Effective Tax Rate
The income tax provision consisted of the following amounts:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In millions, except percentages) |
Current | | | | | |
U.S. Federal | $ | — |
| | $ | — |
| | $ | — |
|
State | — |
| | — |
| | — |
|
Total — current | — |
| | — |
| | — |
|
Deferred | | | | | |
U.S. Federal | 75 |
| | (1 | ) | | 10 |
|
State | (3 | ) | | — |
| | 2 |
|
Total — deferred | 72 |
| | (1 | ) | | 12 |
|
Total income tax expense (benefit) | $ | 72 |
| | $ | (1 | ) | | $ | 12 |
|
A reconciliation of the U.S. federal statutory rate of 35% to the Company's effective rate is as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In millions, except percentages) |
Income Before Income Taxes | $ | 49 |
| | $ | 1 |
| | $ | 84 |
|
Tax at 35% | 17 |
| | — |
| | 29 |
|
State taxes, net of federal benefit | (3 | ) | | — |
| | 2 |
|
Tax Cuts and Jobs Act - tax rate change | 68 |
| | — |
| | — |
|
Investment tax credits | (1 | ) | | (1 | ) | | (1 | ) |
Impact of non-taxable partnership earnings | (9 | ) | | (1 | ) | | (17 | ) |
Production tax credits, including prior year true-up | (1 | ) | | 4 |
| | (4 | ) |
Other | 1 |
| | (3 | ) | | 3 |
|
Income tax expense (benefit) | $ | 72 |
| | $ | (1 | ) | | $ | 12 |
|
Effective income tax rate | 147 | % | | (100 | )% | | 14 | % |
For the year ended December 31, 2017, the overall effective tax rate was different than the statutory rate of 35% primarily due to tax expense recorded from the revaluation of the existing net deferred tax asset pursuant to the reduction in the corporate income tax rate to 21% in accordance with the Tax Cuts and Jobs Act. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company may recognize provisional amounts for the effect of the changes related to the Tax Act. Consistent with that guidance, the Company recognized provisional amounts based upon our interpretation of the tax laws and estimates which require significant judgments.
For the years ended December 31, 2016 and 2015, the overall effective tax rate was different than the statutory rate of 35% primarily due to taxable earnings allocated to NRG resulting from its interest in NRG Yield LLC and production and investment tax credits generated from certain wind and solar assets, respectively.
The Company currently owns 53.7% of NRG Yield LLC and consolidates the results due to its controlling interest. The Company records NRG's 46.3% ownership as noncontrolling interest in the financial statements. For tax purposes, NRG Yield LLC is treated as a partnership; therefore, the Company and NRG each record their respective share of taxable income or loss.
The temporary differences, which gave rise to the Company's deferred tax assets, consisted of the following:
|
| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
| (In millions) |
Deferred tax liabilities: | | | |
Investment in projects | $ | 70 |
| | $ | 19 |
|
Total deferred tax liabilities | 70 |
| | 19 |
|
Deferred tax assets: | | | |
Production tax credits carryforwards | 7 |
| | 5 |
|
Investment tax credits | 1 |
| | 1 |
|
U.S. Federal net operating loss carryforwards | 183 |
| | 226 |
|
Capital loss carryforwards | 10 |
| | 16 |
|
State net operating loss carryforwards | 7 |
| | 3 |
|
Total deferred tax assets | 208 |
| | 251 |
|
Valuation allowance | $ | (10 | ) | | $ | (16 | ) |
Total deferred tax assets, net of valuation allowance | $ | 198 |
| | $ | 235 |
|
Net deferred noncurrent tax asset | $ | 128 |
| | $ | 216 |
|
The primary driver for the decrease in the net deferred tax asset from $216 million to $128 million is the revaluation of the ending balance utilizing a 21% corporate income tax rate pursuant to the Tax Cuts and Jobs Act as of December 22, 2017.
Tax Receivable and Payable
As of December 31, 2017, the Company has no current or long term tax receivable or payable to be recorded.
Deferred Tax Assets and Valuation Allowance
Net deferred tax balance — As of December 31, 2017 and 2016, NRG recorded a net deferred tax asset of $138 million and $232 million, 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. The Company considered the profit before tax generated in recent years, as well as projections of future earnings and estimates of taxable income in arriving at this conclusion. The Company believes that $10 million, a deferred tax asset, expected to generate a capital loss, for which there are no existing capital gains or available tax planning strategies to utilize the asset in the future may not be realized, resulting in the recording of a valuation allowance.
NOL carryforwards — At December 31, 2017, the Company had domestic NOLs carryforwards for federal income tax purposes of $183 million and cumulative state NOLs of $7 million tax-effected.
Uncertain Tax Positions
The Company had no identified uncertain tax positions that require evaluation as of December 31, 2017.