-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CEGiiKMs7LhwcM6KGHApz6G1qJPwbftOaefZyyDf5CAcB39g2+wOcZer/WRP+7Ty H6Rk88Y/IzaH55BN/7MIiw== /in/edgar/work/0001004440-00-000055/0001004440-00-000055.txt : 20001115 0001004440-00-000055.hdr.sgml : 20001115 ACCESSION NUMBER: 0001004440-00-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSTELLATION ENERGY GROUP INC CENTRAL INDEX KEY: 0001004440 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 521964611 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25931 FILM NUMBER: 764137 BUSINESS ADDRESS: STREET 1: 250 W PRATT STREET CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4102345685 MAIL ADDRESS: STREET 1: 250 W PRATT STREET CITY: BALTIMORE STATE: MD ZIP: 21201 FORMER COMPANY: FORMER CONFORMED NAME: CONSTELLATION ENERGY CORP DATE OF NAME CHANGE: 19951220 FORMER COMPANY: FORMER CONFORMED NAME: RH ACQUISITION CORP DATE OF NAME CHANGE: 19951205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALTIMORE GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000009466 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 520280210 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01910 FILM NUMBER: 764138 BUSINESS ADDRESS: STREET 1: 250 W PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4102345000 10-Q 1 0001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended SEPTEMBER 30, 2000 Commission Exact name of registrant IRS Employer File Number as specified in its charter Identification No. - ----------- --------------------------- ----------------- 1-12869 CONSTELLATION ENERGY GROUP, INC. 52-1964611 1-1910 BALTIMORE GAS AND ELECTRIC COMPANY 52-0280210 MARYLAND ----------------------------------- (State of Incorporation) 250 W. PRATT STREET, BALTIMORE, MARYLAND 21201 --------------------- --------------------- ------- (Address of principal executive offices) (Zip Code) 410-234-5000 ------------ (Registrants' telephone number, including area code) NOT APPLICABLE ------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days. Yes X No ---- Common Stock, without par value 150,531,716 shares outstanding of Constellation Energy Group, Inc. on October 31, 2000.
TABLE OF CONTENTS Page Part I -- Financial Information Item 1 -- Financial Statements Constellation Energy Group, Inc. and Subsidiaries Consolidated Statements of Income...................................................... 3 Consolidated Statements of Comprehensive Income........................................ 3 Consolidated Balance Sheets............................................................ 4 Consolidated Statements of Cash Flows.................................................. 6 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Income...................................................... 7 Consolidated Statements of Comprehensive Income........................................ 7 Consolidated Balance Sheets............................................................ 8 Consolidated Statements of Cash Flows.................................................. 10 Notes to Consolidated Financial Statements............................................. 11 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction........................................................................... 18 Strategy............................................................................... 19 Current Issues......................................................................... 20 Results of Operations.................................................................. 24 Financial Condition.................................................................... 32 Capital Resources...................................................................... 33 Other Matters.......................................................................... 35 Item 3 -- Quantitative and Qualitative Disclosures About Market Risk............................. 35 Part II -- Other Information Item 1 -- Legal Proceedings...................................................................... 36 Item 5 -- Other Information...................................................................... 37 Item 6 -- Exhibits and Reports on Form 8-K....................................................... 38 Signature........................................................................................ 39
2 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 -------- -------- -------- -------- (In Millions, Except Per-Share Amounts) Revenues Nonregulated revenues $ 296.7 $ 258.9 $ 781.4 $ 782.2 Regulated electric revenues 598.2 691.2 1,688.0 1,737.2 Regulated gas revenues 86.7 60.1 372.8 332.7 -------- -------- -------- -------- Total revenues 981.6 1,010.2 2,842.2 2,852.1 Expenses Operating expenses 512.2 574.5 1,680.8 1,761.3 Depreciation and amortization 107.6 92.9 370.7 274.0 Taxes other than income taxes 46.4 65.1 158.8 177.2 -------- -------- -------- -------- Total expenses 666.2 732.5 2,210.3 2,212.5 -------- -------- -------- -------- Income From Operations 315.4 277.7 631.9 639.6 Other Income 0.9 1.2 7.0 5.7 -------- -------- -------- -------- Income Before Fixed Charges and Income Taxes 316.3 278.9 638.9 645.3 Fixed Charges Interest expense (net) 66.6 61.7 192.0 181.1 BGE preference stock dividends 3.3 3.4 9.9 10.2 -------- -------- -------- -------- Total fixed charges 69.9 65.1 201.9 191.3 -------- -------- -------- -------- Income Before Income Taxes 246.4 213.8 437.0 454.0 Income Taxes Current 108.3 76.7 215.1 152.6 Deferred (7.3) 3.2 (31.0) 20.9 Investment tax credit adjustments (2.1) (2.2) (6.3) (6.4) -------- -------- -------- -------- Total income taxes 98.9 77.7 177.8 167.1 -------- -------- -------- -------- Net Income $ 147.5 $ 136.1 $ 259.2 $ 286.9 ======== ======== ======== ======== Earnings Applicable to Common Stock $ 147.5 $ 136.1 $ 259.2 $ 286.9 ======== ======== ======== ======== Average Shares of Common Stock Outstanding 150.1 149.6 149.8 149.6 Earnings per Common Share and Earnings Per Common Share Assuming Dilution $0.98 $0.91 $1.73 $1.92 Dividends Declared Per Common Share $0.42 $0.42 $1.26 $1.26 Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 -------- -------- -------- -------- (In Millions) Net Income $ 147.5 $ 136.1 $ 259.2 $ 286.9 Other comprehensive income (loss), net of taxes 17.7 5.0 41.8 (6.5) -------- -------- -------- -------- Comprehensive Income $ 165.2 $ 141.1 $ 301.0 $ 280.4 ======== ======== ======== ========
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 3 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
September 30, December 31, 2000* 1999 ------------- ------------- (In Millions) Assets Current Assets Cash and cash equivalents $ 50.4 $ 92.7 Accounts receivable (net of allowance for uncollectibles of $25.5 and $36.6 respectively) 842.1 578.5 Trading securities 180.2 136.5 Assets from energy trading activities 1,573.7 312.1 Fuel stocks 101.9 94.9 Materials and supplies 155.6 149.1 Prepaid taxes other than income taxes 140.2 72.4 Other 36.4 54.0 ------------- ------------- Total current assets 3,080.5 1,490.2 Investments and Other Assets Real estate projects and investments 296.4 310.1 Investments in power projects 538.8 547.3 Financial investments 192.2 145.4 Nuclear decommissioning trust fund 235.0 217.9 Net pension asset 97.2 99.5 Investment in Orion Power Holdings, Inc. 232.1 105.7 Other 120.4 154.3 ------------- ------------- Total investments and other assets 1,712.1 1,580.2 Property, Plant and Equipment Regulated property, plant and equipment: Plant in service 4,746.0 8,620.1 Construction work in progress 68.8 222.3 Plant held for future use 9.7 13.0 ------------- ------------- Total regulated property, plant and equipment 4,824.5 8,855.4 Nonregulated generation property, plant and equipment 4,906.5 341.3 Other nonregulated property, plant and equipment 165.1 152.7 Nuclear fuel (net of amortization) 137.4 133.8 Accumulated depreciation (3,745.6) (3,559.1) ------------- ------------- Net property, plant and equipment 6,287.9 5,924.1 Deferred Charges Regulatory assets (net) 514.2 637.4 Other 61.3 51.9 ------------- ------------- Total deferred charges 575.5 689.3 ------------- ------------- Total Assets $ 11,656.0 $ 9,683.8 ============= =============
* Unaudited See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 4 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
September 30, December 31, 2000* 1999 ------------- ------------- (In Millions) Liabilities and Capitalization Current Liabilities Short-term borrowings $ 505.0 $ 371.5 Current portion of long-term debt 660.9 808.3 Accounts payable 693.7 365.1 Liabilities from energy trading activities 1,260.6 163.8 Dividends declared 66.2 66.1 Accrued taxes 90.8 19.2 Other 206.8 209.4 ------------- ------------- Total current liabilities 3,484.0 2,003.4 Deferred Credits and Other Liabilities Deferred income taxes 1,273.9 1,288.8 Postretirement and postemployment benefits 261.7 269.8 Deferred investment tax credits 103.4 109.6 Other 355.7 253.8 ------------- ------------- Total deferred credits and other liabilities 1,994.7 1,922.0 Long-term Debt First refunding mortgage bonds of BGE 1,174.7 1,321.7 Other long-term debt of BGE 603.6 1,135.8 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely 7.16% debentures of BGE due June 30, 2038 250.0 250.0 Long-term debt of nonregulated businesses 1,477.2 686.8 Unamortized discount and premium (9.3) (10.6) Current portion of long-term debt (660.9) (808.3) ------------- ------------- Total long-term debt 2,835.3 2,575.4 BGE Preference Stock Not Subject to Mandatory Redemption 190.0 190.0 Common Shareholders' Equity Common stock 1,540.9 1,494.0 Retained earnings 1,569.4 1,499.1 Accumulated other comprehensive income (loss) 41.7 (0.1) ------------- ------------- Total common shareholders' equity 3,152.0 2,993.0 ------------- ------------- Total capitalization 6,177.3 5,758.4 ------------- ------------- Total Liabilities and Capitalization $ 11,656.0 $ 9,683.8 ============= =============
* Unaudited See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 5 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 1999 ----------- ----------- (In Millions) Cash Flows From Operating Activities Net income $ 259.2 $ 286.9 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 411.1 316.2 Deferred income taxes (31.0) 20.9 Investment tax credit adjustments (6.3) (6.4) Deferred fuel costs 11.0 (51.2) Accrued pension and postemployment benefits 18.1 35.5 Gain on sale of subsidiaries (13.3) - Write-down of real estate investment - 5.2 Write-down of financial investment - 33.8 Write-off of power project - 10.2 Equity in earnings of affiliates and joint ventures (net) (6.3) 22.4 Changes in assets from energy trading activities (1,261.6) (74.1) Changes in liabilities from energy trading activities 1,096.8 (12.3) Changes in other current assets (243.3) (355.5) Changes in other current liabilities 270.1 234.8 Other 84.3 17.1 ----------- ----------- Net cash provided by operating activities 588.8 483.5 ----------- ----------- Cash Flows From Investing Activities Purchases of property, plant and equipment and other capital expenditures (626.9) (351.9) Contributions to nuclear decommissioning trust fund (13.5) (13.2) Purchases of marketable equity securities (36.3) (17.2) Sales of marketable equity securities 39.6 12.5 Other financial investments 10.4 15.1 Real estate projects and investments 9.3 46.2 Power projects investments (14.9) (11.0) Investment in Orion Power Holdings, Inc. (101.5) (97.7) Other 5.4 (24.6) ----------- ----------- Net cash used in investing activities (728.4) (441.8) ----------- ----------- Cash Flows From Financing Activities Proceeds from issuance of Short-term borrowings 7,883.8 2,412.2 Long-term debt 803.0 289.7 Common stock 35.9 9.5 Repayments of short-term borrowings (7,750.3) (2,269.1) Reacquisitions of long-term debt (691.8) (399.6) Redemption of preference stock - (7.0) Common stock dividends paid (188.5) (188.3) Other 5.2 (6.4) ----------- ----------- Net cash provided by (used in) financing activities 97.3 (159.0) ----------- ----------- Net Decrease in Cash and Cash Equivalents (42.3) (117.3) Cash and Cash Equivalents at Beginning of Period 92.7 173.7 ----------- ----------- Cash and Cash Equivalents at End of Period $ 50.4 $ 56.4 =========== =========== Other Cash Flow Information: Interest paid (net of amounts capitalized) $ 205.0 $ 174.9 Income taxes paid $ 136.1 $ 102.2
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 6 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 --------- ---------- ---------- ---------- (In Millions) Revenues Electric Revenues $ 598.4 $ 691.4 $ 1,688.4 $ 1,737.5 Gas Revenues 90.1 62.9 377.8 337.3 Nonregulated Revenues 1.5 1.7 3.9 346.7 --------- ---------- ---------- ---------- Total revenues 690.0 756.0 2,070.1 2,421.5 Operating Expenses Electric fuel and purchased energy 388.3 130.0 632.4 375.3 Gas purchased for resale 48.2 21.3 192.0 156.4 Operations and maintenance 88.0 167.1 457.5 539.2 Nonregulated - selling, general, and administrative 1.0 1.1 2.8 285.3 Depreciation and amortization 63.8 89.0 313.6 267.5 Taxes other than income taxes 35.7 64.2 146.2 175.6 --------- ---------- ---------- ---------- Total operating expenses 625.0 472.7 1,744.5 1,799.3 --------- ---------- ---------- ---------- Income From Operations 65.0 283.3 325.6 622.2 Other Income Allowance for equity funds used during construction 0.6 1.5 2.1 5.2 Equity in earnings of Safe Harbor Water Power Corporation - 1.2 2.4 3.8 Net other income (expense) 3.7 (0.5) 5.4 (3.6) --------- ---------- ---------- ---------- Total other income 4.3 2.2 9.9 5.4 --------- ---------- ---------- ---------- Income Before Fixed Charges and Income Taxes 69.3 285.5 335.5 627.6 Fixed Charges Interest expense (net) 45.3 48.1 142.2 162.3 Capitalized interest - - - (0.4) Allowance for borrowed funds used during construction (0.3) (0.8) (2.9) (2.8) --------- ---------- ---------- ---------- Total fixed charges 45.0 47.3 139.3 159.1 --------- ---------- ---------- ---------- Income Before Income Taxes 24.3 238.2 196.2 468.5 Income Taxes Current 17.9 80.5 119.8 169.1 Deferred (6.3) 4.9 (38.8) 3.5 Investment tax credit adjustments (0.6) (2.1) (4.7) (6.4) --------- ---------- ---------- ---------- Total income taxes 11.0 83.3 76.3 166.2 --------- ---------- ---------- ---------- Net Income 13.3 154.9 119.9 302.3 Preference Stock Dividends 3.3 3.4 9.9 10.2 --------- ---------- ---------- ---------- Earnings Applicable to Common Stock $ 10.0 $ 151.5 $ 110.0 $ 292.1 ========= ========== ========== ========== Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 --------- ---------- ---------- ---------- (In Millions) Net Income $ 13.3 $ 154.9 $ 119.9 $ 302.3 Other comprehensive loss, net of taxes - - - (3.4) --------- ---------- ---------- ---------- Comprehensive Income $ 13.3 $ 154.9 $ 119.9 $ 298.9 ========= ========== ========== ==========
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 7 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
September 30, December 31, 2000* 1999 -------------- --------------- (In Millions) Assets Current Assets Cash and cash equivalents $ 16.9 $ 23.5 Accounts receivable (net of allowance for uncollectibles of $13.9 and $13.0 respectively) 389.2 316.1 Notes receivable, affilated company 87.0 - Fuel stocks 56.9 94.9 Materials and supplies 38.8 139.1 Prepaid taxes other than income taxes 108.5 72.4 Other 8.0 9.0 -------------- --------------- Total current assets 705.3 655.0 Investments and Other Assets Nuclear decommissioning trust fund - 217.9 Net pension asset 103.8 99.8 Safe Harbor Water Power Corporation - 34.5 Other 63.0 61.6 -------------- --------------- Total investments and other assets 166.8 413.8 Utility Plant Plant in service Electric 3,234.3 7,088.6 Gas 983.1 962.0 Common 528.6 569.5 -------------- --------------- Total plant in service 4,746.0 8,620.1 Accumulated depreciation (1,674.9) (3,466.1) -------------- --------------- Net plant in service 3,071.1 5,154.0 Construction work in progress 68.8 222.3 Nuclear fuel (net of amortization) - 133.8 Plant held for future use 9.7 13.0 -------------- --------------- Net utility plant 3,149.6 5,523.1 Deferred Charges Regulatory assets (net) 514.2 637.4 Other 39.1 43.3 -------------- --------------- Total deferred charges 553.3 680.7 -------------- --------------- Total Assets $ 4,575.0 $ 7,272.6 ============== ===============
* Unaudited See Notes to Consolidated Financial Statements. 8 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
September 30, December 31, 2000* 1999 -------------- --------------- (In Millions) Liabilities and Capitalization Current Liabilities Short-term borrowings $ 258.0 $ 129.0 Current portion of long-term debt 309.7 523.9 Accounts payable 336.7 222.8 Customer deposits 43.7 40.6 Dividends declared 3.3 3.3 Accrued taxes 11.4 9.2 Accrued interest 36.4 48.2 Accrued vacation costs 22.7 35.7 Other 20.1 65.8 -------------- --------------- Total current liabilities 1,042.0 1,078.5 Deferred Credits and Other Liabilities Deferred income taxes 507.0 1,032.0 Postretirement and postemployment benefits 250.6 231.0 Deferred investment tax credits 25.6 109.6 Decommissioning of federal uranium enrichment facilities 27.2 27.2 Other 24.7 42.9 -------------- --------------- Total deferred credits and other liabilities 835.1 1,442.7 Long-term Debt First refunding mortgage bonds of BGE 1,174.7 1,321.7 Other long-term debt of BGE 603.6 1,135.8 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely 7.16% debentures of BGE due June 30, 2038 250.0 250.0 Long-term debt of nonregulated businesses 33.0 33.0 Unamortized discount and premium (7.1) (10.6) Current portion of long-term debt (309.7) (523.9) -------------- --------------- Total long-term debt 1,744.5 2,206.0 Preference Stock Not Subject to Mandatory Redemption 190.0 190.0 Common Shareholder's Equity Common stock 454.2 1,494.0 Retained earnings 309.2 861.4 -------------- --------------- Total common shareholder's equity 763.4 2,355.4 -------------- --------------- Total capitalization 2,697.9 4,751.4 -------------- --------------- Total Liabilities and Capitalization $ 4,575.0 $ 7,272.6 ============== ===============
* Unaudited See Notes to Consolidated Financial Statements. 9 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 1999 ------------ ----------- (In Millions) Cash Flows From Operating Activities Net income $ 119.9 $ 302.3 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 338.2 307.6 Deferred income taxes (38.8) 3.6 Investment tax credit adjustments (4.7) (6.4) Deferred fuel costs 11.0 (51.2) Accrued pension and postemployment benefits 14.9 35.0 Allowance for equity funds used during construction (2.1) (5.2) Equity in earnings of affiliates and joint ventures (net) 1.2 29.0 Changes in assets from energy trading activities - (120.1) Changes in liabilities from energy trading activities - 76.3 Changes in other current assets (127.0) (73.2) Changes in other current liabilities 158.1 41.9 Other 5.2 32.5 ------------ ----------- Net cash provided by operating activities 475.9 572.1 ------------ ----------- Cash Flows From Investing Activities Utility construction expenditures (including AFC) (241.0) (246.1) Allowance for equity funds used during construction 2.1 5.2 Nuclear fuel expenditures (39.5) (45.0) Deferred energy conservation expenditures (0.5) (0.9) Contributions to nuclear decommissioning trust fund (8.8) (13.2) Purchases of marketable equity securities - (9.2) Sales of marketable equity securities - 6.0 Other financial investments - 6.7 Real estate projects and investments - 22.0 Power projects investments - (17.9) Other (5.5) (16.7) ------------ ----------- Net cash used in investing activities (293.2) (309.1) ------------ ----------- Cash Flows From Financing Activities Proceeds from issuance of Short-term borrowings 3,655.0 1,608.3 Long-term debt - 257.2 Common stock - 9.5 Repayments of short-term borrowings (3,526.0) (1,585.8) Reacquisition of long-term debt (121.7) (375.3) Redemption of preference stock - (7.0) Preference stock dividends paid (9.9) (10.3) Distributions to Constellation Energy (188.5) (316.5) Other 1.8 (1.3) ------------ ----------- Net cash used in financing activities (189.3) (421.2) ------------ ----------- Net Decrease in Cash and Cash Equivalents (6.6) (158.2) Cash and Cash Equivalents at Beginning of Period 23.5 173.7 ------------ ----------- Cash and Cash Equivalents at End of Period $ 16.9 $ 15.5 ============ =========== Other Cash Flow Information: Interest paid (net of amounts capitalized) $ 147.0 $ 155.0 Income taxes paid $ 111.5 $ 99.4
