10-Q

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TABLE OF CONTENTS

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, 2009

Commission File Number	Exact name of registrant as specified in its charter	IRS Employer Identification No.
1-12869	CONSTELLATION ENERGY GROUP, INC.	52-1964611

100 CONSTELLATION WAY,                BALTIMORE, MARYLAND                21202
                                         (Address of principal executive offices)                (Zip Code)

410-470-2800
(Registrant's telephone number, including area code)

1-1910 BALTIMORE GAS AND ELECTRIC COMPANY 52-0280210

2 CENTER PLAZA, 110 WEST FAYETTE STREET,                BALTIMORE, MARYLAND                21202
                                         (Address of principal executive offices)                (Zip Code)

410-234-5000
(Registrant's telephone number, including area code)

MARYLAND
(State of Incorporation of both registrants)

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 ý        No o

         Indicate by check mark whether Constellation Energy Group, Inc. has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý        No o

         Indicate by check mark whether Baltimore Gas and Electric Company has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o        No o

         Indicate by check mark whether Constellation Energy Group, Inc. is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company o

         Indicate by check mark whether Baltimore Gas and Electric Company is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer ý Smaller reporting company o

         Indicate by check mark whether Constellation Energy Group, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o        No ý

         Indicate by check mark whether Baltimore Gas and Electric Company is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o        No ý

Common Stock, without par value 200,899,295 shares outstanding
of Constellation Energy Group, Inc. on October 30, 2009.

         Baltimore Gas and Electric Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form in the reduced disclosure format.

TABLE OF CONTENTS

			Page
Part I—Financial Information			3
	Item 1—Financial Statements		3
		Constellation Energy Group, Inc. and Subsidiaries
		Consolidated Statements of Income (Loss)	3
		Consolidated Statements of Comprehensive Income (Loss)	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Cash Flows	6
		Baltimore Gas and Electric Company and Subsidiaries
		Consolidated Statements of Income (Loss)	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		44
		Introduction and Overview	44
		Business Environment	44
		Events of 2009	45
		Results of Operations	47
		Financial Condition	64
		Capital Resources	70
	Item 3—Quantitative and Qualitative Disclosures About Market Risk		76
	Items 4 and 4(T)—Controls and Procedures		76
Part II—Other Information			77
	Item 1—Legal Proceedings		77
	Item 2—Issuer Purchases of Equity Securities		77
	Item 5—Other Information		78
	Item 6—Exhibits		79
	Signature		80

2

PART 1—FINANCIAL INFORMATION

Item 1—Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

		Three Months Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
		(In millions, except per share amounts)
Revenues
	Nonregulated revenues	$	3,161.7		$	4,351.0		$	9,371.3		$	12,187.2
	Regulated electric revenues		788.3			822.3			2,250.8			1,980.3
	Regulated gas revenues		77.7			150.3			573.1			724.4
	Total revenues		4,027.7			5,323.6			12,195.2			14,891.9
Expenses
	Fuel and purchased energy expenses		2,650.4			4,318.0			8,555.2			11,620.5
	Operating expenses		587.7			482.9			1,730.6			1,784.5
	Merger termination and strategic alternatives costs		4.9			39.2			51.2			39.2
	Impairment losses and other costs		7.5			477.1			103.3			477.1
	Workforce reduction costs		0.4			2.2			11.6			2.2
	Depreciation, depletion, and amortization		149.3			134.3			446.8			424.5
	Accretion of asset retirement obligations		18.5			17.2			54.6			50.8
	Taxes other than income taxes		74.4			81.1			224.7			227.0
	Total expenses		3,493.1			5,552.0			11,178.0			14,625.8
Net (loss) gain on divestitures			(0.3	)		—			(464.4	)		91.5
Income (Loss) from Operations			534.3			(228.4	)		552.8			357.6
Other Income (Expense)			38.7			(15.8	)		23.3			42.2
Fixed Charges
	Interest expense		129.7			100.0			406.8			252.3
	Interest capitalized and allowance for borrowed funds used during construction		(22.5	)		(10.5	)		(65.7	)		(26.2	)
	Total fixed charges		107.2			89.5			341.1			226.1
Income (Loss) from Operations Before Income Taxes			465.8			(333.7	)		235.0			173.7
Income Tax Expense (Benefit)			298.4			(111.6	)		159.0			71.4
Net Income (Loss)			167.4			(222.1	)		76.0			102.3
Less: Net Income Attributable to Noncontrolling Interests and BGE Preference Stock Dividends			29.8			3.6			53.8			10.8
Net Income (Loss) Attributable to Common Stock		$	137.6		$	(225.7	)	$	22.2		$	91.5
Average Shares of Common Stock Outstanding—Basic			199.6			178.4			199.1			178.3
Average Shares of Common Stock Outstanding—Diluted			200.8			179.5			199.9			180.0
Earnings (Loss) Per Common Share—Basic		$	0.69		$	(1.27	)	$	0.11		$	0.51
Earnings (Loss) Per Common Share—Diluted		$	0.69		$	(1.27	)	$	0.11		$	0.51
Dividends Declared Per Common Share		$	0.24		$	0.4775		$	0.72		$	1.4325

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

				Three Months Ended September 30,						Nine Months Ended September 30,
				2009			2008			2009			2008
				(In millions)
Net Income (Loss)				$	167.4		$	(222.1	)	$	76.0		$	102.3
	Other comprehensive income (OCI)
		Hedging instruments:
			Reclassification of net loss (gain) on hedging instruments from OCI to net (loss) income, net of taxes		358.9			(166.4	)		1,218.3			(88.4	)
			Net unrealized loss on hedging instruments, net of taxes		(29.9	)		(1,059.4	)		(414.8	)		(186.0	)
		Available-for-sale securities:
			Reclassification of net (gain) loss on sales of securities from OCI to net (loss) income, net of taxes		(2.6	)		8.9			26.9			10.5
			Net unrealized gain (loss) on securities, net of taxes		56.7			(79.1	)		75.6			(107.8	)
		Defined benefit obligations:
			Amortization of net actuarial loss, prior service cost, and transition obligation included in net periodic benefit cost, net of taxes		7.4			5.4			29.5			15.9
		Net unrealized gain on foreign currency, net of taxes			2.4			0.5			6.9			0.1
	Comprehensive income (loss)				560.3			(1,512.2	)		1,018.4			(253.4	)
		Less: Comprehensive income attributable to noncontrolling interests, net of taxes			29.8			3.6			53.8			10.8
Comprehensive Income (Loss) Attributable to Common Stock				$	530.5		$	(1,515.8	)	$	964.6		$	(264.2	)

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

3

CONSOLIDATED BALANCE SHEETS

Constellation Energy Group, Inc. and Subsidiaries

			September 30, 2009*			December 31, 2008
			(In millions)
Assets
	Current Assets
		Cash and cash equivalents	$	742.6		$	202.2
		Accounts receivable (net of allowance for uncollectibles of $180.9 and $240.6, respectively)		2,217.1			3,389.9
		Fuel stocks		303.8			717.9
		Materials and supplies		224.4			224.5
		Derivative assets		582.8			1,465.0
		Unamortized energy contract assets		89.8			81.3
		Restricted cash		48.9			1,030.5
		Deferred income taxes		346.0			268.0
		Other		264.7			815.5
		Total current assets		4,820.1			8,194.8
Investments and Other Noncurrent Assets
		Nuclear decommissioning trust funds		1,200.4			1,006.3
		Other investments		350.0			421.0
		Regulatory assets (net)		434.1			494.7
		Goodwill		25.4			4.6
		Derivative assets		917.7			851.8
		Unamortized energy contract assets		212.5			173.1
		Other		292.0			421.3
		Total investments and other noncurrent assets		3,432.1			3,372.8
Property, Plant and Equipment
		Property, plant and equipment		16,148.0			15,285.6
		Nuclear fuel (net of amortization)		528.4			443.0
		Accumulated depreciation		(5,222.6	)		(5,012.1	)
		Net property, plant and equipment		11,453.8			10,716.5
	Total Assets		$	19,706.0		$	22,284.1

*  Unaudited
See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

4

CONSOLIDATED BALANCE SHEETS

Constellation Energy Group, Inc. and Subsidiaries

				September 30, 2009*			December 31, 2008
				(In millions)
Liabilities and Equity
	Current Liabilities
		Short-term borrowings		$	334.9		$	855.7
		Current portion of long-term debt			1,333.6			2,591.5
		Accounts payable and accrued liabilities			1,368.9			2,370.1
		Customer deposits and collateral			105.4			120.3
		Derivative liabilities			823.1			1,241.8
		Unamortized energy contract liabilities			397.4			393.5
		Accrued expenses			393.9			373.1
		Other			447.7			514.2
		Total current liabilities			5,204.9			8,460.2
	Deferred Credits and Other Noncurrent Liabilities
		Deferred income taxes			1,223.2			677.0
		Asset retirement obligations			1,040.8			987.3
		Derivative liabilities			964.8			1,115.0
		Unamortized energy contract liabilities			682.3			906.4
		Defined benefit obligations			1,049.5			1,354.3
		Deferred investment tax credits			39.6			44.1
		Other			365.8			249.6
		Total deferred credits and other noncurrent liabilities			5,366.0			5,333.7
	Long-term Debt, Net of Current Portion				4,839.6			5,098.7
	Equity
		Common shareholders' equity:
			Common stock		3,213.0			3,164.5
			Retained earnings		2,089.4			2,228.7
			Accumulated other comprehensive loss		(1,269.4	)		(2,211.8	)
		Total common shareholders' equity			4,033.0			3,181.4
		BGE preference stock not subject to mandatory redemption			190.0			190.0
		Noncontrolling interests			72.5			20.1
		Total equity			4,295.5			3,391.5
	Commitments and Contingencies (see Notes)
	Total Liabilities and Equity			$	19,706.0		$	22,284.1

* Unaudited
See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

Nine Months Ended September 30,				2009			2008
				(In millions)
Cash Flows From Operating Activities
	Net income			$	76.0		$	102.3
	Adjustments to reconcile to net cash provided by operating activities
		Depreciation, depletion, and amortization			446.8			424.5
		Amortization of nuclear fuel			102.7			91.2
		Amortization of energy contracts			(149.7	)		(193.8	)
		All other amortization			93.2			18.2
		Accretion of asset retirement obligations			54.6			50.8
		Deferred income taxes			(63.8	)		45.0
		Investment tax credit adjustments			(4.5	)		(4.8	)
		Deferred fuel costs			55.4			40.8
		Defined benefit obligation expense			83.5			77.2
		Defined benefit obligation payments			(361.2	)		(111.4	)
		Workforce reduction costs			11.6			2.2
		Impairment losses and other costs			103.3			477.1
		Impairment losses on nuclear decommissioning trust assets			62.6			43.6
		Merger termination and strategic alternatives costs			37.2			—
		Loss (gain) on divestitures			464.4			(103.8	)
		Gains on termination of contracts			—			(81.6	)
		Equity in earnings of affiliates less than dividends received			17.8			1.1
		Derivative contracts classified as financing activities			1,007.0			(37.1	)
		Changes in:
			Accounts receivable, excluding margin		754.2			221.2
			Derivative assets and liabilities, excluding collateral		125.0			(935.0	)
			Net collateral and margin		1,504.8			(568.6	)
			Materials, supplies, and fuel stocks		239.8			(328.5	)
			Other current assets		223.9			(134.7	)
			Accounts payable and accrued liabilities		(1,010.9	)		57.2
			Liability for uncertain tax expense		96.7			—
			Other current liabilities		(47.9	)		(173.8	)
		Other			53.1			6.6
	Net cash provided by (used in) operating activities				3,975.6			(1,014.1	)
Cash Flows From Investing Activities
	Investments in property, plant and equipment				(1,243.2	)		(1,360.5	)
	Asset and business acquisitions, net of cash acquired				(20.8	)		(316.5	)
	Investments in nuclear decommissioning trust fund securities				(349.5	)		(365.4	)
	Proceeds from nuclear decommissioning trust fund securities				330.8			346.7
	Proceeds from sales of investments and other assets				81.1			241.2
	Contract and portfolio acquisitions				(2,153.7	)		—
	Repayments of loans receivable				—			26.0
	Decrease in restricted funds				979.9			8.3
	Other				(15.8	)		(4.1	)
	Net cash used in investing activities				(2,391.2	)		(1,424.3	)
Cash Flows From Financing Activities
	Net (repayment) issuance of short-term borrowings				(520.8	)		1,207.5
	Proceeds from issuance of common stock				24.4			17.6
	Proceeds from issuance of long-term debt				121.1			2,100.0
	Repayment of long-term debt				(1,680.6	)		(265.7	)
	Debt issuance costs				(67.8	)		(50.6	)
	Common stock dividends paid				(179.6	)		(250.7	)
	Reacquisition of common stock				—			(16.2	)
	BGE preference stock dividends paid				(9.9	)		(9.9	)
	Proceeds from contract and portfolio acquisitions				2,263.1			—
	Derivative contracts classified as financing activities				(1,007.0	)		37.1
	Other				13.1			7.4
	Net cash (used in) provided by financing activities				(1,044.0	)		2,776.5
Net Increase in Cash and Cash Equivalents					540.4			338.1
Cash and Cash Equivalents at Beginning of Period					202.2			1,095.9
Cash and Cash Equivalents at End of Period				$	742.6		$	1,434.0

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

6

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries

			Three Months Ended September 30,						Nine Months Ended September 30,
			2009			2008			2009			2008
			(In millions)
Revenues
	Electric revenues		$	788.3		$	822.4		$	2,250.8		$	1,980.5
	Gas revenues			78.2			155.5			576.8			740.0
	Total revenues			866.5			977.9			2,827.6			2,720.5
Expenses
	Operating expenses
		Electricity purchased for resale		508.2			556.6			1,435.9			1,416.2
		Gas purchased for resale		31.2			107.5			340.9			505.2
		Operations and maintenance		142.6			139.5			418.5			409.9
		Merger termination and strategic alternatives costs		—			11.1			—			11.1
	Depreciation and amortization			61.7			49.5			194.3			171.2
	Taxes other than income taxes			44.1			44.1			136.3			130.7
	Total expenses			787.8			908.3			2,525.9			2,644.3
Income from Operations				78.7			69.6			301.7			76.2
Other Income				7.0			9.3			21.7			23.5
Fixed Charges
	Interest expense			35.9			38.6			108.6			105.6
	Allowance for borrowed funds used during construction			(1.1	)		(1.2	)		(3.2	)		(3.3	)
	Total fixed charges			34.8			37.4			105.4			102.3
Income (Loss) Before Income Taxes				50.9			41.5			218.0			(2.6	)
Income Taxes				18.6			18.0			84.7			1.9
Net Income (Loss)				32.3			23.5			133.3			(4.5	)
Preference Stock Dividends				3.3			3.3			9.9			9.9
Net Income (Loss) Attributable to Common Stock before Noncontrolling Interests				29.0			20.2			123.4			(14.4	)
Net Income Attributable to Noncontrolling Interests				(0.4	)		(0.3	)		(0.4	)		(0.1	)
Net Income (Loss) Attributable to Common Stock			$	28.6		$	19.9		$	123.0		$	(14.5	)

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

7

CONSOLIDATED BALANCE SHEETS

Baltimore Gas and Electric Company and Subsidiaries

				September 30, 2009*			December 31, 2008
				(In millions)
Assets
	Current Assets
		Cash and cash equivalents		$	9.2		$	10.7
		Accounts receivable (net of allowance for uncollectibles of $52.0 and $33.3, respectively)			328.1			327.0
		Accounts receivable, unbilled (net of allowance for uncollectibles of $0.9 and $0.9, respectively)			156.0			232.3
		Investment in cash pool, affiliated company			77.3			148.8
		Accounts receivable, affiliated companies			1.7			4.3
		Income taxes receivable (net)			187.0			2.4
		Fuel stocks			89.1			143.7
		Materials and supplies			32.3			38.4
		Prepaid taxes other than income taxes			64.2			51.0
		Regulatory assets (net)			73.7			79.7
		Restricted cash			46.0			23.7
		Other			2.3			8.4
		Total current assets			1,066.9			1,070.4
	Investments and Other Assets
		Regulatory assets (net)			434.1			494.7
		Receivable, affiliated company			322.5			161.1
		Other			117.0			131.6
		Total investments and other assets			873.6			787.4
	Utility Plant
		Plant in service
			Electric		4,656.1			4,493.7
			Gas		1,243.3			1,221.1
			Common		496.7			476.3
			Total plant in service		6,396.1			6,191.1
		Accumulated depreciation			(2,285.7	)		(2,191.0	)
		Net plant in service			4,110.4			4,000.1
		Construction work in progress			253.3			225.7
		Plant held for future use			2.3			2.6
		Net utility plant			4,366.0			4,228.4
	Total Assets			$	6,306.5		$	6,086.2

* Unaudited
See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

8

CONSOLIDATED BALANCE SHEETS

Baltimore Gas and Electric Company and Subsidiaries

				September 30, 2009*			December 31, 2008
				(In millions)
Liabilities and Equity
	Current Liabilities
		Short-term borrowings		$	334.9		$	370.0
		Current portion of long-term debt			66.5			90.0
		Accounts payable and accrued liabilities			124.2			231.0
		Accounts payable and accrued liabilities, affiliated companies			76.7			97.0
		Customer deposits			74.6			72.3
		Current portion of deferred income taxes			31.8			40.2
		Accrued taxes			21.6			18.8
		Accrued expenses and other			103.9			98.4
		Total current liabilities			834.2			1,017.7
	Deferred Credits and Other Liabilities
		Deferred income taxes			1,074.2			843.3
		Payable, affiliated company			244.4			243.2
		Deferred investment tax credits			9.8			10.6
		Liability for uncertain tax positions			74.8			5.5
		Other			22.8			23.1
		Total deferred credits and other liabilities			1,426.0			1,125.7
	Long-term Debt
		Rate stabilization bonds			537.8			564.4
		Other long-term debt			1,443.0			1,443.0
		6.20% deferrable interest subordinated debentures due October 15, 2043 to wholly owned BGE Capital Trust II relating to trust preferred securities			257.7			257.7
		Long-term debt of nonregulated businesses			—			25.0
		Unamortized discount and premium			(2.2	)		(2.4	)
		Current portion of long-term debt			(66.5	)		(90.0	)
		Total long-term debt			2,169.8			2,197.7
	Equity
		Common shareholder's equity:
			Common stock		912.2			912.2
			Retained earnings		748.4			625.4
			Accumulated other comprehensive income		0.6			0.6
		Total common shareholder's equity			1,661.2			1,538.2
		Preference stock not subject to mandatory redemption			190.0			190.0
		Noncontrolling interest			25.3			16.9
		Total equity			1,876.5			1,745.1
	Commitments and Contingencies (see Notes)
	Total Liabilities and Equity			$	6,306.5		$	6,086.2

* Unaudited
See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

9

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries

Nine Months Ended September 30,				2009			2008
				(In millions)
Cash Flows From Operating Activities
	Net income (loss)			$	133.3		$	(4.5	)
	Adjustments to reconcile to net cash provided by operating activities
		Depreciation and amortization			194.4			171.2
		Other amortization			6.5			10.2
		Deferred income taxes			289.7			20.5
		Investment tax credit adjustments			(0.8	)		(1.0	)
		Deferred fuel costs			55.4			40.8
		Defined benefit plan expenses			25.7			27.3
		Allowance for equity funds used during construction			(6.1	)		(6.1	)
		Changes in:
			Accounts receivable		75.2			177.1
			Accounts receivable, affiliated companies		2.6			1.9
			Materials, supplies, and fuel stocks		60.7			(73.7	)
			Income tax receivable (net)		(184.6	)		(94.4	)
			Other current assets		(7.0	)		(11.6	)
			Accounts payable and accrued liabilities		(106.8	)		6.1
			Accounts payable and accrued liabilities, affiliated companies		(20.3	)		(51.3	)
			Other current liabilities		(66.9	)		12.2
			Long-term receivables and payables, affiliated companies		(185.8	)		(44.1	)
			Other		38.9			(36.8	)
	Net cash provided by operating activities				304.1			143.8
Cash Flows From Investing Activities
	Utility construction expenditures (excluding equity portion of allowance for funds used during construction)				(265.8	)		(319.0	)
	Change in cash pool at parent				71.6			15.3
	Sales of investments and other assets				—			12.9
	Increase in restricted funds				(22.3	)		(5.4	)
	Net cash used in investing activities				(216.5	)		(296.2	)
Cash Flows From Financing Activities
	Net (repayment) issuance of short-term borrowings				(35.1	)		189.0
	Proceeds from issuance of long-term debt				—			400.0
	Repayment of long-term debt				(51.6	)		(259.5	)
	Debt issuance costs				(0.5	)		(2.5	)
	Contribution from noncontrolling interest				8.0			—
	Preference stock dividends paid				(9.9	)		(9.9	)
	Distribution to parent				—			(171.7	)
	Net cash (used in) provided by financing activities				(89.1	)		145.4
Net Decrease in Cash and Cash Equivalents					(1.5	)		(7.0	)
Cash and Cash Equivalents at Beginning of Period					10.7			17.6
Cash and Cash Equivalents at End of Period				$	9.2		$	10.6

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Basis of Presentation

This Quarterly Report on Form 10-Q is a combined report of Constellation Energy Group, Inc. (Constellation Energy) and Baltimore Gas and Electric Company (BGE). References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. References in this report to the "regulated business(es)" are to BGE.

