Income Taxes

3 Months Ended

Mar. 31, 2024

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,
	2024		2023
U.S. federal statutory rate	21.0	%	21.0	%
(Decrease) increase due to:
State income taxes, net of federal income tax benefit	(6.2)		3.3
Qualified NDT fund income and losses	8.9		33.7
Amortization of investment tax credit, including deferred taxes on basis differences	(0.3)		(0.7)
Production tax credits and other credits	(6.7)		(0.8)
Other	(1.0)		(1.5)
Effective income tax rate(a)	15.7	%	55.0	%

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(a)The change in effective tax rate in 2024 is primarily due to the increase in pre-tax book income inclusive of the nuclear PTC, which is not taxable, and a state tax benefit due to a change in forecasted apportionment. See Note 5 — Government Assistance for additional information.

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 will bear contractual responsibility, and we and Exelon 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 of March 31, 2024 and December 31, 2023, our Consolidated Balance Sheets reflect a payable of $37 million and $26 million, respectively, for tax liabilities where we maintain contractual responsibility to Exelon. There were none and $11 million recorded in Other accounts receivable as of March 31, 2024 and December 31, 2023, respectively, and $37 million for both periods in Noncurrent other liabilities.

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 existing Exelon tax sharing agreement, 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 attributes that may be used to offset Exelon’s future tax liabilities. A significant portion of such attributes were generated by our business. In February 2024, we executed an amendment to the TMA that modified the timing of Exelon's payment of amounts due to us. As of March 31, 2024, our Consolidated Balance Sheets reflects receivables of $188 million and $331 million in Other accounts receivable and Other deferred debits and other assets, respectively. As of December 31, 2023, our Consolidated Balance Sheets reflected receivables of $336 million and $178 million in Other accounts receivable and Other deferred debits, respectively.