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Income Taxes (All Registrants)

9 Months Ended

Sep. 30, 2020

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 September 30, 2020(a)

	Exelon	Generation	ComEd	PECO(b)	BGE	PHI(c)	Pepco	DPL	ACE(c)
U.S. Federal statutory rate	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	12.3	(10.3)	8.1	(6.2)	5.1	5.5	4.6	6.6	6.9
Qualified NDT fund income	13.2	47.4	—	—	—	—	—	—	—

Amortization of investment tax credit, including deferred taxes on basis difference	(1.4)	(4.5)	(0.2)	—	(0.1)	(0.2)	(0.1)	(0.2)	(0.3)
Plant basis differences	(4.3)	—	(0.6)	(23.3)	(1.2)	(1.5)	(2.1)	(0.4)	(1.3)
Production tax credits and other credits	(3.0)	(9.2)	(0.4)	—	(0.8)	(0.5)	(0.5)	(0.5)	(0.4)
Noncontrolling interests	0.8	2.9	—	—	—	—	—	—	—
Excess deferred tax amortization	(10.1)	—	(5.6)	(3.8)	(10.6)	(24.9)	(20.0)	(23.6)	(36.8)
Tax settlements	(0.2)	(0.7)	—	—	—	—	—	—	—
Other	(0.8)	(0.9)	1.1	(0.8)	(0.3)	0.1	(0.4)	0.7	0.6
Effective income tax rate	27.5%	45.7%	23.4%	(13.1)%	13.1%	(0.5)%	2.5%	3.6%	(10.3)%


	Three Months Ended September 30, 2019(a)
	Exelon	Generation	ComEd	PECO	BGE	PHI	Pepco	DPL	ACE
U.S. Federal statutory rate	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	6.4	5.2	8.1	(0.3)	6.3	4.8	1.9	6.6	6.9
Qualified NDT fund income	3.2	7.1	—	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(4.1)	(8.9)	(0.2)	—	(0.1)	(0.2)	(0.1)	(0.2)	(0.3)
Plant basis differences	(1.7)	—	(1.0)	(7.5)	(1.1)	(1.8)	(2.6)	(0.6)	(1.9)
Production tax credits and other credits	(1.2)	(2.7)	—	—	—	—	—	—	—
Noncontrolling interests	(2.2)	(4.8)	—	—	—	—	—	—	—
Excess deferred tax amortization	(6.5)	—	(9.9)	(3.6)	(8.0)	(17.7)	(16.3)	(13.5)	(23.3)
Other	0.7	0.5	0.4	(0.5)	(0.2)	0.8	1.0	(0.1)	0.7
Effective income tax rate	15.6%	17.4%	18.4%	9.1%	17.9%	6.9%	4.9%	13.2%	3.1%


	Nine Months Ended September 30, 2020(a)

	Exelon	Generation(d)	ComEd(e)	PECO(b)	BGE(c)	PHI(c)	Pepco(c)	DPL(c)	ACE(c)
U.S. Federal statutory rate	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	9.3	—	12.7	(3.4)	5.5	5.0	4.2	6.5	6.8
Qualified NDT fund income	3.2	10.0	—	—	—	—	—	—	—
Deferred Prosecution Agreement payments	2.5	—	9.4	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(1.2)	(3.2)	(0.3)	—	(0.1)	(0.2)	(0.1)	(0.3)	(0.5)
Plant basis differences	(4.0)	—	(0.9)	(15.9)	(1.8)	(2.2)	(2.4)	(0.5)	(3.7)
Production tax credits and other credits	(2.6)	(7.0)	(0.4)	—	(0.4)	(0.3)	(0.3)	(0.2)	(0.4)
Noncontrolling interests	1.0	3.1	—	—	—	—	—	—	—
Excess deferred tax amortization	(15.8)	—	(11.8)	(3.5)	(15.0)	(45.3)	(29.2)	(53.6)	(81.4)
Tax settlements	(5.0)	(15.7)	—	—	—	—	—	—	—
Other	0.1	(0.5)	2.1	(0.5)	(0.5)	(0.6)	(0.8)	(1.1)	—
Effective income tax rate	8.5%	7.7%	31.8%	(2.3)%	8.7%	(22.6)%	(7.6)%	(28.2)%	(58.2)%


