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

For the Three Months Ended March 31, 2012		Exelon (a)		Generation (a)		ComEd		PECO		BGE (b)

U.S. Federal statutory rate		35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
Increase (decrease) due to:
	State income taxes, net of Federal income tax benefit	(27.4)		1.2		5.9		3.4		4.4
	Qualified nuclear decommissioning trust fund income	16.0		14.7		0.0		0.0		0.0
	Domestic production activities deduction	(1.2)		(1.2)		0.0		0.0		0.0
	Tax exempt income	(0.4)		(0.4)		0.0		0.0		0.0
	Health Care Reform Legislation	0.2		0.0		0.4		0.0		0.0
	Amortization of investment tax credit	(0.8)		(0.5)		(0.3)		(0.3)		0.9
	Plant basis differences	(3.0)		0.0		0.0		(3.5)		2.7
	Production tax credits	(0.5)		(3.1)		0.0		0.0		0.0
	Fines & Penalties	13.3		11.9		0.0		0.0		0.0
	Merger Expenses	13.2		0.0		0.0		0.0		(8.5)
	Other	(0.3)		0.5		0.2		(0.1)		0.3

Effective income tax rate		44.1	%	58.1	%	41.2	%	34.5	%	34.8	%

For the Three Months Ended March 31, 2011		Exelon		Generation		ComEd		PECO		BGE (b)

U.S. Federal statutory rate		35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
Increase (decrease) due to:
	State income taxes, net of Federal income tax benefit	5.5		6.1		7.3		(3.9)		4.6
	Qualified nuclear decommissioning trust fund income	2.3		3.2		—		—		—
	Domestic production activities deduction	(0.9)		(1.3)		—		—		—
	Tax exempt income	(0.1)		(0.1)		—		—		—
	Health Care Reform Legislation	—		—		—		—		(1.9)
	Amortization of investment tax credit	(0.2)		(0.2)		(0.4)		(0.3)		(0.2)
	Plant basis differences	—		—		—		(0.2)		(0.8)
	Production tax credits	(0.9)		(1.3)		—		—		—
	Other	(0.7)		(1.0)		0.1		0.2		—

Effective income tax rate		40.0	%	40.4	%	42.0	%	30.8	%	36.7	%

(a) Exelon activity for the three months ended March 31, 2012 includes the results of Constellation and BGE for March 12, 2012 - March 31, 2012. Generation activity for the three months ended March 31, 2012 includes the results of Constellation for March 12, 2012 - March 31, 2012.

(b) BGE activity represents the activity for the three months ended March 31, 2012 and 2011. BGE recognized a loss before income taxes for the three months ended March 31, 2012. As a result, positive percentages represent an income tax benefit for BGE for the three months ended March 31, 2012.

(c) Prior to the close of the merger, the Registrants recorded the applicable taxes on merger transaction costs assuming the merger would not be completed. Upon closing of the merger, the Registrants reversed such taxes for those merger transaction costs that were determined to be non tax-deductible upon successful completion of a merger.

Exelon, Generation, ComEd, PECO, and BGE have $1,040 million, $874 million, $69 million, $48 million, and $11 million, respectively, of unrecognized tax benefits as of March 31, 2012. Exelon's, Generation's, ComEd's, PECO's and BGE's uncertain tax positions have not significantly changed since December 31, 2011. See Note 11 of the Exelon 2011 Form 10-K and Note 10 of the 2011 Form 10-K for Constellation Energy Group, Inc. and Baltimore Gas and Electric CompanyBGE for further discussion of reasonably possible changes that could occur in unrecognized tax benefits during the next twelve months.

1999 Sale of Fossil Generating Assets (Exelon and ComEd). Exelon, through its ComEd subsidiary, took two positions on its 1999 income tax return to defer approximately $2.8 billion of tax gain on the 1999 sale of ComEd's fossil generating assets. Exelon deferred approximately $1.6 billion of the gain under the involuntary conversion provisions of the IRC. The remaining approximately $1.2 billion of the gain was deferred by reinvesting the proceeds from the sale in qualifying replacement property under the like-kind exchange provisions of the IRC. Exelon received the IRS audit report for 1999 through 2001, which reflected the full disallowance of the deferral of gain associated with both the involuntary conversion position and the like-kind exchange transaction.

Competitive Transition Charges (Exelon, ComEd, and PECO). Exelon filed refund claims with the IRS taking the position that CTCs collected during ComEd's and PECO's transition periods represented compensation for a taking of their respective properties and, accordingly, were excludible from taxable income as proceeds from an involuntary conversion. The tax basis of property acquired with the funds provided by the CTCs would be reduced such that the benefits of the position are temporary in nature. The IRS disallowed the refund claims for the 1999-2001 tax years.

