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, 2013		Exelon		Generation		ComEd		PECO		BGE

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	3.0		2.6		5.4		(0.3)		5.6
	Qualified nuclear decommissioning trust fund income	3.5		5.3		0.0		0.0		0.0
	Tax exempt income	(0.2)		(0.3)		0.0		0.0		0.0
	Health care reform legislation	0.1		0.0		0.4		0.0		0.2
	Amortization of investment tax credit, net deferred taxes	(1.5)		(2.1)		(0.4)		(0.1)		(0.3)
	Plant basis differences	(0.8)		0.0		(0.4)		(6.9)		0.1
	Production tax credits and other credits	(2.2)		(3.3)		0.0		0.0		0.0
	Other	0.5		0.1		0.3		(0.1)		(0.2)

Effective income tax rate		37.4	%	37.3	%	40.3	%	27.6	%	40.4	%

For the Nine Months Ended September 30, 2013		Exelon		Generation		ComEd		PECO		BGE

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	5.3		1.8		5.2		1.9		5.6
	Qualified nuclear decommissioning trust fund income	3.2		5.1		0.0		0.0		0.0
	Tax exempt income	(0.2)		(0.3)		0.0		0.0		0.0
	Health care reform legislation	0.1		0.0		0.9		0.0		0.2
	Amortization of investment tax credit, net deferred taxes	(2.3)		(3.4)		(0.8)		(0.1)		(0.3)
	Plant basis differences	(1.7)		0.0		(1.2)		(7.3)		(0.4)
	Production tax credits and other credits	(2.4)		(3.9)		0.0		0.0		0.0
	Other	0.2		1.1		0.8		0.0		0.0

Effective income tax rate		37.2	%	35.4	%	39.9	%	29.5	%	40.1	%


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 and other credits	(2.5)		(7.4)		0.0		0.0		0.0
	Fines and 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 and other credits	(2.6)		(4.3)		0.0		0.0		0.0
	Fines and 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	%

(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. 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. As a result, positive percentages represent an income tax benefit for BGE for the nine months ended September 30, 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.

(d) For the three months ended September 30, 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%.

Exelon, Generation, ComEd, PECO, and BGE have $2,164 million, $1,406 million, $327 million, $44 million, and $0 million, of unrecognized tax benefits as of September 30, 2013, respectively, and $1,024 million, $876 million, $67 million, $44 million, and $0 million, of unrecognized tax benefits as of December 31, 2012, respectively. The unrecognized tax benefits as of September 30, 2013 reflect an increase at Exelon and ComEd attributable to the like-kind exchange position discussed below. Furthermore, Exelon's and Generation's unrecognized tax benefits were increased by $446 million in the second quarter in anticipation of filing a refund claim with respect to legacy Constellation taxable years.

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, 2013, Exelon and Generation have approximately $160 million of federal and state unrecognized tax benefits that could significantly increase or decrease within the 12 months after the reporting date as a result of completing federal and state audits and expected statute of limitation expirations that if recognized would decrease the effective tax rate.

AmerGen filed income tax refund claims taking the position that nuclear decommissioning liabilities assumed as part of its acquisition of nuclear power plants are taken into account in determining the tax basis in the assets it acquired. The additional basis results primarily in reduced capital gains or increased capital losses on the sale of assets in nonqualified decommissioning funds and increased tax depreciation and amortization deductions. The IRS disagrees with this position and has disallowed the claims. In November 2008, Generation received a final determination from the Appeals division of the IRS (IRS Appeals) disallowing AmerGen's refund claims. Generation filed a complaint in the United States Court of Federal Claims on February 20, 2009 to contest this determination. During the first and second quarters of 2013, AmerGen and the DOJ completed and filed cross motions for summary judgment. On September 17, 2013, the Court granted the government's motion denying AmerGen's claims for refund. Exelon is currently considering an appeal of the decision to the United States Court of Appeals for the Federal Circuit.

Due to the possibility of final resolution through an appellate decision, Generation continues to believe that it is reasonably possible that the total amount of unrecognized tax benefits may significantly decrease in 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 sale of ComEd's fossil generating assets. Exelon deferred approximately $1.6 billion of the gain under the involuntary conversion provisions of the IRC. Exelon believed that it was economically compelled to dispose of ComEd's fossil generating plants as a result of the Illinois Act and that the proceeds from the sale of the fossil plants were properly reinvested in qualifying replacement property such that the gain could be deferred over the lives of the replacement property under the involuntary conversion provisions. 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. The like-kind exchange replacement property purchased by Exelon included interests in three municipal-owned electric generation facilities which were properly leased back to the municipalities. The IRS disagreed with both positions and asserted that the entire gain of approximately $2.8 billion was taxable in 1999.