	Nine Months Ended September 30, 2019(a)
	Exelon	Generation	ComEd	PECO	BGE	PHI	Pepco	DPL	ACE
U.S. Federal statutory rate	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	5.1	4.2	8.2	—	6.4	4.8	2.0	6.7	6.9
Qualified NDT fund income	5.3	11.9	—	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(1.9)	(4.0)	(0.2)	—	(0.1)	(0.2)	(0.1)	(0.2)	(0.3)
Plant basis differences	(1.6)	—	(0.7)	(6.8)	(1.1)	(1.8)	(2.3)	(0.6)	(2.0)
Production tax credits and other credits	(1.0)	(2.1)	—	—	—	—	—	—	—
Noncontrolling interests	(1.0)	(2.3)	—	—	—	—	—	—	—
Excess deferred tax amortization	(6.0)	—	(9.2)	(2.9)	(7.9)	(18.6)	(17.3)	(15.0)	(23.4)
Other	0.8	(0.1)	0.2	(0.2)	0.1	0.5	0.7	0.2	—
Effective income tax rate	20.7%	28.6%	19.3%	11.1%	18.4%	5.7%	4.0%	12.1%	2.2%

__________

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

(b)At PECO, the lower effective tax rate is primarily related to an increase in plant basis differences attributable to storm repairs.

(c)At BGE, PHI, Pepco, DPL, and ACE, the lower effective tax rate is primarily attributable to accelerated amortization of transmission related deferred income tax regulatory liabilities as a result of regulatory settlements. See Note 2 — Regulatory Matters for additional information.

(d)At Generation, the lower effective tax rate is primarily attributable to tax settlements.

(e)At ComEd, the higher effective tax rate is primarily related to the nondeductible Deferred Prosecution Agreement payments. See Note 14 — Commitments and Contingencies for additional information.

Accounting for Uncertainty in Income Taxes

Exelon, Generation, PHI, and ACE have the following unrecognized tax benefits as of September 30, 2020 and December 31, 2019. ComEd, PECO, BGE, Pepco, and DPL's amounts are not material.


	Exelon		Generation		PHI		ACE
September 30, 2020	$	125	$	49	$	53	$	16
December 31, 2019	507		441		48		14

Exelon's and Generation's unrecognized federal and state tax benefits decreased in the first quarter of 2020 by approximately $411 million due to the settlement of a federal refund claim with IRS Appeals. The recognition of these tax benefits resulted in an increase to Exelon's and Generation’s net income of $76 million and $73 million, respectively, in the first quarter of 2020, reflecting a decrease to Exelon's and Generation's income tax expense of $67 million.

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

The following table represents Exelon's, PHI's, and ACE's unrecognized federal and state tax benefits that could significantly decrease within the 12 months after the reporting date as a result of completing audits, potential settlements, refund claims, and the outcomes of pending court cases as of September 30, 2020. Generation's, ComEd's, PECO's, BGE's, Pepco's, and DPL's amounts are not material.


Exelon		PHI		ACE(a)
$	14	$	14	$	14

__________

(a)The unrecognized tax benefit related to ACE, if recognized, may be included in future base rates and that portion would have no impact to the effective tax rate.

Other Income Tax Matters

State Income Tax Law Changes

On June 5, 2019, the Governor of Illinois signed a tax bill which would increase the Illinois corporate income tax rate from 9.50% to 10.49% effective for tax years beginning on or after January 1, 2021. The tax rate is contingent upon ratification of state constitutional amendments in November 2020. The effect of the rate change will be recognized in the period in which the new legislation is enacted. Exelon, Generation, and ComEd do not expect a material impact to their financial statements as a result of the rate change.

Long-Term Marginal State Income Tax Rate (All Registrants)

In the third quarter of 2020 and 2019, Exelon updated its marginal state income tax rates for changes in state apportionment. The changes in marginal rates in the third quarter of 2020 resulted in an increase of $66 million and a decrease of $26 million to the deferred income tax liability at Exelon and Generation, respectively, as of September 30, 2020. The changes in marginal rates in the third quarter of 2019 resulted in an increase of $23 million and $9 million to the deferred income tax liability at Exelon and Generation, respectively, as of September 30, 2019. Exelon and Generation recorded a corresponding adjustment to income tax expense, net of federal taxes, in each of those respective periods.

Allocation of Tax Benefits (All Registrants)

Generation and the Utility Registrants are all party to an agreement with Exelon and other subsidiaries of Exelon that provides for the allocation of consolidated tax liabilities and benefits (Tax Sharing Agreement). The Tax Sharing Agreement provides that each party is allocated an amount of tax similar to that which would be owed had the party been separately subject to tax. In addition, any net benefit attributable to Exelon is reallocated to the other Registrants. That allocation is treated as a contribution to the capital of the party receiving the benefit.

The following table presents the allocation of federal tax benefits from Exelon under the Tax Sharing Agreement.


	Generation		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
September 30, 2020	$	64	$	14	$	17	$	—	$	17	$	8	$	6	$	1
December 31, 2019	41		—		14		3		7		6		1		—

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details