Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Rate Reconciliation

The effective income tax rate from continuing operations varies from the U.S. federal statutory rate principally due to the following:

	Three Months Ended March 31,
	2022(a)		2021(b)
U.S. federal statutory rate	21.0	%	21.0	%
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	55.2		4.4
Qualified NDT fund income	(127.5)		(5.5)
Amortization of investment tax credit, including deferred taxes on basis differences	(9.2)		0.6
Production tax credits and other credits	(34.8)		1.8
Noncontrolling interests	(1.0)		0.2
Other	9.4		(3.6)
Effective income tax rate(c)	(86.9)	%	18.9	%

__________

(a)Positive percentages represent income tax expense. Negative percentages represent income tax benefit.

(b)Positive percentages represent income tax benefit. Negative percentages represent income tax expense.

(c)The change in effective tax rate in 2022 is primarily due to the impacts of higher net realized and unrealized NDT losses on Income before income taxes.

Recognition of Unrecognized Tax Benefits

The following table presents the unrecognized tax benefits that, if recognized, would decrease the effective tax rate.

March 31, 2022	$	17
December 31, 2021	39

Reasonably possible the total amount of unrecognized tax benefits could significantly increase or decrease within 12 months after the reporting date

No amounts are expected to significantly increase or decrease within 12 months after the reporting date.

Other Tax Matters

Tax Matters Agreement

In connection with the separation, we entered into a TMA with Exelon. The TMA governs the respective rights, responsibilities, and obligations between us and Exelon after the separation with respect to tax liabilities and benefits, tax attributes, tax returns, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns.

Responsibility and Indemnification for Taxes. As a former subsidiary of Exelon, we have joint and several liability with Exelon to the IRS and certain state jurisdictions relating to the taxable periods that we were included in federal and state filings. However, the TMA specifies the portion of this tax liability for which we bear contractual responsibility, and we and Exelon each agreed to indemnify each other against any amounts for which such indemnified party is not responsible. Specifically, we will be liable for taxes due and payable in connection with tax returns that we are required to file. We will also be liable for our share of certain taxes required to be paid by Exelon with respect to taxable years or periods (or portions thereof) ending on or prior to the separation to the extent that we would have been responsible for such taxes under the Exelon tax sharing agreement then existing. As such, our Consolidated Balance Sheets reflected a payable of $103 million upon separation for tax liabilities where we maintain contractual responsibility to Exelon, with $53 million recognized in Accounts payable and $50 million in Noncurrent other liabilities as of March 31, 2022.

Tax Refunds and Attributes. The TMA provides for the allocation of certain pre-closing tax attributes between us and Exelon. Tax attributes will be allocated in accordance with the principles set forth in the Exelon tax sharing agreement then existing, unless otherwise required by law. Under the TMA, we will be entitled to refunds for taxes for which we are responsible. In addition, it is expected that Exelon will have tax credit carryforwards that may be used to offset Exelon’s future tax liabilities. A significant portion of such carryforwards were generated by our business. Upon separation we reclassified $508 million from Deferred income taxes to reflect receivables of $11 million and $497 million in Other accounts receivable and Other deferred debits and other assets, respectively, in the Consolidated Balance Sheets for the tax credit carryforwards expected to be utilized by Exelon after separation in accordance with the terms of the TMA.