Income Taxes (Exelon, Generation, ComEd, PECO and BGE)

Income tax expense (benefit) from continuing operations is comprised of the following components:



For the Year Ended December 31, 2014	Exelon			Generation			ComEd			PECO			BGE
Included in operations:
Federal
Current	$	121		$	360		$	(171	)	$	28		$	24
Deferred	576			(35		)	395			87			90
Investment tax credit amortization	(20		)	(16		)	(2		)	—			(1		)
State
Current	42			35			7			(2		)	—
Deferred	(53		)	(137		)	39			1			27
Total	$	666		$	207		$	268		$	114		$	140
For the Year Ended December 31, 2013	Exelon			Generation			ComEd			PECO			BGE
Included in operations:
Federal
Current	$	744		$	250		$	160		$	126		$	9
Deferred	140			360			(27		)	23			100
Investment tax credit amortization	(15		)	(11		)	(2		)	(1		)	(1		)
State
Current	181			50			50			16			—
Deferred	(6		)	(34		)	(29		)	(2		)	26
Total	$	1,044		$	615		$	152		$	162		$	134
For the Year Ended December 31, 2012	Exelon			Generation			ComEd			PECO			BGE
Included in operations:
Federal
Current	$	37		$	104		$	(40	)	$	88		$	(97	)
Deferred	701			326			237			25			101
Investment tax credit amortization	(11		)	(6		)	(2		)	(2		)	(1		)
State
Current	(25		)	(12		)	6			4			—
Deferred	(75		)	88			38			12			4
Total	$	627		$	500		$	239		$	127		$	7

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



For the Year Ended December 31, 2014	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	1.3		(1.9	)	4.5		(0.1	)	5.0
Qualified nuclear decommissioning trust fund income	2.4		4.8		—		—		—
Tax exempt income	(0.2	)	(0.5	)	—		—		—
Domestic production activities deduction	(2.0	)	(4.1	)	—		—		—
Health care reform legislation	0.1		—		0.2		—		0.2
Amortization of investment tax credit, net deferred taxes	(1.1	)	(2.0	)	(0.3	)	(0.1	)	(0.3	)
Plant basis differences	(1.9	)	—		(0.1	)	(10.4	)	0.2
Production tax credits and other credits	(2.4	)	(4.8	)	—		—		—
Non-controlling interest	(1.8	)	(3.7	)	—		—		—
Statute of limitations expiration	(2.6	)	(5.3	)	—		—		—
Other	—		(0.6	)	0.3		0.1		(0.2	)
Effective income tax rate	26.8	%	16.9	%	39.6	%	24.5	%	39.9	%
For the Year Ended December 31, 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	4.8		1.8		3.4		1.6		4.9
Qualified nuclear decommissioning trust fund income	3.7		6.1		—		—		—
Tax exempt income	(0.2	)	(0.3	)	—		—		—
Domestic production activities deduction	—		—		—		—		—
Health care reform legislation	0.1		—		0.7		—		0.2
Amortization of investment tax credit, net deferred taxes	(1.9	)	(3.0	)	(0.6	)	(0.1	)	—
Plant basis differences	(1.6	)	—		(0.8	)	(7.1	)	(0.2	)
Production tax credits and other credits	(2.1	)	(3.4	)	(0.1	)	—		—
Statute of limitations expiration	(0.1	)	(0.2	)	—		—		—
Other	(0.1	)	0.7		0.3		(0.3	)	(0.9	)
Effective income tax rate	37.6	%	36.7	%	37.9	%	29.1	%	39.0	%
For the Year Ended December 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	(3.5	)	4.9		4.6		2.0		24.3
Qualified nuclear decommissioning trust fund income	5.4		9.1		—		—		—
Tax exempt income	(0.2	)	(0.4	)	—		—		—
Domestic production activities deduction	—		—		—		—		—
Health care reform legislation	0.1		—		0.4		—		11.6
Amortization of investment tax credit	(1.1	)	(1.3	)	(0.4	)	(0.3	)	(8.6	)
Plant basis differences	(2.4	)	—		(0.3	)	(11.5	)	(9.0	)
Production tax credits and other credits	(2.2	)	(3.7	)	—		—		—
Fines and Penalties	2.6		4.4		—		—		—
Merger expenses (c)	2.4		—		—		—		24.2
Statute of limitations expiration	(0.1	)	(0.3	)	—		—		—
Other	(1.1	)	(0.4	)	(0.6	)	(0.2	)	(13.9	)
Effective income tax rate	34.9	%	47.3	%	38.7	%	25.0	%	63.6	%