        Various factors can have a significant impact on our results for interim periods. This means that the results for this quarter are not necessarily indicative of future quarters or full year results given the seasonality of our business.

        Our interim financial statements on the previous pages reflect all adjustments that management believes are necessary for the fair statement of the results of operations for the interim periods presented. These adjustments are of a normal recurring nature.

        We have evaluated events or transactions that occurred after September 30, 2009 for inclusion in these financial statements through November 6, 2009, the date these financial statements were issued.

Reclassifications

In accordance with the requirements for the presentation of noncontrolling interests, which were effective on January 1, 2009 (see page 41 for more details), we have separately presented:

•

"Net income (loss) attributable to noncontrolling interests" on our, and BGE's, Consolidated Statements of Income (Loss),

•

"Noncontrolling interests" and "BGE Preference Stock Not Subject to Mandatory Redemption" as noncontrolling interests on our Consolidated Balance Sheets,

•

"Comprehensive income attributable to noncontrolling interests, net of taxes" in our Statements of Comprehensive Income (Loss), and

•

"BGE preference stock dividends paid" in the financing section of our Consolidated Statements of Cash Flows.

        We also made the following reclassifications:

•

We have separately presented "Income taxes receivable (net)" that were previously reported within "Other current assets" on BGE's Consolidated Balance Sheets.

•

We have also separately presented "Liability for uncertain tax positions" that was previously reported within "Other long-term liabilities" on BGE's Consolidated Balance Sheets.

Investment Agreement with EDF Group

On December 17, 2008, we entered into an Investment Agreement with EDF Group and related entities (EDF) under which EDF will purchase from us a 49.99% membership interest in our nuclear generation and operation business for $4.5 billion (subject to certain adjustments). We discuss the Investment Agreement with EDF in more detail in Note 15 of our 2008 Annual Report on Form 10-K.

        In October 2009, the Maryland PSC issued an order approving our transaction with EDF subject to the following conditions:

•

Constellation Energy is to fund a one-time per customer distribution rate credit for BGE residential customers, before the end of March 2010, totaling $110.5 million, for which we will record a liability upon closing.

•

Constellation Energy will make a $250 million cash capital contribution to BGE by no later than June 30, 2010.

•

BGE will not pay dividends to Constellation Energy if (a) after the dividend payment, BGE's equity ratio would be below 48% or (b) BGE's senior unsecured credit rating is rated by two of the three major credit rating agencies below investment grade.

•

BGE may file an electric distribution rate case at any time beginning in January 2010 and may not file a subsequent electric distribution rate case until January 2011. Any rate increase in the first electric distribution rate case will be capped at 5% as agreed to by Constellation Energy in its 2008 settlement with the Maryland PSC. The timing of any gas distribution rate filing will also occur no earlier than the electric cases.

•

Constellation Energy will be limited to allocating no more than 31% of its holding company costs to BGE until the Maryland PSC reviews cost allocation in the context of BGE's next rate case.

•

Upon closing the EDF transaction, Constellation Energy and BGE will begin to implement "ring fencing" measures to ensure the bankruptcy protection and credit rating separation of BGE from Constellation Energy including the formation of a new special purpose subsidiary by Constellation Energy to hold all of the common equity interests in BGE. Timing for implementation of these measures will be proposed at a Maryland PSC hearing in December 2009.

        With the receipt of the Maryland PSC's order, Constellation Energy and EDF are proceeding with closing this transaction. Upon closing of the transaction, we will

11

sell a 49.99% membership interest in Constellation Energy Nuclear Group LLC and its affiliates (CENG), our nuclear generation and operation business, to EDF for total consideration of approximately $4.7 billion (includes $4.5 billion at close and expense reimbursements). As a result, we will cease to have a controlling financial interest in CENG and will deconsolidate CENG in the fourth quarter of 2009. The following summarizes the estimated impact of this transaction upon closing:

•

We receive total cash consideration of approximately $3.5 billion and redeem the $1.0 billion of the Series B Preferred Stock held by EDF as additional purchase price resulting in net proceeds of approximately $2.2 billion after the payment of taxes.

•

We remove the individual assets and liabilities of CENG from our balance sheet with a net asset value of approximately $2.6 billion.

•

We record our retained investment in CENG at its estimated fair value of approximately $4.7 billion.

•

We recognize a pre-tax gain on sale of approximately $6.8 billion, calculated as follows:

	(In billions)
Fair value of the consideration received from EDF	$	4.7
Estimated fair value of our retained interest in CENG		4.7
Carrying amount of CENG's assets and liabilities prior to deconsolidation		(2.6	)
Estimated pre-tax gain	$	6.8

        Upon closing, we will account for our retained investment in CENG using the equity method and report our share of its earnings in the merchant energy segment. As a result, we will no longer record the individual income statement line items, but instead will record our share of the investment's earnings in a single line in our Consolidated Statements of Income (Loss).

        Immediately prior to the closing of the sale, we will execute a power purchase agreement (PPA) with CENG with a fair value of approximately $0.7 billion. We will report the PPA on our Consolidated Balance Sheets within "Unamortized energy contract assets" and amortize its value on our Consolidated Statements of Income (Loss) to "Fuel and purchased energy expense" over a period of approximately two years.

        In addition, the completion of the transaction with EDF will impact our credit facilities as discussed in the Financing section beginning on page 21.

Merger Termination and Strategic Alternatives Costs

We incurred costs during the quarter ended September 30, 2009 primarily related to the transactions related to EDF, and other strategic alternatives costs. For the nine months ended September 30, 2009, we incurred costs related to the terminated merger agreement with MidAmerican Energy Holdings Company (MidAmerican), the conversion of our Series A Preferred Stock, the transactions related to EDF, and other strategic alternatives costs. These costs totaled $4.9 million pre-tax and $51.2 million pre-tax for the quarter and nine months ended September 30, 2009, respectively, and primarily relate to the first quarter of 2009 write-off of the unamortized debt discount associated with the 14% Senior Notes (Senior Notes) that were repaid in full to MidAmerican in January 2009.

Variable Interest Entities

As of September 30, 2009, we consolidated three variable interest entities (VIE) in which we were the primary beneficiary, and we had significant interests in six VIEs for which we did not have controlling financial interests and, accordingly, were not the primary beneficiary. We discuss our VIEs in more detail in Note 4 of our 2008 Annual Report on Form 10-K.

Consolidated Variable Interest Entities

In 2007, BGE formed RSB BondCo LLC (BondCo), a special purpose bankruptcy-remote limited liability company, to acquire and hold rate stabilization property and to issue and service bonds secured by the rate stabilization property. In June 2007, BondCo purchased rate stabilization property from BGE, including the right to assess, collect, and receive non-bypassable rate stabilization charges payable by all residential electric customers of BGE. These charges are being assessed in order to recover previously incurred power purchase costs that BGE deferred pursuant to Senate Bill 1. We discuss Senate Bill 1 in more detail in Management's Discussion and Analysis section of our 2008 Annual Report on Form 10-K.

        BGE determined that BondCo is a VIE for which it is the primary beneficiary. As a result, BGE, and we, consolidated BondCo.

        The BondCo assets are restricted and can only be used to settle the obligations of BondCo. Further, BGE is required to remit all payments it receives from customers for rate stabilization charges to BondCo. During the quarter and nine months ended September 30, 2009, BGE remitted $23.0 million and $65.1 million, respectively, to BondCo.

        BGE did not provide any additional financial support to BondCo during the quarter and nine months ended

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September 30, 2009. Further, BGE does not have any contractual commitments or obligations to provide additional financial support to BondCo unless additional rate stabilization bonds are issued. The BondCo creditors do not have any recourse to the general credit of BGE in the event the rate stabilization charges are not sufficient to cover the bond principal and interest payments of BondCo.

        During the second quarter of 2009, our retail gas customer supply operation formed two new entities and combined them with our existing retail gas customer supply operation into a retail gas entity group for the purpose of entering into a collateralized gas supply agreement (GSA) with a third party gas supplier. While we own 100% of these entities, we determined that the retail gas entity group is a VIE because there is not sufficient equity to fund the group's activities without the additional credit support we provide in the form of a letter of credit and a parental guarantee. We are the primary beneficiary of the retail gas entity group; accordingly, we consolidate the retail gas entity group as a VIE, including the existing retail gas customer supply operation, which we formerly consolidated as a voting interest entity.

        The gas supply arrangement is collateralized as follows:

•

The assets of the retail gas entity group must be used to settle obligations under the third party gas supply agreement before it can make any distributions to us,

•

The third party gas supplier has a collateral interest in all of the assets and equity of the retail gas entity group, and

•

We currently have provided a $100 million parental guarantee and a $100 million letter of credit to the third party gas supplier in support of the retail gas entity group.

        Other than credit support provided by the parental guarantee and the letter of credit, we do not have any contractual or other obligations to provide additional financial support to the retail gas entity group. The retail gas entity group creditors do not have any recourse to our general credit. Finally, we did not provide any financial support to the retail gas entity group during the quarter and nine months ended September 30, 2009, other than the equity contributions, parental guarantee and the letter of credit.

        We also consolidate a retail power supply VIE for which we became the primary beneficiary in 2008 as a result of a modification to its contractual arrangements that changed the allocation of the economic risks and rewards of the VIE among the variable interest holders. The consolidation of this VIE did not have a material impact on our financial results or financial condition.

        The carrying amounts and classification of the above consolidated VIEs' assets and liabilities included in our consolidated financial statements at September 30, 2009 are as follows:

	(In millions)
Current assets	$	605.0
Noncurrent assets		317.1
Total Assets	$	922.1
Current liabilities	$	540.1
Noncurrent liabilities		686.6
Total Liabilities	$	1,226.7

        All of the assets in the table above are restricted for settlement of the VIE obligations and all of the liabilities in the table above can only be settled using VIE resources.

Unconsolidated Variable Interest Entities

As of September 30, 2009, we had significant interests in six VIEs for which we were not the primary beneficiary. We have not provided any material financial or other support to these entities during the quarter and nine months ended September 30, 2009.

        We describe the nature of these entities and our involvement with them in the following table:

VIE Category	Nature of Entity Financing	Nature of Constellation Energy Involvement	Obligations or Requirement to Provide Financial Support	Date of Involvement
Power contract monetization entities (2 entities)	Combination of debt and equity financing	Power sale agreements, loans, and guarantees	$37.7 million in letters of credit	March 2005
Power projects and fuel supply entities (4 entities)	Combination of debt and equity financing	Equity investments and guarantees	$2.0 million debt guarantee and working capital funding	Prior to 2003

        We discuss the nature of our involvement with the power contract monetization VIEs in detail in Note 4 of our 2008 Annual Report on Form 10-K.

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        The following is summary information available as of September 30, 2009 about these entities:

		Power Contract Monetization VIEs		All Other VIEs		Total
		(In millions)
Total assets		$	571.3	$	316.8	$	888.1
Total liabilities			463.4		72.2		535.6
Our ownership interest			—		58.8		58.8
Other ownership interests			107.9		185.8		293.7
Our maximum exposure to loss			37.7		60.8		98.5
Carrying amount and location of variable interest on balance sheet:
	-Other investments		—		58.8		58.8

        Our maximum exposure to loss is the loss that we would incur in the unlikely event that our interests in all of these entities were to become worthless and we were required to fund the full amount of all guarantees associated with these entities. Our maximum exposure to loss as of September 30, 2009 consists of the following:

•

outstanding receivables, loans, and letters of credit totaling $37.7 million,

•

the carrying amount of our investment totaling $58.8 million, and

•

debt and payment guarantees totaling $2.0 million.

        We assess the risk of a loss equal to our maximum exposure to be remote and, accordingly have not recognized a liability associated with any portion of the maximum exposure to loss. In addition, there are no agreements with, or commitments by, third parties that would affect the fair value or risk of our variable interests in these variable interest entities.

Impairment Losses and Other Costs

Available for Sale Securities

We evaluated for impairment certain of our investments in equity securities during the nine months ended September 30, 2009. The investments we evaluated included our nuclear decommissioning trust fund assets and other marketable securities. We record an impairment charge if an investment has experienced a decline in fair value to a level less than its carrying value and the decline is "other than temporary."

        In making this determination, we evaluate the reasons for an investment's decline in value, the extent and duration of that decline, and factors that indicate whether and when the value will recover. For securities held in our nuclear decommissioning trust fund for which the market value is below book value, the decline in fair value is considered other than temporary and we write them down to fair value. We discuss our impairment policy for our nuclear decommissioning trust fund assets and other marketable securities in more detail in Note 1 to our 2008 Annual Report on Form 10-K.

        The fair values of certain of our marketable securities and certain of the securities held in our nuclear decommissioning trust fund declined below book value. As a result, we recorded a $0.2 million pre-tax impairment charge for the quarter ended September 30, 2009 and a $62.6 million pre-tax impairment charge for the nine months ended September 30, 2009 for our nuclear decommissioning trust fund assets in the "Other income (expense)" line in our Consolidated Statements of Income (Loss). In addition, we recorded all other changes in the fair value of our nuclear decommissioning trust fund assets that are not impaired in other comprehensive (loss) income. We also recorded an impairment charge of $0.5 million for other marketable securities during the nine months ended September 30, 2009.

        The estimates we utilize in evaluating impairment of our available for sale securities require judgment and the evaluation of economic and other factors that are subject to variation, and the impact of such variations could be material.

Equity Method Investments

Shipping Joint Venture

We record an impairment if an equity method investment has experienced a decline in fair value to a level less than our carrying value and the decline is "other than temporary." During the quarter ended June 30, 2009, we contemplated several potential courses of action together with our partner relating to the strategic direction of our shipping joint venture and our continuing involvement. This led to a decision to explore a plan to sell our 50% interest to a party related to our joint venture partner for negligible proceeds. During July 2009, a definitive purchase and sale agreement was executed between the parties and the transaction closed in the third quarter of 2009. We have no further involvement in the activities of the joint venture.

        As a result of the events that occurred during the second quarter of 2009, we concluded that the fair value of our investment had declined to a level below the carrying value at June 30, 2009 and that this decline was "other than temporary." As such, we recorded a pre-tax impairment charge at June 30, 2009 of $59.0 million associated with our equity investment in our shipping joint

14

venture within the "Impairment losses and other costs" line in our Consolidated Statements of Income (Loss), and reported the charge in our merchant energy business results for the second quarter of 2009.

Constellation Energy Partners LLC

As of March 31, 2009, the fair value of our investment in Constellation Energy Partners LLC (CEP) based upon its closing unit price was $10.0 million, which was lower than its carrying value of $24.0 million.

        The decline in fair value of our investment in CEP reflected a number of other factors, including:

•

continuing difficulties in the financial and credit markets in the United States,

•

decreases in the market price of natural gas and oil,

•

the effect of these factors on market perceptions of gas exploration and production master limited partnerships, and

•

factors related to Constellation Energy's financial condition and possible sale of its investment in CEP.

        As a result of evaluating these factors, we determined that the decline in the value of our investment was other than temporary. Therefore, we recorded a $14.0 million pre-tax impairment charge at March 31, 2009 to write-down our investment to fair value. We recorded this charge in "Impairment losses and other costs" in our Consolidated Statements of Income (Loss). We did not record an impairment charge in the second or third quarters of 2009.

Other Costs

During the quarter and nine months ended September 30, 2009, we recorded $7.5 million and $29.8 million pre-tax charges, respectively, in the "Impairment losses and other costs" line in our Consolidated Statements of Income (Loss) primarily related to:

•

divested operations—long-lived assets no longer used and lease terminations, and

•

the write-off of an uncollectible advance to an affiliate.

Workforce Reduction Costs

We incurred workforce reduction costs during the fourth quarter of 2008, primarily related to workforce reduction efforts across all of our operations (Q4 2008 Program), and during the first quarter of 2009, primarily related to the divestiture of a majority of our international commodities operation as well as some smaller restructurings elsewhere in our organization (Q1 2009 Program). For the Q1 2009 Program, we recognized an $11.6 million pre-tax charge during the nine months ended September 30, 2009 related to the elimination of approximately 180 positions. We expect both of these restructurings will be completed within 12 months of their initiation. The following table summarizes the status of the involuntary severance liabilities at September 30, 2009:

	Q1 2009 Program			Q4 2008 Program
Initial severance liability balance	$	10.8		$	19.7
Additional expense recorded in the second quarter of 2009		0.4			—
Additional expense recorded in the third quarter of 2009		0.4			—
Amounts recorded as pension and postretirement liabilities		—			(3.0	)
Net cash severance liability		11.6			16.7
Cash severance payments		(11.4	)		(12.5	)
Severance liability balance at September 30, 2009	$	0.2		$	4.2

        We discuss our 2008 workforce reduction costs in more detail in Note 2 of our 2008 Annual Report on Form 10-K.

Earnings Per Share

Basic earnings per common share (EPS) is computed by dividing net income (loss) attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

        Our dilutive common stock equivalent shares consist of stock options and other stock-based compensation awards. The following table presents stock options that were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
	(In millions)
Non-dilutive stock options		4.7		2.6		5.2		1.5
Dilutive common stock equivalent shares		1.2		1.1		0.8		1.7

As a result of the Company incurring a loss for the three months ended September 30, 2008, dilutive common stock equivalent shares were not included in calculating diluted EPS.

15

        We issued to MidAmerican 19,897,322 shares of Constellation Energy's common stock upon the conversion of the Series A Preferred Stock, which occurred upon the termination of the merger agreement with MidAmerican on December 17, 2008. We discuss the conversion feature of the Series A Preferred Stock in more detail in Note 9 of our 2008 Annual Report on Form 10-K. These additional shares impacted our earnings per share for the quarter and nine months ended September 30, 2009.

Accretion of Asset Retirement Obligations

We discuss our asset retirement obligations in more detail in Note 1 of our 2008 Annual Report on Form 10-K. The change in our "Asset retirement obligations" liability during 2009 was as follows:

	(In millions)
Liability at January 1, 2009	$	987.3
Accretion expense		54.6
Liabilities incurred		0.1
Liabilities settled		(0.7	)
Revisions to cash flows		(0.4	)
Other		(0.1	)
Liability at September 30, 2009	$	1,040.8

Acquisition

CLT Efficient Technologies Group

On July 1, 2009, we acquired CLT Efficient Technologies Group (CLT). We include CLT as part of our other nonregulated businesses and have reported its results of operations in our consolidated financial statements since the date of acquisition. CLT is an energy services company that provides energy performance contracting and energy efficiency engineering services.

