Income Taxes (All Registrants)

6 Months Ended

Jun. 30, 2019

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 June 30, 2019
	Exelon	Generation	ComEd	PECO	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%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	5.4	5.5	8.2	(1.2)	6.5	4.8	2.0	7.0	7.0
Qualified NDT fund income	5.1	16.2	—	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(0.7)	(1.9)	(0.2)	—	(0.1)	(0.2)	(0.1)	(0.2)	(0.3)
Plant basis differences	(1.7)	—	(0.6)	(5.9)	(1.5)	(1.7)	(2.1)	(0.3)	(2.2)
Production tax credits and other credits	(0.9)	(2.8)	—	—	(0.1)	—	—	—	—
Noncontrolling interests	0.1	0.4	—	—	—	—	—	—	—
Excess deferred tax amortization	(7.8)	—	(9.0)	(2.7)	(7.9)	(19.4)	(18.3)	(15.7)	(23.1)
Other	1.9	0.2	0.4	0.1	1.7	0.9	0.5	—	(2.4)
Effective income tax rate	22.4%	38.6%	19.8%	11.3%	19.6%	5.4%	3.0%	11.8%	—%



	Three Months Ended June 30, 2018
	Exelon	Generation	ComEd	PECO	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%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	3.4	4.3	8.1	(3.4)	6.5	6.2	4.7	6.5	7.6
Qualified NDT fund income	0.2	0.5	—	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(0.9)	(2.4)	(0.2)	(0.1)	(0.2)	(0.2)	(0.1)	(0.3)	(0.3)
Plant basis differences	(3.0)	—	(0.1)	(17.2)	(0.7)	(1.2)	(2.0)	—	(0.2)
Production tax credits and other credits	(1.7)	(4.9)	(0.1)	—	—	—	—	—	—
Noncontrolling interests	(1.5)	(4.5)	—	—	—	—	—	—	—
Excess deferred tax amortization	(5.2)	—	(7.6)	(0.3)	(7.2)	(11.3)	(11.7)	(11.2)	(8.8)
Tax Cuts and Jobs Act of 2017	(1.3)	(1.7)	(0.7)	—	0.1	0.8	—	—	—
Other	(0.2)	(1.3)	0.4	(1.1)	0.8	(0.1)	(0.4)	0.1	0.7
Effective income tax rate	10.8%	11.0%	20.8%	(1.1)%	20.3%	15.2%	11.5%	16.1%	20.0%




	Six Months Ended June 30, 2019
	Exelon	Generation	ComEd	PECO	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%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	4.4	3.6	8.2	0.2	6.4	4.7	2.0	6.7	6.9
Qualified NDT fund income	6.5	14.7	—	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(0.6)	(1.1)	(0.2)	—	(0.1)	(0.2)	(0.1)	(0.2)	(0.3)
Plant basis differences	(1.5)	—	(0.6)	(6.4)	(1.0)	(1.7)	(2.0)	(0.6)	(2.2)
Production tax credits and other credits	(0.8)	(1.8)	—	—	—	—	—	—	—
Noncontrolling interests	(0.3)	(0.8)	—	—	—	—	—	—	—
Excess deferred tax amortization	(5.8)	—	(8.8)	(2.6)	(7.9)	(19.4)	(18.1)	(15.6)	(23.4)
Other	0.7	(0.4)	0.2	(0.1)	0.2	0.3	0.5	0.4	2.0
Effective income tax rate	23.6%	35.2%	19.8%	12.1%	18.6%	4.7%	3.3%	11.7%	4.0%



	Six Months Ended June 30, 2018
	Exelon	Generation	ComEd	PECO	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%	21.0%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit	3.8	3.4	8.1	(3.6)	6.4	5.5	3.7	6.4	7.2
Qualified NDT fund income	(0.1)	(0.4)	—	—	—	—	—	—	—
Amortization of investment tax credit, including deferred taxes on basis difference	(1.1)	(3.3)	(0.2)	(0.1)	(0.1)	(0.2)	(0.1)	(0.3)	(0.3)
Plant basis differences	(2.8)	—	—	(15.6)	(0.7)	(1.8)	(2.5)	(0.7)	(1.3)
Production tax credits and other credits	(2.3)	(7.2)	(0.1)	—	—	—	—	—	—
Noncontrolling interests	(1.1)	(3.5)	—	—	—	—	—	—	—
Excess deferred tax amortization	(5.6)	—	(7.5)	(2.7)	(8.2)	(11.0)	(12.1)	(9.4)	(8.8)
Tax Cuts and Jobs Act of 2017	(0.6)	(0.9)	(0.3)	—	—	0.5	—	—	—
Other	(1.7)	(1.3)	0.1	(0.4)	0.2	(0.1)	(0.4)	0.4	(1.1)
Effective income tax rate	9.5%	7.8%	21.1%	(1.4)%	18.6%	13.9%	9.6%	17.4%	16.7%

Accounting for Uncertainty in Income Taxes

The Registrants have the following unrecognized tax benefits as of June 30, 2019 and December 31, 2018:



	Exelon		Generation		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
June 30, 2019	$	448	$	411	$	—	$	—	$	—	$	45	$	—	$	—	$	14
December 31, 2018	$	477	$	408	$	2	$	—	$	—	$	45	$	—	$	—	$	14

In 2016, the Tax Court held that Exelon was not entitled to defer a gain on its 1999 like-kind exchange transaction. In addition to the tax and interest related to the gain deferral, the Tax Court also ruled that Exelon was liable for penalties and interest on the penalties. Exelon had fully paid the amounts assessed resulting from the Tax Court decision in 2017. In September 2017, Exelon appealed the Tax Court decision to the U.S. Court of Appeals for the Seventh Circuit. In October 2018, the U.S. Court of Appeals for the Seventh Circuit affirmed the Tax Court’s decision. Exelon filed a petition seeking rehearing of the Seventh Circuit’s decision, but the Seventh Circuit denied that petition in December 2018.

In the first quarter of 2019, Exelon elected not to seek a further review by the U.S. Supreme Court. As a result, Exelon's and ComEd's unrecognized tax benefits decreased by approximately $33 million and $2 million, respectively, in the first quarter of 2019.

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

Settlement of Income Tax Audits, Refund Claims, and Litigation

As of June 30, 2019, Exelon, Generation, PHI and ACE have approximately $425 million, $411 million, $14 million and $14 million, respectively, of unrecognized federal and state tax benefits that could significantly decrease within the 12 months after the reporting date as a result of completing audits, potential settlements, and the outcomes of pending court cases. Of the above unrecognized tax benefits, Exelon and Generation have $411 million that, if recognized, would decrease the effective tax rate. The unrecognized tax benefits related to PHI and ACE, if

recognized, may be included in future regulated base rates and that portion would have no impact to the effective tax rate.

State Income Tax Law Changes

On June 5, 2019, the Governor of Illinois signed a tax bill which would increase the Illinois corporate income tax rate from 9.50% to 10.49% effective for tax years beginning on or after January 1, 2021. The tax rate is contingent upon ratification of state constitutional amendments in November 2020. The effect of the rate change will be recognized in the period in which the new legislation is enacted. Exelon, Generation and ComEd do not expect a material impact to their financial statements as a result of the rate change.