ATLANTIC CITY ELECTRIC CO

The following discussion of other key business drivers and management strategies includes current developments of previously disclosed matters and new issues arising during the period that may impact future financial statements. This section should be read in conjunction with ITEM 1. Business in the 2025 Form 10-K, ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Other Key Business Drivers and Management Strategies in the 2025 Form 10-K, and Note 12 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements in this report for additional information on various environmental matters.

Exelon’s Cost Saving Strategy (All Registrants)

In May 2026, Exelon announced plans to identify approximately $350 million of operating and maintenance costs savings at Exelon and the Utility Registrants in 2027. This announcement is a result of Exelon’s continuous focus on the needs of our customers through enhanced efficiency and productivity.

Allocation of Income Taxes to Regulated Utilities (All Registrants)

In Q2 2024, the IRS issued a series of PLRs, to another taxpayer, providing guidance with respect to the application of the tax normalization rules to the allocation of consolidated tax benefits among the members of a consolidated group associated with NOLC for ratemaking purposes. The rulings provide that for ratemaking purposes the tax benefit of NOLC should be reflected on a separate company basis not taking into consideration the utilization of losses by other affiliates. A PLR issued to another taxpayer may not be relied on as precedent.

For the Utility Registrants, except for PECO, the methodology prescribed by the IRS in these PLRs could result in a material reduction of the regulatory liability established for EDITs arising from the TCJA corporate tax rate change that are being amortized and flowed through to customers as well as a reduction in the accumulated deferred income taxes included in rate base for ratemaking purposes of approximately $0.8 billion - $1.2 billion.

The Utility Registrants, except for PECO, filed PLR requests with the IRS confirming the treatment of the NOLC for ratemaking purposes. The Utility Registrants will record the impact, if any, upon receiving the PLR from the IRS.

Legislative and Regulatory Developments

Maryland Utility Relief Act (Exelon, BGE, PHI, Pepco, and DPL)

On May 12, 2026, the Governor of Maryland signed into law legislation that addresses several matters pertaining to electric and gas utilities, including a moratorium on rate cases with forecasted test years until April 1, 2027. Additionally, BGE, Pepco and DPL are required to participate as a member in an RTO effective July 1, 2026, which resulted in a complaint filed on July 2, 2026 against Maryland Transmission Operators, including BGE, Pepco, and DPL, at FERC for the removal of the 50-basis-point incentive adder in the transmission formula rates. The final outcome and resolution of the complaint filing cannot be predicted and the results are not expected to be material to Exelon, BGE, PHI, Pepco, and DPL financial statements.

PJM Cost Allocation Methodology (All Registrants)

On October 7, 2026, FERC issued an order providing additional direction on its March 6, 2026 order. The March 6, 2026, order required PJM to eliminate the de minimis threshold exemption used to allocate certain transmission reliability upgrade costs to the rate zones of PJM Transmission Owners, including the Utility Registrants. FERC also directed PJM to recalculate historical cost allocations beginning June 18, 2015, and, as applicable, pass through additional charges or payments to PJM customers, including the Utility Registrants, as applicable, with interest. The October 6th order also directed that hearing and settlement proceedings be held to determine how PJM should reflect changes in market participants during the 15-year refund and surcharge period. An appeal of FERC's March 6th order remains pending before the United States Court of Appeals for the D.C. Circuit.

The final impact of these proceedings cannot be predicted or reasonably estimated at this time, but could be material to the financial statements.

New Jersey Repeal RTO Adder Bill (Exelon, PHI, and ACE)

On July 7, 2026, the Governor of New Jersey signed into law legislation that addresses several matters pertaining to electric utility companies. As part of the legislation ACE is required to participate as a member in an RTO effective January 1, 2027, which could result in a complaint filed for the removal of the 50-basis-point incentive adder in the transmission formula rates.

Delaware Senate Bill 326 (Exelon, PHI, and DPL)

On July 13, 2026, the Governor of Delaware signed into law legislation that addresses several matters pertaining to public utility companies. As part of the law, DPL’s non-mandatory capital spend eligible to be recovered in rates will be limited to $70 million in each of the years ended 2026 and 2027 unless the spend falls within an exception or the commission orders otherwise. Further, beginning in 2028, DPL’s non-mandatory capital spend eligible to be recovered in rates shall not exceed 5% of DPL’s rate base approved in its most recent base rate case. The legislation also modifies the timing of interim rate recovery in base rate case proceedings. If the DEPSC has not issued a decision within 7 months of a filing, DPL may implement 50% of the proposed rate increase, subject to refund. If no decision has been issued after 12 months, DPL may implement 75% of the proposed increase, also subject to refund. DPL is continuing to evaluate the overall potential impacts of the legislation and will continue to monitor related regulatory developments.