        We acquired 100% ownership of CLT for $21.8 million, including direct costs, of which $20.8 million was paid in cash at closing.

        The total consideration was allocated to the net assets acquired as follows:

At July 1, 2009
	(In millions)
Current assets	$	5.7
Goodwill1		18.5
Other assets		2.3
Total assets acquired		26.5
Current liabilities		(4.7	)
Net assets acquired	$	21.8

1 Goodwill is 100% deductible for tax purposes.

        Our initial purchase price allocation is based on preliminary estimates, and the purchase price is subject to adjustments, which could impact our purchase price allocation.

        The pro-forma impact of the CLT acquisition would not have been material to our results of operations for the quarter and nine months ended September 30, 2009 and 2008.

Divestitures

In 2009, we continued to implement many of the strategic initiatives we identified in 2008 to improve liquidity and reduce our business risk. We discuss these initiatives in the Strategy section of our 2008 Annual Report on Form 10-K.

        The transactions to sell a majority of our international commodities, our Houston-based gas trading and other operations were structured in two parts:

•

the assignment and transfer of a majority of the portfolio, and

•

the execution of a Total Return Swap (TRS) mechanism for the remainder of the portfolio.

        Under the TRS, we entered into offsetting trades with the buyers that matched the terms of the remaining third party contracts for which we were unable to complete assignment to the buyers as of the transaction dates. This structure transferred the risks associated with changes in commodity prices as of the transaction dates to the buyers in all instances. However, the trades under the TRS are newly executed transactions, and we remain the principal under both the unassigned third party trades and the matching trades with the buyers under the TRS with no right of either financial or legal offset. We continue to pursue the assignment of these remaining contracts to the buyers.

        The matching contracts under the TRS include both derivatives and non-derivatives and were executed at prices that differed from market prices at closing, which resulted in a net cash payment to/from the buyers. We recorded the underlying contracts at fair value on a gross basis as assets or liabilities in our Consolidated Balance Sheets depending on whether the contract prices were above- or below-market prices at closing. As a result, the derivative contracts have been included in "Derivative Assets and Liabilities" and the nonderivative contracts have been included in "Unamortized Energy Contract Assets and Liabilities." The derivative contracts are subject to mark-to-market accounting until they are realized or assigned. The nonderivative contracts will be amortized into earnings as the underlying contracts are realized, or sooner if those contracts are assigned.

        We record the cash proceeds we pay or receive at the inception of energy purchase and sale contracts based upon

16

whether the contracts are in-the-money or out-of-the-money as follows:

In-the-money contracts—proceeds paid	Investing Outflow
Out-of-the-money contracts—proceeds received	Financing Inflow

        After inception, we record the cash flows from all energy purchase and sale contracts as operating activities, except for out-of-the-money derivative contracts that were liabilities at inception. We record the ongoing cash flows from these out-of-the-money derivative contracts as financing activities, regardless of whether they are purchase or sale contracts.

International Commodities Operation

In January 2009, we entered into a definitive agreement to sell a majority of our international commodities operation. We completed this transaction on March 23, 2009 and recognized the following impacts during the nine months ended September 30, 2009:

•

a pre-tax loss of approximately $334.5 million representing net consideration paid to the buyer, the book value of net assets sold, and transaction costs,

•

a reclassification of $165.7 million in losses on previously designated cash-flow hedge contracts, for which the forecasted transactions are now deemed probable of not occurring, from "Accumulated Other Comprehensive Loss" to "Nonregulated revenues" in the Consolidated Statements of Income (Loss),

•

workforce reduction costs of $10.2 million, recorded as part of "Workforce reduction costs" in the Consolidated Statements of Income (Loss), and

•

other costs of $17.6 million related to leasehold improvements, furniture and computer hardware and software, recorded as part of "Impairment losses and other costs" in the Consolidated Statements of Income (Loss).

        We removed the contracts that were assigned from our Consolidated Balance Sheet, paid the buyer approximately $90 million, and reflected the impact of this payment on our working capital in the operating activities section of our Consolidated Statements of Cash Flows.

        The net cash payment to the buyer upon completion of the TRS was $2.5 million. As part of the consideration, we acquired matching nonderivative contracts that resulted in a net liability of approximately $75 million, which will be amortized into earnings as the underlying contracts are realized, or sooner if the original nonderivative contracts are assigned.

        We have reflected the contracts under the TRS on a gross basis in cash flows from investing and financing activities in our Consolidated Statements of Cash Flows as follows:

Nine Months Ended September 30, 2009
	(In millions)
Investing activities—Contract and portfolio acquisitions	$	(866.3	)
Financing activities—Proceeds from contract and portfolio acquisitions		863.8
Net cash flows from contract and portfolio acquisitions	$	(2.5	)

        In addition to the March 23, 2009 transaction for a majority of our international commodities operation, on June 30, 2009 we completed the sale of a uranium market participant that we owned. We received cash proceeds of approximately $43 million and recorded a $27.2 million loss on this sale. This loss from our merchant energy segment is included in the "Net (loss) gain on divestitures" line in our Consolidated Statements of Income (Loss) for the nine months ended September 30, 2009.

Houston-Based Gas and Other Trading Operations

On February 3, 2009, we entered into a definitive agreement to sell our Houston-based gas trading operation. We transferred control of this operation on April 1, 2009. In addition, in the second quarter of 2009 we also sold certain other trading operations. In total, we received proceeds of approximately $61 million, and recorded a $102.7 million net loss on these sales in the nine months ended September 30, 2009. The net loss on sale primarily relates to nonderivative accrual contracts, which were not recorded on our Consolidated Balance Sheet, the cost associated with disposing of an entire portfolio and not merely individual contracts, and the cost of capital, including contingent capital, to support the operation.

        The matching derivative and nonderivative transactions under the TRS discussed above were executed at prices that differed from market prices at closing. As a result, we record the ongoing cash flows related to the out-of-the-money derivative contracts that were liabilities at inception as financing cash flows. This resulted in cash outflows related to financing activities of $818.7 million in our Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 associated with derivative liabilities that were out-of-the-money.

        The net cash receipt from the buyers upon completion of the TRS was $91.9 million in the second quarter of 2009. We have reflected these contracts on a gross basis in

17

cash flows from investing and financing activities in our Consolidated Statements of Cash Flows as follows:

Nine Months Ended September 30, 2009
	(In millions)
Investing activities—Contract and portfolio acquisitions	$	(1,287.4	)
Financing activities—Proceeds from contract and portfolio acquisitions		1,379.3
Net cash flows from contract and portfolio acquisitions	$	91.9

        In addition, we incurred other costs of $5.5 million for the nine months ended September 30, 2009, respectively, related to leasehold improvements, furniture, computer hardware and software costs, which are recorded as part of "Impairment losses and other costs" on our Consolidated Statements of Income (Loss).

        On April 1, 2009, we executed an agreement with the buyer of our Houston-based gas trading operation under which the buyer will provide us with the gas supply needed to support our retail gas customer supply business through March 31, 2011. This agreement was structured such that our requirements to post collateral are reduced. The supplier has liens on the assets of the retail gas supply business as well as our investment in the stock of these entities to secure our obligations under the gas supply agreement. In connection with this agreement, we posted approximately $160 million of collateral. This was subsequently reduced to $100 million. The initial $160 million posted represents approximately 25 percent of the previous collateral requirements to support this operation. We discuss the impact of the gas supply agreement on our retail gas customer supply business in more detail on page 13.

Shipping Joint Venture

As previously discussed in the Impairment Losses and Other Costs footnote, we completed the sale of our equity investment in a shipping joint venture during the third quarter of 2009. No gain or loss was recognized on the sale.

Investments Classified as Available-for-Sale

We classify the following investments as available-for-sale:

•

nuclear decommissioning trust funds,

•

marketable equity securities, and

•

trust assets securing certain executive benefits.

        This means we do not expect to hold these investments to maturity, and we do not consider them trading securities. We record these investments at fair value on our Consolidated Balance Sheets.

        We show the fair values, gross unrealized gains and losses, and adjusted cost basis for all of our available-for-sale securities in the following tables. We use specific identification to determine cost in computing realized gains and losses.

At September 30, 2009	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In millions)
Money market funds	$	20.2	$	—	$	—	$	20.2
Marketable equity securities		214.7		109.9		—		324.6
Mutual fund / common collective trusts		479.6		109.1		—		588.7
Corporate debt securities		144.9		24.3		—		169.2
U.S. Government agencies		42.5		2.5		—		45.0
U.S. Treasuries		18.9		1.1		—		20.0
State municipal bonds		46.4		5.2		—		51.6
Totals	$	967.2	$	252.1	$	—	$	1,219.3

        The unrealized gains in the preceding table consist primarily of $249.4 million associated with the nuclear decommissioning trust funds.

        The investments in our nuclear decommissioning trust funds are managed by third parties who have independent discretion over the purchases and sales of securities. We recognize impairments for any of these investments for which the fair value declines below our book value. We recognized $0.2 million and $62.6 million in pre-tax impairment losses on our nuclear decommissioning trust investments during the quarter and nine months ended September 30, 2009, respectively. These impairments are included as part of gross realized losses in the following table.

        Gross and net realized gains and losses on available-for-sale securities were as follows:

	Quarter Ended September 30, 2009			Nine Months Ended September 30, 2009
	(In millions)
Gross realized gains	$	10.0		$	25.2
Gross realized losses		(3.5	)		(75.5	)
Net realized gains	$	6.5		$	(50.3	)

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        The corporate debt securities, U.S. Government agency obligations, U.S. Treasuries, and state municipal bonds mature on the following schedule:

At September 30, 2009
	(In millions)
Less than 1 year	$	9.6
1-5 years		87.5
5-10 years		86.0
More than 10 years		102.7
Total maturities of debt securities	$	285.8

Information by Operating Segment

Our reportable operating segments are—Merchant Energy, Regulated Electric, and Regulated Gas:

•

Our merchant energy business is nonregulated and includes:

—

fossil, nuclear, and interests in hydroelectric generating facilities and qualifying facilities, and power projects in the United States,

—

full requirements load-serving sales of energy and capacity to utilities, cooperatives, and commercial, industrial, and governmental customers,

—

gas retail energy products and services to commercial, industrial, and governmental customers,

—

structured transactions and risk management services for various customers (including hedging of output from generating facilities and fuel costs),

—

upstream (exploration and production) natural gas operations, and

—

generation operations and maintenance.

•

Our regulated electric business purchases, transmits, distributes, and sells electricity in Central Maryland.

•

Our regulated gas business purchases, transports, and sells natural gas in Central Maryland.

        Our remaining nonregulated businesses:

•

design, construct, and operate renewable energy, heating, cooling, and cogeneration facilities for commercial, industrial, and governmental customers throughout North America,

•

provide energy performance contracting and energy efficiency engineering services,

•

provide home improvements, service electric and gas appliances, service heating, air conditioning, plumbing, electrical, and indoor air quality systems, and provide natural gas marketing to residential customers in Central Maryland, and

•

develop and deploy new nuclear plants in North America.

        Prior to June 30, 2009, our merchant energy business segment included additional activities that have been divested as part of our strategy to improve our liquidity and reduce our business risk. The divested activities include:

•

our international commodities operation, which was divested in March 2009,

•

our gas trading operation, which was divested on April 1, 2009,

•

our ownership of a uranium market participant, which was divested on June 30, 2009, and

•

our investment in a shipping joint venture, which was divested in the third quarter of 2009.

        See page 11 for discussion of our transaction with EDF.

        We believe that the successful execution of these divestitures, as well as our other initiatives that we have undertaken to reduce risk in our merchant energy business, have reduced our exposure to activities that require contingent capital support and improved our liquidity. As a result of these divestitures and other initiatives, as well as the closing of our transaction with EDF, the results for our merchant energy business segment will be materially different from prior periods. We discuss these strategies and their effect on liquidity in Note 8 of our 2008 Annual Report on Form 10-K.

        Our Merchant Energy, Regulated Electric, and Regulated Gas reportable segments are strategic businesses based principally upon regulations, products, and services that require different technologies and marketing strategies. We evaluate the performance of these segments based on net income. We account for intersegment revenues using market prices. A summary of information by operating segment is shown in the table below.

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	Reportable Segments
										Holding Company and Other Nonregulated Businesses
	Merchant Energy Business			Regulated Electric Business			Regulated Gas Business						Eliminations			Consolidated
	(In millions)
For the quarter ended September 30,
2009
Unaffiliated revenues	$	3,101.6		$	788.3		$	77.7		$	60.1		$	—		$	4,027.7
Intersegment revenues		156.4			—			0.5			0.1			(157.0	)		—
Total revenues		3,258.0			788.3			78.2			60.2			(157.0	)		4,027.7
Net income (loss)		142.1			42.3			(10.5	)		(6.5	)		—			167.4
Net income (loss) attributable to common stock		116.0			39.8			(11.3	)		(6.9	)		—			137.6
2008
Unaffiliated revenues	$	4,300.8		$	822.3		$	150.3		$	50.2		$	—		$	5,323.6
Intersegment revenues		191.8			0.1			5.2			—			(197.1	)		—
Total revenues		4,492.6			822.4			155.5			50.2			(197.1	)		5,323.6
Net (loss) income		(246.0	)		34.3			(11.5	)		1.1			—			(222.1	)
Net (loss) income attributable to common stock		(246.0	)		31.7			(12.2	)		0.8			—			(225.7	)
For the nine months ended September 30,
2009
Unaffiliated revenues	$	9,202.3		$	2,250.8		$	573.1		$	169.0		$	—		$	12,195.2
Intersegment revenues		536.2			—			3.7			0.1			(540.0	)		—
Total revenues		9,738.5			2,250.8			576.8			169.1			(540.0	)		12,195.2
Net (loss) income		(39.7	)		109.8			22.9			(17.0	)		—			76.0
Net (loss) income attributable to common stock		(83.1	)		102.2			20.6			(17.5	)		—			22.2
2008
Unaffiliated revenues	$	12,011.9		$	1,980.3		$	724.4		$	175.3		$	—		$	14,891.9
Intersegment revenues		707.8			0.2			15.6			0.2			(723.8	)		—
Total revenues		12,719.7			1,980.5			740.0			175.5			(723.8	)		14,891.9
Net income (loss)		106.7			(31.2	)		26.4			0.4			—			102.3
Net income (loss) attributable to common stock		105.9			(38.8	)		24.1			0.3			—			91.5

Certain prior-period amounts have been reclassified to conform with the current period's presentation.

Our merchant energy business operating results for the quarter and nine months ended September 30, 2009 include the following after-tax charges. Amounts for the quarter ended September 30, 2009 include income tax adjustments relating to activity during the quarters ended March 31, 2009 and June 30, 2009 based on updated estimates of our 2009 annual effective tax rate.

•

impairment losses and other costs of $8.2 million and $81.5 million, respectively,

•

merger termination and strategic alternatives costs of $4.9 million and $51.2 million, respectively,

•

net loss on sale of a majority of our international commodities operation, our Houston-based gas trading operation, certain other trading operations, and a uranium market participant, the reclassification of losses on previously designated cash-flow hedges from Accumulated Other Comprehensive Loss, and earnings that are no longer part of our core business totaling $62.9 million (primarily related to income tax adjustments) and $370.9 million, respectively,

•

impairment charge related to our nuclear decommissioning trust fund assets of $19.7 million (primarily related to income tax adjustments) and $49.5 million, respectively,

•

workforce reduction costs of $1.6 million and $7.0 million, respectively, and

•

amortization of credit facility amendment fees in connection with the EDF transaction of $8.2 million and $17.1 million, respectively.

Our Holding Company and Other Nonregulated businesses operating results for the quarter and nine months ended September 30, 2009 reflect impairment losses and other costs of $0.8 million and $3.9 million after-tax, respectively.

Total assets decreased approximately $2.6 billion during the nine months ended September 30, 2009. The decrease primarily relates to:

•

our Holding Company and Other Nonregulated Businesses and is primarily related to the approximately $1 billion decline in restricted cash as a result of the repayment of the 14% Senior Notes to MidAmerican in January 2009, and

•

our Merchant Energy Business and is primarily related to the decrease in derivative assets, net of fair value collateral, of $816.3 million and a decrease in other net collateral and margin posted of $1.0 billion, primarily associated with the divestitures and the activities to reduce risk in our Global Commodities portfolio.

These decreases were offset by a $194.1 million increase in the value of our nuclear decommissioning trust fund assets.

Our allowance for uncollectible accounts receivable decreased $59.7 million from December 31, 2008 to September 30, 2009. This decrease is primarily attributable to a decrease of $80.3 million at our merchant energy business, partially offset by an increase of $18.7 million at our regulated electric and gas businesses. The decrease in the allowance for uncollectibles at our merchant energy business is primarily driven by a write-off of accounts receivable balances of certain customers and the related allowance balance that were established primarily during 2008 for certain counterparties that encountered financial difficulty. This decrease is partially offset by an increase at our regulated electric and gas businesses primarily due to a second quarter 2009 Maryland PSC ruling and the economic downturn which continues to cause a decreased ability of customers to pay their utility bills. The Maryland PSC ruling in the second quarter of 2009 delayed BGE's ability to terminate service to customers with arrearages and required BGE to offer those customers the option to enter into extended payment plans.

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Pension and Postretirement Benefits

We show the components of net periodic pension benefit cost in the following table:

	Quarter Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(In millions)
Components of net periodic pension benefit cost
Service cost	$	12.2		$	14.6		$	41.8		$	42.4
Interest cost		26.3			26.6			84.6			76.8
Expected return on plan assets		(28.6	)		(29.6	)		(97.1	)		(85.5	)
Recognized net actuarial loss		7.5			6.6			29.2			19.0
Amortization of prior service cost		2.8			2.8			8.6			8.3
Amount capitalized as construction cost		(2.5	)		(2.3	)		(7.9	)		(7.1	)
Net periodic pension benefit cost1	$	17.7		$	18.7		$	59.2		$	53.9

1 BGE's portion of our net periodic pension benefit cost, excluding amounts capitalized, was $4.7 million for the quarter ended September 30, 2009 and $4.5 million for the quarter ended September 30, 2008. BGE's portion of our net periodic pension benefit cost, excluding amounts capitalized, was $14.6 million for the nine months ended September 30, 2009 and $13.2 million for the nine months ended September 30, 2008. Net periodic pension benefit costs exclude settlement charges of $1.0 million and $8.7 million in the quarter and nine months ended September 30, 2009, respectively.

        We show the components of net periodic postretirement benefit cost in the following table:

	Quarter Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(In millions)
Components of net periodic postretirement benefit cost
Service cost	$	1.8		$	1.3		$	5.4		$	4.9
Interest cost		6.0			5.4			18.1			19.3
Amortization of transition obligation		0.6			0.5			1.7			1.7
Recognized net actuarial loss		0.6			0.5			1.7			1.6
Amortization of prior service cost		(0.9	)		(0.8	)		(2.7	)		(2.8	)
Amount capitalized as construction cost		(1.6	)		(1.5	)		(4.9	)		(5.5	)
Net periodic postretirement benefit cost1	$	6.5		$	5.4		$	19.3		$	19.2

1 BGE's portion of our net periodic postretirement benefit cost, excluding amounts capitalized, was $3.1 million for the quarter ended September 30, 2009 and $3.3 million for the quarter ended September 30, 2008. BGE's portion of our net periodic postretirement benefit costs, excluding amounts capitalized, was $9.8 million for the nine months ended September 30, 2009 and $11.0 million for the nine months ended September 30, 2008.