Status of Tax Positions. In the second quarter of 2010, Exelon concluded that it had sufficient new information that a remeasurement of the involuntary conversion and CTC positions was required in accordance with applicable accounting standards. As a result, Exelon recorded $65 million (after-tax) of interest expense, of which $36 million (after-tax) and $22 million (after-tax) were recorded at ComEd and PECO, respectively. ComEd also recorded a current tax expense of $70 million offset with a tax benefit recorded at Generation of $70 million. In the third quarter of 2010, Exelon and IRS Appeals reached a nonbinding, preliminary agreement to settle Exelon's involuntary conversion and CTC positions. The agreement is consistent with IRS Appeals' second quarter 2010 offer to settle the involuntary conversion and CTC positions and also includes IRS Appeals' agreement to withdraw its assertion of the $110 million substantial understatement penalty with respect to Exelon's involuntary conversion position. Final resolution of the involuntary conversion and CTC disputes remains subject to finalizing terms and calculations and executing definitive agreements satisfactory to both parties and is subject to the review of the Joint Committee on Taxation. As a result of the preliminary agreement, Exelon and ComEd eliminated any liability for unrecognized tax benefits associated with the settled positions and established a current tax payable to the IRS. In the second quarter of 2012, IRS Appeals submitted the final terms, calculations, and definitive agreements to the Joint Committee on Taxation for its review.

Under the terms of the agreement, Exelon estimates that the IRS will assess tax and interest of approximately $300 million in 2012 for the years for which there is a resulting tax deficiency, of which $405 million would be paid by ComEd, $135 million would be received by PECO, $10 million would be paid by Generation and the remainder received by Exelon. These amounts are net of approximately $300 million of refunds due from the settlement of the 2001 tax method of accounting change for certain overhead costs under the SSCM as well as other agreed upon audit adjustments. In order to stop additional interest from accruing on the expected assessment, Exelon made a payment in December 2010 to the IRS of $302 million.

Exelon and IRS Appeals to date have failed to reach a settlement with respect to the like-kind exchange position. The IRS has asserted that the Exelon purchase and leaseback transaction is substantially similar to a leasing transaction, known as a SILO, which the IRS does not respect as the acquisition of an ownership interest in property. A SILO is a “listed transaction” that the IRS has identified as a potentially abusive tax shelter under guidance issued in 2005. Accordingly, the IRS has asserted that the sale of the fossil plants followed by the purchase and leaseback of the municipal-owned generation facilities does not qualify as a like-kind exchange and the gain on the sale is fully subject to tax. Exelon continues to believe that its like-kind exchange transaction is not the same as or substantially similar to a SILO and does not believe that the concession demanded by the IRS in its settlement offer reflects the strength of Exelon's position. IRS Appeals also continues to assert an $86 million penalty for a substantial understatement of tax with respect to the like-kind exchange position.

While Exelon has been and remains willing to settle the issue in a manner generally commensurate with its hazards of litigation, the IRS has thus far been unwilling to settle the issue without requiring a nearly complete concession of the issue by Exelon. Accordingly, to continue to contest the IRS's disallowance of the like-kind exchange position and its assertion of the $86 million substantial understatement penalty, Exelon expects to initiate litigation in 2012 after the final resolution of the involuntary conversion and CTC settlement. Given that Exelon has determined settlement is not a realistic outcome, it has assessed, in accordance with applicable accounting standards, whether it will prevail in litigation. While Exelon recognizes the complexity and hazards of this litigation, it believes that it is more likely than not that it will prevail in such litigation and, therefore, eliminated any liability for unrecognized tax benefits. Further, Exelon believes it is unlikely that the penalty assertion will ultimately be sustained. Exelon and ComEd have not recorded a liability for penalties. However, should the IRS prevail in asserting the penalty, it would result in an after-tax charge of $86 million to Exelon's and ComEd's results of operations.

As of March 31, 2012, assuming Exelon's settlement of the involuntary conversion position is finalized, the potential tax and interest, exclusive of penalties, that could become currently payable in the event of a fully successful IRS challenge to Exelon's like-kind exchange position could be as much as $840 million, of which $520 million would be paid by ComEd and the remainder by Exelon. If the IRS were to prevail in litigation on the like-kind exchange position, Exelon's results of operations could be negatively affected due to increased interest expense, as of March 31, 2012, by as much as $240 million, net of tax, of which $180 million would be recorded at ComEd and the remainder by Exelon. Litigation could take several years such that the estimated cash and interest impacts would likely change by a material amount.

Exelon and Generation periodically review events that may significantly impact how income is apportioned among the states and, therefore, the calculation of their respective deferred state income taxes. Events that may require Exelon and Generation to update their long-term state tax apportionment include significant changes in tax law and/or significant operational changes, such as the merger with Constellation. As a result of the merger, Exelon and Generation reevaluated their long-term state tax apportionment for all states where they have state income tax obligations, which include Illinois, Maryland and Pennsylvania, as well as other states. The total effect of revising the long-term state tax apportionment resulted in the recording of a deferred state tax asset of $72 million (net of Federal taxes) for Exelon. Of this, a benefit in the amount of $116 million and $14 million (net of Federal taxes) was recorded for Exelon and Generation, respectively, for the three months ended March 31, 2012. Further, Exelon and Generation recorded deferred state tax liabilities of $44 million and $14 million (net of Federal taxes), respectively, as part of purchase accounting during the three months ended March 31, 2012.

For the three months ended March 31, 2012, BGE recorded an adjustment to interest expense of approximately $5 million to reflect the impacts of anticipated amendments of tax positions previously taken on prior-year consolidated income tax returns. BGE has concluded this adjustment is not material to its results of operations or cash flows for the three months ended March 31, 2012, or any prior period.