Non-Cash Transactions - --------------------- On July 1, 2000, BGE transferred $1,578.4 million of generation assets net of associated liabilities to affiliates of Constellation Energy pursuant to the Maryland PSC's Restructuring Order. See Notes to Consolidated Financial Statements. 10 Notes to Consolidated Financial Statements - ------------------------------------------ Weather conditions can have a great impact on our results for interim periods. This means that results for interim periods do not necessarily represent results to be expected for the year. Our interim financial statements on the previous pages reflect all adjustments that Management believes are necessary for the fair presentation of the financial position and results of operations for the interim periods presented. These adjustments are of a normal recurring nature. Holding Company Formation - ------------------------- On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation Energy) became the holding company for Baltimore Gas and Electric Company (BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was previously owned by BGE. BGE's outstanding common stock automatically became shares of common stock of Constellation Energy. BGE's debt securities, obligated mandatorily redeemable trust preferred securities, and preference stock remain securities of BGE. Basis of Presentation - --------------------- This Quarterly Report on Form 10-Q is a combined report of Constellation Energy and BGE. The consolidated financial statements of Constellation Energy include the accounts of Constellation Energy, BGE and its subsidiaries, Constellation Enterprises, Inc. and its subsidiaries, and Constellation Nuclear, LLC and its subsidiaries. The consolidated financial statements of BGE include the accounts of BGE, District Chilled Water General Partnership (ComfortLink), and BGE Capital Trust I. As Constellation Enterprises and its subsidiaries were subsidiaries of BGE prior to April 30, 1999, they are included in the consolidated financial statements of BGE through that date. References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. Reference in this report to the "utility business" is to BGE. Deregulation of Electric Generation - ----------------------------------- On April 8, 1999, Maryland enacted legislation authorizing customer choice and competition among electric suppliers. In addition, on November 10, 1999, the Maryland Public Service Commission (Maryland PSC) issued a Restructuring Order that resolved the major issues surrounding electric restructuring. Effective July 1, 2000, the state of Maryland implemented customer choice for electric suppliers. We discuss the implications of customer choice and the Restructuring Order further in Management's Discussion and Analysis beginning on page 18. Please also refer to the Legal Proceedings section on page 36 for a discussion regarding appeals of the Restructuring Order. Subsequent Event - ---------------- On October 23, 2000, we announced three initiatives to advance our growth strategies. The first initiative is that we entered into an agreement (the "Agreement") with an affiliate of The Goldman Sachs Group, Inc. ("Goldman Sachs"). Under the terms of the Agreement, Goldman Sachs will acquire up to a 17.5% equity interest in our domestic merchant energy business, which will be consolidated under a single holding company ("Holdco"). Goldman Sachs will also acquire a ten-year warrant for up to 13% of Holdco's common stock (subject to certain adjustments). The warrant is exercisable six months after Holdco's common stock becomes publicly available. The amount of common stock which Goldman Sachs may receive upon exercise will be equal to the excess of the market price of Holdco's common stock at the time of exercise over the exercise price of $60 per share for all the stock subject to the warrant, divided by the market price. Holdco may at its option pay Goldman Sachs such excess in cash. Goldman Sachs is acquiring its interest and the warrant in exchange for $250 million in cash (subject to adjustment in certain instances) and certain assets related to our power marketing business. At closing, Goldman Sachs' existing services agreement with our power marketing business will terminate. The second initiative is a plan to separate our domestic merchant energy business from our retail services business. The separation will create two stand-alone, publicly traded energy companies. One will be a merchant energy business engaged in wholesale power marketing and generation under the name "Constellation Energy Group" after the separation. The other will be a regional retail energy and energy services company, BGE Corp., that will include BGE and other subsidiaries. The third initiative is a change in our common stock dividend policy effective April 2001. We will maintain our current common stock dividend through January 2001. In a move closely aligned with our separation plan, effective April 2001, our annual dividend is expected to be set at $.48 per share. After the business separation, BGE Corp. expects to pay initial annual dividends of $.48 per share. Constellation Energy Group, as a growing merchant energy company, expects to initially reinvest its earnings and not pay a dividend in order to fund its aggressive growth plans. 11 The closing of the transaction with Goldman Sachs and the separation are subject to customary closing conditions, including regulatory approvals and the receipt of a Private Letter Ruling from the Internal Revenue Service regarding certain tax matters. Both are expected to be completed by mid to late 2001. We discuss these strategic initiatives further in our Report on Form 8-K and exhibits filed October 23, 2000. Information by Operating Segment - -------------------------------- In 1999, we reported three operating business segments -- Electric, Gas, and Energy Services. In response to the deregulation of electric generation, we realigned our organization and combined our wholesale power marketing business with our domestic plant development and operations to form a domestic merchant energy business. In the first quarter of 2000, we revised our operating segments to reflect the realignments of our organization. Our new reportable operating segments are -- Domestic Merchant Energy, Regulated Electric, and Regulated Gas: o Our nonregulated domestic merchant energy business: - provides power marketing and risk management services, - develops, owns, and operates domestic power projects, and - provides nuclear consulting services. o Our regulated electric business purchases and distributes electricity, and o Our regulated gas business purchases, transports, and sells natural gas. We have restated certain prior period information for comparative purposes based on our new reportable operating segments. Effective July 1, 2000, the financial results of the electric generation portion of our business are included in the domestic merchant energy business segment. Prior to that date, the financial results of electric generation are included in our regulated electric business. Our remaining nonregulated businesses: o develop, own, and operate international power projects in Latin America, o provide energy products and services, o sell and service electric and gas appliances, and heating and air conditioning systems, engage in home improvements, and sell electricity and natural gas through mass marketing efforts, o provide cooling services, o engage in financial investments, and o develop, own and manage real estate and senior-living facilities.
Domestic Unallocated Merchant Regulated Regulated Other Corporate Energy Electric Gas Nonregulated Items and Business Business Business Businesses Eliminations Consolidated -------------- ------------ ---------------- ------------- --------------- ------------ For the three months ended September 30, (in millions) 2000 - ---- Unaffiliated revenues $ 127.9 $ 598.2 $ 86.7 $ 168.8 $ - $ 981.6 Intersegment revenues 367.7 0.1 3.4 19.0 (390.2) - ------------ ---------------- --------------- ------------- ------------ -------------- Total revenues 495.6 598.3 90.1 187.8 (390.2) 981.6 Net income (loss) 130.9 15.4 (4.6) 5.8 - 147.5 1999 - ---- Unaffiliated revenues $ 66.3 $ 691.2 $ 60.1 $ 192.6 $ - $ 1,010.2 Intersegment revenues - 0.2 2.8 14.5 (17.5) - ------------- ---------------- --------------- ------------- ------------- ------------ Total revenues 66.3 691.4 62.9 207.1 (17.5) 1,010.2 Net income (loss) (a) 12.2 152.3 (0.7) (27.7) - 136.1
12
Domestic Unallocated Merchant Regulated Regulated Other Corporate Energy Electric Gas Nonregulated Items and Business Business Business Businesses Eliminations Consolidated -------------- ------------ ---------------- ------------- --------------- ------------ For the nine months ended September 30, (in millions) 2000 - ---- Unaffiliated revenues $ 261.3 $1,688.0 $ 372.8 $ 520.1 $ - $ 2,842.2 Intersegment revenues 367.6 0.4 5.0 37.3 (410.3) - ------------ -------------- ---------------- ------------- ------------- ------------ Total revenues 628.9 1,688.4 377.8 557.4 (410.3) 2,842.2 Net income (loss) (b) 150.2 93.2 18.1 (2.3) - 259.2 1999 - ---- Unaffiliated revenues $ 173.3 $ 1,737.2 $ 332.7 $ 608.9 $ - $ 2,852.1 Intersegment revenues 0.4 0.7 7.4 26.2 (34.7) - ------------ -------------- ------------ ------------ ------------- -------------- Total revenues 173.7 1,737.9 340.1 635.1 (34.7) 2,852.1 Net income (loss) (a) 43.6 253.4 21.5 (31.6) - 286.9 At September 30, 2000 - --------------------- Segment assets $6,098.8 $3,427.0 $1,104.8 $1,298.8 $ (273.4) $11,656.0 At December 31, 1999 - -------------------- Segment assets $1,206.1 $6,312.6 $915.3 $1,231.3 $18.5 $9,683.8
(a) Our electric business recorded expense of $4.9 million for the three months and nine months ended September 30, 1999 related to Hurricane Floyd. Our power projects business recorded $6.7 million for the three months and nine months ended September 30, 1999 for the write-off of a geothermal power plant. Our financial investments business recorded expense of $17.3 million for the three months and $20.9 million for the nine months ended September 30, 1999 for the write-down of its investment in Capital Re stock. Our real estate and senior-living facilities business recorded expense of $3.4 million for the three months and nine months ended September 30, 1999 for a write-down of certain senior-living facilities. (b) Our electric business recorded expense of $4.2 million for the nine months ended September 30, 2000 related to employees that elected to participate in a Targeted Voluntary Special Early Retirement Program. In addition, our domestic merchant energy business recorded a $15.0 million deregulation transition cost incurred by our power marketing business. We discuss these further in the Overview section of Management's Discussion and Analysis. Financing Activity - ------------------ Constellation Energy - -------------------- As discussed on page 11, effective April 30, 1999, BGE's outstanding common stock automatically became shares of common stock of Constellation Energy. During the period from January 1, 2000 through the date of this report, we issued a total of 975,300 shares of common stock, without par value, under our Continuous Offering Program for Stock. Net proceeds were about $35.9 million. Constellation Energy issued the following long-term notes during the period from January 1, 2000 through the date of this report: Date Net Principal Issued Proceeds --------- ------ -------- (In millions) 7 7/8% Notes due 2005 $300 4/00 $297.5 Floating Rate Notes due 2003 200 4/00 199.3 Extendible Notes due 2010 300 6/00 299.6 Floating Rate Reset Notes due 2002 200 10/00 199.6 In June 2000, Constellation Energy arranged two revolving credit agreements totaling $565.0 million to support our commercial paper program and for other working capital purposes. Of this amount, $376.5 million is for short-term financial needs and $188.5 million, which expires in three years, is for short and long-term financial needs, including letters of credit. As of the date of this report, letters of credit totaling $112.5 million were issued under this facility. Also, letters of credit totaling $12.0 million were issued under other credit facilities. Constellation Energy has issued guarantees in an amount up to $617.3 million related to credit facilities and contractual performance of certain of its nonregulated subsidiaries. However, the actual subsidiary liabilities related to these guarantees totaled $343.3 million at September 30, 2000. 13 In connection with the initiative to separate our domestic merchant energy business from our retail services business, Constellation Energy expects to redeem all of its currently outstanding $1.0 billion debt at or prior to the separation. The redemption will occur through a combination of open market purchases, tender offers, and redemption calls. BGE and Nonregulated Businesses - ------------------------------- In October 2000, BGE issued $200.0 million of Floating Rate Reset Notes due in 2001 with net proceeds of $199.8 million. In June 2000, BGE arranged a $25.0 million long-term revolving credit agreement to support its commercial paper program and for other working capital purposes. In conjunction with the July 1, 2000 transfer of generation assets, BGE is contingently liable for $278.0 million of the tax exempt debt assigned to nonregulated affiliates of Constellation Energy as discussed further in the Current Issues-Electric Competition section of Management's Discussion and Analysis on page 20. In the future, BGE may purchase some of its long-term debt or preference stock in the market. This will depend on market conditions and BGE's capital structure, including the mix of secured and unsecured debt. Please refer to the Funding for Capital Requirements section of Management's Discussion and Analysis on page 34 for additional information about the debt of BGE and our nonregulated businesses. Stock Option Program - -------------------- In May 2000, our Board of Directors approved the issuance of non-qualified stock options to officers and key employees as permitted under existing incentive plans. Under the plans, the options are granted at prices not less than the market value of the stock at the date of grant, generally become exercisable ratably over a three-year period beginning one year from the date of grant, and expire ten years from the date of grant. During the second quarter, we granted 2,313,000 stock options at an exercise price of $34.25. As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, we measure our stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under this standard, compensation expense is measured as the difference between the market value of our common stock and the exercise price of the options on the grant date. Accordingly, no compensation expense was recorded for the stock options granted in 2000. Commitments - ----------- Some of our nonregulated businesses have committed to contribute additional capital and to make additional loans to some affiliates, joint ventures, and partnerships in which they have an interest. At the date of this report, the total amount of investment requirements committed to by our nonregulated businesses was $218.0 million. Environmental Matters - --------------------- Clean Air - --------- The Clean Air Act of 1990 contains two titles designed to reduce emissions of sulfur dioxide and nitrogen oxide (NOx) from electric generating stations - Title IV and Title I. Title IV addresses emissions of sulfur dioxide. Compliance is required in two phases: o Phase I became effective January 1, 1995. We met the requirements of this phase by installing flue gas desulfurization systems, switching fuels, and retiring some units. o Phase II became effective January 1, 2000. We met the compliance requirements through a combination of switching fuels and allowance trading. We will meet the ongoing compliance requirements through a combination of switching fuels and allowance trading. Title I addresses emissions of NOx. The Maryland Department of the Environment (MDE) issued regulations, effective October 18, 1999, which required up to 65% NOx emissions reductions by May 1, 2000. We entered into a settlement agreement with the MDE since we could not meet this deadline. Under the terms of the settlement agreement, BGE will install emissions reduction equipment at two sites by May 2002. In the meantime, we are taking steps to control NOx emissions at our generating plants. The Environmental Protection Agency (EPA) issued a final rule in September 1998 that required up to 85% NOx emissions reduction by 22 states including Maryland and Pennsylvania. Maryland expects to meet the requirements of the rule by 2003. The emissions reduction equipment installations discussed above will allow us to meet these requirements. 14 We currently estimate that the controls needed at our generating plants to meet the MDE's 65% NOx emission reduction requirements will cost approximately $135 million. Through the date of this report, we have spent approximately $82.6 million to meet the 65% reduction requirements. We estimate the additional cost for the EPA's 85% reduction requirements to be approximately $35 million by the end of 2002. In July 1997, the EPA published new National Ambient Air Quality Standards for very fine particulates and revised standards for ozone attainment. In 1999, these new standards were successfully challenged in court. The EPA appealed the 1999 court rulings to the Supreme Court. In May 2000, the Supreme Court decided to hear the EPA's appeal. While these standards may require increased controls at our fossil generating plants in the future, implementation, if required, would be delayed for several years. We cannot estimate the cost of these increased controls at this time because the states, including Maryland and Pennsylvania, still need to determine what reductions in pollutants will be necessary to meet the EPA standards. On August 3, 2000, we received letters from the EPA requesting us to provide certain information under Section 114 of the federal Clean Air Act regarding some of our electric generating plants. This information is to determine compliance with the Clean Air Act and state implementation plan requirements, including potential application of federal New Source Performance Standards. In general, such standards can require the installation of additional air pollution control equipment upon the major modification of an existing plant. We believe our generating plants have been operated in accordance with the Clean Air Act and the rules implementing the Clean Air Act. However, we cannot estimate the impact of this inquiry on our generating plants, and our financial results, at this time. Waste Disposal - -------------- The EPA and several state agencies have notified us that we are considered a potentially responsible party with respect to the cleanup of certain environmentally contaminated sites owned and operated by others. We cannot estimate the cleanup costs for all of these sites. We can, however, estimate that our current 15.43% share of the reasonably possible cleanup costs at one of these sites, Metal Bank of America, a metal reclaimer in Philadelphia, could be as much as $4.9 million higher than amounts we have recorded as a liability on our Consolidated Balance Sheets. This estimate is based on a Record of Decision issued by the EPA. On July 12, 1999, the EPA notified us, along with nineteen other entities, that we may be a potentially responsible party at the 68th Street Dump/Industrial Enterprises Site, also known as the Robb Tyler Dump located in Baltimore, Maryland. The EPA indicated that it is proceeding with plans to conduct a remedial investigation and feasibility study. This site was proposed for listing as a federal Superfund site in January 1999, but the listing has not been finalized. Although our potential liability cannot be estimated, we do not expect such liability to be material based on our records showing that we did not send waste to the site. Also, we are coordinating investigation of several sites where gas was manufactured in the past. The investigation of these sites includes reviewing possible actions to remove coal tar. In late December 1996, we signed a consent order with the MDE that requires us to implement remedial action plans for contamination at and around the Spring Gardens site, located in Baltimore, Maryland. We submitted the required remedial action plans and they were approved by the MDE. Based on the remedial action plans, the costs we consider to be probable to remedy the contamination are estimated to total $47 million. We have recorded these costs as a liability on our Consolidated Balance Sheets and have deferred these costs, net of accumulated amortization and amounts we recovered from insurance companies, as a regulatory asset. Because of the results of studies at these sites, it is reasonably possible that these additional costs could exceed the amount we recognized by approximately $14 million. We discuss this further in Note 5 of our 1999 Annual Report on Form 10-K. Through the date of this report, we have spent approximately $35 million for remediation at this site. We do not expect the cleanup costs of the remaining sites to have a material effect on our financial results. Our potential environmental liabilities and pending environmental actions are described further in our 1999 Annual Report on Form 10-K in Item 1. Business - Environmental Matters. Nuclear Insurance - ----------------- If there were an accident or an extended outage at either unit of the Calvert Cliffs Nuclear Power Plant (Calvert Cliffs), it could have a substantial adverse financial effect on us. The primary contingencies that would result from an incident at Calvert Cliffs could include: o physical damage to the plant, o recoverability of replacement power costs, and o our liability to third parties for property damage and bodily injury. 15 We have insurance policies that cover these contingencies, but the policies have certain industry standard exclusions. Furthermore, the costs that could result from a covered major accident or a covered extended outage at either of the Calvert Cliffs units could exceed our insurance coverage limits. Insurance for Calvert Cliffs and Third Party Claims - --------------------------------------------------- For physical damage to Calvert Cliffs, we have $2.75 billion of property insurance from an industry mutual insurance company. If an outage at either of the two units at Calvert Cliffs is caused by an insured physical damage loss and lasts more than 12 weeks, we have insurance coverage for replacement power costs up to $490.0 million per unit, provided by an industry mutual insurance company. This amount can be reduced by up to $98.0 million per unit if an outage at both units of the plant is caused by a single insured physical damage loss. If accidents at any insured plants cause a shortfall of funds at the industry mutual insurance company, all policyholders could be assessed, with our share being up to $15.4 million. In addition we, as well as others, could be charged for a portion of any third party claims associated with a nuclear incident at any commercial nuclear power plant in the country. At the date of this report, the limit for third party claims from a nuclear incident is $9.54 billion under the provisions of the Price Anderson Act. If third party claims exceed $200 million (the amount of primary insurance), our share of the total liability for third party claims could be up to $176.2 million per incident. That amount would be payable at a rate of $20 million per year. Insurance for Worker Radiation Claims - ------------------------------------- As an operator of a commercial nuclear power plant in the United States, we are required to purchase insurance to cover radiation injury claims of certain nuclear workers. On January 1, 1998, a new insurance policy became effective for all operators requiring coverage for current operations. Waiving the right to make additional claims under the old policy was a condition for acceptance under the new policy. We describe both the old and new policies below. o Nuclear worker claims reported on or after January 1, 1998 are covered by a new insurance policy with an annual industry aggregate limit of $200 million for radiation injury claims against all those insured by this policy. o All nuclear worker claims reported prior to January 1, 1998 are still covered by the old insurance policies. Insureds under the old policies, with no current operations, are not required to purchase the new policy described above, and may still make claims against the old policies for the next eight years. If radiation injury claims under these old policies exceed the policy reserves, all policyholders could be assessed, with our share being up to $6.3 million. If claims under these polices exceed the coverage limits, the provisions of the Price Anderson Act (discussed in this section) would apply. Recoverability of Electric Fuel Costs - ------------------------------------- Under the terms of the Restructuring Order, BGE's electric fuel rate clause was discontinued effective July 1, 2000. In September 2000, the Maryland PSC approved the collection of the $54.6 million accumulated difference between our actual costs of fuel and energy and the amounts collected from customers that were deferred (included as an asset or liability on the Consolidated Balance Sheets and excluded from the Consolidated Statements of Income) under the electric fuel rate clause through June 30, 2000. We will collect this accumulated difference from customers over a twelve-month period beginning October 2000. California Power Purchase Agreements - ------------------------------------ Constellation Power, Inc. and subsidiaries and Constellation Investments, Inc. (whose power projects are managed by Constellation Power) have $297.6 million invested in 14 projects that sell electricity in California under power purchase agreements called "Interim Standard Offer No. 4" agreements. Under these agreements, the projects supply electricity to utility companies at: o a fixed rate for capacity and energy for the first 10 years of the agreements, and o a fixed rate for capacity plus a variable rate for energy based on the utilities' avoided cost for the remaining term of the agreements. Generally, a "capacity rate" is paid to a power plant for its availability to supply electricity, and an "energy rate" is paid for the electricity actually generated. "Avoided cost" generally is the cost of a utility's cheapest next-available source of generation to service the demands on its system. We use the term "transitioned" to describe when the 10-year periods for fixed energy rates have expired for these power generation projects and they began supplying electricity at variable rates. The two remaining projects that have not transitioned will do so by December 2000. 