        Our non-qualified pension plans and our postretirement benefit programs are not funded; however, we have trust assets securing certain executive pension benefits. We estimate that we will incur approximately $22 million in pension benefit payments for our non-qualified pension plans and approximately $29.5 million for retiree health and life insurance benefit payments during 2009. As of September 30, 2009, we contributed $317 million to our qualified pension plans. We contributed an additional $2.5 million in October 2009.

Financing Activities

Credit Facilities and Short-term Borrowings

Our short-term borrowings may include bank loans, commercial paper, and bank lines of credit. Short-term borrowings mature within one year from the date of issuance. We pay commitment fees to banks for providing us lines of credit. When we borrow under the lines of credit, we pay market interest rates.

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Constellation Energy

Constellation Energy had bank and other lines of credit under committed unsecured credit facilities totaling $5.8 billion at September 30, 2009 for short-term financial needs. We enter into these facilities to ensure adequate liquidity to support our operations.

        Our liquidity requirements are funded with credit facilities and cash. We fund our short-term working capital needs with existing cash and with our credit facilities, many of which support direct cash borrowings and the issuance of commercial paper, if available. We also use our credit facilities to support the issuance of letters of credit, primarily for our merchant energy business.

        We have included in the table below our credit facilities as of September 30, 2009 and pro forma following the completion of the transaction with EDF:

Facility Expiration	Facility Size as of September 30, 20092		Facility Size Pro Forma upon Completion of the EDF Transaction2
	(In billions)
July 2012	$	3.85	$	2.32
November 20091		1.23		—
September 2013		0.35		—
December 2009		0.15		—
September 2014		0.25		0.50
Total	$	5.83	$	2.82

1 Size of facility may be reduced by proceeds received from certain securities offerings or asset sales.

2 Excludes commodity-linked credit facility discussed below due to its contingent nature.

        During the third quarter of 2009, we executed a committed five year bilateral credit facility that allows for a maximum capacity of $500 million. This facility can be used to issue letters of credit in support of our collateral obligations. At September 30, 2009 and November 3, 2009, this facility had committed capacity of $250 million and $500 million, respectively. The facility partially replaces a portion of our credit facilities that terminate upon closing of the transaction with EDF.

        During the third quarter of 2009, we also entered into a five year commodity-linked credit facility that allows for the issuance of letters of credit up to a maximum capacity of $500 million. We could increase the maximum facility size to $750 million or alternatively enter into an additional $250 million bilateral facility if certain conditions are met, including the closing of the transaction with EDF. This commodity-linked facility is designed to help manage our contingent collateral requirements associated with the hedging of our Customer Supply operations because its capacity increases as natural gas price levels decrease compared to a reference price that is adjusted periodically. As of September 30, 2009, there were no letters of credit outstanding under this facility.

BGE

As of September 30, 2009, BGE has a $400.0 million five-year revolving credit facility expiring in 2011. BGE can borrow directly from the banks, use the facility to allow commercial paper to be issued, if available, or issue letters of credit. On October 29, 2009, BGE expanded its borrowing capacity to $575 million. The size of the facility may be increased up to $600 million with additional commitments by lenders. As of September 30, 2009, BGE had $0.5 million in letters of credit issued under this facility.

        In addition, at September 30, 2009, BGE had $334.9 million in commercial paper outstanding.

Debt

Constellation Energy

In July 2009, we entered into a three year asset-based lending agreement associated with certain upstream gas properties that we own. At September 30, 2009, the borrowing base committed under the facility was $30 million, of which $12.1 million has been utilized and reflected in "Long-term debt" in our Consolidated Balance Sheets. The size of the facility may be increased up to $200 million with additional commitments by the lenders. At October 30, 2009, the borrowing base of the facility increased to $100 million with the commitments of additional lenders. Any debt issued under this facility is secured by the upstream gas properties, and the lenders do not have recourse against Constellation Energy in the event of a default. Interest is payable quarterly in March, June, September, and December.

        This asset-based lending agreement contains a provision that requires certain of our entities that own our upstream gas properties to maintain a current ratio of one-to-one. As of September 30, 2009, these entities were in compliance with this provision.

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Net Available Liquidity

The following table provides a summary of our net available liquidity at September 30, 2009:

	As of September 30, 2009
	Constellation Energy			BGE			Total Consolidated
	(In billions)
Credit facilities1	$	5.8		$	0.4		$	6.2
Less: Letters of credit issued		(2.0	)		—			(2.0	)
Less: Cash drawn on credit facilities		—			—			—
Undrawn facilities		3.8			0.4			4.2
Less: Commercial paper outstanding		—			(0.3	)		(0.3	)
Net available facilities		3.8			0.1			3.9
Add: Cash		0.7			—			0.7
Add: EDF put arrangement		1.1			—			1.1
Net available liquidity	$	5.6		$	0.1		$	5.7

1 Excludes commodity-linked credit facility due to its contingent nature.

        Upon the close of the EDF transaction, the amount and composition of our liquidity will change due to the reduction in credit facilities discussed on the previous page, as well as the receipt of net cash proceeds from the transaction.

        The net proceeds from this transaction are expected to be approximately $2.2 billion after repayment of the EDF preferred stock and the payment of taxes. We anticipate using these proceeds to reduce up to $850 million of our long-term debt, as well as for other general corporate purposes, including payments related to BGE under the Maryland PSC order dated October 30, 2009. These net proceeds will partially offset the reduction in credit facilities, although our net available liquidity will be reduced.

Other Sources of Liquidity

In December 2008, we executed an Investment Agreement with EDF that includes an asset put arrangement that provides us with an option at any time through December 31, 2010 (or the termination of the Investment Agreement by EDF if we breach that agreement) to sell certain non-nuclear generation assets, at pre-agreed prices, to EDF for aggregate proceeds of no more than $2 billion pre-tax, or approximately $1.4 billion after-tax. The amount of after-tax proceeds will be impacted by the assets actually sold and the related tax impacts at that time.

        Exercise of the put arrangement is conditioned upon the receipt of regulatory approvals and third-party consents, the absence of any material liens on such assets, and the absence of a material adverse effect, as defined in the Investment Agreement. During April 2009, we received regulatory approvals and consents for the majority of the assets covered by the put arrangement. As of September 30, 2009, we have approximately $1.1 billion after-tax of liquidity available through the put arrangement. We expect to receive regulatory approval for an additional asset in the first quarter of 2010, which will increase the net after-tax liquidity from the put arrangement to approximately $1.4 billion.

        We continue to increase available liquidity and to reduce our business risk. Specifically, we are reducing capital spending and ongoing expenses, scaling down the expected variability in long-term earnings and short-term collateral usage, and limiting our exposure to business activities that require contingent capital support. During 2009, we made progress on several of these initiatives as discussed in more detail in the Divestitures section beginning on page 16 and the Variable Interest Entities section on page 13. As of September 30, 2009, we have realized substantially all of the $1 billion of the net reduction in collateral that was expected from the divestiture of these operations.

        We believe that the actions that we have taken and our current net available liquidity will be sufficient to support the ongoing liquidity requirements over the next 12 months. Our liquidity projections include assumptions for commodity price changes, which are subject to significant volatility, and we are exposed to certain operational risks that could have a significant impact on our liquidity.

Credit Facility Compliance and Covenants

The credit facilities of Constellation Energy and BGE have limited material adverse change clauses, none of which would prohibit draws under the existing facilities.

        Certain credit facilities of Constellation Energy contain a provision requiring Constellation Energy to maintain a ratio of debt to capitalization equal to or less than 65%. At September 30, 2009, the debt to capitalization ratio as defined in the credit agreements was 46%.

        Upon the closing of our transaction with EDF, under our $3.85 billion credit facility (which reduces to $2.32 billion), we will grant a lien on certain of our generating facilities and pledge our ownership interests in our nuclear business to the lenders.

        Our $1.23 billion credit facility requires us to maintain consolidated earnings before interest, taxes, depreciation, and amortization to consolidated interest expense ratio of at least 2.75 when our S&P senior

23

unsecured debt rating is BBB- or lower and our Moody's senior unsecured debt rating is Baa3 or lower. Compliance with the covenant was not required as of September 30, 2009 as S&P's senior unsecured debt rating was above BBB-. Since the $1.23 billion credit facility expires upon the earlier of the closing of the EDF transaction or November 12, 2009, the recent change in rating by S&P to BBB- will not require compliance with this covenant.

        The credit agreement of BGE contains a provision requiring BGE to maintain a ratio of debt to capitalization equal to or less than 65%. At September 30, 2009, the debt to capitalization ratio for BGE as defined in this credit agreement was 52%.

        The impact of a credit ratings downgrade on our financial ratios associated with our credit facility covenants would depend on our financial condition at the time of such a downgrade and on the source of funds used to satisfy the incremental collateral obligation resulting from a credit ratings downgrade. For example, if we were to use existing cash balances or exercise the put option with EDF to fund the cash portion of any additional collateral obligations resulting from a credit ratings downgrade, we would not expect a material impact on our financial ratios. However, if we were to issue long-term debt or use our credit facilities to fund any additional collateral obligations, our financial ratios could be materially affected. Failure by Constellation Energy, or BGE, to comply with these covenants could result in the acceleration of the maturity of the borrowings outstanding and preclude us from issuing letters of credit under these facilities.

Income Taxes

We compute the income tax expense (benefit) for each quarter based on the estimated annual effective tax rate for the year. The effective tax rate was 64.1% and 67.7% for the quarter and nine months ended September 30, 2009, respectively, compared to 33.4% and 41.1% for the same periods of 2008. The higher effective tax rate for the quarter and nine months ended September 30, 2009 reflects the impact of unfavorable nondeductible adjustments (primarily related to nondeductible dividends on the Series B Preferred Stock and the write-off of the unamortized debt discount on the Senior Notes) in relation to the lower estimated 2009 taxable income (primarily attributable to losses on the divestiture of a majority of our international commodities and our Houston-based gas trading operations).

        The BGE effective tax rate was 36.5% and 38.9% for the quarter and nine months ended September 30, 2009, respectively, compared to 43.4% and (73.1)% for the same periods of 2008. This reflects the impact of the lower 2008 taxable income related to the Maryland settlement agreement, which increased the relative impact of favorable permanent tax adjustments on BGE's 2008 effective tax rate.

Unrecognized Tax Benefits

The following table summarizes the change in unrecognized tax benefits during 2009 and our total unrecognized tax benefits at September 30, 2009:

At September 30, 2009
	(In millions)
Total unrecognized tax benefits, January 1, 2009	$	189.7
Increases in tax positions related to the current year		6.1
Increases in tax positions related to prior years		118.4
Reductions in tax positions related to prior years		(16.2	)
Reductions in tax positions as a result of a lapse of the applicable statute of limitations		(0.8	)
Total unrecognized tax benefits, September 30, 20091	$	297.2

1 BGE's portion of our total unrecognized tax benefits at September 30, 2009 was $90.6 million.

        Increases in current year tax positions are primarily due to unrecognized tax benefits for repair and depreciation deductions measured at amounts consistent with prior Internal Revenue Service (IRS) examination results and state income tax accruals. Increases in prior year tax positions are primarily due to BGE repair and depreciation deductions, which have not been the subject of an IRS examination.

        If the total amount of unrecognized tax benefits of $297.2 million were ultimately realized, our income tax expense would decrease by approximately $173 million. However, the $173 million includes state tax refund claims of approximately $51 million that have been disallowed by tax authorities and we believe that there is a remote likelihood of ultimately realizing any benefit from these refund claim amounts. These state refund claims may be resolved by December 31, 2009. For this reason, we believe it is reasonably possible that reductions to our total unrecognized tax benefits in the range of $40 to $50 million may occur by March 31, 2010, although these reductions are not expected to materially impact income tax expense.

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        Interest and penalties recorded in our Consolidated Statements of Income (Loss) as tax expense relating to liabilities for unrecognized tax benefits were as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
	(In millions)
Interest and penalties recorded as tax expense	$	8.5	$	0.2	$	9.2	$	1.9

        Accrued interest and penalties recognized in our Consolidated Balance Sheets were $19.5 million, of which BGE's portion was $0.9 million at September 30, 2009, and $10.3 million, of which BGE's portion was $0.7 million at December 31, 2008.

Taxes Other Than Income Taxes

BGE collects from certain customers franchise and other taxes that are levied by state or local governments on the sale or distribution of gas and electricity. We include these types of taxes in "Taxes other than income taxes" in our Consolidated Statements of Income (Loss). Some of these taxes are imposed on the customer and others are imposed on BGE. We account for the taxes imposed on the customer on a net basis, which means we do not recognize revenue and an offsetting tax expense for the taxes collected from customers. We account for the taxes imposed on BGE on a gross basis, which means we recognize revenue for the taxes collected from customers. Accordingly, we record the taxes accounted for on a gross basis as revenues in the accompanying Consolidated Statements of Income (Loss) for BGE as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
	(In millions)
Taxes other than income taxes included in revenues—BGE	$	19.3	$	19.1	$	59.4	$	54.3

Guarantees

Our guarantees do not represent incremental Constellation Energy obligations; rather they primarily represent parental guarantees of subsidiary obligations. The following table summarizes the maximum exposure by guarantor based on the stated limit of our outstanding guarantees:

At September 30, 2009	Stated Limit
	(In billions)
Constellation Energy guarantees	$	11.5
Merchant energy business guarantees		0.1
BGE guarantees		0.3
Total guarantees	$	11.9

        At September 30, 2009, Constellation Energy had a total of $11.9 billion in guarantees outstanding related to loans, credit facilities, and contractual performance of certain of its subsidiaries as described below.

•

Constellation Energy guaranteed a face amount of $11.5 billion as follows:

•

$10.5 billion on behalf of our merchant energy subsidiaries to allow those subsidiaries the flexibility needed to conduct business with counterparties without having to post other forms of collateral. Our estimated net exposure for obligations under commercial transactions covered by these guarantees was approximately $2 billion at September 30, 2009, which represents the total amount the parent company could be required to fund based on September 30, 2009 market prices. For those guarantees related to our derivative liabilities, the fair value of the obligation is recorded in our Consolidated Balance Sheets.

•

$0.9 billion primarily on behalf of our nuclear generating facilities for nuclear insurance and credit support to ensure these plants have funds to meet expenses and obligations to safely operate and maintain the plants.

•

$0.1 billion to its other nonregulated businesses.

•

Our merchant energy business guaranteed $73.0 million for loans, performance guarantees and other payment obligations primarily related to certain power projects in which we have an investment.

•

BGE guaranteed the Trust Preferred Securities of $250.0 million of BGE Capital Trust II.

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Commitments and Contingencies

We have made substantial commitments in connection with our merchant energy, regulated electric and gas, and other nonregulated businesses. These commitments relate to:

•

purchase of electric generating capacity and energy,

•

procurement and delivery of fuels,

•

the capacity and transmission and transportation rights for the physical delivery of energy to meet our obligations to our customers, and

•

long-term service agreements, capital for construction programs, and other.

        Our merchant energy business enters into various long-term contracts for the procurement and delivery of fuels to supply our generating plant requirements. In most cases, our contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. These contracts expire in various years between 2009 and 2028. In addition, our merchant energy business enters into long-term contracts for the capacity and transmission rights for the delivery of energy to meet our physical obligations to our customers. These contracts expire in various years between 2009 and 2030.

        Our merchant energy business also has committed to long-term service agreements and other purchase commitments for our plants.

        Our regulated electric business enters into various long-term contracts for the procurement of electricity. As of September 30, 2009, these contracts expire between 2010 and 2012 and represent BGE's estimated requirements for residential customers as follows:

Contract Duration	Percentage of Estimated Requirements
From September 30, 2009 to September 2010		100	%
From October 2010 to May 2011		75
From June 2011 to September 2011		50
From October 2011 to May 2012		25

        The cost of power under these contracts is recoverable under the Provider of Last Resort settlement approved by the Maryland PSC and in accordance with Maryland law.

        Our regulated gas business enters into various long-term contracts for the procurement, transportation, and storage of gas. Our regulated gas business has gas procurement contracts that expire between 2009 and 2011, and transportation and storage contracts that expire between 2010 and 2027. The cost of gas under these contracts is recoverable under BGE's gas cost adjustment clause discussed in Note 1 of our 2008 Annual Report on Form 10-K.

        Our other nonregulated businesses have committed to gas purchases, as well as to contribute additional capital for construction programs and joint ventures in which they have an interest.

        We have also committed to long-term service agreements and other obligations related to our information technology systems.

        At September 30, 2009, the total amount of commitments was $5,371.9 million. These commitments are primarily related to our merchant energy business.

Long-Term Power Sales Contracts

We enter into long-term power sales contracts in connection with our load-serving activities. We also enter into long-term power sales contracts associated with certain of our power plants. Our load-serving power sales contracts extend for terms through 2019 and provide for the sale of energy to electricity distribution utilities and certain retail customers. Our power sales contracts associated with power plants we own extend for terms into 2017 and provide for the sale of all or a portion of the actual output of certain of our power plants. Substantially all long-term contracts were executed at pricing that approximated market rates, including profit margin, at the time of execution.

Contingencies

Litigation

In the normal course of business, we are involved in various legal proceedings. We discuss the significant matters below.

Merger with MidAmerican

Beginning September 18, 2008, seven shareholders of Constellation Energy filed lawsuits in the Circuit Court for Baltimore City, Maryland challenging the then-pending merger with MidAmerican. Four similar suits were filed by other shareholders of Constellation Energy in the United States District Court for the District of Maryland.

        The lawsuits claim that the merger consideration was inadequate and did not maximize value for shareholders, that the sales process leading up to the merger was unreasonably short and procedurally flawed, and that unreasonable deal protection devices were agreed to in order to ward off competing bids and coerce shareholders into accepting the merger. The federal lawsuits also assert that the conversion of the Preferred Stock issued to MidAmerican into debt is not permitted under Maryland law. The lawsuits seek declaratory judgments establishing the unenforceability of the merger based on the alleged breaches of duty, injunctive relief to enjoin the merger, rescission of the merger or rescissory damages, the imposition of a constructive trust in favor of shareholders of any benefits received by the individual members of the

26

Board of Directors of Constellation Energy, and reasonable costs and expenses, including attorney's fees.

        The termination of the MidAmerican merger renders moot the claims attempting to enjoin the merger with MidAmerican. One of the federal merger cases was voluntarily dismissed on December 31, 2008. The other federal merger cases filed in the United States District Court for the District of Maryland were dismissed as moot on May 27, 2009. Plaintiffs' counsel in six of the seven state merger cases have indicated that in light of the termination of the MidAmerican merger they will be filing dismissals without prejudice to their MidAmerican merger claims. In addition, on October 27, 2009 certain counsel in the state merger cases jointly moved for approval of a settlement regarding claims for attorneys' fees, which is pending and subject to court approval. We believe there are meritorious defenses to any claims or requests for relief that might possibly remain regarding this matter. However, we are unable at this time to determine the ultimate outcome of these lawsuits or their possible effect on our financial results.

Securities Class Action

Three federal securities class action lawsuits have been filed in the United States District Courts for the Southern District of New York and the District of Maryland between September 2008 and November 2008. The cases were filed on behalf of a proposed class of persons who acquired publicly traded securities, including the Series A Junior Subordinated Debentures (Debentures), of Constellation Energy between January 30, 2008 and September 16, 2008, and who acquired Debentures in an offering completed in June 2008. The securities class actions generally allege that Constellation Energy, a number of its present or former officers or directors, and the underwriters violated the securities laws by issuing a false and misleading registration statement and prospectus in connection with Constellation Energy's June 27, 2008 offering of Debentures. The securities class actions also allege that Constellation Energy issued false or misleading statements or was aware of material undisclosed information which contradicted public statements including in connection with its announcements of financial results for 2007, the fourth quarter of 2007, the first quarter of 2008 and the second quarter of 2008 and the filing of its first quarter 2008 Form 10-Q. The securities class actions seek, among other things, certification of the cases as class actions, compensatory damages, reasonable costs and expenses, including counsel fees, and rescission damages.

