Allegheny Power 2014 Annual Report Download - page 100

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FirstEnergy and FES tax rates are affected by permanent items, such as AFUDC equity and other flow-through items as well as
discrete items that may occur in any given period, but are not consistent from period to period. The following tables provide a
reconciliation of federal income tax expense at the federal statutory rate to the total provision for income taxes on continuing
operations for the three years ended December 31, 2014:
2014 2013 2012
(In millions)
FirstEnergy
Income from Continuing Operations before provision for
income taxes $ 171 $ 570 $ 1,299
Federal income tax expense at statutory rate (35%) $ 60 $ 199 $ 455
Increases (reductions) in taxes resulting from-
Amortization of investment tax credits (10) (8) (11)
State income taxes, net of federal tax benefit 12 10 79
Medicare Part D — — 32
Effectively settled tax items, including interest (35) (2) (20)
ESOP dividend (6) (9) —
Change in accounting method (27) — —
Tax basis balance sheet adjustments (25) — —
AFUDC equity and other flow-through (13) (7) —
Other, net 2 12 10
Total provision for income taxes (benefits) $ (42) $ 195 $ 545
Effective income tax rate (24.6)% 34.2% 42.0%
FES
Income (loss) from Continuing Operations before provision for
income taxes (benefits) $ (588) $ 52 $ 276
Federal income tax expense (benefit) at statutory rate (35%) $ (206) $ 18 $ 97
Increases (reductions) in taxes resulting from-
Amortization of investment tax credits (4) (4) (4)
State income taxes, net of federal tax benefit (14) (5) 17
Effectively settled tax items — — (11)
ESOP dividend (1) (2) —
Other, net (3) (1) 4
Total provision for income taxes (benefits) $ (228) $ 6 $ 103
Effective income tax rate 38.8 % 11.5% 37.3%
In 2014, FirstEnergy’s effective tax rate was (24.6)% compared to 34.2% in 2013. The decrease in the effective tax rate year over
year relates primarily to a $399 million decrease in income from continuing operations, tax benefits associated with an IRS approved
change in accounting method for costs associated with the refurbishment of meters and transformers ($27 million), and additional
tax benefits on uncertain state tax positions due to expiration of the statute of limitations ($33 million). Additionally, during 2014,
income tax benefits of $25 million were recorded that related to prior periods. The out-of-period adjustment primarily related to the
correction of amounts included in the Company’s tax basis balance sheet. Management has determined that this adjustment is not
material to the current or any prior period. These benefits were partially offset by higher valuation allowances recorded in 2014 on
state and municipal NOL carryforwards that the Company believes are no longer realizable and the absence of tax benefits recorded
in 2013 for changes in state apportionment factors as well as a decrease in deferred tax liabilities associated with the elimination
of business nexus in certain state jurisdictions.
In 2014, FES’ effective tax rate (on a loss from continuing operations) was 38.8% compared to 11.5% (on income from continuing
operations) in 2013. During 2014, FES' effective tax rate benefited from changes to state apportionment factors but was offset by
valuation allowances recorded on state and municipality NOL carryforwards.