16 The projects that have already transitioned to variable rates have had lower revenues under variable rates than they did under fixed rates. Once the remaining projects have transitioned to variable rates, we expect the revenues from those projects also to be lower than they are under fixed rates. We discuss these projects on page 26 of Management's Discussion and Analysis. Other Nonregulated Businesses - ----------------------------- In September 2000, our real estate and senior-living facilities business converted 984,307 preferred shares of Corporate Office Properties Trust (COPT) into approximately 1.8 million common shares of COPT. We discuss the prior COPT transactions in Note 3 of our 1999 Annual Report on Form 10-K. We discuss our other nonregulated businesses' activities further in the Other Nonregulated Businesses section of Management's Discussion and Analysis on page 31. Related Party Transactions - BGE - -------------------------------- Income Statement - ---------------- Under the Restructuring Order, BGE is providing standard offer service to customers at fixed rates over various time periods during the transition period, July 1, 2000 to June 30, 2006, for those customers that do not choose an alternate supplier. Constellation Power Source is under contract to provide BGE with the energy and capacity required to meet its standard offer service obligations for the first three years of the transition period. The cost of BGE's purchased energy from nonregulated affiliates of Constellation Energy to meet its standard offer service obligation was $373.2 million for the quarter and nine months ended September 30, 2000. In addition, BGE receives charges from Constellation Energy for certain corporate functions. Certain costs are directly assigned to BGE. We allocate other corporate function costs based on a total percentage of expected use by BGE. Management believes this method of allocation is reasonable and approximates the cost BGE would have incurred as an unaffiliated entity. These costs were $9.6 million for the quarter and $16.9 million for the nine months ending September 30, 2000. These costs were not material in 1999 due to the transfer of certain BGE employees to the holding company during that year. Balance Sheet - ------------- As a result of the deregulation of electric generation, BGE transferred its generation assets to nonregulated affiliates of Constellation Energy effective July 1, 2000. In conjunction with this transfer, Constellation Power Source Generation, Inc. issued approximately $366 million in unsecured promissory notes to BGE. Repayments of the notes by Constellation Power Source Generation, Inc. will be used exclusively to service current maturities of certain BGE long-term debt. As of September 30, 2000, $87 million of these notes are still outstanding and will mature on March 14, 2001. Amounts related to the corporate functions performed at the Constellation Energy holding company and to BGE's purchases to meet its standard offer service obligation resulted in intercompany accounts payable to Constellation Energy and affiliates of $197.2 million at September 30, 2000. These amounts were not material in 1999. 17 Item 2. Management's Discussion Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction - ------------ On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation Energy) became the holding company for Baltimore Gas and Electric Company (BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was previously owned by BGE. Constellation Energy's subsidiaries primarily include a domestic merchant energy business focused mostly on power marketing and merchant generation in North America, and BGE. This Quarterly Report on Form 10-Q is a combined report of Constellation Energy and BGE. The consolidated financial statements of Constellation Energy include the accounts of Constellation Energy, BGE and its subsidiaries, Constellation Enterprises, Inc. and its subsidiaries, and Constellation Nuclear, LLC and its subsidiaries. The consolidated financial statements of BGE include the accounts of BGE, ComfortLink, and BGE Capital Trust I. As Constellation Enterprises and its subsidiaries were subsidiaries of BGE prior to April 30, 1999, they are included in the consolidated financial statements of BGE through that date. We realigned our organization in response to the deregulation of electric generation. In the first quarter of 2000, we combined our wholesale power marketing business with our domestic plant development and operations to form a domestic merchant energy business. At the same time, we revised our operating segments to reflect those realignments as presented in the Notes to Consolidated Financial Statements on page 12. Several additional changes occurred in conjunction with the implementation of the Restructuring Order as described below. We discuss the deregulation of electric generation and the Restructuring Order in the Current Issues -- Electric Competition section on page 20. o We formed two nonregulated subsidiaries -- Calvert Cliffs Nuclear Power Plant, Inc. and Constellation Power Source Generation, Inc. o Effective July 1, 2000, BGE transferred its generation assets and related liabilities to these two new entities at book value. o Effective July 1, 2000, we formed a nonregulated holding company, Constellation Power Source Holdings, Inc., that includes the wholesale power marketing and risk management activities of Constellation Power Source,(TM) Inc., the domestic power projects of Constellation Investments,(TM)Inc. and Constellation Power,(TM)Inc., and subsidiaries, and the generating assets of Constellation Power Source Generation. As a result of these changes, effective July 1, 2000, our domestic merchant energy business includes the operations of Constellation Power Source Holdings and the nuclear generation and consulting services of Constellation Nuclear, (TM) LLC. Also, effective July 1, 2000, the financial results of the electric generation portion of our business are included in the domestic merchant energy business. Prior to that date, the financial results of electric generation were included in BGE's regulated electric business. BGE remains a regulated electric and gas public utility company with a service territory in the City of Baltimore and all or part of ten counties in Central Maryland. Our other nonregulated businesses include the: o Latin American power projects of Constellation Power, and subsidiaries, o energy products and services of Constellation Energy Source,(TM)Inc., o home products, commercial building systems, and residential and commercial electric and gas retail marketing of BGE Home Products & Services,(TM)Inc. and subsidiaries, o general partnership, in which BGE is a partner, of District Chilled Water General Partnership (ComfortLink(R)) that provides cooling services for commercial customers in Baltimore, o financial investments of Constellation Investments, and o real estate and senior-living facilities of Constellation Real Estate Group,(TM) Inc. As discussed in the Subsequent Event section of the Notes to Consolidated Financial Statements on page 11, we announced initiatives to separate our domestic merchant energy business from our retail services business and an investment by an affiliate of Goldman Sachs in our domestic merchant energy business. 18 References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. Reference in this report to the "utility business" is to BGE. In this discussion and analysis, we explain the general financial condition and the results of operations for Constellation Energy and BGE including: o what factors affect our business, o what our earnings and costs were in the periods presented, o why earnings and costs changed between periods, o where our earnings came from, o how all of this affects our overall financial condition, o what we expect our expenditures for capital projects to be in the future, and o where we expect to get cash for future capital expenditures. As you read this discussion and analysis, refer to our Consolidated Statements of Income on page 3, which present the results of our operations for the quarters and nine months ended September 30, 2000 and 1999. We analyze and explain the differences between periods in the specific line items of the Consolidated Statements of Income. Our analysis is important in making decisions about your investments in Constellation Energy and/or BGE. Also, this discussion and analysis is based on the operation of the electric generation portion of our utility business under rate regulation through June 30, 2000. Our electric business is changing as we have transferred our electric generation assets and related liabilities to nonregulated subsidiaries of Constellation Energy and we have entered into retail customer choice for electric generation effective July 1, 2000. Accordingly, the results of operations and financial condition described in this discussion and analysis are not necessarily indicative of future performance. Strategy - -------- The change toward customer choice will significantly impact our business. In response to this change, we regularly evaluate our strategies with two goals in mind: to improve our competitive position, and to anticipate and adapt to regulatory change. Prior to July 1, 2000, the majority of our earnings were from BGE. Going forward, we expect to derive almost two-thirds of our earnings from our domestic merchant energy business. While BGE will continue to be regulated and deliver electricity and natural gas through its core distribution business, our growth strategies center on the nonregulated domestic merchant energy business with the objective of providing new sources of earnings. Currently, our domestic merchant energy business owns or controls 8,500 megawatts of generation. We have planned construction of 1,100 megawatts of peaking capacity in the Mid-Atlantic/Mid-West region by the summer of 2001 and an additional 4,300 megawatts of peaking and combined cycle production facilities in the Mid-West and South regions are scheduled for completion in 2002 and beyond. By 2005, our domestic merchant energy business expects to own or control approximately 30,000 megawatts. As discussed in the Subsequent Event section of the Notes to Consolidated Financial Statements on page 11, we announced several initiatives to advance our growth strategies. These initiatives consist of: o a plan to separate our domestic merchant energy business from our retail services business, o an agreement with an affiliate of Goldman Sachs under which it will invest in our domestic merchant energy business, and o a reduction in our common stock dividend effective April 2001. In addition, we decided to exit the Latin American portion of our business as a result of our concentration on domestic merchant energy. Currently, we are actively seeking a buyer for the Latin American portion of our business and expect to complete our exit strategy in 2001. We also might consider one or more of the following strategies: o the complete or partial separation of our transmission and distribution functions, o the construction or purchase of additional nuclear and non-nuclear generation assets, o mergers or acquisitions of utility or non-utility businesses, and o sale of generation assets or one or more businesses. 19 With the shift toward customer choice, competition, and the growth of our domestic merchant energy business, various factors will affect our financial results in the future. These factors include, but are not limited to, operating our generation assets in a deregulated market without the benefit of a fuel rate adjustment clause, the timing and implications of deregulation in other regions where our domestic merchant energy business will operate, the loss of revenues due to customers choosing alternative suppliers, higher volatility of earnings and cash flows, and increased financial requirements of our domestic merchant energy business. Please refer to the Forward-Looking Statements section on page 37 for additional factors. Current Issues -- Electric Competition - -------------------------------------- Electric utilities are facing competition on various fronts, including: o the construction of generating units to meet increased demand for electricity, o the sale of electricity in bulk power markets, o competing with alternative energy suppliers, and o electric sales to retail customers. On April 8, 1999, Maryland enacted the Electric Customer Choice and Competition Act of 1999 (the "Act") and accompanying tax legislation that has significantly restructured Maryland's electric utility industry and modified the industry's tax structure. In the Restructuring Order discussed below, the Maryland PSC addressed the major provisions of the Act. The accompanying tax legislation is discussed in detail in Note 4 of our 1999 Annual Report on Form 10-K. On November 10, 1999, the Maryland PSC issued a Restructuring Order that resolved the major issues surrounding electric restructuring, accelerated the timetable for customer choice, and addressed the major provisions of the Act. The Restructuring Order also resolved the electric restructuring proceeding (transition costs, customer price protections, and unbundled rates for electric services) and a petition filed in September 1998 by the Office of People's Counsel (OPC) to lower our electric base rates. The major provisions of the Restructuring Order are discussed below. o All customers, except a few commercial and industrial companies that have signed contracts with BGE, can choose their electric energy supplier beginning July 1, 2000. BGE will provide a standard offer service for customers that do not select an alternative supplier. In either case, BGE will continue to deliver electricity to all customers in areas traditionally served by BGE. o BGE's electric base rates were frozen through June 30, 2000. o BGE reduced residential base rates by approximately 6.5%, on average about $54 million a year, beginning July 1, 2000. These rates will not change before July 2006. o Commercial and industrial customers have up to four service options that will fix electric energy rates and transition charges for a period that generally ranges from four to six years. o BGE's electric fuel rate clause was discontinued effective July 1, 2000. o Electric delivery service rates are frozen for a four-year period for commercial and industrial customers. The generation and transmission components of rates are frozen for different time periods depending on the service options selected by those customers. o BGE will recover $528 million after-tax of its potentially stranded investments and utility restructuring costs through a competitive transition charge on customers' bills. Residential customers will pay this charge for six years. Commercial and industrial customers will pay in a lump sum or over the four to six-year period, depending on the service option selected by each customer. o Generation-related regulatory assets and nuclear decommissioning costs are included in delivery service rates effective July 1, 2000 and will be recovered on a basis approximating their amortization schedules prior to July 1, 2000. o Effective July 1, 2000, BGE unbundled rates to show separate components for delivery service, transition charges, standard offer services (generation), transmission, universal service, and taxes. o Effective July 1, 2000, BGE transferred, at book value, its ten Maryland-based fossil and nuclear power plants and its partial ownership interest in two coal plants and a hydroelectric plant in Pennsylvania to nonregulated subsidiaries of Constellation Energy. 20 o BGE reduced its generation assets, as discussed in Note 4 of our 1999 Annual Report on Form 10-K, by $150 million pre-tax during the period July 1, 1999 - June 30, 2000 to mitigate a portion of BGE's potentially stranded investments. o Universal service is being provided for low-income customers without increasing their bills. BGE will provide its share of a statewide fund totaling $34 million annually. We believe that the Restructuring Order provided sufficient details of the transition plan to competition for BGE's electric generation business to require BGE to discontinue the application of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation for that portion of its business. Accordingly, in the fourth quarter of 1999, we adopted the provisions of SFAS No. 101, Regulated Enterprises - Accounting for the Discontinuation of FASB Statement No. 71 and Emerging Issues Task Force Consensus (EITF) No. 97-4, Deregulation of the Pricing of Electricity - - Issues Related to the Application of FASB Statements No. 71 and 101 for BGE's electric generation business. BGE's transmission and distribution business continues to meet the requirements of SFAS No. 71 as that business remains regulated. We describe the effect of applying these accounting requirements in Note 4 of our 1999 Annual Report on Form 10-K. Please refer to the Legal Proceedings section on page 36 for a discussion regarding appeals of the Restructuring Order. As a result of the deregulation of electric generation, the following occurred effective July 1, 2000: o BGE transferred, at book value, its nuclear generating assets, its nuclear decommissioning trust fund, and related liabilities to Calvert Cliffs Nuclear Power Plant, Inc. In addition, BGE transferred, at book value, its fossil generating assets and related liabilities and its partial ownership interest in two coal plants and a hydroelectric plant located in Pennsylvania to Constellation Power Source Generation. In total, these generating assets represent about 6,240 megawatts of generation capacity with a total net book value at June 30, 2000 of approximately $2.4 billion. o BGE assigned approximately $47 million to Calvert Cliffs Nuclear Power Plant, Inc. and $231 million to Constellation Power Source Generation of tax-exempt debt related to the transferred assets. Also, Constellation Power Source Generation issued approximately $366 million in unsecured promissory notes to BGE. Repayments of the notes by Constellation Power Source Generation will be used exclusively to service the current maturities of certain BGE long-term debt. o BGE transferred equity associated with the generating assets to Calvert Cliffs Nuclear Power Plant, Inc. and Constellation Power Source Generation, Inc. o The fossil fuel and nuclear fuel inventories, materials and supplies, and certain purchased power contracts of BGE were also assumed by these subsidiaries. Effective July 1, 2000, BGE provides standard offer service to customers at fixed rates over various time periods during the transition period for those customers that do not choose an alternate supplier. In addition, the electric fuel rate was discontinued effective July 1, 2000. Constellation Power Source provides BGE with the energy and capacity required to meet its standard offer service obligations for the first three years of the transition period. Thereafter, BGE will competitively bid the energy and capacity. Constellation Power Source obtains the energy and capacity to supply BGE's standard offer service obligations from affiliates that own Calvert Cliffs Nuclear Power Plant (Calvert Cliffs) and BGE's former fossil plants, supplemented with energy purchased from the wholesale energy market as necessary. Our domestic merchant energy business is affected by weather conditions in the different regions of North America. Typically, demand for electricity, and its price, is higher in the summer and the winter, when weather is more extreme. All regions of North America typically do not experience extreme weather conditions at the same time. To date, the majority of our generation is located in the PJM (Pennsylvania-New Jersey-Maryland) Interconnection. Accordingly, our financial results are affected by weather in this area. However, by 2005, we expect to own or control approximately 30,000 megawatts of generation throughout various regions of North America. 