_____________________


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


(b)	BGE activity represents the activity for the twelve months ended December 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.

The tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred tax assets (liabilities), as of December 31, 2014 and 2013 are presented below:



For the Year Ended December 31, 2014	Exelon			Generation			ComEd			PECO			BGE
Plant basis differences	$	(12,143	)	$	(3,834	)	$	(3,945	)	$	(2,749	)	$	(1,661	)
Accrual based contracts	(178		)	(178		)	—			—			—
Derivatives and other financial instruments	(46		)	(79		)	(4		)	—			—
Deferred pension and postretirement obligation	1,914			(390		)	(543		)	2			(53		)
Nuclear decommissioning activities	(726		)	(726		)	—			—			—
Deferred debt refinancing costs	112			57			(18		)	(2		)	(4		)
Regulatory assets and liabilities	(1,824		)	—			(286		)	27			(258		)
Tax loss carryforward	111			48			—			11			39
Tax credit carryforward	97			143			—			—			—
Investment in CENG	(563		)	(563		)	—			—			—
Other, net	1,029			346			255			111			30
Deferred income tax liabilities (net)	$	(12,217	)	$	(5,176	)	$	(4,541	)	$	(2,600	)	$	(1,907	)
Unamortized investment tax credits	(555		)	(528		)	(20		)	(2		)	(5		)
Total deferred income tax liabilities (net) and unamortized investment tax credits	$	(12,772	)	$	(5,704	)	$	(4,561	)	$	(2,602	)	$	(1,912	)
For the Year Ended December 31, 2013	Exelon			Generation			ComEd			PECO			BGE
Plant basis differences	$	(11,612	)	$	(3,879	)	$	(3,523	)	$	(2,573	)	$	(1,538	)
Accrual based contracts	(214		)	(214		)	—			—			—
Derivatives and other financial instruments	(509		)	(505		)	(4		)	—			—
Deferred pension and postretirement obligation	1,489			(362		)	(522		)	—			(74		)
Nuclear decommissioning activities	(647		)	(646		)	—			—			—
Deferred debt refinancing costs	173			79			(21		)	(3		)	(5		)
Regulatory assets and liabilities	(1,611		)	—			(241		)	42			(253		)
Tax loss carryforward	252			76			47			11			52
Tax credit carryforward	534			534			—			—			—
Investment in CENG	(541		)	(541		)	—			—			—
Other, net	804			67			154			122			26
Deferred income tax liabilities (net)	$	(11,882	)	$	(5,391	)	$	(4,110	)	$	(2,401	)	$	(1,792	)
Unamortized investment tax credits	(490		)	(454		)	(22		)	(3		)	(6		)
Total deferred income tax liabilities (net) and unamortized investment tax credits	$	(12,372	)	$	(5,845	)	$	(4,132	)	$	(2,404	)	$	(1,798	)

The following table provides the Registrants’ carryforwards and any corresponding valuation allowances as of December 31, 2014.



	Exelon		Generation	ComEd	PECO	BGE
Federal
Federal general business credits carryforward	184	^(a)	184	—	—	—
State
State net operating losses and other credit carryforwards	3,141		1,693	—	170	730	^(e)
Deferred taxes on state tax attributes (net)	169		96	—	11	39
Valuation allowance on state tax attributes	50		48	—	—	1

_____________________


(a)	Exelon’s federal general business credit carryforwards will expire beginning in 2032.


