alternative minimum tax is effective for the 2023 tax year and, if applicable, corporations must pay the greater of the regular corporate income tax or the alternative minimum tax. Although NOL carryforwards created through the regular corporate income tax system cannot be used to reduce the alternative minimum tax, financial statement net operating losses can be used to reduce adjusted financial statement income and the amount of alternative minimum tax owed. Additionally, for alternative minimum taxes paid, corporations will receive a tax credit to be carried forward without limitation and applied against future regular corporate income tax liability. The IRA of 2022 as enacted requires the U.S. Treasury to provide regulations and other guidance necessary to administer the alternative minimum tax, including further defining allowable adjustments to determine adjusted financial statement income, which directly impacts the amount of alternative minimum tax to be paid. Currently, FirstEnergy believes that it is more likely than not that it will be subject to the alternative minimum tax beginning in 2023, however, until such U.S. Treasury guidance is issued, the amount of alternative minimum tax FirstEnergy would pay could be significantly different than current estimates or it may not be a payer at all. Further, due to the existing limitations on NOL carryforward utilization, FirstEnergy already expected to pay some regular corporate income tax so the amount of any potential incremental cash tax it may pay beginning in 2023 is not expected to have a material financial impact based on its current analysis. As of September 30, 2022, FirstEnergy has approximately $7 billion in Federal NOL carryforwards ($1.5 billion, net of tax) a portion of which begin to expire in 2031 and $4.9 billion ($1.0 billion, net of tax) of which has no expiration.