21 Current Issues -- Regulated Businesses - -------------------------------------- We also believe it is important to discuss factors that have a strong influence on the performance of our regulated electric and regulated gas businesses. In addition to electric restructuring which was discussed earlier, regulation by the Maryland PSC, the weather, and other factors, including the condition of the economy in our service territory influence BGE's businesses. Regulation by the Maryland PSC - ------------------------------ Under traditional rate regulation that continues after July 1, 2000 for BGE's electric transmission and distribution, and gas businesses, the Maryland PSC determines the rates we can charge our customers. Currently, BGE's rates consist primarily of a "base rate" and a "fuel rate." Base Rate - --------- The base rate is the rate the Maryland PSC allows BGE to charge its customers for the cost of providing them service, plus a profit. BGE has both an electric base rate and a gas base rate. Higher electric base rates apply during the summer when the demand for electricity is higher. Gas base rates are not affected by seasonal changes. BGE may ask the Maryland PSC to increase base rates from time to time. The Maryland PSC historically has allowed BGE to increase base rates to recover increased utility plant asset costs, plus a profit, beginning at the time of replacement. Generally, rate increases improve our utility earnings because they allow us to collect more revenue. However, rate increases are normally granted based on historical data and those increases may not always keep pace with increasing costs. Other parties may petition the Maryland PSC to decrease base rates. On November 17, 1999, BGE filed an application with the Maryland PSC to increase its gas base rates. On June 19, 2000, the Maryland PSC authorized a $6.4 million annual increase in our gas base rates effective June 22, 2000. As a result of the Restructuring Order, BGE's residential electric base rates are frozen until 2006. Electric delivery service rates are frozen for a four-year period for commercial and industrial customers. The generation and transmission components of rates are frozen for different time periods depending on the service options selected by those customers. Fuel Rate - --------- Through June 30, 2000, we charged our electric customers separately for the fuel we used to generate electricity (nuclear fuel, coal, gas, or oil) and for the net cost of purchases and sales of electricity. We charged the actual cost of these items to the customer with no profit to us. If these fuel costs went up, the Maryland PSC permitted us to increase the fuel rate. Under the Restructuring Order, BGE's electric fuel rate was frozen until July 1, 2000, at which time the fuel rate clause was discontinued. We deferred the difference between our actual costs of fuel and energy and what we collected from customers under the fuel rate through June 30, 2000. In September 2000, the Maryland PSC approved the collection of the $54.6 million accumulated difference between our actual costs of fuel and energy and the amounts collected from customers that were deferred under the electric fuel rate clause through June 30, 2000. We will collect this accumulated difference from customers over a twelve-month period beginning October 2000. Effective July 1, 2000, earnings are affected by the changes in the cost of fuel and energy. We charge our gas customers separately for the natural gas they purchase from us. The price we charge for the natural gas is based on a market based rates incentive mechanism approved by the Maryland PSC. We discuss market based rates in more detail in the Gas Cost Adjustments section on page 30 and in Note 1 of our 1999 Annual Report on Form 10-K. Weather - ------- Weather conditions can have a great impact on BGE's results for interim periods primarily due to the impact on sales volumes and commodity prices. This means that results for interim periods do not necessarily represent results to be expected for the year. Weather affects the demand for electricity and gas for our regulated businesses. Very hot summers and very cold winters increase demand. Mild weather reduces demand. Residential sales for our regulated businesses are impacted more by weather than commercial and industrial sales, which are mostly affected by business needs for electricity and gas. However, the Maryland PSC allows us to record a monthly adjustment to our regulated gas business revenues to eliminate the effect of abnormal weather patterns. We discuss this further in the Weather Normalization section on page 30. We measure the weather's effect using "degree days." A degree day is the difference between the average daily actual temperature and a baseline temperature of 65 degrees. Cooling degree days result when the average daily actual temperature exceeds the 65 degree baseline. Heating degree days result when the average daily actual temperature is less than the baseline. 22 During the cooling season, hotter weather is measured by more cooling degree days and results in greater demand for electricity to operate cooling systems. During the heating season, colder weather is measured by more heating degree days and results in greater demand for electricity and gas to operate heating systems. We show the number of heating degree days in the quarter and nine months ended September 30, 2000 and 1999, and the percentage change in the number of degree days between these periods in the following table: Quarter Ended Ended Nine Months Ended September 30 September 30 ------------------ ------------------ 2000 1999 2000 1999 ------- ------ ------ ------ Heating degree days... 142 75 2,959 2,981 Percent change from prior period 89.3% (0.7)% Cooling degree days... 445 629 714 832 Percent change from prior period (29.3)% (14.2)% Other Factors - ------------- Other factors, aside from weather, impact the demand for electricity and gas in our regulated businesses. These factors include the "number of customers" and "usage per customer" during a given period. We use these terms later in our discussions of regulated electric and gas operations. In those sections, we discuss how these and other factors affected electric and gas sales during the periods presented. The number of customers in a given period is affected by new home and apartment construction and by the number of businesses in our service territory. Under the Restructuring Order, BGE's electric customers can become delivery service customers only and can purchase their electricity from other sources. We will collect a delivery service charge to recover the fixed costs for the service we provide. The remaining electric customers will receive standard offer service from BGE at the fixed rates provided by the Restructuring Order. Usage per customer refers to all other items impacting customer sales that cannot be measured separately. These factors include the strength of the economy in our service territory. When the economy is healthy and expanding, customers tend to consume more electricity and gas. Conversely, during an economic downtrend, our customers tend to consume less electricity and gas. Current Issues - Gas Competition - -------------------------------- Currently, no regulation exists for the wholesale price of natural gas as a commodity, and the regulation of interstate transmission at the federal level has been reduced. All BGE gas customers have the option to purchase gas from other suppliers. Current Issues - Calvert Cliffs License Extension - ------------------------------------------------- On March 23, 2000, the Nuclear Regulatory Commission (NRC) approved a 20-year license extension for both units of Calvert Cliffs, extending the license for Unit 1 to 2034 and for Unit 2 to 2036. On April 11, 2000 the United States Court of Appeals for the District of Columbia Circuit, in National Whistleblowers Center v. Nuclear Regulatory Commission and Baltimore Gas and Electric Company, upheld the NRC's denial of the Center's motion to intervene in BGE's license renewal proceeding. The NRC had denied the Center's motion to intervene for failing to file timely contentions. The Center has filed a petition for certiorari, a request to hear an appeal, with the U.S. Supreme Court. Current Issues - Regional Transmission Organizations - ---------------------------------------------------- In December 1999, the FERC issued Order 2000, amending its regulations under the Federal Power Act to advance the formation of Regional Transmission Organizations (RTOs). The regulations require that each public utility that owns, operates, or controls facilities for the transmission of electric energy in interstate commerce make certain filings with respect to forming and participating in a RTO. FERC also identified the minimum characteristics and functions that a transmission entity must satisfy in order to be considered a RTO. According to the Order, a public utility that is a member of an existing transmission entity that has been approved by FERC as in conformance with the Independent System Operator (ISO) principles set forth in the FERC Order No. 888, such as BGE, through its membership in the PJM must make a filing no later than January 15, 2001. While not required until 2001, PJM and the joint transmission owners, including BGE, made the filing on October 11, 2000. That filing explained the extent to which PJM met the minimum characteristics and functions of a RTO and explained its plans to conform to these characteristics and functions. As a member of the PJM, an existing ISO, BGE does not expect to be materially impacted by the Order. However, BGE, along with other members of the PJM, is appealing certain aspects of the Order. We cannot determine the full impact of the Order at this time. 23 Results of Operations for the Quarter and Nine Months Ended September 30, 2000 - ------------------------------------------------------------------------------- Compared with the Same Periods of 1999 - -------------------------------------- In this section, we discuss our earnings and the factors affecting them. We begin with a general overview, then separately discuss earnings for our operating segments. Changes in fixed charges, income taxes, and other income are discussed in the aggregate for all segments in the Consolidated Nonoperating Income and Expenses section on page 32. Overview - -------- Total Earnings Per Share of Common Stock - ---------------------------------------- Quarter Ended Nine Months Ended September 30 September 30 ----------------- ----------------- 2000 1999 2000 1999 -------- -------- -------- -------- Earnings before nonrecurring charges included in operations: Domestic merchant energy .............. $ .87 $ .14 $1.10 $ .34 Regulated electric..... .10 1.05 .65 1.73 Regulated gas.......... (.03) - .12 .14 Other nonregulated..... .04 (.06) (.01) (.05) -------- -------- -------- -------- Total earnings per share before nonrecurring charges included in operations ....... .98 1.13 1.86 2.16 Nonrecurring charges included in operations: Deregulation transition cost............... - - (.10) - TVSERP............... - - (.03) - Hurricane Floyd expenses .......... - (.03) - (.03) Write-off of power project...... - (.05) - (.05) Write-down of financial investment......... - (.12) - (.14) Write-down of senior-living facilities......... - (.02) - (.02) -------- -------- -------- -------- Earnings per share ..... $ .98 $ .91 $1.73 $1.92 ======== ======== ======== ======== Earnings for the periods presented below reflect a significant shift in earnings from the regulated electric business to the domestic merchant energy business as a result of the transfer of BGE's electric generation assets to nonregulated subsidiaries on July 1, 2000 in accordance with the Restructuring Order. We discuss the Restructuring Order in more detail in Current Issues - Electric Competition section on page 20. Quarter Ended September 30, 2000 - -------------------------------- Our total earnings for the quarter ended September 30, 2000 increased $11.4 million, or $.07 per share, compared to the same period of 1999. However, our total earnings before nonrecurring charges decreased $20.9 million or $.15 per share mostly due to extremely mild summer weather in 2000. We also recognized $26.0 million, or almost one-half, of the annual impact of a 6.5% annual residential rate reduction that was effective July 1, 2000. This decrease was partially offset by a $37.5 million deferral of electric revenues recorded in September 1999 associated with the deregulation of our electric generation business that had a negative impact in that year. We did not have a similar deferral in 2000. We also had higher earnings from our other nonregulated businesses in the third quarter of 2000 compared to the same period of 1999. In addition, we recorded the following nonrecurring charges in operations during the third quarter of 1999: o $4.9 million after-tax, or $.03 per share, of expenses related to Hurricane Floyd, o a $6.7 million after-tax, or $.05 per share, write-off of a geothermal power project, o a $17.3 million after-tax, or $.12 per share, write-down of a financial investment, and o a $3.4 million after-tax, or $.02 per share, write-down of certain senior-living facilities. In the following sections, we discuss our earnings by business segment in greater detail. Nine Months Ended September 30, 2000 - ------------------------------------ Our total earnings for the nine months ended September 30, 2000 decreased $27.7 million, or $.19 per share, compared to the same period of 1999. Our total earnings before nonrecurring charges decreased $44.4 million or $.30 per share mostly due to the $75.0 million, or $45.4 million after-tax, amortization of the regulatory asset recorded for the reduction of BGE's generation plant during the first half of 2000 and the large impact of the 6.5% annual residential rate reduction reflected in the third quarter. This decrease was partially offset by the $37.5 million deferral of electric revenues in 1999. In addition, we recorded the following nonrecurring charges in operations: o a $15.0 million after-tax, or $.10 per share, deregulation transition cost in June 2000 to a third party incurred by our power marketing business to provide BGE's standard offer service requirements, 24 o a $4.2 million after-tax, or $.03 per share, expense during the first and second quarters of 2000 for BGE employees that elected to participate in a Targeted Voluntary Special Early Retirement Program (TVSERP), o $4.9 million after-tax, or $.03 per share, of expenses related to Hurricane Floyd in 1999, o a $6.7 million after-tax, or $.05 per share, write-off of a geothermal power project in 1999, o a $20.9 million after-tax, or $.14 per share, write-down of a financial investment in 1999, and o a $3.4 million after-tax, or $.02 per share, write-down of certain senior-living facilities in 1999. Domestic Merchant Energy Business - --------------------------------- Our domestic merchant energy business engages primarily in power marketing and domestic power generation. We describe these businesses in more detail in our 1999 Annual Report on Form 10-K in Item 1. Business -- Diversified Businesses. As discussed in the Current Issues -- Electric Competition section on page 20, our domestic merchant energy business was significantly impacted by the July 1, 2000 implementation of customer choice in Maryland. At that time, BGE's generating assets became part of our nonregulated domestic merchant energy business, and Constellation Power Source began selling to BGE the energy and capacity required to meet its standard offer service obligations for the first three years of the transition period. Constellation Power Source will obtain the energy and capacity to supply BGE's standard offer service obligations from affiliates that own Calvert Cliffs and BGE's former fossil plants, supplemented with energy purchased from the wholesale energy market as necessary. Constellation Power Source will also manage our wholesale market price risk. Our earnings are exposed to the risks of the competitive wholesale electricity market to the extent that Constellation Power Source has to purchase energy and/or capacity to meet obligations to supply power to BGE at market prices or costs, respectively, which may approach or exceed BGE's standard offer service rates. If the price of obtaining energy in the wholesale market exceeds the fixed standard offer service price, our earnings would be adversely affected. We are also affected by operational risk, that is, the risk that a generating plant will not be available to produce energy when the energy is required. Imbalances in demand and supply can occur not only because of plant outages, but also because of transmission constraints, or extreme temperatures (hot or cold) causing demand to exceed available supply. We cannot estimate the impact of the increased financial risks associated with customer choice. However, these financial risks could have a material impact on our financial results. In addition, effective July 1, 2000, under the terms of separate agreements, domestic merchant energy business revenues include 90% of the competitive transition charges BGE collects from its customers (CTC revenues) and the portion of its revenues providing for decommissioning costs. Earnings - -------- Quarter Ended Nine Months Ended September 30 September 30 ----------------- ----------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In millions, except per share amounts) Revenues................ $495.6 $66.3 $628.9 $173.7 Operating expenses...... 221.7 40.7 312.3 87.8 Depreciation and amortization....... 38.6 1.5 41.9 3.6 Taxes other than income taxes....... 13.1 - 13.1 - -------- -------- -------- -------- Operating income........ $222.2 $24.1 $261.6 $82.3 ======== ======== ======== ======== Net income.............. $130.9 $12.2 $150.2 $43.6 ======== ======== ======== ======== Earnings per share...... $ .87 $ .09 $ 1.00 $ .29 ======== ======== ======== ======== Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. Revenues - -------- During the quarter ended September 30, 2000, domestic merchant energy revenues increased $429.3 million compared to the same period of 1999 mostly because of: o a $373.2 million increase related to providing BGE the energy and capacity required to meet its standard offer service obligation effective July 1, 2000, and o a $59.3 million increase related to CTC and decommissioning revenues included in the domestic merchant energy business effective July 1, 2000. During the nine months ended September 30, 2000, domestic merchant energy revenues increased $455.2 million compared to the same period of 1999 mostly because of the increase in revenues associated with the implementation of customer choice as discussed above and higher revenues from our power marketing and domestic generation businesses. Power marketing revenues increased during the nine months ended September 30, 2000 compared to the same period of 1999 mostly because of higher transaction volumes. These higher volumes were offset partially by lower margins. 25 Our domestic generation business revenues increased during the nine months ended September 30, 2000 compared to the same period of 1999 mostly because of the gain recognized on the termination of an operating arrangement and the sale of certain subsidiaries. In April 2000, Constellation Operating Services, Inc. (COSI), a subsidiary of Constellation Power, Inc., ended its exclusive arrangement with Orion Power Holdings, Inc. to operate Orion's facilities. Orion purchased from COSI the four subsidiary companies formed to operate power plants owned by Orion. This increase was offset partially by lower revenues associated with our California power purchase agreements discussed below. Mark-to-Market Accounting - ------------------------- Constellation Power Source uses the mark-to-market method of accounting. We discuss the mark-to-market method of accounting and Constellation Power Source's activities in more detail in Note 1 of our 1999 Annual Report on Form 10-K. As a result of the nature of its business activities, Constellation Power Source's revenue and earnings will fluctuate. We cannot predict these fluctuations, but the effect on our revenues and earnings could be material. The primary factors that cause these fluctuations are: o the number and size of new transactions, o the magnitude and volatility of changes in commodity prices and interest rates, and o the number and size of open commodity and derivative positions Constellation Power Source holds or sells. Constellation Power Source's management uses its best estimates to determine the fair value of commodity and derivative positions it holds and sells. These estimates consider various factors including closing exchange and over-the-counter price quotations, time value, volatility factors, and credit exposure. However, it is possible that future market prices could vary from those used in recording assets and liabilities from power marketing and trading activities, and such variations could be material. Assets and liabilities from energy trading activities (as shown in our Consolidated Balance Sheets beginning on page 4) increased at September 30, 2000 compared to December 31, 1999 because of business growth during the period. California Power Purchase Agreements - ------------------------------------ Our domestic generation business has $297.6 million invested in 14 projects that sell electricity in California under power purchase agreements called "Interim Standard Offer No. 4" agreements. Under these agreements, the electricity rates change from fixed rates to variable rates beginning in 1996 and continuing through 2000. The projects which already have had rate changes have lower revenues under variable rates than they did under fixed rates. When the remaining projects transition to variable rates, we expect their revenues also to be lower than they are under fixed rates. At the date of this report, 12 projects had already transitioned to variable rates. The remaining two projects will transition in December 2000. Our power projects business continues to pursue alternatives for some of these projects including: o repowering the projects to reduce operating costs, o changing fuels to reduce operating costs, o renegotiating the power purchase agreements to improve the terms, o restructuring financing to improve existing terms, and selling its ownership interests in the projects. We evaluate the carrying amount of our investment in these projects for impairment using the methodology discussed in Note 1 of our 1999 Annual Report of Form 10-K. Constellation Power's management uses its best estimates to determine if there has been an impairment of these investments and considers various factors including forward price curves for energy, fuel costs, and operating costs. However, it is possible that future estimates of market prices and project costs could vary from those used in evaluating these assets, and the impact of such variations could be material. We also describe these projects and the transition process in the Notes to Consolidated Financial Statements on page 16. Operating Expenses - ------------------ During the quarter ended September 30, 2000, domestic merchant energy operating expenses increased $181.0 million compared to the same period of 1999 mostly because of increases of $102.6 million in fuel costs and $79.2 million in operations and maintenance costs. These fuel and operations and maintenance costs were associated with the generation plants that were transferred from BGE effective July 1, 2000. 