        The Southern District of New York granted the defendants' motion to transfer the two securities class actions filed there to the District of Maryland, and the actions have since been transferred for coordination with the securities class action filed there. On June 18, 2009, the court appointed a lead plaintiff, who filed a consolidated amended complaint on September 17, 2009. We are unable at this time to determine the ultimate outcome of the securities class actions or their possible effect on our, or BGE's financial results.

ERISA Actions

In the fall of 2008, multiple class action lawsuits were filed in the United States District Courts for the District of Maryland and the Southern District of New York against Constellation Energy; Mayo A. Shattuck III, Constellation Energy's Chairman of the Board, President and Chief Executive Officer; and others in their roles as fiduciaries of the Constellation Energy Employee Savings Plan. The actions, which have been consolidated into one action in Maryland (the Consolidated Action), allege that the defendants, in violation of various sections of ERISA, breached their fiduciary duties to prudently and loyally manage Constellation Energy Savings Plan's assets by designating Constellation Energy common stock as an investment, by failing to properly provide accurate information about the investment, by failing to avoid conflicts of interest, by failing to properly monitor the investment and by failing to properly monitor other fiduciaries. The plaintiffs seek to compel the defendants to reimburse the plaintiffs and the Constellation Energy Savings Plan for all losses resulting from the defendants' breaches of fiduciary duty, to impose a constructive trust on any unjust enrichment, to award actual damages with pre- and post-judgment interest, to award appropriate equitable relief including injunction and restitution and to award costs and expenses, including attorneys' fees. We are unable at this time to determine the ultimate outcome of the Consolidated Action or its possible effects on our, or BGE's, financial results.

Mercury

Since September 2002, BGE, Constellation Energy, and several other defendants have been involved in numerous actions filed in the Circuit Court for Baltimore City, Maryland alleging mercury poisoning from several sources, including coal plants formerly owned by BGE. The plants are now owned by a subsidiary of Constellation Energy. In addition to BGE and Constellation Energy, approximately 11 other defendants, consisting of pharmaceutical companies, manufacturers of vaccines, and manufacturers of Thimerosal have been sued. Approximately 70 cases, involving claims related to approximately 132 children, have been filed to date, with each claimant seeking $20 million in compensatory damages, plus punitive damages, from us.

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        The claims against BGE and Constellation Energy have been dismissed in all of the cases either with prejudice based on rulings by the Court or without prejudice based on voluntary dismissals by the plaintiffs' counsel. Plaintiffs may attempt to pursue appeals of the rulings in favor of BGE and Constellation Energy once the cases are finally concluded as to all defendants. We believe that we have meritorious defenses and intend to defend the actions vigorously. However, we cannot predict the timing, or outcome, of these cases, or their possible effect on our, or BGE's, financial results.

Asbestos

Since 1993, BGE and certain Constellation Energy subsidiaries have been involved in several actions concerning asbestos. The actions are based upon the theory of "premises liability," alleging that BGE and Constellation Energy knew of and exposed individuals to an asbestos hazard. In addition to BGE and Constellation Energy, numerous other parties are defendants in these cases.

        Approximately 499 individuals who were never employees of BGE or Constellation Energy have pending claims each seeking several million dollars in compensatory and punitive damages. Cross-claims and third-party claims brought by other defendants may also be filed against BGE and Constellation Energy in these actions. To date, most asbestos claims which have been resolved have been dismissed or resolved without any payment and a small minority have been resolved for amounts that were not material to our financial results.

        BGE and Constellation Energy do not know the specific facts necessary to estimate their potential liability for these claims. The specific facts we do not know include:

•

the identity of the facilities at which the plaintiffs allegedly worked as contractors,

•

the names of the plaintiffs' employers,

•

the dates on which and the places where the exposure allegedly occurred, and

•

the facts and circumstances relating to the alleged exposure.

        Until the relevant facts are determined, we are unable to estimate what our, or BGE's, liability might be. Although insurance and hold harmless agreements from contractors who employed the plaintiffs may cover a portion of any awards in the actions, the potential effect on our, or BGE's, financial results could be material.

Environmental Matters

Solid and Hazardous Waste

In 1999, the EPA proposed to add the 68th Street Dump in Baltimore, Maryland to the Superfund National Priorities List, which is its list of sites targeted for clean-up and enforcement, and sent a general notice letter to BGE and 19 other parties identifying them as potentially liable parties at the site. In March 2004, we and other potentially responsible parties formed the 68th Street Coalition and entered into consent order negotiations with the EPA to investigate clean-up options for the site under the Superfund Alternative Sites Program. In May 2006, a settlement among the EPA and 19 of the potentially responsible parties, including BGE, with respect to investigation of the site became effective. The settlement requires the potentially responsible parties, over the course of several years, to identify contamination at the site and recommend clean-up options. BGE is fully indemnified by a wholly owned subsidiary of Constellation Energy for costs related to this settlement, as well as any clean-up costs. The clean-up costs will not be known until the investigation is closer to completion, which is expected by mid-2010. The completed investigation will provide a range of remediation alternatives to the EPA, and the EPA is expected to select one of the alternatives by the end of the first quarter of 2011. The clean-up costs we incur could have a material effect on our financial results.

Air Quality

In May 2007, a subsidiary of Constellation Energy entered into a consent decree with the Maryland Department of the Environment to resolve alleged violations of air quality opacity standards at three fossil fuel plants in Maryland. The consent decree requires the subsidiary to pay a $100,000 penalty, provide $100,000 to a supplemental environmental project, and install technology to control emissions from those plants.

        In January 2009, the EPA issued a notice of violation (NOV) to a subsidiary of Constellation Energy, as well as the other owners and the operator of the Keystone coal-fired power plant in Shelocta, Pennsylvania. We hold an approximately 21% interest in the Keystone plant. The NOV alleges that the plant performed various capital projects beginning in 1984 without complying with the new source review permitting requirements of the Clean Air Act. The EPA also contends that the alleged failure to comply with those requirements are continuing violations under the plant's air permits. The EPA could seek civil penalties under the Clean Air Act for the alleged violations.

        The owners and operator of the Keystone plant are investigating the allegations and have entered into discussions with the EPA. We believe there are meritorious defenses to the allegations contained in the NOV. However, we cannot predict the outcome of this proceeding and it is not possible to determine our actual liability, if any, at this time.

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Water Quality

In October 2007, a subsidiary of Constellation Energy entered into a consent decree with the Maryland Department of the Environment relating to groundwater contamination at a third party facility that was licensed to accept fly ash, a byproduct generated by our coal-fired plants. The consent decree requires the payment of a $1.0 million penalty, remediation of groundwater contamination resulting from the ash placement operations at the site, replacement of drinking water supplies in the vicinity of the site, and monitoring of groundwater conditions. We recorded a liability in our Consolidated Balance Sheets of approximately $7.9 million, which includes the $1 million penalty and our estimate of probable costs to remediate contamination, replace drinking water supplies, monitor groundwater conditions, and otherwise comply with the consent decree. We have paid approximately $4.4 million of these costs as of September 30, 2009, resulting in a remaining liability at September 30, 2009 of $3.5 million. We estimate that it is reasonably possible that we could incur additional costs of up to approximately $10 million more than the liability that we accrued.

Insurance

We discuss our nuclear and non-nuclear insurance programs in Note 12 of our 2008 Annual Report on Form 10-K.

Derivative Instruments

Nature of Our Business and Associated Risks

Our business activities primarily include our merchant energy business and our regulated electric and gas business. Our merchant energy business includes:

•

the generation of electricity from our owned and contractually-controlled physical assets,

•

the sale of power, gas, and other energy commodities to wholesale and retail customers, and

•

risk management services and energy trading activities.

        Our regulated electric and gas businesses engage in electricity and gas transmission and distribution activities in Central Maryland at prices set by the Maryland PSC that are generally designed to recover our costs, including purchased fuel and energy. Substantially all of our risk management activities involving derivatives occur outside our regulated businesses.

        In carrying out our merchant energy business activities, we purchase and sell power, fuel, and other energy-related commodities in competitive markets. These activities expose us to significant risks, including market risk from price volatility for energy commodities and the credit risks of counterparties with which we enter into contracts. The sources of these risks include, but are not limited to, the following:

•

the risks of unfavorable changes in power prices in the wholesale forward and spot markets in which we sell a portion of the power from our power generation facilities and purchase power to meet our load-serving requirements,

•

the risk of unfavorable fuel price changes for the purchase of a portion of the fuel for our generation facilities under short-term contracts or on the spot market (Fuel prices can be volatile, and the price that can be obtained for power produced from such fuel may not change at the same rate or direction as fuel costs),

•

the risk that one or more counterparties may fail to perform under their obligations to make payments or deliver fuel or power,

•

interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance our operations, and

•

foreign currency exchange rate risk associated with international investments and purchases of equipment and commodities in currencies other than U.S. dollars.

Objectives and Strategies for Using Derivatives

Risk Management Activities

To lower our exposure to the risk of unfavorable fluctuations in commodity prices, interest rates, and foreign currency rates, we routinely enter into derivative contracts, such as fixed-price forward physical purchase and sales contracts, futures, financial swaps, and option contracts traded in the over-the-counter markets or on exchanges, for hedging purposes. The objectives for entering into such hedging transactions primarily include:

•

fixing the price for a portion of anticipated future electricity sales from our generation operations,

•

fixing the price of a portion of anticipated fuel purchases for the operation of our power plants,

•

fixing the price for a portion of anticipated energy purchases to supply our load-serving customers, and

•

managing our exposure to interest rate risk and foreign currency exchange risks.

Non-Risk Management Activities

In addition to the use of derivatives for risk management purposes, we also enter into derivative contracts for trading purposes primarily to achieve the following objectives:

•

optimizing the margin on surplus electricity generation and load positions and surplus fuel supply and demand positions,

•

obtaining knowledge of prices and developing expertise in less-liquid markets, and

29

•

deploying risk capital in an effort to generate returns.

Accounting for Derivative Instruments

The accounting requirements for derivatives provide for recognition of all qualifying derivative instruments on the balance sheet at fair value as either assets or liabilities.

Accounting Designation

We must evaluate new and existing transactions and agreements to determine whether they are derivatives, for which there are several possible accounting treatments. Mark-to-market is required as the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria, both at the time of designation and on an ongoing basis. The permissible accounting treatments include:

•

normal purchase normal sale (NPNS),

•

cash flow hedge,

•

fair value hedge, and

•

mark-to-market.

        We discuss our accounting policies for derivatives and hedging activities and their impacts on our financial statements in Note 1 to our 2008 Annual Report on Form 10-K.

NPNS

We elect NPNS accounting for derivative contracts that provide for the purchase or sale of a physical commodity that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Once we elect NPNS classification for a given contract, we cannot subsequently change the election and treat the contract as a derivative using mark-to-market or hedge accounting.

Cash Flow Hedging

We generally elect cash flow hedge accounting for most of the derivatives that we use to hedge market price risk for our physical energy delivery activities because hedge accounting more closely aligns the timing of earnings recognition and cash flows for the underlying business activities. Management monitors the potential impacts of commodity price changes and, where appropriate, may enter into or close out (via offsetting transactions) derivative transactions designated as cash flow hedges.

Commodity Cash Flow Hedges

Our merchant energy business has designated fixed-price forward contracts as cash-flow hedges of forecasted sales of energy and forecasted purchases of fuel and energy for the years 2009 through 2016. Our merchant energy business had net unrealized pre-tax losses on these cash-flow hedges recorded in "Accumulated other comprehensive loss" of $1,323.1 million at September 30, 2009 and $2,614.9 million at December 31, 2008.

        We expect to reclassify $941.8 million of net pre-tax losses on cash-flow hedges from "Accumulated other comprehensive loss" into earnings during the next twelve months based on market prices at September 30, 2009. However, the actual amount reclassified into earnings could vary from the amounts recorded at September 30, 2009, due to future changes in market prices.

        When we determine that a forecasted transaction originally hedged has become probable of not occurring, we reclassify net unrealized gains or losses associated with those hedges from "Accumulated other comprehensive loss" to earnings. We recognized in earnings the following pre-tax amounts on such contracts:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009			2008
	(In millions)
Pre-tax (losses) gains	$	—	$	17.0	$	(241.0	)	$	17.7

        The pre-tax loss reclassified in 2009 resulted from the sale of a majority of our international commodities operation and our termination of certain contracts as part of our efforts to improve liquidity and reduce risk. The forecasted transactions associated with previously designated cash-flow hedge contracts were deemed probable of not occurring.

Interest Rate Swaps Designated as Cash Flow Hedges

We use interest rate swaps designated as cash flow hedges to manage our interest rate exposures associated with new debt issuances and to manage our exposure to fluctuations in interest rates on variable rate debt. The effective portion of gains and losses on these interest rate cash flow hedges, net of associated deferred income tax effects, is recorded in "Accumulated other comprehensive loss" in our Consolidated Statements of Comprehensive Income (Loss). We reclassify gains and losses on the hedges from "Accumulated other comprehensive loss" into "Interest expense" in our Consolidated Statements of Income (Loss) during the periods in which the interest payments being hedged occur.

        Accumulated other comprehensive loss includes net unrealized pre-tax gains on interest rate cash-flow hedges of prior debt issuances totaling $11.9 million at September 30, 2009 and $12.0 million at December 31, 2008. We expect to reclassify $2.3 million of pre-tax net gains on these cash-flow hedges from "Accumulated other comprehensive loss" into "Interest expense" during the next twelve months. We had no hedge ineffectiveness on these swaps.

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Fair Value Hedging

We elect fair value hedge accounting for a limited portion of our derivative contracts including certain interest rate swaps and certain forward contracts and price and basis swaps associated with natural gas fuel in storage. The objectives for electing fair value hedging in these situations are to manage our exposure, to optimize the mix of our fixed and floating-rate debt, and to hedge the value of our natural gas in storage. We did not have any fair value hedges related to the value of our natural gas in storage during the second and third quarters of 2009.

Interest Rate Swaps Designated as Fair Value Hedges

We use interest rate swaps designated as fair value hedges to optimize the mix of fixed and floating-rate debt. We record any gains or losses on swaps that qualify for fair value hedge accounting treatment, as well as changes in the fair value of the debt being hedged, in "Interest expense." We record changes in fair value of the swaps in "Derivative assets and liabilities" and changes in the fair value of the debt in "Long-term debt" in our Consolidated Balance Sheets. In addition, we record the difference between interest on hedged fixed-rate debt and floating-rate swaps in "Interest expense" in the periods that the swaps settle.

        During 2004, we entered into interest rate swaps qualifying as fair value hedges relating to $450 million of our fixed-rate debt maturing in 2012 and 2015, and converted this notional amount of debt to floating-rate. The fair value of these hedges was an unrealized gain of $46.8 million at September 30, 2009 and $55.9 million at December 31, 2008 and was recorded as an increase in our "Derivative assets" and an increase in our "Long-term debt." We had no hedge ineffectiveness on these interest rate swaps. On July 15, 2009, we terminated an interest rate swap relating to $50 million of the $450 million of our fixed-rate debt and received approximately $4.5 million in cash. This transaction was recorded in the third quarter of 2009.

Hedge Ineffectiveness

For all categories of derivative instruments designated in hedging relationships, we recorded in earnings the following pre-tax gains (losses) related to hedge ineffectiveness:

	Quarter Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009		2008
	(In millions)
Cash-flow hedges	$	(13.2	)	$	(13.2	)	$	39.4	$	(103.0	)
Fair value hedges		—			(6.2	)		23.9		6.7
Total	$	(13.2	)	$	(19.4	)	$	63.3	$	(96.3	)

        In addition, we did not recognize any gain or loss during the quarter or nine months ended September 30, 2009 and 2008 relating to changes in value for the portion of our fair value hedges excluded from our hedge effectiveness assessment.

Mark-to-Market

We generally apply mark-to-market accounting for risk management and trading activities for which changes in fair value more closely reflect the economic performance of the underlying business activity. However, we also use mark-to-market accounting for derivatives related to the following physical energy delivery activities:

•

our nonregulated retail gas customer supply activities, which are managed using economic hedges that we have not designated as cash-flow hedges in order to match the timing of recognition of the earnings impacts of those activities to the greatest extent permissible, and

•

economic hedges of activities that require accrual accounting for which the related hedge requires mark-to-market accounting.

Quantitative Information About Derivatives and Hedging Activities

Background

Effective January 1, 2009, we adopted an accounting standard related to disclosures about derivative instruments and hedging activities. This standard does not change the accounting for derivatives; rather, it requires expanded disclosure about derivative instruments and hedging activities regarding:

•

the ways in which an entity uses derivatives,

•

the accounting for derivatives and hedging activities, and

•

the impact that derivatives have (or could have) on an entity's financial position, financial performance, and cash flows.

Balance Sheet Tables

We present our derivative assets and liabilities in our Consolidated Balance Sheets on a net basis, including cash collateral, whenever we have a legally enforceable master netting agreement with a counterparty to a derivative contract. We use master netting agreements whenever possible to manage and substantially reduce our potential counterparty credit risk. The net presentation in our Consolidated Balance Sheets reflects our actual credit exposure after giving effect to the beneficial effects of these agreements and cash collateral, and our credit risk is reduced further by other forms of collateral.

        The following table provides information about the types of market risks we manage using derivatives. This table only includes derivatives and does not reflect the price risks we are hedging that arise from physical assets or nonderivative accrual contracts within our generating plants, customer supply, and global commodities activities.

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        As discussed more fully following the table, we present this information by disaggregating our net derivative assets and liabilities into gross components on a contract-by-contract basis before giving effect to the risk-reducing benefits of master netting arrangements and collateral. As a result, we must present each individual contract as an "asset value" if it is in the money or a "liability value" if it is out of the money, regardless of whether the individual contracts offset market or credit risks of other contracts in full or in part. Therefore, the gross amounts in this table do not reflect our actual economic or credit risk associated with derivatives. This gross presentation is intended only to show separately the various derivative contract types we use, such as commodities, interest rate, and foreign exchange.

        In order to identify how our derivatives impact our financial position, at the bottom of the table we provide a reconciliation of the gross fair value components to the net fair value amounts as presented in the Fair Value Measurements note and our Consolidated Balance Sheets.

        The gross asset and liability values in the table below are segregated between those derivatives designated in qualifying hedge accounting relationships and those not designated in hedge accounting relationships. Derivatives not designated in hedging relationships include our retail gas customer supply operation, economic hedges of accrual activities, the international commodities and Houston-based gas trading operations that we have divested, and risk management and trading activities which we have substantially curtailed as part of our effort to reduce risk in our business. We use the end of period accounting designation to determine the classification for each derivative position.

