Income Taxes (All Registrants)

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes (All Registrants)

Income Taxes (All Registrants)

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, 2023(a)
	Exelon		ComEd		PECO(b)		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	%
Increase (decrease) due to:
State income taxes, net of federal income tax benefit(c)	(2.7)		7.8		(1.2)		6.6		6.2		5.5		6.1		7.0
Plant basis differences	(4.4)		(0.4)		(15.6)		(0.2)		(1.5)		(2.4)		(0.9)		(0.5)
Excess deferred tax amortization	(6.4)		(5.3)		(2.4)		(5.4)		(8.0)		(9.2)		(10.0)		(3.1)
Amortization of investment tax credit, including deferred taxes on basis difference	(0.1)		(0.1)		—		(0.1)		(0.1)		—		(0.1)		(0.1)
Tax credits	(0.5)		(1.2)		—		(2.0)		(0.5)		(0.6)		(0.4)		(0.3)
Other	1.8		0.2		0.2		(0.3)		0.3		0.6		—		0.5
Effective income tax rate	8.7	%	22.0	%	2.0	%	19.6	%	17.4	%	14.9	%	15.7	%	24.5	%

	Three Months Ended September 30, 2022(a)
	Exelon		ComEd		PECO(d)		BGE(d)		PHI(d)		Pepco(d)		DPL(d)		ACE(d)
U.S. Federal statutory rate	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	9.0		8.0		20.7		6.8		1.4		(2.7)		6.5		7.0
Plant basis differences	(5.3)		(0.4)		(14.2)		(2.6)		(1.7)		(2.3)		(0.8)		(1.0)
Excess deferred tax amortization	(11.6)		(5.6)		(3.2)		(47.3)		(19.3)		(14.6)		(21.7)		(25.5)
Amortization of investment tax credit, including deferred taxes on basis difference	(0.1)		(0.1)		—		(0.2)		(0.1)		—		(0.2)		(0.2)
Tax credits	(0.6)		(0.4)		—		(1.9)		(0.9)		(0.8)		(1.3)		(0.7)
Other	(0.4)		(0.1)		0.3		(2.7)		0.3		0.1		0.2		0.5
Effective income tax rate	12.0	%	22.4	%	24.6	%	(26.9)	%	0.7	%	0.7	%	3.7	%	1.1	%

__________

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

(b)For PECO, the lower effective tax rate is primarily related to plant basis differences attributable to tax repair deductions.

(c)For Exelon, the lower state income taxes, net of federal income tax expense, is primarily due to the long-term marginal state income tax rate change of $54 million.

(d)For PECO, the higher effective tax rate is related to a one-time state income expense, net of federal income tax benefit, of $38 million attributable to the change in the Pennsylvania corporate income tax rate partially offset by plant basis differences attributable to tax repair deductions. For BGE, PHI, Pepco, DPL, and ACE, the lower effective tax rate is primarily related to the acceleration of certain income tax benefits due to distribution and transmission rate case settlements.

	Nine Months Ended September 30, 2023(a)
	Exelon	ComEd	PECO(b)	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%
Increase (decrease) due to:
State income taxes, net of federal income tax benefit(c)	2.8	7.8	(1.3)	6.5	6.1	5.5	6.2	6.9
Plant basis differences	(4.3)	(0.4)	(15.5)	(0.5)	(1.6)	(2.5)	(1.0)	(0.5)
Excess deferred tax amortization	(6.6)	(5.5)	(2.4)	(5.4)	(7.7)	(9.2)	(9.4)	(2.6)
Amortization of investment tax credit, including deferred taxes on basis difference	(0.1)	(0.1)	—	(0.1)	(0.1)	—	(0.1)	(0.1)
Tax credits	(0.5)	(0.7)	—	(0.7)	(0.6)	(0.7)	(0.4)	(0.3)
Other	1.5	0.1	0.1	0.2	0.3	0.6	—	0.3
Effective income tax rate	13.8%	22.2%	1.9%	21.0%	17.4%	14.7%	16.3%	24.7%

	Nine Months Ended September 30, 2022(a)
	Exelon	ComEd	PECO(d)	BGE(d)	PHI(d)	Pepco(d)	DPL(d)	ACE(d)
U.S. Federal statutory rate	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(e)	9.5	7.9	6.6	2.8	2.0	(3.2)	6.5	6.9
Plant basis differences	(4.2)	(0.5)	(12.2)	(1.1)	(1.7)	(2.4)	(0.7)	(1.1)
Excess deferred tax amortization	(11.3)	(5.7)	(3.2)	(20.7)	(18.8)	(15.4)	(20.4)	(24.7)
Amortization of investment tax credit, including deferred taxes on basis difference	(0.1)	(0.1)	—	(0.1)	(0.1)	—	(0.2)	(0.2)
Tax credits(f)	0.3	(0.3)	—	(0.7)	(0.7)	(0.6)	(0.7)	(0.6)
Other(g)	2.8	—	0.2	(0.1)	0.2	(0.2)	0.3	0.2
Effective income tax rate	18.0%	22.3%	12.4%	1.1%	1.9%	(0.8)%	5.8%	1.5%

__________

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

(b)For PECO, the lower effective tax rate is primarily related to plant basis differences attributable to tax repair deductions.

(c)For Exelon, the lower state income taxes, net of federal income tax expense, is primarily due to the long-term marginal state income tax rate change of $54 million.