26 During the nine months ended September 30, 2000, domestic merchant energy operating expenses increased $224.5 million compared to the same period of 1999 mostly because of: o the transfer of fuel, operations, and maintenance costs from BGE effective July 1, 2000, as discussed on page 26, o a $10.2 million write-off of a geothermal power project in August 1999 by our domestic power projects business. This write-off occurred because the expected future cash flow from the project was less than the investment in the project due to the declining water temperature of the geothermal resource used by the plant for production, o a $24.0 million deregulation transition cost in June 2000 to a third party incurred by our power marketing business to provide BGE's standard offer service requirements, and o an increase in operating expenses at our power marketing business due to the growth of the business. Depreciation and Amortization Expense - ------------------------------------- Domestic merchant energy depreciation and amortization expense increased $37.1 million for the quarter and $38.3 million for the nine months ended September 30, 2000 compared to the same periods of 1999 mostly because of $36.8 million of expenses associated with the generation plants that were transferred from BGE effective July 1, 2000. Taxes Other than Income Taxes - ----------------------------- During the quarter and nine months ended September 30, 2000, domestic merchant energy taxes other than income taxes increased $13.1 million compared to the same periods of 1999 because of $12.9 million of taxes other than income taxes associated with the generation plants that were transferred from BGE effective July 1, 2000. Regulated Electric Business - --------------------------- As previously discussed, our regulated electric business was significantly impacted by the July 1, 2000 implementation of customer choice. These changes include BGE's generating assets and related liabilities becoming part of our nonregulated domestic merchant energy business on that date. Earnings - -------- Quarter Ended Nine Months Ended September 30 September 30 ----------------- ----------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In millions, except per share amounts) Electric revenues....... $598.4 $691.4 $1,688.4 $1,737.9 Electric fuel and purchased energy... 388.3 130.0 632.4 376.2 Operations and maintenance........ 62.0 146.3 384.7 468.5 Depreciation and amortization....... 52.0 78.3 276.7 227.0 Taxes other than income taxes....... 30.5 59.5 121.0 149.2 -------- -------- -------- -------- Operating income........ $65.6 $277.3 $273.6 $517.0 ======== ======== ======== ======== Net income.............. $15.4 $152.3 $93.2 $253.4 ======== ======== ======== ======== Earnings per share...... $ .10 $1.02 $ .62 $1.70 ======== ======== ======== ======== Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. Electric Revenues - ----------------- The changes in electric revenues in 2000 compared to 1999 were caused by: Quarter Ended Nine Months Ended September 30 September 30 2000 vs. 1999 2000 vs. 1999 ----------------- ----------------- (In millions) Electric system sales volumes ........ $(28.5) $ 4.5 Rates .................. (75.5) (62.9) --------- --------- Total change in electric revenues from electric system sales ......... (104.0) (58.4) Interchange and other sales ......... (24.9) (30.2) Other .................. 35.9 39.1 --------- --------- Total change in electric revenues ... $(93.0) $(49.5) ========= ========= Electric System Sales Volumes - ----------------------------- "Electric system sales volumes" are sales to customers in our service territory at rates set by the Maryland PSC. These sales do not include interchange sales and sales to others. The percentage changes in our electric system sales volumes, by type of customer, in 2000 compared to 1999 were: Quarter Ended Nine Months Ended September 30 September 30 2000 vs. 1999 2000 vs. 1999 --------------- ------------------ Residential............. (10.8)% (0.7)% Commercial.............. 0.2 3.8 Industrial.............. 13.2 4.1 27 During the quarter ended September 30, 2000, we sold less electricity to residential customers due to extremely mild summer weather. We sold about the same amount of electricity to commercial customers. We sold more electricity to industrial customers mostly because usage by Bethlehem Steel (our largest customer) was higher in 2000 because of a 1999 shut down for a planned upgrade to their facilities that temporarily reduced their electricity consumption in that year. During the nine months ended September 30, 2000, we sold about the same amount of electricity to residential customers due to the extremely mild summer weather being substantially offset by warmer spring and early summer weather, an increased number of customers, and higher usage per customer. We sold more electricity to commercial customers mostly due to higher usage per customer and an increased number of customers. We sold more electricity to industrial customers due to the increase in usage by Bethlehem Steel, offset partially by lower usage by other industrial customers. Rates - ----- Prior to July 1, 2000, our rates primarily consisted of an electric base rate and an electric fuel rate. Effective July 1, 2000, BGE discontinued its electric fuel rate and unbundled its rates to show separate components for delivery service, transition charges, standard offer services (generation), transmission, universal service, and taxes. In addition, BGE's rates were frozen in total except for the implementation of a residential base rate reduction totaling approximately $54 million annually. Under the terms of the intercompany agreements whereby BGE obtains the energy and capacity to meet its standard offer service obligation, 90% of the CTC revenues BGE collects and the portion of its revenues providing for decommissioning costs, are included in revenues of the domestic merchant energy business effective July 1, 2000. During the quarter ended September 30, 2000, rate revenues decreased compared to the same period of 1999 mostly because we recognized $26.0 million, or almost one-half of the 6.5% annual residential rate reduction, and $59.3 million of CTC and decommissioning revenues are included in the domestic merchant energy business. During the nine months ended September 30, 2000, rate revenues decreased $62.9 million compared to the same periods of 1999 as a result of the rate reduction and transfer of revenues discussed above, offset partially by higher rate revenues during the first half of 2000. Interchange and Other Sales - --------------------------- "Interchange and other sales" are sales in the PJM energy market and to others. The PJM is an ISO that also operates a regional power pool with members that include many wholesale market participants, as well as BGE, and other utility companies. Prior to the implementation of customer choice, BGE sold energy to PJM members and to others after it had satisfied the demand for electricity in its own system. Effective July 1, 2000, BGE no longer engages in interchange sales and these activities are included in our domestic merchant energy business which results in the decrease in interchange and other sales for the quarter and nine months ended September 30, 2000 compared to the same periods of 1999. In addition, BGE had lower interchange and other sales during the first half of 2000 when increased demand for system sales reduced the amount of energy it had available for off-system sales. Other - ----- During the quarter and nine months ended September 30, 2000, other revenues increased compared to the same periods of 1999 mostly because of a $37.5 million deferral of electric revenues recorded in September 1999, which had a negative impact in that year. This deferral was recorded on the basis that as of September 30, 1999 these revenues were subject to refund pending the approval of the Restructuring Order by the Maryland PSC at that time. Electric Fuel and Purchased Energy Expenses - ------------------------------------------- Quarter Ended Nine Months Ended September 30 September 30 ----------------- ----------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In millions) Actual costs............ $388.3 $191.8 $642.1 $454.7 Net deferral of costs under electric fuel rate clause......... - (61.8) (9.7) (78.5) -------- -------- -------- -------- Total electric fuel and purchased energy expenses............ $388.3 $130.0 $632.4 $376.2 ======== ======== ======== ======== Actual Costs - ------------ During the quarter and nine months ended September 30, 2000, our actual costs of fuel and purchased energy were higher compared to the same periods of 1999 mostly because of the implementation of customer choice. As discussed in the Current Issues -- Electric Competition section on page 20, effective July 1, 2000, BGE transferred its generating assets to, and began purchasing substantially all of the energy and capacity required to provide electricity to standard offer service customers from, nonregulated affiliates of Constellation Energy. For the quarter and nine months ended September 30, 2000, the cost of energy BGE purchased from nonregulated affiliates of Constellation Energy was $373.2 million. The higher amount paid for purchased energy is offset by lower operations and maintenance, depreciation, taxes, and other costs at BGE as a result of no longer owning and operating the transferred electric generation plants. 28 Prior to July 1, 2000, BGE's purchased fuel and energy costs only included actual costs of fuel to generate electricity (nuclear fuel, coal, gas, or oil) and electricity we bought from others. Electric Fuel Rate Clause - ------------------------- Prior to July 1, 2000, we deferred the difference between our actual costs of fuel and energy and what we collected from customers under the fuel rate in a given period. Effective July 1, 2000, the fuel rate clause was discontinued under the terms of the Restructuring Order. During the quarter and nine months ended September 30, 2000, the net deferral of costs under the electric fuel rate clause decreased compared to the same periods of 1999 due to the discontinuation of the fuel rate clause effective July 1, 2000. We discuss the accumulated difference between our actual costs and what we collected through June 30, 2000 in the Recoverability of Electric Fuel Costs section of the Notes to Consolidated Financial Statements on page 16. Electric Operations and Maintenance Expenses - -------------------------------------------- During the quarter ended September 30, 2000, regulated electric operations and maintenance expenses decreased $84.3 million compared to 1999 mostly because effective July 1, 2000, $79.2 million of costs were no longer incurred by this business segment. These costs were associated with the electric generation assets that were transferred to the domestic merchant energy business. In addition, 1999 operations and maintenance expenses include approximately $7.5 million of costs associated Hurricane Floyd that had a negative impact in that quarter. During the nine months ended September 30, 2000, regulated electric operations and maintenance expenses decreased $83.8 million compared to 1999 mostly due to the absence of $79.2 million of costs associated with the transfer of the electric generation assets. Also, 1999 operations and maintenance expenses include costs associated with Hurricane Floyd and a major winter ice storm earlier that year. This decrease is partially offset by the $7.0 million of expense recognized in 2000 for electric business employees that elected to participate in the TVSERP. Electric Depreciation and Amortization Expense - ---------------------------------------------- During the quarter ended September 30, 2000, regulated electric depreciation and amortization expense decreased $26.3 million compared to 1999 mostly because of the absence of $36.8 million of depreciation and amortization expense associated with the transfer of the generation assets to the domestic merchant energy business. This was partially offset by higher amortization expense associated with our electric generation regulatory assets. During the nine months ended September 30, 2000, regulated electric depreciation and amortization expense increased $49.7 million compared to 1999 mostly because of the $75.0 million amortization of the regulatory asset for the reduction in generation plant provided for in the Restructuring Order and higher amortization associated with other generation regulatory assets. This was partially offset by the absence of $36.8 million of depreciation and amortization expense associated with the transfer of the generation assets. Electric Taxes Other Than Income Taxes - -------------------------------------- Regulated electric taxes other than income taxes decreased $29.0 million for the quarter and $28.2 million for the nine months ended September 30, 2000 compared to the same periods of 1999. This was mostly due to comprehensive changes to the tax laws under the Electric Customer Choice and Competition Act of 1999. The comprehensive tax law changes are discussed further in Note 4 of our 1999 Annual Report on Form 10-K. In addition, regulated electric taxes other than income taxes reflect the absence of $12.9 million of taxes other than income taxes associated with the generation assets that were transferred to the domestic merchant energy business effective July 1, 2000. Regulated Gas Business - ---------------------- Earnings - -------- Quarter Ended Nine Months Ended September 30 September 30 ----------------- ----------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In millions, except per share amounts) Gas revenues............ $90.1 $62.9 $377.8 $340.1 Gas purchased for resale 48.2 21.3 192.0 156.4 Operations and maintenance........ 26.2 20.8 73.1 69.1 Depreciation and amortization....... 11.3 10.2 35.5 34.4 Taxes other than income taxes....... 5.0 4.6 25.0 25.2 -------- -------- -------- -------- Operating income (loss). $(0.6) $6.0 $52.2 $55.0 ======== ======== ======== ======== Net income (loss)....... $(4.6) $(0.7) $18.1 $21.5 ======== ======== ======== ======== Earnings per share...... $(.03) $ - $.12 $.14 ======== ======== ======== ======== Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. All BGE customers have the option to purchase gas from other suppliers. To date, customer choice has not had a material effect on our, and BGE's, financial results. 29 Gas Revenues - ------------ The changes in gas revenues in 2000 compared to 1999 were caused by: Quarter Ended Nine Months Ended September 30 September 30 2000 vs. 1999 2000 vs. 1999 ----------------- ----------------- (In millions) Gas system sales volumes ....... $ 3.9 $ 11.5 Base rates ............. 0.7 0.2 Weather normalization .. (1.9) (5.4) Gas cost adjustments ... 8.8 (4.4) --------- -------- Total change in gas revenues from gas system sales.......... 11.5 1.9 Off-system sales........ 16.4 36.1 Other .................. (0.7) (0.3) --------- ------- Total change in gas revenues ........ $ 27.2 $ 37.7 ========= ======== Gas System Sales Volumes - ------------------------ The percentage changes in our gas system sales volumes, by type of customer, in 2000 compared to 1999 were: Quarter Ended Nine Months Ended September 30 September 30 2000 vs. 1999 2000 vs. 1999 ----------------- ----------------- Residential............... 3.0% 1.5% Commercial................ 17.6 7.5 Industrial................ 3.4 4.2 During the quarter ended September 30, 2000, we sold more gas to residential customers compared to the same period of 1999 due mostly to an increased number of customers. We sold more gas to commercial customers mostly because of higher usage per customer offset partially by fewer customers. We sold more gas to industrial customers mostly because of an increase in the number of customers. During the nine months ended September 30, 2000, we sold more gas to residential and commercial customers compared to the same period of 1999 due to higher usage per customer and an increased number of customers. This was partially offset by milder winter weather. We sold more gas to industrial customers mostly because of higher usage by Bethlehem Steel and other industrial customers, and an increased number of customers. Base Rates - ---------- During the quarter and nine months ended September 30, 2000, base rate revenues increased slightly compared to the same periods of 1999 mostly because on June 19, 2000, the Maryland PSC authorized a $6.4 million annual increase in our base rates effective June 22, 2000. Weather Normalization - --------------------- The Maryland PSC allows us to record a monthly adjustment to our gas revenues to eliminate the effect of abnormal weather patterns on our gas system sales volumes. This means our monthly gas revenues are based on weather that is considered "normal" for the month and, therefore, are not affected by actual weather conditions. Gas Cost Adjustments - -------------------- We charge our gas customers for the natural gas they purchase from us using gas cost adjustment clauses set by the Maryland PSC as described in Note 1 of our 1999 Annual Report on Form 10-K. However, under market based rates, our actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between our actual cost and the market index is shared equally between shareholders and customers, and does not significantly impact earnings. Delivery service customers, including Bethlehem Steel, are not subject to the gas cost adjustment clauses because we are not selling gas to them. We charge these customers fees to recover the fixed costs for the transportation service we provide. These fees are the same as the base rate charged for gas sales and are included in gas system sales volumes. During the quarter ended September 30, 2000, gas cost adjustment revenues increased compared to the same period of 1999 mostly because we sold gas at a higher price. During the nine months ended September 30, 2000, gas cost adjustment revenues decreased compared to the same period of 1999 mostly because we sold less gas to non-delivery service customers. This was partially offset by a higher price of gas sold. Off-System Sales - ---------------- Off-system gas sales are low-margin direct sales of gas to wholesale suppliers of natural gas outside our service territory. Off-system gas sales, which occur after we have satisfied our customers' demand, are not subject to gas cost adjustments. The Maryland PSC approved an arrangement for part of the margin from off-system sales to benefit customers (through reduced costs) and the remainder to be retained by BGE (which benefits shareholders). Changes in off-system sales do not significantly impact earnings. During the quarter and nine months ended September 30, 2000, revenues from off-system gas sales increased compared to the same periods of 1999 mostly because we sold more gas off-system at a higher price. 30 Gas Purchased For Resale Expenses - --------------------------------- Actual costs include the cost of gas purchased for resale to our customers and for off-system sales. Actual costs do not include the cost of gas purchased by delivery service customers. During the quarter and nine months ended September 30, 2000, our gas costs increased compared to the same periods of 1999 mostly because we bought more gas for off-system sales and all of the gas purchased was at a higher price. Gas Operations and Maintenance Expenses - --------------------------------------- During the quarter and nine months ended September 30, 2000, gas operations and maintenance expenses increased compared to the same periods of 1999 mostly because of timing of corporate administrative and general expenses allocated to our business segments. Gas Depreciation and Amortization Expense - ----------------------------------------- During the quarter and nine months ended September 30, 2000, gas depreciation and amortization expense was about the same compared to the same periods of 1999. Other Nonregulated Businesses - ----------------------------- Earnings - -------- Quarter Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ------- -------- -------- -------- (In millions, except per share amounts) Revenues................ $187.7 $207.1 $557.4 $635.1 Operating expenses...... 156.2 233.0 496.7 637.1 Depreciation and amortization........ 5.8 2.8 16.6 9.0 Taxes other than income taxes........ 