(b)	Exelon’s state net operating losses and other carryforwards, which are presented on a post-apportioned basis, will expire beginning in 2015


(c)	Generation’s state net operating losses and other carryforwards, which are presented on a post-apportioned basis, will expire beginning in 2015.


(d)	PECO’s state net operating losses will expire beginning in 2031.


(e)	BGE’s state net operating losses will expire beginning in 2026.

Tabular reconciliation of unrecognized tax benefits

The following table provides a reconciliation of the Registrants’ unrecognized tax benefits as of December 31, 2014, 2013 and 2012:



	Exelon			Generation			ComEd			PECO		BGE
Unrecognized tax benefits at January 1, 2014	$	2,175		$	1,415		$	324		$	44	$	—
Increases based on tax positions related to 2014	15			15			—			—		—
Change to positions that only affect timing	(255		)	33			(175		)	—		—
Increases based on tax positions prior to 2014	18			18			—			—		—
Decreases based on tax positions prior to 2014	(1		)	(2		)	—			—		—
Decrease from settlements with taxing authorities	(35		)	(34		)	—			—		—
Decreases from expiration of statute of limitations	(88		)	(88		)	—			—		—
Unrecognized tax benefits at December 31, 2014	$	1,829		$	1,357		$	149		$	44	$	—
	Exelon			Generation			ComEd			PECO		BGE
Unrecognized tax benefits at January 1, 2013	$	1,024		$	876		$	67		$	44	$	—
Increases based on tax positions related to 2013	19			19			—			—		—
Change to positions that only affect timing	649			36			257			—		—
Increases based on tax positions prior to 2013	493			493			—			—		—
Decreases based on tax positions prior to 2013	(6		)	(5		)	—			—		—
Decreases from expiration of statute of limitations	(4		)	(4		)	—			—		—
Unrecognized tax benefits at December 31, 2013	$	2,175		$	1,415		$	324		$	44	$	—



	Exelon			Generation			ComEd			PECO			BGE
Unrecognized tax benefits at January 1, 2012	$	807		$	683		$	70		$	48		$	11
Merger balance transfer	195			183			—			—			—
Increases based on tax positions related to 2012	34			3			—			—			—
Change to positions that only affect timing	(88		)	(69		)	(3		)	(4		)	(11		)
Increases based on tax positions prior to 2012	91			91			—			—			—
Decreases based on tax positions prior to 2012	(6		)	(6		)	—			—			—
Decreases related to settlements with taxing authorities	(2		)	(2		)	—			—			—
Decreases from expiration of statute of limitations	(7		)	(7		)	—			—			—
Unrecognized tax benefits at December 31, 2012	$	1,024		$	876		$	67		$	44		$	—

Included in Exelon’s unrecognized tax benefits balance at December 31, 2014 and 2013 are approximately $1,129 million and $1,387 million, respectively, of tax positions for which the ultimate tax benefit is highly certain, but for which there is uncertainty about the timing of such benefits. The disallowance of such positions would not materially affect the annual effective tax rate but would accelerate the payment of cash to, or defer the receipt of the cash tax benefit from, the taxing authority to an earlier or later period respectively.

Unrecognized tax benefits that if recognized would affect the effective tax rate

Exelon and Generation have $701 million and $672 million, respectively, of unrecognized tax benefits at December 31, 2014 that, if recognized, would decrease the effective tax rate. Exelon and Generation had $788 million and $768 million, respectively, of unrecognized tax benefits at December 31, 2013 that, if recognized, would decrease the effective tax rate.

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

Nuclear Decommissioning Liabilities (Exelon and Generation)

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. In the first quarter of 2014, Exelon filed an appeal of the decision to the United States Court of Appeals for the Federal Circuit and oral arguments were heard in January of 2015.

Due to the possibility of final resolution through an appellate decision, Generation continues to believe that it is reasonably possible that the $661 million of total unrecognized tax benefits will significantly decrease in the next twelve months.

Settlement of Income Tax Audits and Litigation

As of December 31, 2014, Exelon and Generation have approximately $188 million of state unrecognized tax benefits that could significantly increase or decrease within the 12 months after the reporting date as a result of completing audits and expected statute of limitation expirations that if recognized would decrease the effective tax rate.

