Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Provision (Benefit) for Current and Deferred Income Taxes

The provision (benefit) for income taxes is composed of the following:



	Years Ended December 31,
(in millions)	2012			2011			2010
Continuing Operations
Current
Federal	$	—		$	48		$	(321	)
State	—			(44		)	9
Total current	—			4			(312		)
Deferred
Federal	$	26		$	(389	)	$	281
State	134			(56		)	15
Total deferred	160			(445		)	296
Provision (benefit) for income taxes from continuing operations	160			(441		)	(16		)
Discontinued operations	(73		)	(411		)	44
Total	$	87		$	(852	)	$	28

The provision (benefit) for income taxes is composed of the following:



	Years Ended December 31,
(in millions)	2012			2011			2010
Current
Federal	$	—		$	2		$	112
State	—			12			24
Total current	—			14			136
Deferred
Federal	$	(76	)	$	(145	)	$	7
State	14			(41		)	(1		)
Total deferred	(62		)	(186		)	6
Provision (benefit) for income taxes	$	(62	)	$	(172	)	$	142

Sources of Income (Loss) Before Income Taxes

The components of income (loss) before income taxes applicable to continuing operations and discontinued operations are as follows:



	Years Ended December 31,
(in millions)	2012			2011			2010
Continuing operations	$	(637	)	$	(888	)	$	65
Discontinued operations	(185		)	(1,043		)	126
Total	$	(822	)	$	(1,931	)	$	191

Schedule of Deferred Tax Assets and Liabilities

The components of net accumulated deferred income tax asset (liability) were:



	December 31,
(in millions)	2012			2011
Deferred tax assets
State taxes	$	—		$	3
Deferred income	2			1
Derivative instruments	24			9
Impairment of loan to affiliate - tax	539			—
Property, plant and equipment - basis differences	—			15
Net operating loss carryforwards	—			19
Accrued charges and liabilities	16			9
Total	581			56
Valuation allowance	(533		)	—
Net deferred tax assets	48			56
Deferred tax liabilities
State taxes	3			—
Property, plant and equipment - basis differences	45			—
Total	48			—
Deferred tax assets, net	$	—		$	56
Classification of net accumulated deferred income taxes
Included in current assets	$	—		$	14
Included in deferred taxes	$	—		$	42

The components of net accumulated deferred income tax asset (liability) were:



	December 31,
(in millions)	2012			2011
Deferred tax assets
Accrued charges and liabilities	$	234		$	303
Net operating loss carryforwards	841			326
Production tax and other credit carryforwards	254			194
Derivative instruments	49			49
Other	6			—
Total	1,384			872
Valuation allowance	(444		)	—
Net deferred tax assets	940			872
Deferred tax liabilities
Property, plant and equipment - basis differences	$	989		$	638
Deferred investment tax credit	4			5
State taxes	28			20
Other	—			6
Total	1,021			669
Deferred tax assets (liabilities), net	$	(81	)	$	203
Classification of net accumulated deferred income taxes
Included in other assets	$	—		$	205
Included in current liabilities	$	—		$	2
Included in deferred taxes and tax credits	$	81		$	—

Reconciliation of Income Tax Expense

The table below provides a reconciliation of income tax expense (benefit) computed at the federal statutory income tax rate to the income tax provision (benefit):



	Years Ended December 31,
(in millions)	2012			2011			2010
Income (loss) before income taxes	$	(1,526	)	$	(442	)	$	357
Provision (benefit) for income taxes at federal statutory rate of 35%	$	(534	)	$	(155	)	$	125
State tax, net of federal benefit	(52		)	(19		)	14
Change in valuation allowance	521			—			—
Qualified production deduction	—			—			(7		)
Deferred tax adjustments	—			—			9
Other	3			2			1
Total provision (benefit) for income taxes	$	(62	)	$	(172	)	$	142
Effective tax rate	4		%	39		%	40		%

The table below provides a reconciliation of income tax expense (benefit) computed at the federal statutory income tax rate to the income tax provision (benefit):



	Years Ended December 31,
(in millions)	2012			2011			2010
Income (loss) from continuing operations before income taxes	$	(637	)	$	(888	)	$	65
Expense (benefit) for income taxes at federal statutory rate of 35%	$	(223	)	$	(311	)	$	23
Increase (decrease) in income tax from
State tax - net of federal benefit¹	11			(56		)	16
Change in valuation allowance	438			—			—
Production tax credits, net	(68		)	(66		)	(61		)
Qualified production deduction	—			(6		)	15
Deferred tax adjustments	—			(8		)	10
Resolution of 1986-2002 state tax issues	—			—			(16		)
Taxes on income allocated to noncontrolling interests	(4		)	—			1
Other	6			6			(4		)
Total provision (benefit) for income taxes from continuing operations	$	160		$	(441	)	$	(16	)
Effective tax rate	*			50		%	*


*	Not meaningful.


¹	Excludes state tax settlement in 2010.

Reconciliation of Unrecognized Tax Benefits

The following table provides a reconciliation of unrecognized tax benefits:



(in millions)	2012			2011		2010
Balance at January 1	$	171		$	153	$	115
Tax positions taken during the current year
Increases	—			9		—
Decreases	—			—		—
Tax positions taken during a prior year
Increases	—			9		126
Decreases	(12		)	—		(80		)
Decreases for settlements during the period	—			—		(8		)
Decreases resulting from a lapse in statute of limitations	—			—		—
Balance at December 31	$	159		$	171	$	153

The following table provides a reconciliation of unrecognized tax benefits:



(in millions)	2012		2011		2010
Balance at January 1	$	44	$	44	$	—
Tax positions taken during the current year
Increases	—		—		—
Decreases	—		—		—
Tax positions taken during a prior year
Increases¹	—		—		44
Decreases	—		—		—
Decreases for settlements during the period	—		—		—
Decreases resulting from a lapse in statute of limitations	—		—		—
Balance at December 31	$	44	$	44	$	44


¹	Unrecognized tax benefits relate to tax positions taken in prior years and result from a review of Midwest Generation's deferred tax assets and liabilities.