1.0 1.0 3.0 2.8 -------- -------- -------- -------- Operating income (loss). $24.7 $(29.7) $41.1 $(13.8) ======== ======== ======== ======== Net income (loss)....... $5.7 $(27.7) $(2.3) $(31.6) ======== ======== ======== ======== Earnings per share...... $.04 $(.20) $(.01) $(.21) ======== ======== ======== ======== Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. During the quarter ended September 30, 2000, earnings from our other nonregulated businesses increased compared to the same period of 1999 mostly because of higher earnings from our financial investments business. Our financial investments business had higher earnings due to an increase in its market performance and a 1999 write-down of a financial investment that had a negative impact in that year. In addition, our energy products and services business had higher gross margins from its gas trading activities. During the nine months ended September 30, 2000, earnings from our other nonregulated businesses increased compared to the same period of 1999 mostly because of higher earnings from our financial investments and energy products and services businesses. In addition, in 1999, we wrote-down a financial investment and certain senior-living facilities, which had negative impacts in that year. These increases were partially offset by lower earnings from our Latin American business primarily due to increased operating expenses in Guatemala. In December 1999, we decided to exit the Latin American portion of our power projects business as part of our strategy to improve our competitive position. We discuss our strategy further in the Strategy section on page 19. In June 1999, our financial investments business wrote-down its investment in Capital Re stock by $3.6 million after-tax, or $.02 per share. In September 1999, our financial investments business wrote-down the investment by an additional $17.3 million after-tax, or $.12 per share. These write-downs were recorded to reflect the valuation for the exchange of its shares of common stock in Capital Re for common stock of ACE Limited during these periods. This exchange is discussed further in our 1999 Annual Report on Form 10-K. In September 1999, our real estate and senior-living facilities business wrote-down certain senior-living facilities by $3.4 million after-tax, or $.02 per share, related to the announcement of the sale of those facilities. Most of Constellation Real Estate Group's real estate and senior-living projects are in the Baltimore-Washington corridor. The area has had a surplus of available land in recent years and as a result these projects have been economically hurt. Constellation Real Estate's projects have continued to incur carrying costs and depreciation over the years. Additionally, this business has been charging interest payments to expense rather than capitalizing them for some undeveloped land where development activities have stopped. These carrying costs, depreciation, and interest expenses have decreased earnings and are expected to continue to do so. Cash flow from real estate and senior-living operations has not been enough to make the monthly loan payments on some of these projects. Cash shortfalls have been covered by cash obtained from the cash flows of, or additional borrowings by, other nonregulated subsidiaries. 31 We consider market demand, interest rates, the availability of financing, and the strength of the economy in general when making decisions about our real estate and senior-living projects. If we were to decide to sell our projects, we could have write-downs. In addition, if we were to sell our projects in the current market, we would have losses which could be material, although the amount of the losses is hard to predict. Depending on market conditions, we could also have material losses on any future sales. Our current real estate and senior-living strategy is to hold each project until we can realize a reasonable value for it. Under accounting rules, we are required to write down the value of a project to market value in either of two cases. The first is if we change our intent about a project from an intent to hold to an intent to sell and the market value of that project is below book value. The second is if the expected cash flow from the project is less than the investment in the project. Consolidated Nonoperating Income and Expenses - --------------------------------------------- Fixed Charges - ------------- During the quarter and nine months ended September 30, 2000, fixed charges increased compared to the same periods of 1999 mostly because we had more debt outstanding. Income Taxes - ------------ During the quarter and nine months ended September 30, 2000, our total income taxes increased compared to the same periods of 1999 mostly because we had higher taxable income from our nonregulated businesses and an increase in state and local taxes as a result of comprehensive changes to these laws. This increase was partially offset by lower taxable income at BGE. We discuss the comprehensive tax law changes in Note 4 of our 1999 Annual Report on Form 10-K. Financial Condition - ------------------- Cash Flows - ---------- Nine Months Ended September 30 ----------------- 2000 1999 -------- -------- (In millions) Cash provided by (used in): Operating Activities $588.8 $483.5 Investing Activities (728.4) (441.8) Financing Activities 97.3 (159.0) During the nine months ended September 30, 2000, we generated more cash from operations compared to the same period in 1999 mostly because of changes in working capital requirements. During the nine months ended September 30, 2000, we used more cash for investing activities compared to the same period in 1999 mostly due to an increase in investments in new generation facilities. In addition, our real estate and senior-living facilities business received less cash compared to the same period of 1999, due to the sale of a project in 1999. We did not have a similar sale in 2000. During the nine months ended September 30, 2000, we had more cash from financing activities compared to the same period of 1999 mostly because we issued more long-term debt and common stock. This was partially offset by repayment of our long-term debt that matured. Security Ratings - ---------------- Independent credit-rating agencies rate Constellation Energy and BGE's fixed-income securities. The ratings indicate the agencies' assessment of each company's ability to pay interest, distributions, dividends, and principal on these securities. These ratings affect how much it will cost each company to sell these securities. The better the rating, the lower the cost of the securities to each company when they sell them. Constellation Energy and BGE's securities ratings at the date of this report are: Standard Moody's & Poors Investors Fitch Rating Group Service IBCA -------------- ----------- ---------- Constellation Energy - -------------------- Unsecured Debt A- A3 A- BGE - --- Mortgage Bonds AA- A1 A+ Unsecured Debt A A2 A Trust Originated Preferred Securities and Preference Stock A- "a2" A- 32 Capital Resources - ----------------- Our business requires a great deal of capital. Our estimated annual amounts for the years 2000 through 2002, are shown in the table below. We will continue to have cash requirements for: o working capital needs including the payments of interest, distributions, and dividends, o capital expenditures, and o the retirement of debt and redemption of preference stock. Capital requirements for 2000 through 2002 include estimates of funding for existing and anticipated projects. We continuously review and modify those estimates. Actual requirements may vary from the estimates included in the table below because of a number of factors including: o regulation, legislation, and competition, o BGE load requirements, o environmental protection standards, o the type and number of projects selected for development, o the effect of market conditions on those projects, o the cost and availability of capital, and o the availability of cash from operations. Our estimates are also subject to additional factors. Please see the Forward-Looking Statements section on page 37. Effective July 1, 2000, all of BGE's generation assets were transferred to nonregulated subsidiaries of Constellation Energy. The discussion and table for capital requirements below include these generation assets as part of the utility's regulated electric business through June 30, 2000. After that date, the capital requirements are included in the domestic merchant energy business.
Calendar Year Estimates 2000 2001 2002 --------- --------- -------- (In millions) Nonregulated Capital Requirements: - ---------------------------------- Investment requirements: Domestic Merchant Energy $803* $ 1,241 $ 1,077 Other 37 48 41 --------- --------- -------- Total investment requirements 840 1,289 1,118 Retirement of long-term debt 575 446 7 --------- --------- -------- Total nonregulated capital requirements 1,415 1,735 1,125 Utility Capital Requirements: - ----------------------------- Construction expenditures (excluding AFC): Regulated Electric: Generation (including nuclear fuel) 94 - - Transmission and distribution 177 177 171 --------- --------- -------- Total regulated electric 271 177 171 Regulated Gas 56 56 52 Common 23 26 26 --------- --------- -------- Total construction expenditures 350 259 249 Retirement of long-term debt and redemption of preference stock 122 194 147 --------- --------- -------- Total utility capital requirements 472 453 396 --------- --------- -------- Total capital requirements $1,887 $2,188 $1,521 ========= ========= ========
* Effective July 1, 2000, includes approximately $110 million for electric generation and nuclear fuel formerly part of BGE's regulated electric business. 33 Capital Requirements - -------------------- Domestic Merchant Energy Business - --------------------------------- Our domestic merchant energy business will require additional funding for growing its power marketing business and developing and acquiring power projects. Our domestic merchant energy business investment requirements include the planned construction of 1,100 megawatts of peaking capacity in the Mid-Atlantic/Mid-West region by the summer of 2001 and an additional 4,300 megawatts of peaking and combined cycle production facilities scheduled for completion in 2002 and beyond in the Mid-West and South regions. Longer range, our plans are to own or control approximately 30,000 megawatts of generation capacity by 2005. For further information see the Strategy section on page 19. Electric Generation - ------------------- Electric construction expenditures for our regulated electric business include improvements to generating plants and costs for replacing the steam generators at Calvert Cliffs through June 30, 2000. Thereafter, these expenditures are reflected in our domestic merchant energy business. In March 2000, we received the license extension from the NRC that extends our operating licenses to 2034 for Unit 1 and 2036 for Unit 2 as discussed in the Current Issues - Calvert Cliffs License Extension section on page 23. If we do not replace the steam generators, we will not be able to operate these units through our operating licenses period. We expect the steam generator replacement to occur during the 2002 refueling outage for Unit 1 and during the 2003 refueling outage for Unit 2. We estimate these Calvert Cliffs' costs to be: o $ 38 million in 2000, o $ 63 million in 2001, o $ 91 million in 2002, and o $ 60 million in 2003. Additionally, our estimates of future electric generation construction expenditures include the costs of complying with Environmental Protection Agency (EPA) and State of Maryland nitrogen oxides emissions (NOx) reduction regulations as follows: o $ 55 million in 2000, o $ 55 million in 2001, and o $ 8 million in 2002. We discuss the NOx regulations and timing of expenditures in the Environmental Matters section of the Notes to Consolidated Financial Statements on page 14. Electric Transmission and Distribution, and Gas - ----------------------------------------------- Regulated electric transmission and distribution, and gas construction expenditures primarily include new business construction needs and improvements to existing facilities. Funding for Capital Requirements - -------------------------------- Domestic Merchant Energy Business - --------------------------------- Funding for the expansion of our domestic merchant energy business is expected from internally generated funds, commercial paper issuances, long-term debt, and other financing instruments by Constellation Energy and its subsidiaries, and from time to time equity contributions from Constellation Energy. In addition, on October 23, 2000 we announced initiatives designed to advance our growth strategies in the domestic merchant energy business as discussed in the Subsequent Event section in the Notes to Consolidated Financial Statements on page 11. As part of these initiatives, our domestic merchant energy business expects to initially reinvest its earnings and not pay a dividend to fund its growth. At September 30, 2000, Constellation Energy has a commercial paper program where it can issue up to $500 million in short-term notes to fund its nonregulated businesses. To support its commercial paper program, Constellation Energy maintains two revolving credit agreements totaling $565 million, of which one facility can also issue letters of credit. In addition, Constellation Energy has access to interim lines of credit as required from time to time to support its outstanding commercial paper. BGE - --- Funding for utility capital expenditures is expected from internally generated funds, commercial paper issuances, available capacity under credit facilities, the issuance of long-term debt, trust securities, or preference stock, and/or from time to time equity contributions from Constellation Energy. At September 30, 2000, FERC authorized BGE to issue up to $700 million of short-term borrowings, including commercial paper. In addition, BGE maintains $183 million in annual committed bank lines of credit and has $25 million in bank revolving credit agreements to support the commercial paper program. In addition, BGE has access to interim lines of credit as required from time to time to support its outstanding commercial paper. 34 Other Nonregulated Businesses - ----------------------------- BGE Home Products & Services may meet capital requirements through sales of receivables. ComfortLink has a revolving credit agreement totaling $50 million to provide liquidity for short-term financial needs. If we can get a reasonable value for our real estate projects, senior-living facilities, and other investments, additional cash may be obtained by selling them. Our ability to sell or liquidate assets will depend on market conditions, and we cannot give assurances that these sales or liquidations could be made. We discuss the real estate and senior-living facilities business and market conditions in the Other Nonregulated Businesses section on page 31. Other Matters - ------------- Environmental Matters - --------------------- We are subject to federal, state, and local laws and regulations that work to improve or maintain the quality of the environment. If certain substances were disposed of or released at any of our properties, whether currently operating or not, these laws and regulations require us to remove or remedy the effect on the environment. This includes Environmental Protection Agency Superfund sites. You will find details of our environmental matters in the Environmental Matters section of the Notes to Consolidated Financial Statements beginning on page 14 and in our 1999 Annual Report on Form 10-K in Item 1. Business - Environmental Matters. These details include financial information. Some of the information is about costs that may be material. Accounting Standards Issued - --------------------------- In June 2000, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, that amends certain provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and addresses a limited number of implementation issues related to SFAS No. 133. In July 1999, the FASB issued SFAS No. 137 that delays the effective date for SFAS No. 133 by one year. Therefore, we must adopt the provisions of SFAS No. 133 in our financial statements for the quarter ended March 31, 2001. We are evaluating the implications of SFAS Nos. 133 and 138, but have not determined the effects on our financial results. However, SFAS Nos. 133 and 138 will not significantly impact our power marketing business as this business uses mark-to-market accounting. Item 3. Quantitative and Qualitative Disclosures About Market Risk We discuss the following information related to our market risk: o risk associated with the purchase and sale of energy in a deregulated environment as discussed in the Current Issues - Electric Competition section of Management's Discussion and Analysis on page 20, o financing activities in the Notes to Consolidated Financial Statements on page 13, and o activities of our power marketing business in the Domestic Merchant Energy Business section of Management's Discussion and Analysis beginning on page 25. 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings Employment Discrimination - ------------------------- Miller v. Baltimore Gas and Electric Company, et al. - This action was filed on September 20, 2000 in the U.S. District Court for the District of Maryland. Besides BGE, Constellation Energy Group, Constellation Nuclear and Calvert Cliffs Nuclear Power Plant are also named defendants. The action seeks class certification for approximately 150 past and present employees and alleges racial discrimination at Calvert Cliffs Nuclear Power Plant. The amount of damages is unspecified, however the plaintiffs seek back and front pay, along with compensatory and punitive damages. We believe this case is without merit. However, we cannot predict the timing, or outcome, of it or its possible effect on our, or BGE's, financial results. Moore v. Constellation Energy Group - This action was filed on October 23, 2000 in the U.S. District Court for the District of Maryland by an employee alleging employment discrimination. Besides Constellation Energy, BGE and Constellation Holdings, Inc. are also named defendants. The Equal Employment Opportunity Commission has previously concluded that it was unable to establish a violation of law. The plaintiff seeks, among other things, unspecific monetary damages and back pay. We believe this case is without merit. Asbestos - -------- Since 1993, we have been involved in several actions concerning asbestos. The actions are based upon the theory of "premises liability," alleging that we knew of and exposed individuals to an asbestos hazard. The actions relate to two types of claims. The first type is direct claims by individuals exposed to asbestos. We described these claims in BGE's Report on Form 8-K filed August 20, 1993. We are involved in these claims with approximately 70 other defendants. Approximately 530 individuals that were never employees of BGE each claim $6 million in damages ($2 million compensatory and $4 million punitive). These claims were filed in the Circuit Court for Baltimore City, Maryland in the summer of 1993. We do not know the specific facts necessary to estimate our potential liability for these claims. The specific facts we do not know include: o the identity of our facilities at which the plaintiffs allegedly worked as contractors, o the names of the plaintiff's employers, and o the date on which the exposure allegedly occurred. To date, 27 of these cases were settled for amounts that were not significant. The second type is claims by one manufacturer -- Pittsburgh Corning Corp. (PCC) - -- against us and approximately eight others, as third-party defendants. On April 17, 2000, PCC declared bankruptcy and we do not expect PCC to prosecute this claim. These claims relate to approximately 1,500 individual plaintiffs and were filed in the Circuit Court for Baltimore City, Maryland in the fall of 1993. To date, about 350 cases have been resolved, all without any payments by BGE. We do not know the specific facts necessary to estimate our potential liability for these claims. The specific facts we do not know include: o the identity of our facilities containing asbestos manufactured by the manufacturer, o the relationship (if any) of each of the individual plaintiffs to us, o the settlement amounts for any individual plaintiffs who are shown to have had a relationship to us, and o the dates on which/places at which the exposure allegedly occurred. Until the relevant facts for both types of claims are determined, we are unable to estimate what our liability, if any, might be. Although insurance and hold harmless agreements from contractors who employed the plaintiffs may cover a portion of any awards in the actions, our potential liability could be material. Restructuring Order - ------------------- In early December 1999, the Mid-Atlantic Power Supply Association (MAPSA), Trigen-Baltimore Energy Corporation and Sweetheart Cup Company, Inc. filed appeals of the Restructuring Order, which were consolidated in the Baltimore City Circuit Court. MAPSA also filed a motion to delay implementation of the Restructuring Order, pending a decision on the merits of the appeals by the court. On April 21, 2000, the Circuit Court dismissed MAPSA's appeal based on a lack of standing (the right of a party to bring a lawsuit to court) and denied its motion for a delay of the Restructuring Order. However, MAPSA filed an appeal of this decision. On May 24, 2000, the Circuit Court dismissed both the Trigen and Sweetheart Cup appeals. MAPSA subsequently filed several appeals with the Maryland Court of Special Appeals, the Maryland Court of Appeals, and the Baltimore City Circuit Court. The effect of the appeals was to delay the implementation of customer choice in BGE's service territory. 36 However, on August 4, 2000, the delay was rescinded and BGE retroactively adjusted its rates as if customer choice had been implemented July 1, 2000. On September 29, 2000, the Baltimore City Circuit Court issued an order upholding the Restructuring Order. On October 27, 2000, MAPSA filed an appeal with the Maryland Court of Special Appeals challenging the September 29, 2000 order issued by the Circuit Court. We believe that this petition is without merit. However, we cannot predict the timing, or outcome, of this case, which could have a material adverse effect on our, and BGE's, financial results. Asset Transfer Order - -------------------- On July 6, 2000, MAPSA and Shell Energy LLC filed, in the Circuit Court for Baltimore City, a petition for review and a delay of the Maryland PSC's order approving the transfer of BGE's generation assets issued on June 19, 2000. The Court denied MAPSA's request for a delay on August 4, 2000, and after a hearing on the petition on August 23, 2000 issued an order on September 29, 2000 upholding the Maryland PSC's order on the asset transfer. On October 27, 2000, MAPSA filed an appeal with the Maryland Court of Special Appeals challenging the September 29, 2000 order issued by the Circuit Court. We also believe that this petition is without merit. However, we cannot predict the timing, or outcome, of this case, which could have a material adverse effect on our, and BGE's, financial results. Item 5. Other Information Forward-Looking Statements - -------------------------- We make statements in this report that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. Sometimes these statements will contain words such as "believes," "expects," "intends," "plans," and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we project. These risks, uncertainties, and factors include, but are not limited to: o general economic, business, and regulatory conditions, o energy supply and demand, o competition, o federal and state regulations, o availability, terms, and use of capital, o nuclear and environmental issues, o weather, o implications of the Restructuring Order issued by the Maryland PSC, including the outcome of MAPSA's appeal, o commodity price risk, o operating our generation assets in a deregulated market without the benefit of a fuel rate adjustment clause, o loss of revenue due to customers choosing alternative suppliers, o higher volatility of earnings and cash flows, o increased financial requirements of our nonregulated subsidiaries, o inability to recover all costs associated with providing electric retail customers service during the electric rate freeze period, and o implications from the transfer of BGE's generation assets and related liabilities to nonregulated subsidiaries of Constellation Energy, including the outcome of an appeal of the Maryland PSC's Order regarding the transfer of generation assets. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the SEC for more information on these factors. These forward-looking statements represent our estimates and assumptions only as of the date of this report. 37 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit No. 3 By-laws of Constellation Energy Group, Inc. Exhibit No. 12(a) Constellation Energy Group, Inc. Computation of Ratio of Earnings to Fixed Charges. Exhibit No. 12(b) Baltimore Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements. Exhibit No. 27(a) Constellation Energy Group, Inc. Financial Data Schedule. Exhibit No. 27(b) Baltimore Gas and Electric Company Financial Data Schedule. (b) Reports on Form 8-K for the quarter ended September 30, 2000: Date Filed Items Reported July 7, 2000 Item 2. Acquisition or Disposition of Assets Item 7. Financial Statements and Exhibits 38 SIGNATURE --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONSTELLATION ENERGY GROUP, INC. -------------------------------- (Registrant) BALTIMORE GAS AND ELECTRIC COMPANY ---------------------------------- (Registrant) Date: November 14, 2000 /s/ D. A. Brune - ------------------------ ---------------------------------- D. A. Brune, Vice President on behalf of each Registrant and as Principal Financial Officer of each Registrant 39 EX-12 2 0002.txt EXHIBIT 12 (A) CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