See Other Tax Matters—Like Kind Exchange section below for information regarding the amount of unrecognized tax benefits associated with this matter that could change significantly within the next 12 months.

Total amounts of interest and penalties recognized

The following table represents the net interest receivable (payable), including interest related to tax positions reflected in the Registrants’ Consolidated Balance Sheets.



Net interest receivable (payable) as of	Exelon			Generation			ComEd			PECO		BGE
December 31, 2014	$	(310	)	$	40		$	(203	)	$	3	$	(1	)
December 31, 2013	(349		)	(37		)	(174		)	3		—

The following table sets forth the net interest expense, including interest related to tax positions, recognized in interest expense (income) in other income and deductions in the Registrants’ Consolidated Statements of Operations and Comprehensive Income. The Registrants have not accrued any material penalties with respect to uncertain tax positions.



Net interest expense (income) for the years ended	Exelon			Generation			ComEd			PECO			BGE
December 31, 2014	$	(36	)	$	(50	)	$	6		$	—		$	1
December 31, 2013	391			17			281			(1		)	—
December 31, 2012	(1		)	11			(20		)	(1		)	9

Description of tax years that remain open to assessment by major jurisdiction



Taxpayer	Open Years
Exelon (and predecessors) and subsidiaries consolidated Federal income tax returns	1999, 2001-2013
Constellation and subsidiaries consolidated Federal income tax returns	2011-March 2012
Exelon and subsidiaries Illinois unitary income tax returns	2007-2013
Constellation combined New York corporate income tax returns	2008-2013
Various separate company Pennsylvania corporate net income tax returns	2010-2013
BGE Maryland corporate net income tax returns	2011-2013
Various Exelon Maryland corporate net income tax returns	2012-2013
Various Constellation (Non-BGE) Maryland corporate net income tax returns	2011-2013

Other Tax Matters

Like-Kind Exchange

Exelon, through its ComEd subsidiary, took a position on its 1999 income tax return to defer approximately $1.2 billion of tax gain on the sale of ComEd’s fossil generating assets. The gain was deferred by reinvesting a portion of 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 this position and asserted that the entire gain of approximately $1.2 billion was taxable in 1999.

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 $90 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 unpaid tax liabilities related to 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 non-cash equity contributions from Exelon in the amount of the net after-tax interest charges attributable to ComEd in connection with the like-kind exchange position. Exelon continues to believe that it is unlikely that the IRS’s assertion of penalties will ultimately be sustained and therefore no liability for the penalty has been recorded.

On September 30, 2013, the IRS issued a notice of deficiency to Exelon for the like-kind exchange position. Exelon filed a petition on December 13, 2013 to initiate litigation in the United States Tax Court. Exelon was 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.

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 as of December 31, 2014 may be as much as $810 million, of which approximately $310 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 will increase by a material amount.

In the first quarter of 2014, Exelon entered into an agreement to terminate its investment in one of the three municipal-owned electric generation properties in exchange for a net early termination amount of $335 million. The termination resulted in a 2014 tax payment of approximately $285 million by Exelon, including approximately $155 million by ComEd representing the remaining gain deferred pursuant to the like-kind exchange transaction. In the event of a fully successful IRS challenge to Exelon’s like-kind exchange position, Exelon will be required to pay the full amount of tax and after-tax interest discussed in the preceding paragraph but will ultimately be entitled to a refund of the 2014 tax payment. See Note 8 —Impairment of Long-Lived Assets for further details.

Accounting for Generation Repairs (Exelon and Generation)

On April 30, 2013, the IRS issued Revenue Procedure 2013-24 providing guidance for determining the appropriate tax treatment of costs incurred to repair electric generation assets. Generation will change its method of accounting for deducting repairs in accordance with this guidance beginning with its 2014 tax year. Generation has calculated that adoption of the new method will result in a cash tax detriment of approximately $120 million.