(d)For PECO, the lower effective tax rate is primarily related to plant basis differences attributable to tax repair deductions partially offset by higher state income taxes, net of federal income tax benefit, related to a one-time expense of $38 million attributable to the change in the Pennsylvania corporate income tax rate. For BGE, PHI, Pepco, DPL and ACE, the lower effective tax rate is primarily related to the acceleration of certain income tax benefits due to distribution and transmission rate case settlements.

(e)For Exelon, the higher state income taxes, net of federal income tax benefit, is primarily due to the long-term marginal state income tax rate change of approximately $67 million and the recognition of a valuation allowance of approximately $40 million against the net deferred tax asset position for certain standalone state filing jurisdictions, partially offset by a one-time impact associated with a state tax benefit of $43 million and indemnification adjustments pursuant to the Tax Matters Agreement of $4 million as a result of the separation. For PECO, the higher state income taxes, net of federal income tax benefit, related to a one-time expense of $38 million attributable to the change in the Pennsylvania corporate income tax rate.

(f)For Exelon, reflects the income tax expense related to the write-off of federal tax credits subject to recapture of approximately $15 million as a result of the separation.

(g)For Exelon, primarily reflects the nondeductible transaction costs of approximately $19 million arising as part of the separation and indemnification adjustments pursuant to the Tax Matters Agreement of $40 million.

Unrecognized Tax Benefits

Exelon, PHI and ACE have the following unrecognized tax benefits at September 30, 2023 and December 31, 2022. ComEd's, PECO's, BGE's, Pepco's, and DPL's amounts are not material.

	Exelon(a)		PHI		ACE
September 30, 2023	$	138	$	56	$	16
December 31, 2022	148		59		17

__________

(a)At September 30, 2023 and December 31, 2022, Exelon reflected a receivable of $50 million in Other deferred debits and other assets in the Consolidated Balance Sheet for Constellation’s share of unrecognized tax benefits for periods prior to the separation.

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

As of September 30, 2023, ACE has $14 million of unrecognized state tax benefits that could significantly decrease within the 12 months after the reporting date based on the outcome of pending court cases involving other taxpayers. The unrecognized tax benefit, if recognized, may be included in future base rates and that portion would have no impact to the effective tax rate.

Other Tax Matters

Tax Matters Agreement (Exelon)

In connection with the separation, Exelon entered into a TMA with Constellation. The TMA governs the respective rights, responsibilities, and obligations between Exelon and Constellation after the separation with respect to tax liabilities, refunds and attributes for open tax years that Constellation was part of Exelon’s consolidated group for U.S. federal, state, and local tax purposes.

Indemnification for Taxes. As a former subsidiary of Exelon, Constellation has joint and several liability with Exelon to the IRS and certain state jurisdictions relating to the taxable periods prior to the separation. The TMA specifies that Constellation is liable for their share of taxes required to be paid by Exelon with respect to taxable periods prior to the separation to the extent Constellation would have been responsible for such taxes under the existing Exelon tax sharing agreement. As of September 30, 2023, Exelon recorded a payable of $15 million in Other current liabilities that is due to Constellation.

Tax Refunds. The TMA specifies that Constellation is entitled to their share of any future tax refunds claimed by Exelon with respect to taxable periods prior to the separation to the extent that Constellation would have received such tax refunds under the existing Exelon tax sharing agreement.

Tax Attributes. At the date of separation certain tax attributes, primarily pre-closing tax credit carryforwards, that were generated by Constellation were required by law to be allocated to Exelon. The TMA provides that Exelon will reimburse Constellation when those allocated tax credit carryforwards are utilized. As of September 30, 2023, Exelon recorded a payable of $22 million and $509 million in Other current liabilities and Other deferred credits and other liabilities, respectively, in the Consolidated Balance Sheet for tax attribute carryforwards that are expected to be utilized and reimbursed to Constellation.

Corporate Alternative Minimum Tax (All Registrants)

On August 16, 2022, the IRA was signed into law and implements a new corporate alternative minimum tax (CAMT) that imposes a 15.0% tax on modified GAAP net income. Corporations are entitled to a tax credit (minimum tax credit) to the extent the CAMT liability exceeds the regular tax liability. This amount can be carried forward indefinitely and used in future years when regular tax exceeds the CAMT.

Beginning in 2023, based on the existing statue, Exelon and each of the Utility Registrants will be subject to and will report the CAMT on a separate Registrant basis in the Consolidated Statements of Operations and Comprehensive Income and the Consolidated Balance Sheets. The deferred tax asset related to the minimum tax credit carryforward will be realized to the extent Exelon’s consolidated deferred tax liabilities exceed the minimum tax credit carryforward. Exelon’s deferred tax liabilities are expected to exceed the minimum tax credit carryforward for the foreseeable future and thus no valuation allowance is required. Exelon is continuing to assess the financial statement impacts of the IRA and will update estimates based on future guidance issued by the U.S. Treasury.

Long-Term Marginal State Income Tax Rate (Exelon)

In the third quarter of 2023, Exelon updated its marginal state income tax rates for changes in state apportionment. The changes in marginal rates in the third quarter of 2023 resulted in a decrease of $54 million to the deferred tax liability at Exelon, and a corresponding adjustment to income tax expense, net of federal taxes.

Allocation of Tax Benefits (All Registrants)

The Utility Registrants are party to an agreement with 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 Utility Registrants. That allocation is treated as a contribution to capital from Exelon to the party receiving the benefit.

The following table presents the allocation of tax benefits from Exelon under the Tax Sharing Agreement, for the three and nine months ended September 30, 2023, and 2022.

	ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
September 30, 2023	$	13	$	19	$	—	$	10	$	4	$	—	$	2
September 30, 2022	$	1	$	47	$	—	$	28	23		$	3	2