12 Months Ended -------------------------------------------------------------------------------------- September December December December December December 2000 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- (In Millions of Dollars) Income from Continuing Operations (Before Extraordinary Loss) $ 298.7 $ 326.4 $ 305.9 $ 254.1 $ 272.3 $ 297.4 Taxes on Income, Including Tax Effect for BGE Preference Stock Dividends 192.3 182.5 169.3 145.1 148.3 152.0 ----------- ----------- ----------- ----------- ----------- ----------- Adjusted Income $ 491.0 $ 508.9 $ 475.2 $ 399.2 $ 420.6 $ 449.4 ----------- ----------- ----------- ----------- ----------- ----------- Fixed Charges: Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness $ 256.5 $ 245.7 $ 255.3 $ 234.2 $ 203.9 $ 206.7 Earnings required for BGE Preference Stock Dividends 21.4 21.0 33.8 45.1 59.4 61.0 Capitalized Interest 11.6 2.7 3.6 8.4 15.7 15.0 Interest Factor in Rentals 2.2 1.8 1.9 1.9 1.5 2.1 ----------- ----------- ----------- ----------- ----------- ----------- Total Fixed Charges $ 291.7 $ 271.2 $ 294.6 $ 289.6 $ 280.5 $ 284.8 ----------- ----------- ----------- ----------- ----------- ----------- Earnings (1) $ 771.1 $ 777.4 $ 766.2 $ 680.4 $ 685.4 $ 719.2 =========== =========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges 2.64 2.87 2.60 2.35 2.44 2.52
(1) Earnings are deemed to consist of income from continuing operations (before extraordinary loss) that includes earnings of Constellation Energy's consolidated subsidiaries, equity in the net income of BGE's unconsolidated subsidiary, income taxes (including deferred income taxes, investment tax credit adjustments, and the tax effect of BGE's preference stock dividends), and fixed charges other than capitalized interest. EX-12 3 0003.txt EXHIBIT 12 (B) BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
12 Months Ended -------------------------------------------------------------------------------------- September December December December December December 2000 1999 1998 1997 1996 1995 ----------- ---------- ----------- ----------- ----------- ----------- (In Millions of Dollars) Income from Continuing Operations (Before Extraordinary Loss) $ 146.0 $ 328.4 $ 327.7 $ 282.8 $ 310.8 $ 338.0 Taxes on Income 91.0 182.0 181.3 161.5 169.2 172.4 ----------- ---------- ----------- ----------- ----------- ----------- Adjusted Income $ 237.0 $ 510.4 $ 509.0 $ 444.3 $ 480.0 $ 510.4 ----------- ---------- ----------- ----------- ----------- ----------- Fixed Charges: Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness $ 184.1 $ 206.4 $ 255.3 $ 234.2 $ 203.9 $ 206.7 Capitalized Interest - 0.4 3.6 8.4 15.7 15.0 Interest Factor in Rentals 0.9 1.0 1.9 1.9 1.5 2.1 ----------- ---------- ----------- ----------- ----------- ----------- Total Fixed Charges $ 185.0 $ 207.8 $ 260.8 $ 244.5 $ 221.1 $ 223.8 ----------- ---------- ----------- ----------- ----------- ----------- Preferred and Preference Dividend Requirements: (1) Preferred and Preference Dividends $ 13.2 $ 13.5 $ 21.8 $ 28.7 $ 38.5 $ 40.6 Income Tax Required 8.2 7.5 12.0 16.4 20.9 20.4 ----------- ---------- ----------- ----------- ----------- ----------- Total Preferred and Preference Dividend Requirements $ 21.4 $ 21.0 $ 33.8 $ 45.1 $ 59.4 $ 61.0 ----------- ---------- ----------- ----------- ----------- ----------- Total Fixed Charges and Preferred and Preference Dividend Requirements $ 206.4 $ 228.8 $ 294.6 $ 289.6 $ 280.5 $ 284.8 =========== ========== =========== =========== =========== =========== Earnings (2) $ 422.0 $ 717.8 $ 766.2 $ 680.4 $ 685.4 $ 719.2 =========== ========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges 2.28 3.45 2.94 2.78 3.10 3.21 Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements 2.04 3.14 2.60 2.35 2.44 2.52
(1) Preferred and preference dividend requirements consist of an amount equal to the pre-tax earnings that would be required to meet dividend requirements on preferred stock and preference stock. (2) Earnings are deemed to consist of income from continuing operations (before extraordinary loss) that includes earnings of BGE's consolidated subsidiaries, equity in the net income of BGE's unconsolidated subsidiary, income taxes (including deferred income taxes and investment tax credit adjustments), and fixed charges other than capitalized interest. EX-27 4 0004.txt EXHIBIT 27 (A)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSTELLATION ENERGY'S SEPTEMBER 30, 2000 INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0001004440 Constellation Energy Group 1,000,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 PER-BOOK 6,288 1,712 3,081 575 0 11,656 1,541 0 1,569 3,152 0 190 2,835 0 0 505 661 0 0 0 4,313 11,656 2,842 178 2,210 2,388 454 7 461 202 259 0 259 189 192 589 1.73 1.73
EX-27 5 0005.txt EXHIBIT 27 (B)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALTIMORE GAS AND ELECTRIC COMPANY'S SEPTEMBER 30, 2000 INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000009466 Baltimore Gas and Electric Company 1,000,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 PER-BOOK 3,150 167 705 553 0 4,575 454 0 309 763 0 190 1,745 0 0 258 310 0 0 0 1,309 4,575 2,070 76 1,745 1,821 249 10 259 139 120 10 110 0 129 476 0 0
EX-3 6 0006.txt BY-LAWS OF CONSTELLATION ENERGY GROUP, INC. BY-LAWS of CONSTELLATION ENERGY GROUP, INC. Amended as of October 20, 2000 ARTICLE I --------- Offices and Headquarters ------------------------ Section 1. - Name. - ------------------ The name of the corporation is Constellation Energy Group, Inc. (the "Corporation"). Section 2. - Offices. - --------------------- The principal office of the Corporation is 250 West Pratt Street, Baltimore, Maryland 21201. The Corporation may also have other offices at such other places, either within or without the State of Maryland, as the Board of Directors of the Corporation (the "Board") may determine or as the activities of the Corporation may require. ARTICLE II ---------- STOCKHOLDERS ------------ Section 1. - Place of Meetings. - ------------------------------- Meetings of stockholders of the Corporation shall be held at such places, either within or without the State of Maryland as may be fixed from time to time by the Board and stated in the notice of meeting or in a duly executed waiver of notice thereof. Section 2. - Annual Meetings. - ----------------------------- The Annual Meeting of the stockholders for the election of Directors and for the transaction of general business shall be held on any date during the period of April 14 through May 13, as determined year to year by the Board. The time and location of the meeting shall be determined by the Board. Failure to hold an Annual Meeting does not invalidate the Corporation's existence or affect any otherwise valid corporate acts. The Chief Executive Officer of the Corporation shall prepare, or cause to be prepared, an annual report containing a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted to the stockholders at or prior to the Annual Meeting. Section 3. - Special Meetings. - ------------------------------ Special meetings of the stockholders may be held in the City of Baltimore or in any county in which the Corporation provides service or owns property upon call by the Chairman of the Board, the President, or a majority of the Board whenever they deem expedient, or by the Secretary upon the written request of the holders of shares entitled to not less than twenty-five percent of all the votes entitled to be cast at such meeting. Such request of the stockholders shall state the purpose or purposes of the meeting and the matters proposed to be acted on thereat and shall be delivered to the Secretary, who shall inform such stockholders of the reasonably estimated cost of preparing and mailing such notice of the meeting, and upon payment to the Corporation of such costs the Secretary shall give notice stating the purpose or purposes of the meeting to all stockholders entitled to vote at such meeting. No special meeting need be called upon the request of the holders of the shares entitled to cast less than a majority of all votes entitled to be cast at such meeting, to consider any matter which is substantially the same as a matter voted upon at any special meeting of the 1 stockholders held during the preceding twelve months. The business at all special meetings shall be confined to that specifically named in the notice thereof. Section 4. - Notice and Waiver; Organization of Meeting. - -------------------------------------------------------- When stockholders are required or permitted to take any action at a meeting whether special or annual, written or printed notice of every meeting shall be given to each stockholder entitled to vote at the meeting and each other stockholder entitled to notice of the meeting. The notice shall state the place, day, and hour of such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written notice of any meeting shall be given, personally or by mail, not less than 10 or more than 90 days before the date of the meeting. If mailed, such notice shall be deemed given when deposited with the United States Postal Service, postage prepaid, addressed to the stockholder at his or her address as it appears on the records of the Corporation or its registrar. The business at all special meetings shall be confined to that specifically named in the notice thereof. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than 120 days, or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which circumstances a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. Notice of any meeting of stockholders may be waived in writing by any stockholders entitled to vote at such meeting. Attendance at a meeting by any stockholder, in person or by proxy, shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. All meetings of the stockholders shall be called to order by the Chairman of the Board, or in his or her absence by the President or a Vice President; or in the case of the absence of such Officers, then by any stockholder. The party calling the meeting to order shall be Chairman of the meeting. The Secretary of the Corporation, if present, shall act as secretary of the meeting, unless some other person shall be elected by the stockholders at the meeting to act as secretary. An accurate record of the meeting shall be kept by the secretary thereof, and placed in the record books of the Corporation. Section 5. - Order of Business. - ------------------------------- (a) At any Annual Meeting, only such business shall be conducted as shall have been brought before the Annual Meeting (i) by or at the direction of the Board, or (ii) by any stockholder who complies with the procedures set forth in this Section 5. (b) For nominations or other business to be brought properly before an Annual Meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal office of the Corporation not less than 75 days prior to the anniversary of the date on which notice of the prior year's Annual Meeting was given to stockholders in accordance with Section 4 of this Article II. Notices by facsimile will not be accepted by the Secretary of the Corporation. To be in proper written form, a stockholder's notice to the Secretary shall set forth in writing as to each matter the stockholder proposes to bring before the Annual Meeting: 2 (i) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act") or any applicable successor provisions thereto, including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected; and as to the stockholder giving the notice, the name and address, as they appear on the Corporation's books, of the stockholder proposing such nomination and the class and number of shares of stock of the Corporation which are beneficially owned by the stockholder. (ii) as to any other business that the stockholder proposes to bring before the meeting: (A) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting; (B) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (C) the class and number of shares of stock of the Corporation which are beneficially owned by the stockholder; and (D) any material interest of the stockholder in such business. (c) Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at an Annual Meeting except in accordance with the procedures set forth in this Section 5 of Article II. The Chairman of an Annual Meeting shall, if the facts warrant, determine and declare at the Annual Meeting that business was not properly brought before the Annual Meeting in accordance with the provisions of this Section 5 of Article II and, if the Chairman should so determine, he or she shall so declare at the Annual Meeting and any such business not properly brought before the Annual Meeting shall not be transacted. (d) Notwithstanding the foregoing provisions of this Section, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section. Nothing in this Section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 6. - Quorum. - -------------------- At any meeting of the stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall constitute a quorum for the transaction of business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any stockholders. The stockholders present, although less than a quorum, may adjourn the meeting to another time or place; provided that notice of such adjourned meeting is given in accordance with the provisions of Section 4 of this Article II. Section 7. - Voting; Proxies. - ----------------------------- At all meetings of the stockholders each stockholder shall be entitled to one vote for each share of Common Stock standing in his or 3 her name and, when the Preferred Stock is entitled to vote, such number of votes as shall be provided in the Charter of the Corporation for each share of Preferred Stock standing in his or her name, and the votes shall be cast by stockholders in person or by lawful proxy. However, no proxy shall be voted 11 months after the date thereof, unless the proxy provides for a longer period. Section 8. - Control Shares. - ------------ --------------- Notwithstanding any other provision of the Charter of the Corporation or these by-laws, Title 3, Subtitle 7 of the Maryland General Corporation Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor by-law, apply to any prior or subsequent control share acquisition. Section 9. - Method of Voting. - ------------------------------ All elections and all other questions shall be decided by a majority of the votes cast, at a meeting at which a quorum is present, except as expressly provided otherwise by the general laws of the State of Maryland or the Charter and except that Directors shall be elected by a plurality of the votes cast. Section 10. - Ownership of its Own Stock. - ----------------------------------------- Shares of capital stock of the Corporation held by either (i) the Corporation or (ii) another corporation, if a majority of the shares entitled to vote in the election of Directors of such other corporation is held, directly or indirectly, by the Corporation (a "Controlled Corporation"), shall neither be entitled to vote nor be counted for quorum purposes. Nothing in this Section 9 shall be construed as limiting the right of the Corporation or any Controlled Corporation to vote stock of the Corporation held by it in a fiduciary capacity. Section 11. - Judge of Election and Tellers. - -------------------------------------------- The Directors shall, at a regular or special meeting, appoint a Judge of Election and two Tellers to serve at each meeting of stockholders. If the Directors fail to make such appointments, or if the Judge of Election and/or Tellers, or any of them, fail to appear at the meeting, the Chairman of the meeting shall appoint a Judge of Election and/or a Teller or Tellers to serve at that meeting. It shall be the duty of the Tellers to receive the ballots of all the holders of stock entitled to vote and present at a meeting either in person or by proxy, and to count and tally said ballots by the official record of stockholders of the Corporation, or by a summary prepared therefrom and certified by the Stock Transfer Agent or the Secretary of the Corporation showing the number of shares of Common and, if entitled to vote, Preferred Stock owned of record by each stockholder, who may be designated therein by name, code number, or otherwise, and certify them to the Judge of Election, and the said Judge shall communicate in writing the result of the balloting so certified by the Tellers to the Chairman who shall at once announce the same to the meeting. This certificate, signed by the Tellers and countersigned by the Judge, shall be duly recorded as part of the minutes of the meeting and filed among the records of the Corporation. Section 12.- Record Date for Stockholders; Closing of Transfer Books. - ----------------------------------------------------------------------- The Board may fix, in advance, a date as the record for the determination of the stockholders entitled to notice of, or to vote at, any meeting of stockholders, or entitled to receive payment of any dividend, or entitled to the allotment of any rights, or for any other proper purpose. Such date in any case shall not be more than 90 days (and in the case of a meeting of stockholders not less than 10 days) prior to the date on which the particular action requiring such determination of stockholders is to be taken. Only stockholders of record on such date shall be entitled to notice of or to vote at such meeting or to receive such dividends or rights, as the case may be. In lieu of fixing a record date the Board may close the stock transfer books of the Corporation for a period not exceeding 20 nor less than 10 days preceding the date of any meeting of stockholders or not exceeding 20 days preceding any other of the above mentioned events. 4 ARTICLE III ----------- BOARD OF DIRECTORS AND COMMITTEES --------------------------------- Section 1. - Powers of Directors - -------------------------------- The business and affairs of the Corporation shall be managed by the Board which shall have and may exercise all the powers of the Corporation, except such as are expressly conferred upon or reserved by the stockholders by law, by Charter, or by these by-laws. Except as otherwise provided herein, the Board shall appoint the Officers for the conduct of the business of the Corporation, determine their duties and responsibilities and fix their compensation. The Board may remove any Officer. Section 2. - Number and Election of Directors. - ---------------------------------------------- The number of Directors shall be eighteen (18) or such number as the Board of Directors shall determine by amendment to these by-laws. Each Director shall own at least 300 shares of the Corporation's Common Stock. The Directors shall be grouped into three classes, Class I, Class II and Class III. Directors in each class shall serve a term of three years and until their successors are elected and qualified, or until their earlier resignation or removal. A separate class will be elected at each Annual Meeting of the stockholders except as otherwise provided in these by-laws. Section 3. - Vacancies. - ----------------------- Any vacancy occurring in the Board from any cause other than by reason of an increase in the number of Directors may be filled only by a majority of the remaining Directors although such majority is less than a quorum or by a sole remaining Director. Any vacancy occurring by reason of an increase in the number of Directors may be filled only by a majority of Directors. A Director filling a vacancy within one of the three classes discussed in Section 2 of Article III shall hold office until the three-year term of the class expires, and until his or her successor is elected and qualified, or until his or her earlier resignation or removal. Section 4. - Resignations. - -------------------------- Any Director of the Corporation may resign at any time by giving written notice to the Corporation. Such resignation shall take effect at the time specified therein, if any, or if no time is specified therein, then upon receipt of such notice by the Corporation; and, unless otherwise provided therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. - Meetings of the Board. - ----------------------------------- A regular meeting of the Board shall be held immediately after the Annual Meeting of stockholders or any special meeting of the stockholders at which the Board is elected, and thereafter regular meetings of the Board shall be held on such dates during the year as may be designated from time to time by the Board. All meetings of the Board shall be held at the general offices of the Corporation in the City of Baltimore or elsewhere, as ordered by the Board. Of all such meetings (except the regular meeting held immediately after the election of Directors) the Secretary shall give notice to each Director personally or by telephone, by facsimile directed to, or by written notice deposited in the mails addressed to, his or her residence or business address at least 48 hours before such meeting. Special meetings may be held at any time or place upon the call of the Chairman of the Board, or the President, or in their absence, on order of the Executive Committee by notices as above. In the event three- fourths of the Directors in office waive notice of any meeting in writing at or before the meeting, the meeting may be held without the aforesaid advance notices. 