v3.26.1
Income Taxes
 3 Months Ended
Mar. 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Rate Reconciliation
The effective income tax rate varies from the U.S. federal statutory rate principally due to the following:
Three Months Ended March 31,
20262025
U.S. federal statutory income tax21.0 %$446 21.0 %$32 
Increase (decrease) due to:
State income taxes, net of federal income tax benefit(a)
3.4 73 (0.7)(1)
Foreign tax effects— — 0.7 1 
Tax credits
PTC(0.2)(4)(1.3)(2)
Amortization of ITC, including deferred taxes on basis differences(0.2)(5)(2.0)(3)
Other(0.2)(5)(2.0)(3)
Nontaxable or nondeductible items
Share-based payment awards(0.7)(14)(25.2)(38)
Excess officers compensation0.1 3 4.6 7 
Other0.8 17 0.9 1 
Other adjustments
Qualified NDT fund income and losses0.9 19 18.6 28 
Effective income tax(b)
24.9 %$530 14.6 %$22 
__________
(a)In 2026, state taxes in California, Massachusetts, and New York made up the majority (greater than 50%) of the tax effect in this category. In 2025, state taxes in Illinois, Maryland, Massachusetts, California, Pennsylvania, and New Jersey made up the majority (greater than 50%) of the tax effect in this category.
(b)Amounts may not recalculate due to rounding.
Other Tax Matters
Tax Matters Agreement
In connection with the separation, we entered into a TMA with Exelon. The TMA governs the respective rights, responsibilities, and obligations between us and Exelon after the separation with respect to tax liabilities and benefits, tax attributes, tax returns, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns.
Responsibility and Indemnification for Taxes. As a former subsidiary of Exelon, we have joint and several liability with Exelon to the IRS and certain state jurisdictions relating to the taxable periods in which we were included in joint federal and state filings. However, the TMA specifies the portion of this tax liability for which we will bear contractual responsibility, and we and Exelon agreed to indemnify each other against any amounts for which such indemnified party is not responsible. Specifically, we will be liable for taxes due and payable in connection with tax returns that we are required to file. We will also be liable for our share of certain taxes required to be paid by Exelon with respect to taxable years or periods (or portions thereof) ending on or prior to the separation to the extent that we would have been responsible for such taxes under the Exelon tax sharing agreement then existing. As of March 31, 2026 and December 31, 2025, respectively, our Consolidated Balance Sheets reflect $32 million and $43 million in Other deferred credits and other liabilities, for tax liabilities where we maintain contractual responsibility to Exelon.
Tax Refunds and Attributes. The TMA provides for the allocation of certain pre-closing tax attributes between us and Exelon. Tax attributes will be allocated in accordance with the principles set forth in the existing Exelon tax sharing agreement, unless otherwise required by law. Under the TMA, we will be entitled to refunds for taxes for which we are responsible. In addition, it is expected that Exelon will have tax attributes that may be used to offset Exelon’s future tax liabilities. A significant portion of such attributes were generated by our business. In February 2024, we executed an amendment to the TMA that modified the timing of Exelon's payment of amounts due to us. In March 2026, we adjusted our receivable under the TMA as a result of IRS Notice 2026-7, as discussed below. As of March 31, 2026 and December 31, 2025, respectively, we had $58 million and $175 million in Accounts receivable, net and $373 million and $21 million in Other deferred debits and other assets for the reclassified tax attributes expected to be utilized by Exelon after separation in accordance with the terms of the TMA.
IRS Notice 2026-7. In February 2026, the IRS issued Notice 2026‑7 (the “Notice”), which provides guidance on the implementation of the corporate alternative minimum tax (CAMT). The Notice permits taxpayers to deduct repair and maintenance costs under tax law principles in determining adjusted financial statement income and applies retroactively to previously filed tax returns. As a result of this Notice, Exelon amended its 2023 and 2024 tax returns to reflect less CAMT and thus lower utilization of previously refunded tax attributes.
We received a demand letter from Exelon in February 2026, and as a result, in March 2026 we remitted $235 million to Exelon under the TMA related to prior periods. We increased our receivable for the $235 million in the first quarter of 2026, as reflected above, as we expect Exelon to pay us as it utilizes these tax attributes in future periods.