As of September 30, 2009		Derivatives Designated as Hedging Instruments for Accounting Purposes					Derivatives Not Designated As Hedging Instruments for Accounting Purposes					All Derivatives Combined
Contract type		Asset Values3		Liability Values4			Asset Values3		Liability Values4			Asset Values3			Liability Values4
		(In millions)
	Power contracts	$	2,127.9	$	(2,943.8	)	$	16,422.9	$	(17,345.4	)	$	18,550.8		$	(20,289.2	)
	Gas contracts		1,868.8		(1,305.4	)		5,412.9		(5,088.8	)		7,281.7			(6,394.2	)
	Coal contracts		33.7		(71.6	)		1,070.9		(1,090.6	)		1,104.6			(1,162.2	)
	Other commodity contracts1		10.6		(18.3	)		200.1		(172.3	)		210.7			(190.6	)
	Interest rate contracts		46.8		—			35.5		(52.8	)		82.3			(52.8	)
	Foreign exchange contracts		—		—			26.9		(21.9	)		26.9			(21.9	)
Total gross fair values		$	4,087.8	$	(4,339.1	)	$	23,169.2	$	(23,771.8	)	$	27,257.0		$	(28,110.9	)
	Netting arrangements5												(26,223.6	)		26,223.6
	Cash collateral												(274.1	)		99.4
Net fair values												$	759.3		$	(1,787.9	)
Net fair value by balance sheet line item:
Accounts receivable2												$	(741.2	)
Derivative assets—current													582.8
Derivative assets—noncurrent													917.7
Derivative liabilities—current																(823.1	)
Derivative liabilities—noncurrent																(964.8	)
Total Derivatives												$	759.3		$	(1,787.9	)

1 Other commodity contracts include oil, freight, emission allowances, and weather contracts.
2 Represents the unrealized fair value of exchange traded derivatives, exclusive of cash margin posted.
3 Represents in-the-money contracts without regard to potentially offsetting out-of-the-money contracts under master netting agreements.
4 Represents out-of-the-money contracts without regard to potentially offsetting in-the-money contracts under master netting agreements.
5 Represents the effect of legally enforceable master netting agreements.

        The magnitude of and changes in the gross derivatives components in this table do not indicate changes in the level of derivative activities, the level of market risk, or the level of credit risk. The primary factors affecting the magnitude of the gross amounts in the table are changes in commodity prices and the total number of contracts. If commodity prices change, the gross amounts could increase, even if the level of contracts stays the same, because separate presentation is required for contracts that are in the money from those that are out of the money. As a result, the gross amounts of even fully hedged positions could increase if prices change. Additionally, if the number of contracts increases, the gross amounts also could increase. Thus, the execution of new contracts to reduce economic risk could actually increase the gross amounts in the table because of the requirement to present the gross value of each individual contract separately.

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        The primary purpose of this table is to disaggregate the risks being managed using derivatives. In order to achieve this objective, we prepare this table by separating each individual derivative contract that is in the money from each contract that is out of the money and present such amounts on a gross basis, even for offsetting contracts that have identical quantities for the same commodity, location, and delivery period. We must also present these components excluding the substantive credit-risk reducing effects of master netting agreements and collateral. As a result, the gross "asset" and "liability" amounts for each contract type far exceed our actual economic exposure to commodity price risk and credit risk. Our actual economic exposure consists of the net derivative position combined with our nonderivative accrual contracts, such as those for load-serving, and our physical assets, such as our power plants. Our actual derivative credit risk exposure after master netting agreements and cash collateral is reflected in the net fair value amounts shown at the bottom of the table above. Our total economic and credit exposures, including derivatives, are managed in a comprehensive risk framework that includes risk measures such as economic value at risk, stress testing, and maximum potential credit exposure.

Gain and (Loss) Tables

The following tables summarize the gain and loss impacts of our derivative instruments segregated into the following categories:

•

cash flow hedges,

•

fair value hedges, and

•

mark-to-market derivatives.

        The tables only include this information for derivatives and do not reflect the related gains or losses that arise from generation and generation-related assets, nonderivative accrual contracts, or NPNS contracts within our Generation, Customer Supply, and Global Commodities activities, other than fair value hedges, for which we separately show the gain or loss on the hedged asset or liability. As a result, for mark-to-market and cash-flow hedge derivatives, these tables only reflect the impact of derivatives themselves and therefore do not necessarily include all of the income statement impacts of the transactions for which derivatives are used to manage risk. For a more complete discussion of how derivatives affect our financial performance, see our accounting policy for Revenues, Fuel and Purchased Energy Expenses, and Derivatives and Hedging Activities in Note 1 to our 2008 Annual Report on Form 10-K.

        The following table presents gains and losses on derivatives designated as cash flow hedges. As discussed more fully in our accounting policy, we record the effective portion of unrealized gains and losses on cash flow hedges in Accumulated Other Comprehensive Loss until the hedged forecasted transaction affects earnings. We record the ineffective portion of gains and losses on cash flow hedges in earnings as they occur. When the hedged forecasted transaction settles and is recorded in earnings, we reclassify the related amounts from Accumulated Other Comprehensive Loss into earnings, with the result that the combination of revenue or expense from the forecasted transaction and gain or loss from the hedge are recognized in earnings at a total amount equal to the hedged price. Accordingly, the amount of derivative gains and losses recorded in Accumulated Other Comprehensive Loss and reclassified from Accumulated Other Comprehensive Loss into earnings does not reflect the total economics of the hedged forecasted transactions. The total impact of our forecasted transactions and related hedges is reflected in our Consolidated Statements of Income (Loss).

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Cash Flow Hedges									Quarter Ended September 30, 2009						Nine Months Ended September 30, 2009
		Gain (Loss) Recorded in AOCI
Contract type:		Quarter Ended September 30, 2009			Nine Months Ended September 30, 2009			Statement of Income (Loss) Line Item	Gain (Loss) Reclassified from AOCI into Earnings			Ineffectiveness Gain (Loss) Recorded in Earnings			Gain (Loss) Reclassified from AOCI into Earnings			Ineffectiveness Gain (Loss) Recorded in Earnings
		(In millions)
Hedges of forecasted sales:								Nonregulated revenues
	Power contracts	$	47.0		$	309.2			$	(44.4	)	$	4.4		$	(174.0	)	$	85.4
	Gas contracts		(1.8	)		(25.7	)			(15.3	)		(1.8	)		(37.3	)		4.7
	Coal contracts		—			10.0				—			—			(229.9	)		—
	Other commodity contracts1		1.2			7.8				1.3			(1.1	)		(2.3	)		(6.2	)
Interest rate contracts			—			(0.3	)			(0.4	)		—			(0.6	)		—
Foreign exchange contracts			—			0.3				—			—			(0.9	)		—
Total gains (losses)		$	46.4		$	301.3		Total included in nonregulated revenues	$	(58.8	)	$	1.5		$	(445.0	)	$	83.9
Hedges of forecasted purchases:								Fuel and purchased energy expense
	Power contracts	$	(104.6	)	$	(991.4	)		$	(452.5	)	$	(5.8	)	$	(1,490.9	)	$	(35.3	)
	Gas contracts		(30.6	)		123.9				14.5			(5.3	)		107.2			(2.7	)
	Coal contracts		43.4			(81.7	)			(69.8	)		(3.6	)		(135.1	)		(6.5	)
	Other commodity contracts2		(6.9	)		(9.0	)			(7.5	)		—			15.6			—
Foreign exchange contracts			1.0			1.1				(0.1	)		—			—			—
Total losses		$	(97.7	)	$	(957.1	)	Total included in fuel and purchased energy expense	$	(515.4	)	$	(14.7	)	$	(1,503.2	)	$	(44.5	)
Hedges of interest rates:								Interest expense
	Interest rate contracts		—			—				(0.2	)		—			—			—
Total losses		$	—		$	—		Total included in interest expense	$	(0.2	)	$	—		$	—		$	—
Grand total (losses) gains		$	(51.3	)	$	(655.8	)		$	(574.0	)	$	(13.2	)	$	(1,948.2	)	$	39.4

1 Other commodity sale contracts include oil and freight contracts.
2 Other commodity purchase contracts include freight and emission allowances.

        The following table presents gains and losses on derivatives designated as fair value hedges and, separately, the gains and losses on the hedged item. As discussed earlier, we record the unrealized gains and losses on fair value hedges as well as changes in the fair value of the hedged asset or liability in earnings as they occur. The difference between these amounts represents hedge ineffectiveness. Due to the sale of our Houston-based gas trading operation, we do not have any third quarter activity under fair value hedges related to gas contracts.

Fair Value Hedges			Quarter Ended September 30, 2009					Nine Months Ended September 30, 2009
Contract type:		Statement of Income (Loss) Line Item	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item			Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item
			(In millions)
Commodity contracts:
	Gas contracts	Nonregulated revenues	$	—	$	—		$	40.6	$	(16.7	)
Interest rate contracts		Interest expense		21.8		(21.5	)		6.3		(6.0	)
Total gains (losses)			$	21.8	$	(21.5	)	$	46.9	$	(22.7	)

        The following table presents gains and losses on mark-to-market derivatives, contracts that have not been designated as hedges for accounting purposes. As discussed more fully in Note 1 to our 2008 Annual Report on Form 10-K, we record the unrealized gains and losses on mark-to-market derivatives in earnings as they occur. While we use mark-to-market accounting for risk management and trading activities because changes in fair value more closely reflect the economic performance of the activity, we also use mark-to-market accounting for certain derivatives related to

34

portions of our physical energy delivery activities. Accordingly, the total amount of gains and losses from mark-to-market derivatives does not necessarily reflect the total economics of related transactions.

Mark-to-Market Derivatives			Quarter Ended September 30, 2009			Nine Months Ended September 30, 2009
Contract type:		Statement of Income (Loss) Line Item	Gain (Loss) Recorded in Income
			(In millions)
Commodity contracts:
	Power contracts	Nonregulated revenues	$	65.4		$	212.4
	Gas contracts	Nonregulated revenues		(73.6	)		(353.1	)
	Coal contracts	Nonregulated revenues		3.1			12.9
	Other commodity contracts1	Nonregulated revenues		(4.5	)		(4.1	)
	Coal contracts	Fuel and purchased energy expense		(2.1	)		(109.8	)
Interest rate contracts		Nonregulated revenues		(6.3	)		(26.9	)
Foreign exchange contracts		Nonregulated revenues		1.8			11.5
Total gains (losses)			$	(16.2	)	$	(257.1	)

1 Other commodity contracts for the quarter ended September 30, 2009 include oil, weather, and emission allowances. For the nine months ended September 30, 2009, other commodity contracts also include freight and uranium.

        In computing the amounts of derivative gains and losses in the above tables, we include the changes in fair values of derivative contracts up to the date of maturity or settlement of each contract. This approach facilitates a comparable presentation for both financial and physical derivative contracts. In addition, for cash flow hedges we include the impact of intra-quarter transactions (i.e., those that arise and settle within the same quarter) in both gains and losses recognized in Accumulated Other Comprehensive Loss and amounts reclassified from Accumulated Other Comprehensive Loss into earnings.

Volume of Derivative Activity

The volume of our derivatives activity is directly related to the fundamental nature and scope of our business and the risks we manage. We own or control electric generating facilities, which exposes us to both power and fuel price risk; we serve electric and gas wholesale and retail customers within our customer supply business, which exposes us to electricity and natural gas price risk; and we provide risk management services and engage in trading activities, which can expose us to a variety of commodity price risks. We conduct our business activities throughout the United States and internationally. In order to manage the risks associated with these activities, we are required to be an active participant in the energy markets, and we routinely employ derivative instruments to conduct our business.

        Derivative instruments provide an efficient and effective way to conduct our business and to manage the associated risks. We manage our generating resources and customer supply activities based upon established policies and limits, and we use derivatives to establish a portion of our hedges and to adjust the level of our hedges from time to time. Additionally, we engage in trading activities which enable us to execute hedging transactions in a cost-effective manner. We manage those activities based upon various risk measures, including position limits, economic value at risk (EVaR) and value at risk (VaR), and we use derivatives to establish and maintain those activities within the prescribed limits. We are also using derivatives to execute, control, and reduce the overall level of our trading positions and risk as well as to manage a portion of our interest rate risk associated with debt and our foreign currency risk from non-dollar denominated transactions. Accordingly, the use of derivative instruments is integral to the conduct of our business, and derivative instruments are an important tool through which we are able to manage and mitigate the risks that are inherent in our activities.

        The following table presents information designed to provide insight into the overall volume of our derivatives usage. However, the volumes presented in this table are subject to a number of limitations and should only be used as an indication of the extent of our derivatives usage and the risks they are intended to manage.

        First, the volume information is not a complete representation of our market price risk because it only includes derivative contracts. Accordingly, this table does not present a complete picture of our overall net economic exposure, and should not be interpreted as an indication of open or unhedged commodity positions, because the use of derivatives is only one of the means by which we engage in and manage the risks of our business. For example, the table does not include power or fuel quantities and risks arising from our physical assets, non-derivative contracts, and forecasted transactions that we manage using derivatives; a portion of these volumes reduce those risks. It also does not include volumes of commodities under nonderivative contracts that we use to serve customers or manage our risks. Our actual net economic exposure from our generating facilities and customer supply activities is reduced by derivatives, and the exposure from our trading activities is managed and controlled through

35

the risk measures discussed above. Therefore, the information in the table below is only an indication of that portion of our business that we manage through derivatives and serves primarily to identify the extent of our derivatives activities and the types of risks that they are intended to manage.

        Additionally, the disclosure of derivative quantities potentially could reveal commercially valuable or otherwise competitively sensitive information that could limit the effectiveness and profitability of our business activities. Therefore, in the table below, we have computed the derivative volumes for commodities by aggregating the absolute value of net open long (purchase) and short (sell) positions within commodities for each year. This provides an indication of the level of derivatives activity, but it does not indicate either the direction of our position (long or short), or the overall size of our position. We believe this presentation gives an appropriate indication of the level of derivatives activity without unnecessarily revealing the size and direction of our derivatives positions.

        Finally, the volume information for commodity derivatives represents "delta equivalent" quantities, not gross notional amounts. We make use of different types of commodity derivative instruments such as forwards, futures, options, and swaps, and we believe that the delta equivalent quantity is the most relevant measure of the volume associated with these commodity derivatives. The delta-equivalent quantity represents a risk-adjusted notional quantity for each contract that takes into account the probability that an option will be exercised. Therefore, the volume information for commodity derivatives represents the delta equivalent quantity of those contracts, computed on the basis described above. For interest rate contracts and foreign currency contracts we have presented the notional amounts of such contracts in the table below.

        The following table presents the volume of our derivative activities as of September 30, 2009, shown by contractual settlement year.

Quantities1 Under Derivative Contracts									As of September 30, 2009
Contract Type (Unit)	2009		2010		2011		2012		2013		Thereafter		Total
	(In millions)
Power (MWh)		10.1		28.8		16.0		2.4		1.2		1.2		59.7
Gas (MMBTU)		20.6		34.7		42.5		8.0		9.9		44.3		160.0
Coal (Tons)		1.9		4.2		2.6		—		—		—		8.7
Oil (BBL)		0.1		—		—		—		—		—		0.1
Emission Allowances (Tons)		10.0		0.2		—		—		—		—		10.2
Interest Rate Contracts	$	795.1	$	944.4	$	45.6	$	629.5	$	93.2	$	425.0	$	2,932.8
Foreign Exchange Rate Contracts	$	4.2	$	51.1	$	58.5	$	16.7	$	16.7	$	32.3	$	179.5

1 Amounts in the table are only intended to provide an indication of the level of derivatives activity and should not be interpreted as a measure of any derivative position or overall economic exposure to market risk. Quantities are expressed as "delta equivalents" on an absolute value basis by contract type by year. Additionally, quantities relate only to derivatives and do not include potentially offsetting quantities associated with physical assets and nonderivative accrual contracts.

        In addition to the commodities in the tables above, we also hold derivative instruments related to weather and freight that are insignificant relative to the overall level of our derivative activity.

Credit-Risk Related Contingent Features

Certain of our derivative instruments contain provisions that would require additional collateral upon a credit-related event such as an adequate assurance provision or a credit rating decrease in the senior unsecured debt of Constellation Energy. The amount of collateral we could be required to post would be determined by the fair value of contracts containing such provisions that represent a net liability, after offset for the fair value of any asset contracts with the same counterparty under master netting agreements and any other collateral already posted. This collateral amount is a component of, and is not in addition to, the total collateral we could be required to post for all contracts upon a credit rating decrease.

        The following table presents information related to these derivatives. Based on contractual provisions, we estimate that if Constellation Energy's senior unsecured debt were downgraded, our total contingent collateral obligation for derivatives in a net liability position was $0.2 billion as of September 30, 2009, which represents the additional collateral that we could be required to post with counterparties, including both cash collateral and letters of credit, in the event of a credit downgrade to below investment grade. These amounts are associated with net derivative liabilities totaling $1.2 billion after reflecting legally binding master netting agreements and collateral already posted.

        We present the gross fair value of derivatives in a net liability position that have credit-risk-related contingent features in the first column in the table below. This gross fair value amount represents only the out-of-the-money contracts containing such features that are not fully collateralized by cash on a stand-alone basis. Thus, this amount does not reflect the offsetting fair value of in-the-money contracts under legally-

36

binding master netting agreements with the same counterparty, as shown in the second column in the table. These in-the-money contracts would offset the amount of any gross liability that could be required to be collateralized, and as a result, the actual potential collateral requirements would be based upon the net fair value of derivatives containing such features, not the gross amount. The amount of any possible contingent collateral for such contracts in the event of a downgrade would be further reduced to the extent that we have already posted collateral related to the net liability.

        Because the amount of any contingent collateral obligation would be based on the net fair value of all derivative contracts under each master netting agreement, we believe that the "net fair value of derivative contracts containing this feature" as shown in the table below is the most relevant measure of derivatives in a net liability position with credit-risk-related contingent features. This amount reflects the actual net liability upon which existing collateral postings are computed and upon which any additional contingent collateral obligation would be based.

Credit-Risk Related Contingent Feature							As of September 30, 2009
Gross Fair Value of Derivative Contracts Containing This Feature1		Offsetting Fair Value of In-the-Money Contracts Under Master Netting Agreements2			Net Fair Value of Derivative Contracts Containing This Feature3		Amount of Posted Collateral4		Contingent Collateral Obligation5
(In billions)
$	12.2	$	(11.0	)	$	1.2	$	0.8	$	0.2

1 Amount represents the gross fair value of out-of-the-money derivative contracts containing credit-risk-related contingent features that are not fully collateralized by posted cash collateral on an individual, contract-by-contract basis ignoring the effects of master netting agreements.
2 Amount represents the offsetting fair value of in-the-money derivative contracts under legally-enforceable master netting agreements with the same counterparty, which reduces the amount of any liability for which we potentially could be required to post collateral.
3 Amount represents the net fair value of out-of-the-money derivative contracts containing credit-risk related contingent features after considering the mitigating effects of offsetting positions under master netting arrangements and reflects the actual net liability upon which any potential contingent collateral obligations would be based.
4 Amount includes cash collateral posted of $99.4 million and letters of credit of $691.1 million.
5 Amounts represent the additional collateral that we could be required to post with counterparties, including both cash collateral and letters of credit, in the event of a credit downgrade to below investment grade after giving consideration to offsetting derivative and non-derivative positions under master netting agreements.

Concentrations of Derivative-Related Credit Risk

Constellation Energy's wholesale and retail credit risk management policies establish the guidelines under which we extend unsecured credit to counterparties and customers. Based on the counterparty analysis and limits established by Constellation Energy, collateral or other security may be required to enter into transactions based on the potential exposure. Under most agreements we have entered into, collateral is in the form of cash or letters of credit. These forms of collateral are held by us and can be drawn upon should a counterparty default on its obligations under its agreement.

        As a best practice, we enter into commodity master agreements and cross-commodity netting agreements in order to achieve the benefits of netting in terms of exposure and collateral capital reductions. Where beneficial to the risk profile of the company, we will seek credit protections that include upfront collateral, margining, material adverse change clauses (based on credit ratings downgrades or other financial ratios events), and adequate assurances clauses in our master agreements that can be utilized to request security from our counterparties in order to cover our potential risk of loss.

        We consider a significant concentration of credit risk to be any single obligor or counterparty whose concentration exceeds 10% of total credit exposure. As of September 30, 2009, no single counterparty concentration comprises more than 10% of the total exposure of the portfolio, and no collection of counterparties based in a single country other than the United States comprises more than 10% of the total exposure of the portfolio.