5 The Chairman shall preside at all meetings of the Board, or, in his or her absence, the President or one of the Vice Presidents (if a member of the Board) shall preside. If at any meeting none of the foregoing persons is present, the Directors present shall designate one of their number to preside at such meeting. Section 6. - Telephone Meetings Permitted. - ------------------------------------------ Members of the Board, or any committee, may participate in a meeting thereof by means of conference telephone or similar communications equipment in which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 7. - Quorum. - -------------------- A majority of the Directors in office shall constitute a quorum of the Board for the transaction of business. If a quorum be not present at any meeting, a majority of the Directors present may adjourn to any time and place they may see fit. Section 8. - Executive Committee. - --------------------------------- The Directors shall annually, at their first meeting succeeding the stockholders' meeting at which they are elected, elect from among their number an Executive Committee of at least three. The Executive Committee may exercise, in the intervals between meetings of the Board, all of the powers of the Board in the management of the business and affairs of the Corporation, except the power to declare dividends, to issue stock other than as hereinafter stated, to recommend to stockholders any action requiring stockholder approval, amend the by-laws, or approve any merger or share exchange which does not require stockholder approval. If the Board has given general authorization for the issuance of stock, the Executive Committee, in accordance with a general formula or method specified by the Board by resolution or by adoption of a stock option or other plan, may fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board. The members of the Executive Committee shall hold their offices as such for one year and until their successors are elected and qualified, or until their earlier resignation or removal. All vacancies in said Committee shall be filled by the Board, but in the absence of a member or members of the Executive Committee, the members thereof present at any meeting (whether or not they constitute a quorum) may appoint a member of the Board to act in the place of such absent member. They shall designate one of their number as Chairman of the Committee, and shall keep a separate book of minutes of their proceedings and actions. They shall elect a Secretary to the Committee who shall give notice personally or by mail, telephone, or facsimile to each member of the Committee of all meetings, not later than 12 noon of the day before the meeting, unless a majority of the members of the Executive Committee in office waive notice thereof in writing at or before the meeting in which case the meeting may be held without the aforesaid advance notice. Meetings may be called by the Chairman of the Committee or by the Chief Executive Officer, or, in the event of their absence, by one of the other Officers among the Chairman of the Board, the President or the Vice Presidents (if a member of the Board). A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. Section 9. - Audit Committee. - ----------------------------- The Directors shall annually, at their first meeting succeeding the stockholders' meeting at which they are elected, elect from among their number an Audit Committee which shall consist of at least three Directors who 6 shall be independent of Management and free from any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a Committee member, provided that no Director who was formerly an Officer of the Corporation shall be a member of the said Audit Committee. The members of the Audit Committee shall hold their offices as such for one year and until their successors are elected and qualified, or until their earlier resignation or removal. All vacancies in said Committee shall be filled by the Board. They shall designate one of their number as Chairman of the Committee, and shall keep a separate book of minutes of their proceedings and actions. They shall elect a Secretary to the Committee who shall give notice personally or by mail, telephone, or facsimile to each member of the Committee of all meetings, not later than 12 noon of the day before the meeting, unless a majority of the members of the Audit Committee in office waive notice thereof in writing at or before the meeting in which case the meeting may be held without the aforesaid advance notice. A majority of the members of the Audit Committee shall constitute a quorum for the transaction of business. In order to provide for direct communication between representatives of the Board and the Independent Auditors for the Corporation, the Audit Committee, in furtherance of this charge, shall have the following duties and responsibilities: (1) To recommend to the Board the public accounting firm (the "Independent Auditors") to be engaged to conduct the annual financial audit of the Corporation. (2) To discuss with such Independent Auditors the scope of their examination which shall be in accordance with generally accepted auditing standards with appropriate reports thereon to be submitted to the Board. (3) To review with the Independent Auditors and appropriate financial officers and Management of the Corporation, the annual financial statements and the Independent Auditors' report thereon. (4) To invite comments and recommendations from the Independent Auditors regarding the need for and/or results of the reviews of those financial statements and other documents and data reviewed or certified by such Independent Auditors. (5) To invite comments and recommendations from the Independent Auditors regarding the system of internal controls, accounting policies and practices, and any other related matters employed by the Corporation. (6) To meet with the Corporation's internal auditor in order to ensure, as a part of the system of internal controls, that an adequate program of internal auditing is being continuously carried out, to determine that the Corporation's internal audit staff is adequate and to review the findings of such staff's investigations. (7) To report periodically regarding its activities to the Board and to make such recommendations and findings concerning any audit or audit-related matter as the Audit Committee deems appropriate. Section 10. - Committee On Management. - -------------------------------------- The Directors shall annually, at their first meeting succeeding the stockholders' meeting at which they are elected, elect from among their number a Committee on Management consisting of at least three members. The members of the Committee on Management shall hold their offices as such for one year and until their successors are elected and qualified, or until their earlier resignation or removal. All vacancies in said Committee shall be filled by the Board. They shall designate one of their number as Chairman of the Committee, and shall keep a separate book 7 of minutes of their proceedings and actions. They shall elect a Secretary to the Committee who shall give notice personally or by mail, telephone, or facsimile to each member of the Committee of all meetings, not later than 12 noon of the day before the meeting, unless a majority of the members of the Committee on Management in office waive notice thereof in writing at or before the meeting in which case the meeting may be held without the aforesaid advance notice. A majority of the members of the Committee on Management shall constitute a quorum for the transaction of business. The Committee on Management shall recommend to the Board nominees for election as Directors and shall consider the performance of incumbent Directors in determining whether to nominate them to stand for reelection. The Committee shall, among other things, consider any major changes in the organization of the Corporation. It shall recommend to the Board the remuneration arrangements for Officers and Directors of the Corporation. The Committee shall recommend to the full Board nominees for Officers of the Corporation. The Committee on Management shall have such additional powers and perform such duties as shall be prescribed by resolution of the Board. Section 11. - Other Committees. - ------------------------------- The Board is authorized to appoint from among its members such other committees as it may, from time to time, deem advisable and to delegate to such committee or committees any of the powers of the Board that it may lawfully delegate. Each such committee shall consist of at least three Directors. Section 12. - Fees and Expenses. - -------------------------------- Each member of the Board, other than salaried Officers and employees, shall be paid an annual retainer fee, payable in quarterly installments, in such amount as shall be specified from time to time by the Board. Each Committee Chair shall be paid an annual retainer fee, payable in quarterly installments, in such amount as shall be specified from time to time by the Board. Each member of the Board, other than salaried Officers and employees, shall be paid such fee as shall be specified from time to time by the Board for attending each regular or special meeting of the Board and for attending, as a committee member, each meeting of the Executive Committee, Audit Committee, Committee on Management and any other committee appointed by the Board. Each member shall be paid reasonable traveling expenses incident to attendance at meetings. ARTICLE IV ---------- OFFICERS -------- Section 1. - Officers. - ---------------------- The Corporation shall have a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, and a Secretary who shall be elected by, and hold office at the will of, the Board. The Chairman of the Board and the President shall be chosen from among the Directors. The Board shall designate either the Chairman of the Board or the President to be the Chief Executive Officer of the Corporation. The Board shall also elect such other Officers as they may deem necessary for the conduct of the business and affairs of the Corporation. Any two offices, except those of President and Vice President, may be held by the same person, but no person shall sign checks, drafts and promissory notes, or execute, acknowledge or verify any other instrument in more than one capacity, if such instrument is required by law, the Charter, these by-laws, a resolution of the Board or order of the Chief Executive Officer to be signed, executed, acknowledged or 8 verified by two or more Officers. The President, any Vice President, or such other persons as may be designated by the Board, shall sign all special contracts of the Corporation, countersign checks, drafts and promissory notes, and such other papers as may be directed by the Board. The President, or any Vice President, together with the Treasurer or an Assistant Treasurer (if any), shall have authority to sell, assign or transfer and deliver any bonds, stocks or other securities owned by the Corporation. The Chairman of the Board, President and Vice Presidents shall receive such compensation as shall be fixed by the Board. Compensation for Officers other than the Chairman of the Board, President and Vice Presidents shall be fixed by the Chief Executive Officer. The Board shall require a fidelity bond to be given by each Officer, or, in its discretion, the Board may substitute a general blanket fidelity bond or insurance contract to cover all Officers and employees. Section 2. - Duties of the Officers. - ------------------------------------ (a) Chairman of the Board The Chairman of the Board shall preside at all meetings of the Board and of stockholders. The Chairman of the Board shall also have such other powers and duties as from time to time may be assigned by the Board. (b) President The President shall have general executive powers, as well as specific powers conferred by these by-laws. The President shall also have such other powers and duties as from time to time may be assigned by the Board. In the absence of the Chairman of the Board, the President shall perform all the duties of the Chairman of the Board. (c) Vice Presidents Each Vice President shall have such powers and duties as may be assigned by the Board or the Chief Executive Officer, as well as the specific powers assigned by these by-laws. A Vice President may be designated by the Board or the Chief Executive Officer to perform, in the absence of the President, all the duties of the President. (d) Treasurer The Treasurer shall have the care and the custody of the funds and valuable papers of the Corporation, and shall receive and disburse all moneys in such a manner as may be prescribed by the Board or the Chief Executive Officer. The Treasurer shall have such other powers and duties as may be assigned by the Board, or the Chief Executive Officer, as well as specific powers assigned by these by-laws. (e) Secretary The Secretary shall attend all meetings of the stockholders and Directors and shall notify the stockholders and Directors of such meetings in the manner provided in these by-laws. The Secretary shall record the proceedings of all such meetings in books kept for that purpose. The Secretary shall have such other powers and duties as may be assigned by the Board or the Chief Executive Officer, as well as the specific powers assigned by these by-laws. (f) Other Officers Such other Officers as are appointed by the Board shall exercise such duties and have such powers as by custom and applicable law generally pertain to their respective offices as well as such duties and powers as the Board or the Chief Executive Officer may assign. Section 3. - Terms of Office; Removals and Vacancies. - ----------------------------------------------------- 9 Any Officer may be removed by the Board in its sole judgment. In case of removal, the salary of such Officer shall cease. Removal shall be without prejudice to the contractual rights, if any, of the person so removed, but election of an Officer shall not of itself create contractual rights. Each Officer shall hold office until his or her successor is elected and qualified or until his or her earlier removal or resignation. Any vacancy occurring in any office of the Corporation shall be filled by the Board and the Officer so elected shall hold office for the unexpired term in respect of which the vacancy occurred and until his or her successor shall be duly elected and qualified. In any event of absence or temporary disability of any Officer of the Corporation, the Board may authorize another person to perform the duties of that office. Section 4. - Voting Securities Owned by the Corporation. - -------------------------------------------------------- Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman, the President or any Vice President and any such Officer may, in the name of and on behalf of the Corporation, take all such action as any such Officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE V --------- INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- Section 1. - Procedure. - ----------------------- The Corporation shall indemnify all Directors, Officers and employees to the fullest extent permitted by the general laws of the State of Maryland and shall provide indemnification expenses in advance to the extent permitted thereby. The Corporation will follow the procedures required by applicable law in determining persons eligible for indemnification and in making indemnification payments and advances. Section 2. - Exclusivity, etc. - ------------------------------ The indemnification and advance of expenses provided by the Charter and these by-laws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advance of expenses may be entitled under any law (common or statutory), or any agreement, vote of stockholders or disinterested Directors or other provision that is consistent with law, both as to action in his or her official and administrators of such person. All rights to indemnification and advance of expenses under the Charter of the Corporation and hereunder shall be deemed to be a contract between the Corporation and each Director or Officer of the Corporation who serves or served in such capacity at any time while this by-law is in effect. Nothing herein shall prevent the amendment of this by-law, provided that no such amendment shall diminish the rights of any person hereunder with respect to events occurring or claims made before its adoption or as to claims made after its adoption in respect of events occurring before its adoption. Any repeal or modification of this by-law shall not in any way diminish any rights to indemnification or advance of expenses of such Director or Officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this by-law or any provision hereof is in force. 10 Section 3. - Severability; Definitions. - --------------------------------------- The invalidity or unenforceability of any provision of this Article V shall not affect the validity or enforceability of any other provision hereof. The phrase "this by-law" in this Article V means this Article V in its entirety. ARTICLE VI ---------- Capital Stock ------------- Section 1. - Evidence of Stock Ownership. - ----------------------------------------- Evidence of ownership of stock in the Corporation may be either pursuant to a certificate(s) or a statement in compliance with the general laws of the State of Maryland, each of which shall represent the number of shares of stock owned by a stockholder in the Corporation. Stockholders may request that their stock ownership be represented by a certificate(s). In case any Officer who signed any certificate, in facsimile or otherwise, ceases to be such Officer of the Corporation before the certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if the Officer had not ceased to be such Officer as of the date of its issue. For stock ownership evidenced by a statement, such statement shall be in such form, and executed, as required from time to time by the general laws of the State of Maryland. Section 2. - Transfer of Shares. - -------------------------------- Stock shall be transferable only on the books of the Corporation by assignment in writing by the registered holder thereof, his or her legally constituted attorney, or his or her legal representative, either upon surrender and cancellation of the certificate(s) therefor, if such stock is represented by a certificate, or upon receipt of such other documentation for stock not represented by a certificate as the Board and the general laws of the State of Maryland may, from time to time, require. Section 3. - Lost, Stolen or Destroyed Certificates. - ---------------------------------------------------- No certificate for shares of stock of the Corporation shall be issued in place of any other certificate alleged to have been lost, stolen, or destroyed, except upon production of such evidence of the loss, theft or destruction and upon indemnification of the Corporation to such extent and in such manner as the Board may prescribe. Section 4. - Transfer Agents and Registrars. - -------------------------------------------- The Board shall appoint a person or persons, the Corporation or any incorporated trust company or companies or any of them, as transfer agents and registrars and, if stock is represented by a certificate, may require that such certificate bear the signatures or the counter-signatures of such transfer agents and registrars, or either of them. Section 5. - Stock Ledger. - -------------------------- The Corporation shall maintain at its principal office, a stock record containing the names and addresses of all stockholders and the numbers of shares of each class held by each stockholder. 11 ARTICLE VII ----------- Miscellaneous ------------- Section 1. - Seal. - ------------------ The Board shall provide, subject to change, a suitable corporate seal which may be used by causing it, or facsimile thereof, to be impressed or affixed or reproduced on the Corporation's stock certificates, bonds, or any other documents on which the seal may be appropriate. Section 2. - Amendments. - ------------------------ These by-laws, or any of them, may be amended or repealed, and new by-laws may be made or adopted only at any meeting of the Board, by vote of a majority of the Directors or at a meeting of the shareholders, duly called, by a vote of two-thirds of the shareholders eligible to vote thereon. Section 3. - Section Headings and Statutory References. - ------------------------------------------------------- The headings of the Articles and Sections of these by-laws have been inserted for convenience of reference only and shall not be deemed to be a part of these by-laws. 1 I HEREBY CERTIFY that the foregoing is a true copy of the by-laws of Constellation Energy Group, Inc. in effect at the date hereof. IN WITNESS WHEREOF I have hereunto set my hand as Assistant Secretary of said Company and affixed its corporate seal this 27th day of October, 2000. Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----