DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2023

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

On March 31, 2018, the FES Debtors announced that, in order to facilitate an orderly financial restructuring, they filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court. On February 27, 2020, the FES Debtors effectuated their plan, emerged from bankruptcy and FirstEnergy tendered the Bankruptcy Court approved settlement payments totaling $853 million and a $125 million tax sharing payment to the FES Debtors. The settlement was conditioned on the FES Debtors confirming and effectuating a plan of reorganization acceptable to FirstEnergy.

By eliminating a significant portion of its competitive generation fleet with the deconsolidation of the FES Debtors, FirstEnergy has concluded the FES Debtors meet the criteria for discontinued operations, as this represents a significant event in management’s strategic review to exit commodity-exposed generation and transition to a fully regulated company.

Income Taxes

As a result of the FES Debtors’ tax return deconsolidation, FirstEnergy recognized a worthless stock deduction, of approximately $4.9 billion, net of unrecognized tax benefits of $316 million, for the remaining tax basis in the stock of the FES Debtors. Based upon completion of the IRS’s review of the 2020 federal income tax return during fourth quarter 2021, FirstEnergy recognized the full tax benefit of the worthless stock deduction of approximately $5.2 billion, or $1.1 billion on a tax-effected basis, net of valuation allowances recorded against the state tax benefit ($21 million), eliminating associated uncertain tax position reserves.

Upon emergence, FirstEnergy paid the FES Debtors $125 million to settle all reconciliations under the Intercompany Tax Allocation Agreement for 2018, 2019 and 2020 tax years, including all issues regarding nondeductible interest.

In conjunction with filing the 2020 consolidated federal income tax return during the third quarter of 2021, FirstEnergy computed a final federal NOL allocation between the FES Debtors and FirstEnergy consolidated that resulted in FirstEnergy recording an increase to the consolidated NOL carryforward of approximately $289 million ($61 million tax-effected).

Summarized Results of Discontinued Operations

Summarized results of discontinued operations for the years ended December 31, 2023, 2022, and 2021 were as follows:

	For the Years Ended December 31,
(In millions)	2023		2022		2021
Other expense, net	—		—		(4)
Loss from discontinued operations, before tax	—		—		(4)
Income tax benefit	—		—		(1)
Loss from discontinued operations, net of tax	—		—		(3)
Income tax expense (benefit), including worthless stock deduction	21		—		(47)
Gain (loss) on disposal, net of tax	(21)		—		47
Income (loss) from discontinued operations(1)	$	(21)	$	—	$	44

(1) Income from discontinued operations is included in Corporate/Other.

On February 27, 2020, the FES Debtors emerged from bankruptcy and were deconsolidated from FirstEnergy’s consolidated federal income tax group. The bankruptcy, emergence and deconsolidation resulted in FirstEnergy recognizing certain income tax benefits and charges, which were classified as discontinued operations. During the third quarter of 2023, FirstEnergy recognized a $21 million tax-effected charge to income tax expense as a result of identifying an out of period adjustment related to the allocation of certain deferred income tax liabilities associated with the FES Debtors and their tax return deconsolidation in 2020. This adjustment was immaterial to the 2023 and prior period financial statements.

FirstEnergy's Consolidated Statements of Cash Flows combines cash flows from discontinued operations with cash flows from continuing operations within each cash flow category. The following table summarizes the major classes of cash flow items from discontinued operations for the years ended December 31, 2023, 2022 and 2021:

	For the Years Ended December 31,
(In millions)	2023		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from discontinued operations	$	(21)	$	—	$	44
Loss (gain) on disposal, net of tax	21		—		(47)