Competitive Transition Charges (Exelon, ComEd, and PECO). Exelon contended that the Illinois Act and the Competition Act resulted in the taking of certain of ComEd's and PECO's assets used in their respective businesses of providing electricity services in their defined service areas. Exelon filed refund claims with the IRS taking the position that CTCs collected during ComEd's and PECO's transition periods represent compensation for that taking 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 Involuntary Conversion and CTC Positions. In the second quarter of 2010, the IRS offered to settle the disagreement over the involuntary conversion and CTC positions. Exelon concluded, based on that offer, 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 of the required remeasurement, 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 the IRS reached a nonbinding, preliminary agreement to settle Exelon's involuntary conversion on terms consistent with the settlement offer received in the second quarter. As a result of the preliminary agreement, Exelon and ComEd eliminated any liability for unrecognized tax benefits and established a current tax payable to the IRS. Exelon paid $302 million in late 2010 in advance of the final settlement and the assessment. In November 2012, the IRS and Exelon finalized and executed definitive agreements to resolve Exelon's involuntary conversion and CTC positions.

Status of Like-Kind Exchange Position. Exelon has been unable to reach agreement with the IRS regarding the dispute over 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. The IRS has also asserted a penalty of approximately $87 million for a substantial understatement of tax.

Exelon disagrees with the IRS and continues to believe that its like-kind exchange transaction is not the same as or substantially similar to a SILO. Although Exelon has been and remains willing to settle the disagreement on terms commensurate with the hazards of litigation, Exelon does not believe a settlement is possible. Because Exelon believed, as of December 31, 2012, that it was more-likely-than-not that Exelon would prevail in litigation, Exelon and ComEd had no liability for unrecognized tax benefits with respect to the like kind exchange position.

On January 9, 2013, the U.S. Court of Appeals for the Federal Circuit reversed the U.S. Court of Federal Claims and reached a decision for the government in Consolidated Edison v. United States. The Court disallowed Consolidated Edison's deductions stemming from its participation in a LILO transaction that the IRS also has characterized as a tax shelter.

In accordance with applicable accounting standards, Exelon is required to assess whether it is more-likely-than-not that it will prevail in litigation. Exelon continues to believe that its transaction is not a SILO and that it has a strong case on the merits. However, in light of the Consolidated Edison decision and Exelon's current determination that settlement is unlikely, Exelon has concluded that subsequent to December 31, 2012, it is no longer more-likely-than-not that its position will be sustained. As a result, in the first quarter of 2013 Exelon recorded a non-cash charge to earnings of approximately $265 million, which represents the amount of interest expense (after-tax) and incremental state income tax expense for periods through March 31, 2013 that would be payable in the event that Exelon is unsuccessful in litigation. Of this amount, approximately $170 million was recorded at ComEd. Exelon intends to hold ComEd harmless from any unfavorable impacts of the after-tax interest amounts on ComEd's equity. As such, ComEd recorded on its consolidated balance sheet as of March 31, 2013, a $172 million receivable and non-cash equity contributions from Exelon. Exelon and ComEd will continue to accrue interest on the uncertain tax position, and the charges arising from future interest accruals are not expected to be material to the annual operating earnings of Exelon or ComEd. In addition, ComEd will continue to record a receivable and non-cash equity contribution from Exelon in amounts equal to the additional interest recorded by ComEd on the uncertain tax position. Exelon continues to believe that it is unlikely that the $87 million penalty assertion will ultimately be sustained and therefore no liability for the penalty has been recorded.

On September 30, 2013, the Internal Revenue Service issued a notice of deficiency to Exelon for the like-kind exchange position. Exelon will initiate litigation by December 29, 2013 in the United States Tax Court and is not required to remit any part of the asserted tax or penalty in order to litigate the issue. The litigation could take three to five years including appeals, if necessary. Decisions in the Tax Court are not controlled by the Federal Circuit's decision in Consolidated Edison.

As of September 30, 2013, in the event of a fully successful IRS challenge to Exelon's like-kind exchange position, the potential tax and after-tax interest, exclusive of penalties, that could become currently payable may be as much as $840 million, of which approximately $305 million would be attributable to ComEd after consideration of Exelon's agreement to hold ComEd harmless, and the balance at Exelon. Litigation could take several years such that the estimated cash and interest impacts would likely change by a material amount.

Accounting for Final Tangible Property Regulations (Exelon, Generation, ComEd, PECO, and BGE)

On September 19, 2013, the Treasury Department and the IRS published final regulations regarding the tax treatment of costs incurred to acquire, produce, or improve tangible property. The Registrants are currently assessing the financial impact of this guidance and do not expect it to have a material impact. Any changes in method of accounting required to conform to the final regulations will be made for the Registrant's 2014 taxable year.

On April 30, 2013, the IRS issued guidance that will facilitate the determination of the appropriate tax treatment of costs incurred to repair electric generation assets. Exelon and Generation are currently assessing its impact and expect to file a request for change in method of tax accounting for repair costs beginning with its 2014 taxable year.