Fair Value Measurements

Fair value is the price that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

        The accounting requirements for fair value measurements include a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:

•

Level 1—Unadjusted quoted prices available in active markets at the measurement date for identical assets or liabilities.

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•

Level 2—Pricing inputs, other than quoted prices included within Level 1, which are either directly or indirectly observable as of the reporting date.

•

Level 3—Significant inputs that are generally not observable from market activity.

        We determine the fair value of our assets and liabilities using unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available. We use unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available.

        We classify assets and liabilities within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement of each individual asset and liability taken as a whole. We determine fair value for assets and liabilities classified as Level 1 by multiplying the market price by the quantity of the asset or liability. We primarily determine fair value measurements classified as Level 2 or Level 3 using the income valuation approach, which involves discounting estimated cash flows using assumptions that market participants would use in pricing the asset or liability.

        We present all derivatives recorded at fair value net with the associated fair value cash collateral. This presentation of the net position reflects our credit exposure for our on-balance sheet positions but excludes the impact of any off-balance sheet positions and collateral. Examples of off-balance sheet positions and collateral include in-the-money accrual contracts for which the right of offset exists in the event of default and letters of credit. We discuss our letters of credit in more detail in the Financing Activities section.

Recurring Measurements

BGE's assets and liabilities measured at fair value on a recurring basis are immaterial. Our merchant energy business segment's assets and liabilities measured at fair value on a recurring basis consist of the following:

			As of September 30, 2009
			Assets			Liabilities
			(In millions)
Cash equivalents			$	596.8		$	—
Debt and equity securities				1,228.3			—
Derivative instruments:
	Classified as derivative assets and liabilities:
		Current		582.8			(823.1	)
		Noncurrent		917.7			(964.8	)
		Total classified as derivative assets and liabilities		1,500.5			(1,787.9	)
	Classified as accounts receivable*			(741.2	)		—
	Total derivative instruments			759.3			(1,787.9	)
Total recurring fair value measurements			$	2,584.4		$	(1,787.9	)

* Represents the unrealized fair value of exchange traded derivatives, exclusive of cash margin posted.

        Cash equivalents represent money market mutual funds which are included in "Cash and cash equivalents" and "Nuclear decommissioning trust funds" in the Consolidated Balance Sheets. Debt and equity securities primarily represent available-for-sale investments which are included in "Nuclear decommissioning trust funds" and "Other assets" in the Consolidated Balance Sheets. Derivative instruments represent unrealized amounts related to all derivative positions, including futures, forwards, swaps, and options. We classify exchange-listed contracts as part of "Accounts Receivable" in our Consolidated Balance Sheets. We classify the remainder of our derivative contracts as "Derivative assets" or "Derivative liabilities" in our Consolidated Balance Sheets.

        The table below disaggregates our net derivative assets and liabilities on a gross contract-by-contract basis. Each individual asset or liability that is remeasured at fair value on a recurring basis is required to be presented in this table and classified, in its entirety, within the appropriate level in the fair value hierarchy. Therefore, the objective of this table is to provide information about how each individual derivative contract is valued within the fair value hierarchy, regardless of whether a particular contract is eligible for netting against other contracts or whether it has been collateralized.

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        The table below sets forth by level within the fair value hierarchy the gross components of the Company's assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2009. These gross balances are intended solely to provide information on sources of inputs to fair value and proportions of fair value involving objective versus subjective valuations and do not represent either our actual credit exposure or net economic exposure.

At September 30, 2009		Level 1			Level 2			Level 3			Netting and Cash Collateral*			Total Net Fair Value
		(In millions)
Cash equivalents		$	576.6		$	20.2		$	—		$	—		$	596.8
Debt and equity securities:
	Marketable equity securities		324.6			—			—			—			324.6
	Mutual funds / common collective trusts		53.2			564.7			—			—			617.9
	Corporate debt securities		—			169.2			—			—			169.2
	U.S. Government agencies		—			45.0			—			—			45.0
	U.S. Treasuries		20.0			—			—			—			20.0
	State municipal bonds		—			51.6			—			—			51.6
Debt and equity securities			397.8			830.5			—			—			1,228.3
Derivative assets			325.1			24,133.4			2,798.5			(26,497.7	)		759.3
Derivative liabilities			(391.7	)		(24,680.1	)		(3,039.1	)		26,323.0			(1,787.9	)
	Net derivative position		(66.6	)		(546.7	)		(240.6	)		(174.7	)		(1,028.6	)
Total		$	907.8		$	304.0		$	(240.6	)	$	(174.7	)	$	796.5

* We present our derivative assets and liabilities in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting agreement exists between us and the counterparty to a derivative contract. At September 30, 2009, we included $274.1 million of cash collateral held and $99.4 million of cash collateral posted (excluding margin posted on exchange traded derivatives) in netting amounts in the above table.

        The factors that cause changes in the gross components of the derivatives amounts in the table above are unrelated to the existence or level of actual market or credit risk from our operations. The gross components of the derivatives amounts in this table decreased from the corresponding amounts as of December 31, 2008, due to changes in commodity prices and the number of derivative contracts outstanding. We describe the primary factors that change the gross components below.

        We prepared this table by separating each individual derivative contract that is in the money from each contract that is out of the money ignoring master netting agreements and collateral. As a result, the gross "asset" and "liability" amounts under each of the three fair value levels far exceed our actual economic exposure to commodity price risk and credit risk. Our actual economic exposure consists of the net derivative position combined with our nonderivative accrual contracts, such as those for load-serving, and our physical assets, such as our power plants. Our actual credit risk exposure is reflected in the net derivative asset and derivative liability amounts shown in the Total Net Fair Value column.

        Increases and decreases in the gross components presented in each of the levels in this table also do not indicate changes in the level of derivative activities. Rather, the primary factors affecting the gross amounts are commodity prices and the total number of contracts. If commodity prices change, the gross amounts could increase, even if the level of contracts stays the same, because separate presentation is required for contracts that are in the money from those that are out of the money. As a result, even fully hedged positions could exhibit increases in the gross amounts if prices change. Additionally, if the number of contracts increases, the gross amounts also could increase. Thus, the execution of new contracts to reduce economic risk could actually increase the gross amounts in the table because of the required separation of contracts discussed above.

        Cash equivalents are primarily comprised of exchange traded money market funds and money market mutual funds. These instruments are valued based upon unadjusted quoted prices in active markets and are classified within Level 1. Cash equivalents classified in Level 2 are held within our nuclear decommissioning trust funds and are valued based on fund share price, which is observable on a less frequent basis.

        Debt and equity securities include trust assets securing certain executive benefits, other marketable securities, and our nuclear decommissioning trust funds. Trust assets securing certain executive benefits consist of mutual funds, which are valued based upon unadjusted quoted prices in active markets and are classified within Level 1. Our other marketable securities consist of marketable equity securities, which are valued based on unadjusted quoted prices in

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active markets and are classified within Level 1. Nuclear decommissioning trust funds consist of a number of different types of securities, including the following:

•

marketable equity securities, mutual funds, and United States Treasury securities are classified within Level 1 because they are valued based on unadjusted quoted prices in active markets,

•

fixed income securities other than United States Treasury securities are classified within Level 2 because these instruments are traded in markets that are less active than the markets for equity securities and United States Treasury securities, and

•

common collective trusts are classified within Level 2 because they are valued based on the fund share price, which is observable on a less frequent basis.

        Derivative instruments include exchange-traded and bilateral contracts. Exchange-traded derivative contracts include futures and certain options. Bilateral derivative contracts include swaps, forwards, certain options and complex structured transactions. We utilize models to measure the fair value of bilateral derivative contracts. Generally, we use similar models to value similar instruments. Valuation models utilize various inputs, which include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, which are inputs derived principally from or corroborated by observable market data by correlation or other means. However, the primary input to our valuation models is the forward commodity price. We have classified derivative contracts within the fair value hierarchy as follows:

•

Exchange-traded derivative contracts valued based on unadjusted quoted prices in active markets are classified within Level 1.

•

Exchange-traded derivative contracts valued using pricing inputs based upon market quotes or market transactions are classified within Level 2. These contracts generally trade in less active markets due to the length of the contracts (i.e., for certain contracts the exchange sets the closing price, which may not be reflective of an actual trade).

•

Bilateral derivative contracts where observable inputs are available for substantially the full term and value of the asset or liability are classified within Level 2.

•

Bilateral derivative contracts with a lower availability of pricing information are classified in Level 3. In addition, complex or structured transactions, such as certain options, may require us to use internally-developed model inputs, which might not be observable in or corroborated by the market, to determine fair value. When such unobservable inputs have more than an insignificant impact on the measurement of fair value, we also classify the instrument within Level 3.

        In order to determine the fair value of derivatives, we utilize various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors include:

•

forward commodity prices,

•

price volatility,

•

volumes,

•

location,

•

interest rates,

•

credit quality of counterparties and Constellation Energy, and

•

credit enhancements.

        The following table sets forth a reconciliation of changes in Level 3 fair value measurements:

		Quarter Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
		(In millions)
Balance at beginning of period		$	(176.5	)	$	211.4		$	37.0		$	(147.1	)
Realized and unrealized (losses) gains:
	Recorded in income		(121.0	)		37.4			(368.3	)		203.3
	Recorded in other comprehensive income		122.6			(24.3	)		146.6			226.2
Purchases, sales, issuances, and settlements			(5.5	)		(39.5	)		31.0			(3.2	)
Transfers into and out of Level 3			(60.2	)		529.6			(86.9	)		435.4
Balance at end of period		$	(240.6	)	$	714.6		$	(240.6	)	$	714.6
Change in unrealized gains recorded in income relating to derivatives still held at end of period		$	43.8		$	338.8		$	(0.7	)	$	478.5

        Realized and unrealized gains (losses) are included primarily in "Nonregulated revenues" for our derivative contracts that are marked-to-market in our Consolidated Statements of Income (Loss) and are included in "Accumulated other comprehensive loss" for our derivative contracts designated as cash-flow hedges in our Consolidated Balance Sheets.

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Fair Value of Financial Instruments

We show the carrying amounts and fair values of financial instruments included in our Consolidated Balance Sheets in the following table:

At September 30, 2009		Carrying Amount		Fair Value
		(In millions)
Investments and other assets—Constellation Energy		$	1,393.5	$	1,392.1
Fixed-rate long-term debt:
	Constellation Energy (including BGE)		5,481.4		5,678.1
	BGE		2,238.5		2,320.7
Variable-rate long-term debt:
	Constellation Energy (including BGE)		695.9		695.9
	BGE		—		—

        We use the following methods and assumptions for estimating fair value disclosures for financial instruments:

•

cash and cash equivalents, net accounts receivable, other current assets, certain current liabilities, short-term borrowings, current portion of long-term debt, and certain deferred credits and other liabilities: because of their short-term nature, the amounts reported in our Consolidated Balance Sheets approximate fair value,

•

investments and other assets: the fair value is based on quoted market prices where available, and

•

long-term debt: the fair value is based on quoted market prices where available or by discounting remaining cash flows at current market rates.

Accounting Standards Issued

Accounting for Variable Interest Entities

In June 2009, the FASB amended the accounting for variable interest entities, effective for interim and annual reporting periods beginning after November 15, 2009. The standard includes the following significant provisions:

•

requires an entity to qualitatively assess if it is the primary beneficiary of a VIE based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE,

•

requires ongoing reconsideration of the primary beneficiary instead of only upon certain triggering events,

•

amends the events that trigger a reassessment of whether an entity is a VIE, and

•

requires the primary beneficiary of a VIE to disclose separately (1) the assets of the consolidated VIE, if they can be used to only settle specific obligations of the consolidated VIE, and (2) the liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary.

        We are currently evaluating the impacts of this standard on our, and BGE's, financial results, which could be material.

Accounting Standards Adopted

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued amended guidance related to the accounting and reporting of noncontrolling interests in consolidated financial statements. A noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This presentation is based upon the view of the consolidated business as a single economic entity and considers minority ownership interests in consolidated subsidiaries as equity in the consolidated entity.

        Under the amended guidance, companies are required to:

•

present noncontrolling interests (formerly described as "minority interests") in the consolidated balance sheet as a separate line item within equity,

•

separately present on the face of the income statement the amount of consolidated net income attributable to the parent and to the noncontrolling interest,

•

account for changes in ownership interests that do not result in a change in control as equity transactions, and

•

upon deconsolidation of a subsidiary due to a change in control, measure any retained interest at fair value and record a gain or loss for both the portion sold and the portion retained.

        Effective January 1, 2009, we presented and disclosed noncontrolling interests in our Consolidated Financial Statements in accordance with the amended guidance.

        The total increase in Constellation Energy's noncontrolling interest amount of $52.4 million from December 31, 2008 to September 30, 2009 is primarily due to income earned at one entity in which there is a noncontrolling interest.

        The total increase in BGE's noncontrolling interest amount of $8.4 million from December 31, 2008 to September 30, 2009 is primarily due to a contribution by its noncontrolling interest owner.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued amended guidance requiring expanded disclosure about derivative instruments

41

and hedging activities, but did not change the accounting for derivatives. We adopted the new disclosure requirements on January 1, 2009 and provide these additional disclosures beginning on page 31.

Subsequent Events

In May 2009, the FASB issued a new accounting standard addressing the accounting for and disclosure of events that occur subsequent to the balance sheet date but before financial statements are issued or are available to be issued. Because this standard does not change the fundamental requirements for accounting for subsequent events, it does not have a significant impact on our, or BGE's financial results. However, this standard does require the disclosure of the date through which subsequent events have been evaluated as well as whether that date is the date the financial statements were issued. We adopted this standard as of June 30, 2009 and have provided the additional required disclosures on page 11.

Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles

In June 2009, the FASB issued the Accounting Standards Codification (Codification), which became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification became the sole source of authoritative generally accepted accounting principles in the United States of America (GAAP) and superseded all existing non-SEC accounting and reporting standards. All of the Codification content carries the same level of authority, and any accounting guidance not contained within the Codification is considered non-authoritative. Because the Codification was not intended to change GAAP, the adoption of this standard did not have an impact on our, or BGE's, financial results. However, our disclosures and references to accounting standards have changed to reflect the new Codification structure beginning with this Form 10-Q for the quarter ended September 30, 2009.

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued accounting guidance for the recognition and presentation of other-than-temporary impairments. This guidance amended the other-than-temporary guidance for debt securities and expanded the disclosure requirements for debt and equity securities. The available-for-sale investments in our nuclear decommissioning trust funds are managed by third parties who have independent discretion over the purchases and sales of securities. As such, the amended guidance for other-than-temporary impairments does not affect our policy of recognizing impairments for any of these investments for which fair value declines below its book value. This guidance also requires disclosures regarding available-for-sale securities in interim financial statements as well as in annual financial statements. We adopted this guidance as of April 1, 2009 and provide the additional disclosures regarding available for sale securities beginning on page 18.

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued accounting guidance for interim disclosures about fair value of financial instruments. This guidance requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. We adopted this guidance as of April 1, 2009 with no effect on our, or BGE's financial results. We provide the disclosures regarding fair value of financial instruments on page 41.

Delay of Effective Date for Certain Fair Value Measurements

In February 2008, the FASB issued accounting guidance that delayed the effective date of adopting the accounting standard for fair value measurements for many nonfinancial assets and liabilities, including asset retirement obligations, long-lived assets, and goodwill, to fiscal years beginning after November 15, 2008. Prospectively, we will disclose subsequent measurements of nonfinancial assets and liabilities at fair value as part of our Fair Value Measurements footnote. We adopted this guidance on January 1, 2009 with no effect on our, or BGE's, financial results. See page 37 for our disclosures about fair value measurements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued accounting guidance for determining fair value when the volume and level of activity for the asset or liability have significantly decreased and for identifying transactions that are not orderly. The guidance provides for estimating fair value when the volume and level of activity for the asset or liability have decreased and assists in identifying circumstances that indicate a transaction is not orderly. Finally, the guidance expands the disclosure requirements for fair value measurements to include further disaggregation in the tabular disclosures. We adopted this guidance as of April 1, 2009 with no effect on our, or BGE's, financial results. See page 37 for our disclosures about fair value measurements.

Third Party Credit Enhancements

In September 2008, the FASB issued guidance on third party credit enhancements and clarified that an entity shall

42

not include the effects of a third party credit enhancement in the fair value measurement of a liability. We adopted this guidance on January 1, 2009 and recorded a reduction in our derivative liability of approximately $4 million.

Related Party Transactions

BGE—Income Statement

BGE is obligated to provide market-based standard offer service to all of its electric customers for varying periods. Bidding to supply BGE's market-based standard offer service to electric customers will occur from time to time through a competitive bidding process approved by the Maryland PSC.

        Our merchant energy business will supply a portion of BGE's market-based standard offer service obligation to electric customers through May 31, 2012.

        The cost of BGE's purchased energy from nonregulated subsidiaries of Constellation Energy to meet its standard offer service obligation was as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
	(In millions)
Purchased energy	$	155.9	$	175.6	$	502.7	$	632.9

        In addition, Constellation Energy charges BGE for the costs of 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. We believe this method of allocation is reasonable and approximates the cost BGE would have incurred as an unaffiliated entity. Other nonregulated affiliates of BGE also charge BGE for the costs of certain services provided.

        The following table presents the costs Constellation Energy charged to BGE in each period.

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
	(In millions)
Charges to BGE	$	38.9	$	44.5	$	104.0	$	114.6

BGE—Balance Sheet

BGE participates in a cash pool under a Master Demand Note agreement with Constellation Energy. Under this arrangement, participating subsidiaries may invest in or borrow from the pool at market interest rates. Constellation Energy administers the pool and invests excess cash in short-term investments or issues commercial paper to manage consolidated cash requirements. Under this arrangement, BGE had invested $77.3 million at September 30, 2009 and $148.8 million at December 31, 2008.

        BGE's Consolidated Balance Sheets include intercompany amounts related to BGE's purchases to meet its standard offer service obligation, BGE's gas purchases, BGE's charges to Constellation Energy and its nonregulated affiliates for certain services it provides them, Constellation Energy and its nonregulated affiliates' charges to BGE for certain services provided to BGE, and the participation of BGE's employees in the Constellation Energy defined benefit plans.

        BGE will cease participation in the cash pool in accordance with the Maryland PSC's order approving our transaction with EDF.

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Item 2. Management's Discussion

Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction and Overview

Constellation Energy Group, Inc. (Constellation Energy) is an energy company that conducts its business through various subsidiaries including a merchant energy business and Baltimore Gas and Electric Company (BGE). We describe our operating segments in the Notes to Consolidated Financial Statements beginning on page 19.

        This Quarterly Report on Form 10-Q is a combined report of Constellation Energy and BGE. References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. References in this report to the "regulated business(es)" are to BGE. We discuss our business and strategy in more detail in Item 1—Business section of our 2008 Annual Report on Form 10-K and we discuss the risks affecting our business in Item 1A. Risk Factors section of our 2008 Annual Report on Form 10-K.

        Our 2008 Annual Report on Form 10-K includes a detailed discussion of various items impacting our business, our results of operations, and our financial condition. These include:

•

Introduction and Overview section which provides a description of our business segments,

•

Strategy section,

•

Business Environment section, including how recent events, regulation, weather, and other factors affect our business, and

•

Critical Accounting Policies section.

        Critical accounting policies are the accounting policies that are most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective, or complex judgment. Our critical accounting policies include derivative accounting, evaluation of assets for impairment and other than temporary decline in value, and asset retirement obligations.

