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 September 30, 2012		Exelon (a)		Generation (a)		ComEd		PECO		BGE (b)

U.S. Federal statutory rate		35.0	%	35.0	%	35.0	%	35.0	%	0.0	%
Increase (decrease) due to:
	State income taxes, net of Federal income tax benefit	5.6		5.9		5.0		3.0		0.0
	Qualified nuclear decommissioning trust fund income	7.8		21.5		0.0		0.0		0.0
	Domestic production activities deduction	0.3		0.8		0.0		0.0		0.0
	Tax exempt income	(0.2)		(0.5)		0.0		0.0		0.0
	Health Care Reform Legislation	0.0		0.0		0.6		0.0		0.0
	Amortization of investment tax credit, net deferred taxes	(4.8)		(13.0)		(0.5)		(0.3)		0.0
	Plant basis differences	(4.7)		0.0		(0.5)		(21.0)		0.0
	Production tax credits	(2.5)		(7.4)		0.0		0.0		0.0
	Fines & penalties	(0.1)		0.0		0.0		0.0		0.0
	Other (d)	(1.2)		7.1		0.0		0.2		0.0

Effective income tax rate		35.2	%	49.4	%	39.6	%	16.9	%	0.0	%

For the Nine Months Ended September 30, 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	(4.7)		2.5		5.4		3.2		2.3
	Qualified nuclear decommissioning trust fund income	6.9		10.9		0.0		0.0		0.0
	Tax exempt income	(0.3)		(0.5)		0.0		0.0		0.0
	Health Care Reform Legislation	0.2		0.0		0.6		0.0		(4.6)
	Amortization of investment tax credit, net deferred taxes	(2.3)		(3.3)		(0.5)		(0.3)		2.9
	Plant basis differences	(2.2)		0.0		(0.2)		(9.7)		7.2
	Production tax credits	(2.6)		(4.3)		0.0		0.0		0.0
	Fines & penalties	3.8		6.0		0.0		0.0		0.0
	Merger expenses (c)	3.6		0.0		0.0		0.0		(14.0)
	Other	(1.3)		0.8		0.2		(0.0)		4.5

Effective income tax rate		36.1	%	47.1	%	40.5	%	28.2	%	33.3	%


For the Three Months Ended September 30, 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	4.8		5.5		0.8		2.9		6.2
	Qualified nuclear decommissioning trust fund income	(6.4)		(10.2)		0.0		0.0		0.0
	Domestic production activities deduction	1.0		1.7		0.0		0.0		0.0
	Tax exempt income	(0.1)		(0.2)		0.0		0.0		0.0
	Health Care Reform Legislation	0.0		0.0		0.3		0.0		(16.4)
	Amortization of investment tax credit	(0.3)		(0.2)		(0.5)		(0.3)		13.8
	Plant basis differences	(3.2)		0.0		(0.7)		(23.8)		48.4
	Production tax credits	(1.1)		(1.7)		0.0		0.0		0.0
	Interest and penalties on unrecognized tax benefits (e)	0.0		0.0		0.0		0.0		137.8
	Other	0.1		0.3		0.4		0.1		75.2

Effective income tax rate		29.8	%	30.2	%	35.3	%	13.9	%	300.0	%

For the Nine Months Ended September 30, 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	4.1		4.9		3.4		(0.4)		4.8
	Qualified nuclear decommissioning trust fund income	(0.6)		(0.8)		0.0		0.0		0.0
	Domestic production activities deduction	(0.4)		(0.6)		0.0		0.0		0.0
	Tax exempt income	(0.1)		(0.2)		0.0		0.0		0.0
	Health Care Reform Legislation	0.0		0.0		(1.5)		0.0		(0.8)
	Amortization of investment tax credit	(0.3)		(0.2)		(0.4)		(0.3)		(0.5)
	Plant basis differences	(1.0)		0.0		(0.4)		(6.8)		(1.6)
	Production tax credits	(1.0)		(1.4)		0.0		0.0		0.0
	Interest and penalties on unrecognized tax benefits (e)	0.0		0.0		0.0		0.0		(1.1)
	Other	(0.3)		(0.9)		0.3		0.0		(0.1)

Effective income tax rate		35.4	%	35.8	%	36.4	%	27.5	%	35.7	%

(a) Exelon activity for the three and nine months ended September 30, 2012 includes the results of Constellation and BGE for March 12, 2012 - September 30, 2012. Generation activity for the three and nine months ended September 30, 2012 includes the results of Constellation for March 12, 2012 - September 30, 2012.

(b) BGE activity represents the activity for the three and nine months ended September 30, 2012 and 2011. BGE activity for the three months ended September 30, 2012 resulted in zero pre-tax income and zero income taxes. BGE recognized a loss before income taxes for the nine months ended September 30, 2012 and three months ended September 30, 2011. As a result, positive percentages represent an income tax benefit for BGE for the nine months ended September 30, 2012 and three months ended September 30, 2011.

(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.

(d) For the three months ended September 31, 2012, Generation's effective tax rate was affected by the resolution of uncertain Federal tax positions (5.3%), the finalization of prior year tax return calculations 4.2%, changes in the forecasted activity attributable to noncontrolling interests 4.1%, and other 4.1%.

(e) Until March 12, 2012, BGE recorded interest and penalties relating to unrecognized tax benefits as tax expense.

Exelon, Generation, ComEd, PECO, and BGE have $980 million, $829 million, $68 million, $44 million, and $0 million, respectively, of unrecognized tax benefits as of September 30, 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 and BGE 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 third quarter of 2010, Exelon and IRS Appeals reached a nonbinding, preliminary agreement to settle Exelon's involuntary conversion and CTC positions. The agreement includes IRS Appeals' agreement to withdraw its assertion of the $110 million substantial understatement penalty with respect to Exelon's involuntary conversion position. 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. Exelon has received verbal confirmation from the IRS that the Joint Committee on Taxation has approved the terms of the preliminary agreement and Exelon expects final IRS approval in the fourth quarter of 2012.

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 is attributable to ComEd, ($135) million to PECO, $10 million to Generation and the remainder to 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 2013. 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 September 30, 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 $870 million, of which $510 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 September 30, 2012, by as much as $260 million, net of tax, of which $160 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 first quarter of 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 first quarter of 2012.

In September 2012, PECO filed an application with the IRS to change its method of accounting for gas distribution repairs for the 2011 tax year. The change to the newly adopted method for the 2011 tax year and through Q3 2012 resulted in a tax benefit of $19 million at Exelon, of which $22 million in tax benefit is recorded at PECO, partially offset by an expense recorded at Generation to reflect a reduction in its domestic production activities deduction. BGE changed its method of accounting for gas distribution repairs for the 2008 tax year. Exelon currently anticipates that the IRS will issue guidance in the near future providing a safe harbor method of tax accounting for gas transmission and distribution property.

For the three and nine months ended September 30, 2012, BGE recorded an adjustment to interest expense of approximately $2 million and $9 million, respectively, 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 and nine months ended September 30, 2012, or any prior period.