Accounting for Electric Transmission and Distribution Property Repairs (Exelon, Generation, ComEd, PECO and BGE)

On August 19, 2011, the IRS issued Revenue Procedure 2011-43 providing a safe harbor method of tax accounting for repair costs associated with electric transmission and distribution property. ComEd and PECO adopted the safe harbor in the Revenue Procedure for the 2011 and 2010 tax years, respectively. For the year ended December 31, 2011, the adoption of the safe harbor resulted in a $35 million reduction to income tax expense at PECO, while Generation incurred additional income tax expense in the amount of $28 million due to a decrease in its domestic production activities deduction, which was reflected in the effective income tax rate reconciliation in 2011 in the plant basis differences and domestic production activities deduction lines, respectively. For Exelon, the adoption had a minimal effect on consolidated earnings. In addition, the adoption of the safe harbor resulted in a cash tax benefit at Exelon, ComEd and PECO in the amount of approximately $300 million, $250 million, and $95 million, respectively, partially offset by a cash tax detriment at Generation in the amount of $28 million related to a decreased domestic production activities deduction.

BGE adopted the safe harbor for the short period 2012 pre-merger tax year. For the year ended December 31, 2012, the adoption of the safe harbor resulted in a cash tax benefit at BGE in the amount of $27 million.

See Note 3—Regulatory Matters for discussion of the regulatory treatment prescribed in the 2010 electric distribution rate case settlement for PECO’s cash tax benefit resulting from the application of the method change to years prior to 2010.

Accounting for Gas Distribution Property Repairs (Exelon, PECO and BGE).

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 2012 resulted in a tax benefit of $26 million at Exelon, of which $29 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. The IRS is expected to issue industry guidance in the near future. Exelon, PECO and BGE will determine the financial statement impacts of the gas distribution repair costs accounting method changes after guidance is issued.

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 have assessed 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.

Long-Term State Tax Apportionment (Exelon and Generation)

As a result of the merger with Constellation, Exelon and Generation re-evaluated their long-term state tax apportionment in the first quarter of 2012. 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. The long-term state tax apportionment also was updated in the fourth quarter of 2012, resulting in the recording of a deferred state tax benefit of $3 million (net of Federal taxes) for Exelon, and a deferred state tax expense of $7 million (net of Federal taxes) for Generation. There was no change to the long-term state tax apportionment for BGE, ComEd and PECO.

The long-term state tax apportionment was revised in the fourth quarter of 2014 pursuant to Exelon's long-term state tax apportionment policy, resulting in the recording of a deferred state tax benefit for Exelon and Generation of $28 million (net of Federal taxes) and $40 million (net of Federal taxes), respectively. The amounts recorded for 2013 in accordance with the policy were immaterial.

Allocation of Tax Benefits (Exelon, Generation, ComEd, PECO and BGE)

Generation, ComEd, PECO and BGE 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. During 2014, Generation and PECO recorded an allocation of Federal tax benefits from Exelon under the Tax Sharing Agreement of $55 million and $25 million, respectively. ComEd and BGE did not record an allocation of Federal tax benefits from Exelon under the Tax Sharing Agreement as a result of tax net operating losses.

During 2013, Generation and PECO recorded an allocation of Federal tax benefits from Exelon under the Tax Sharing Agreement of $26 million and $27 million, respectively. During 2013, ComEd and BGE did not record an allocation of Federal tax benefits from Exelon under the Tax Sharing Agreement as a result of ComEd’s and BGE’s tax net operating loss generated primarily by the bonus depreciation deduction allowed under the Tax Relief Act of 2010.

During 2012, Generation and PECO recorded an allocation of Federal tax benefits from Exelon under the Tax Sharing Agreement of $48 million and $9 million, respectively. During 2012, ComEd and BGE did not record an allocation of Federal tax benefits from Exelon under the Tax Sharing Agreement as a result of ComEd’s and BGE’s tax net operating loss generated primarily by the bonus depreciation deduction allowed under the Tax Relief Act of 2010.

ComEd received a non-cash contribution to equity from Exelon in 2012 of $11 million, related to tax benefits associated with capital projects constructed by ComEd on behalf of Exelon and Generation.