        In this discussion and analysis, we explain the general financial condition and the results of operations for Constellation Energy and BGE including:

•

factors which affect our businesses,

•

our earnings and costs in the periods presented,

•

changes in earnings and costs between periods,

•

sources of earnings,

•

impact of these factors on our overall financial condition,

•

expected future expenditures for capital projects,

•

expected sources of cash for future capital expenditures, and

•

our net available liquidity and collateral requirements.

        As you read this discussion and analysis, refer to our Consolidated Statements of Income (Loss) on page 3, which present the results of our operations for the quarters and nine months ended September 30, 2009 and 2008. We analyze and explain the differences between periods in the specific line items of the Consolidated Statements of Income (Loss).

        We have organized our discussion and analysis as follows:

•

We describe changes to our business environment during the year.

•

We highlight significant events that occurred in 2009 that are important to understanding our results of operations and financial condition.

•

We review our results of operations beginning with an overview of our total company results, followed by a more detailed review of those results by operating segment.

•

We review our financial condition, addressing our sources and uses of cash, capital resources, commitments, and liquidity.

•

We conclude with a discussion of our exposure to various market risks.

Business Environment

Various factors affect our financial results. We discuss these factors in the Forward Looking Statements section on page 78 and in Item 1A. Risk Factors section of our 2008 Annual Report on Form 10-K. We discuss our market risks in the Risk Management section beginning on page 72.

        The volatility of the financial, credit and global energy markets impacts our liquidity and collateral requirements as well as our credit risk. We discuss our liquidity and collateral requirements in the Financial Condition section and our customer (counterparty) credit and other risks in more detail in the Risk Management section.

        In this section, we discuss in more detail events which have impacted our business during 2009.

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Federal Regulation

The United States Congress and the Commodity Futures Trading Commission are evaluating additional regulations for the derivatives markets, including position limits and eliminating hedge regulatory exemptions. We are unable to determine the final form any regulations may take, but such regulations could have a material effect on our business.

Maryland PSC Review of EDF Transaction

In June 2009, during Phase I of the EDF proceeding, the Maryland Public Service Commission (Maryland PSC) determined that EDF Group and related entities (EDF) would obtain the power to exercise substantial influence over the policies and actions of BGE under Constellation Energy's proposed transaction with EDF, and, therefore, that the Maryland PSC must review the transaction to determine that it is in the public interest with benefits and no harm to consumers.

        Constellation Energy, BGE and EDF filed suit in the Baltimore City Circuit Court appealing the Maryland PSC's Phase I ruling that the Maryland PSC's review and approval was required for the EDF transaction. The Circuit Court dismissed the suit as premature, and Constellation Energy and BGE appealed the court's dismissal of the Phase I challenge to the Maryland Court of Special Appeals.

        In Phase II of the EDF proceeding, EDF filed an application with the Maryland PSC in June 2009 and the Maryland PSC issued an order in Phase II on October 30, 2009. We discuss this Maryland PSC order and the EDF transaction in more detail in the Notes to Consolidated Financial Statements beginning on page 11.

Environmental Matters

Air Quality

Capital Expenditures

As discussed in our 2008 Annual Report on Form 10-K, we expect to incur additional environmental capital expenditures to comply with air quality laws and regulations. Based on updated information from vendors, we expect our estimated environmental capital requirements for these air quality projects to be approximately $345 million in 2009, $10 million in 2010, $20 million in 2011 and $30 million from 2012-2013.

        Our estimates may change further as we implement our compliance plan. As discussed in our 2008 Annual Report on Form 10-K, our estimates of capital expenditures continue to be subject to significant uncertainties.

Global Climate Change

In September 2009, the Environmental Protection Agency proposed regulations to address greenhouse gas emissions under the Clean Air Act. The proposed regulations would require large facilities that emit at least 25,000 tons of greenhouse gases a year to obtain construction and operating permits covering these emissions. The proposed regulations would apply to many of our fossil fuel generating facilities. We are evaluating the potential impact of these regulations on our business should they be adopted. We could incur compliance costs that have a material impact on our financial results.

Accounting Standards Issued and Adopted

We discuss recently issued and adopted accounting standards in the Accounting Standards Issued and Accounting Standards Adopted sections of the Notes to Consolidated Financial Statements beginning on page 41.

Events of 2009

Acquisition

In July 2009, we acquired CLT Efficient Technologies Group (CLT), an energy services company. We discuss this acquisition in more detail in the Notes to Consolidated Financial Statements on page 16.

Divestitures

In January 2009, we entered into a definitive agreement to sell a majority of our international commodities operation. We completed this transaction in March 2009.

        In February 2009, we entered into a definitive agreement to sell our gas trading operation. We transferred control of this operation in April 2009. Simultaneously, we entered into an agreement with the buyer of our Houston-based gas trading operation under which that company will provide us with the gas supply needed to support our retail gas customer supply business.

        In June 2009, we completed the sale of a uranium market participant that provides marketing services to uranium producers, utilities and an investment fund in the North American and European markets.

        In August 2009, we completed the sale of our equity investment in our shipping joint venture.

        We discuss these divestitures and the gas supply agreement in more detail in the Notes to Consolidated Financial Statements beginning on page 16.

Merger Termination and Strategic Alternatives Costs

During the quarter and nine months ended September 30, 2009, we incurred merger termination and strategic alternatives costs related to the terminated merger with MidAmerican Energy Holdings Company (MidAmerican), the conversion of our Series A Preferred Stock, the transactions related to EDF, and other strategic alternatives costs. We discuss costs related to the mergers and strategic

45

alternatives in more detail on page 12 in Notes to Consolidated Financial Statements.

Impairment Losses and Other Costs

During the quarter and nine months ended September 30, 2009, we recorded impairment losses and other costs on certain of our equity method investments, investments in equity securities and other assets. We discuss these charges in more detail in the Notes to Consolidated Financial Statements beginning on page 14.

Workforce Reduction Costs

During the nine months ended September 30, 2009, we incurred workforce reduction costs primarily related to the divestiture of a majority of our international commodities operation as well as some smaller restructurings elsewhere in our organization. We recognized an $11.6 million pre-tax charge in 2009 related to the elimination of approximately 180 positions. We expect all of these restructurings will be completed within 12 months from the program's initiation. We discuss our workforce reduction costs in more detail in the Notes to Consolidated Financial Statements beginning on page 15.

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Results of Operations for the Quarter and Nine Months Ended September 30, 2009 Compared with the Same Periods of 2008

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. Significant changes in other income and expense, fixed charges, and income taxes are discussed, as necessary, in the aggregate for all segments in the Consolidated Nonoperating Income and Expenses section on page 63.

Overview

Results

		Quarter Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
		(In millions, after-tax)
Merchant energy		$	142.1		$	(246.0	)	$	(39.7	)	$	106.7
Regulated electric			42.3			34.3			109.8			(31.2	)
Regulated gas			(10.5	)		(11.5	)		22.9			26.4
Other nonregulated			(6.5	)		1.1			(17.0	)		0.4
Net Income (Loss)		$	167.4		$	(222.1	)	$	76.0		$	102.3
Net Income (Loss) attributable to common stock		$	137.6		$	(225.7	)	$	22.2		$	91.5
Change from prior year		$	363.3					$	(69.3	)
Other Items Included in Operations (after-tax)1:
	International commodities operation and gas trading operation2	$	(62.9	)	$	—		$	(370.9	)	$	—
	Impairment losses and other costs		(9.0	)		(298.8	)		(85.4	)		(298.8	)
	Impairment of nuclear decommissioning trust assets		(19.7	)		(15.3	)		(49.5	)		(21.5	)
	Merger termination and strategic alternatives costs		(4.9	)		(37.3	)		(51.2	)		(37.3	)
	Accrual of Maryland settlement credit		—			—			—			(125.3	)
	BGE effective tax rate impact of Maryland settlement agreement		—			2.0			—			10.7
	Emission allowance write-down, net		—			(22.8	)		—			(36.2	)
	Non-qualifying hedges		—			12.0			—			(57.3	)
	Workforce reduction costs		(1.6	)		(1.6	)		(7.0	)		(1.6	)
	Credit facility amendment fees		(8.2	)		—			(17.1	)		—
Total Other Items		$	(106.3	)	$	(361.8	)	$	(581.1	)	$	(567.3	)
Change from prior year		$	255.5					$	(13.8	)

1 Amounts for the quarter ended September 30, 2009 include income tax adjustments relating to activity during the quarters ended March 31, 2009 and June 30, 2009 based on updated estimates of our 2009 annual effective tax rate.

2 These amounts include the losses on the sales of the international commodities and gas trading operations, the reclassification of losses on previously designated cash-flow hedges from Accumulated Other Comprehensive Loss because the forecasted transactions are probable of not occurring, and earnings that are no longer part of our core business. The impairment losses and other costs and workforce reduction costs line items also include amounts related to the operations we divested. Third quarter of 2009 activity is primarily due to the income tax adjustments referenced above.

Quarter and Nine Months Ended September 30, 2009

Our total net income attributable to common stock for the quarter ended September 30, 2009 exceeded the net loss attributable to common stock for the quarter ended September 30, 2008 and the net income attributable to common stock for the nine months ended September 30, 2009 decreased from the net income attributable to common stock for the nine months ended September 30, 2008 primarily due to the following:

	Quarter Ended September 30,			Nine Months Ended September 30,
	2009 vs. 2008
	(In millions, after-tax)
Generation gross margin	$	(11	)	$	62
Customer supply gross margin		(8	)		4
Global Commodities gross margin		169			(232	)
Hedge ineffectiveness		4			100
Absence of sale of upstream gas assets		—			(55	)
Absence of credit loss—coal supplier bankruptcy		—			33
Merchant interest expense		(24	)		(77	)
Regulated businesses, primarily related to absence of Maryland settlement agreement credit		9			137
Other nonregulated businesses		(8	)		(17	)
Total change in Other Items included in operations per Overview—Results table		256			(14	)
All other changes		(24	)		(10	)
Total Change	$	363		$	(69	)

        In the following sections, we discuss our net income by business segment in greater detail.

Merchant Energy Business

Background

Our merchant energy business is a competitive provider of energy solutions for various customers. We discuss the impact of deregulation on our merchant energy business in Item 1. Business—Competition section of our 2008 Annual Report on Form 10-K.

47

        Our merchant energy business focuses on delivery of physical, customer-oriented products to producers and consumers, manages the risk and optimizes the value of our owned generation assets and customer supply activities, and uses our portfolio management and trading capabilities both to manage risk and to deploy risk capital.

        Earlier this year, we outlined various strategic initiatives for our Global Commodities operation. We discuss our strategy in more detail in the Strategy section of our 2008 Annual Report on Form 10-K. As of the end of the third quarter of 2009, these initiatives are substantially complete.

        While we have completed the sale of a majority of our international commodities operation, our gas trading operation, certain other trading operations, and a uranium market participant, the execution of our strategy in the future will be affected by continued uncertainty in global financial, credit, and commodities markets. Execution of our goals could have a substantial effect on the nature and mix of our business activities. In particular, the EDF transaction results in the deconsolidation of our subsidiary that owns our nuclear generation assets. In turn, this could affect our financial position, results of operations, and cash flows in material amounts, and these amounts could vary substantially from historical results. We discuss our asset and operation divestitures in more detail in the Notes to Consolidated Financial Statements beginning on page 16.

        We record merchant energy revenues and expenses in our financial results in different periods depending upon which portion of our business they affect and based on the associated accounting policies. We discuss our revenue recognition policies in the Critical Accounting Policies section and in Note 1 of our 2008 Annual Report on Form 10-K.

        As part of managing our total portfolio risk, we use economic value at risk. We view economic value at risk as the most comprehensive measure of our exposure to changing commodity prices. This metric measures the risk in our total portfolio, encompassing all aspects of our merchant energy business. We also use daily value at risk and stop loss limits and liquidity guidelines to restrict the level of risk in our portfolio.

        Our Global Commodities operation actively transacts in energy and energy-related commodities in order to manage our portfolio of energy purchases and sales to customers through structured transactions. As part of these activities, we trade energy and energy-related commodities and deploy risk capital in the management of our portfolio in order to earn returns.

        We discuss the impact of our economic value at risk and value at risk in more detail in the Mark-to-Market and Risk Management sections.

Results

		Quarter Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
		(In millions)
Revenues		$	3,258.0		$	4,492.6		$	9,738.5		$	12,719.7
Fuel and purchased energy expenses			(2,268.7	)		(3,843.0	)		(7,285.3	)		(10,371.1	)
Operating expenses			(396.8	)		(322.0	)		(1,214.0	)		(1,298.0	)
Merger termination and strategic alternatives costs			(4.9	)		(27.2	)		(51.2	)		(27.2	)
Impairment losses and other costs			(7.5	)		(477.1	)		(96.6	)		(477.1	)
Workforce reduction costs			(0.4	)		(2.2	)		(11.6	)		(2.2	)
Depreciation, depletion, and amortization			(69.7	)		(68.6	)		(198.3	)		(207.8	)
Accretion of asset retirement obligations			(18.5	)		(17.2	)		(54.6	)		(50.8	)
Taxes other than income taxes			(29.2	)		(35.8	)		(85.3	)		(94.0	)
Net (loss) gain on divestitures			(0.3	)		—			(464.4	)		91.5
Income (Loss) from Operations		$	462.0		$	(300.5	)	$	277.2		$	283.0
Net Income (Loss)		$	142.1		$	(246.0	)	$	(39.7	)	$	106.7
Net Income (Loss) attributable to common stock		$	116.0		$	(246.0	)	$	(83.1	)	$	105.9
Other Items Included in Operations (after-tax)1:
	International commodities operation and gas trading operation2	$	(62.9	)	$	—		$	(370.9	)	$	—
	Impairment losses and other costs		(8.2	)		(298.8	)		(81.5	)		(298.8	)
	Impairment of nuclear decommissioning trust assets		(19.7	)		(15.3	)		(49.5	)		(21.5	)
	Merger termination and strategic alternatives costs		(4.9	)		(25.8	)		(51.2	)		(25.8	)
	Emission allowance write-down, net		—			(22.8	)		—			(36.2	)
	Non-qualifying hedges		—			12.0			—			(57.3	)
	Workforce reduction costs		(1.6	)		(1.6	)		(7.0	)		(1.6	)
	Credit facility amendment fees		(8.2	)		—			(17.1	)		—
Total Other Items		$	(105.5	)	$	(352.3	)	$	(577.2	)	$	(441.2	)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 20 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

1 Amounts for the quarter ended September 30, 2009 include income tax adjustments relating to activity during the quarters ended March 31, 2009 and June 30, 2009 based on updated estimates of our 2009 annual effective tax rate.

2 These amounts include the losses on the sales of the international commodities and gas trading operations, the reclassification of losses on previously designated cash-flow hedges from Accumulated Other Comprehensive Loss because the forecasted transactions are probable of not occurring, and earnings that are no longer part of our core business. The impairment losses and other costs and workforce reduction costs line items also include amounts related to the operations we divested. Third quarter of 2009 activity is primarily due to the income tax adjustments referenced above.

Revenues and Fuel and Purchased Energy Expenses

Our merchant energy business manages the revenues we realize from the sale of energy and energy-related products to our customers and our costs of procuring fuel and energy. The difference between revenues and fuel and

48

purchased energy expenses, including all direct expenses, represents the gross margin of our merchant energy business, and this measure is a useful tool for assessing the profitability of our merchant energy business. Accordingly, we believe it is appropriate to discuss the operating results of our merchant energy business by analyzing the changes in gross margin between periods. In managing our portfolio, we may terminate, restructure, or acquire contracts primarily to reduce risk and/or improve our liquidity. Such transactions are within the normal course of managing our portfolio and may materially impact the timing of our recognition of revenues, fuel and purchased energy expenses, and cash flows.

        We discuss our merchant energy revenues, fuel and purchased energy expenses, and gross margin below.

Revenues

Our merchant energy revenues decreased $1,234.6 million and $2,981.2 million during the quarter and nine months ended September 30, 2009, respectively, compared to the same periods in 2008 primarily due to the following:

	Quarter Ended September 30,			Nine Months Ended September 30,
	2009 vs. 2008
	(In millions)
Increase (decrease) in Global Commodities mark-to-market revenues due to changes in power and gas prices	$	205		$	(235	)
Decrease in volume of business primarily related to our international coal and freight operation, which we have divested		(143	)		(652	)
Increase in contract prices and volume related to our domestic coal operation		67			240
Realization of lower prices and volume of business at our gas trading operation, which we have divested, and absence of revenue due to the sales of certain of our upstream gas properties in 2008		(5	)		(218	)
Realization of lower volumes on wholesale and retail load at our Customer Supply operation, partially offset by higher contract prices		(1,334	)		(2,097	)
All other		(25	)		(19	)
Total decrease in merchant revenues	$	(1,235	)	$	(2,981	)

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Fuel and Purchased Energy Expenses

Our merchant energy fuel and purchased energy expenses decreased $1,574.3 million and $3,085.8 million during the quarter and nine months ended September 30, 2009, respectively, compared to the same periods in 2008 primarily due to the following:

	Quarter Ended September 30,			Nine Months Ended September 30,
	2009 vs. 2008
	(In millions)
Increase in Global Commodities mark-to-market expenses related to the absence of international coal purchase contracts due to divestiture of operations and changes in prices	$	225		$	333
Decrease in volume of business primarily related to our international coal and freight operation, which we have divested		(123	)		(562	)
Increase in contract prices and volume related to our domestic coal operation		87			207
Realization of lower volumes at our gas trading operations, which we have divested		(54	)		(197	)
Realization of lower contract prices and volumes on wholesale and retail power purchases at our Customer Supply operation		(1,696	)		(2,890	)
All other		(13	)		23
Total decrease in merchant energy fuel and purchased energy expenses	$	(1,574	)	$	(3,086	)

Gross Margin

We analyze our merchant energy gross margin in the following categories:

•

Generation—our operation that owns, operates, and maintains fossil, nuclear, and renewable generating facilities and holds interests in qualifying facilities, and power projects in the United States and Canada. We present the gross margin results of this operation based on a 100% hedged assumption for the portfolio, related to both output from the facilities and the fuel used to generate electricity. The assumption is based on executing hedges at current market prices with the Global Commodities operation at the end of each fiscal year in order to ensure that the Generation operation is fully hedged. Therefore, all commodity price risk is managed by and presented in the results of our Global Commodities operation as discussed below. Changes in gross margin of our Generation operation during the period are due to changes in the level of output from the generating assets, and changes in gross margin between years are a result of changes in prices and expected output.

•

Customer Supply—our load-serving operation that provides energy products and services to wholesale and retail electric and natural gas customers, including distribution utilities, cooperatives, aggregators, and commercial, industrial and governmental customers. We present the gross margin results of this operation based on the gross margin value of new customer supply arrangements at the time of execution assuming an estimated level of customer usage and the impact of any changes in the underlying usage of the customers based on actual energy deliveries. Changes in estimated customer usage result from attrition (customers changing suppliers) or variable load risk (changes in actual usage when compared to expected usage). All commodity price risk is presented in and managed by our Global Commodities operation as discussed below.

•

Global Commodities—our marketing, risk management, and trading operation that manages contractually owned physical assets, including generation facilities, natural gas properties, provides risk management services, and trades energy and energy-related commodities. This operation provides the wholesale risk management function for our Generation and Customer Supply operations, as well as our structured products and energy investments portfolios, and includes our merchant energy business' actual hedged positions with third parties. Therefore, changes in gross margin for this operation result mostly from changes in commodity prices and positions across the various commodities and regions in which we transact.

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        We provide a summary of our gross margin for these three components of our merchant energy business as follows:

		Quarter Ended September 30,											Nine Months Ended September 30,
		2009					2008						2009					2008
		(Dollar amounts in millions)
				% of Total						% of Total					% of Total					% of Total
Gross Margin:
	Generation	$	648		66	%	$	626			96	%	$	1,666		68	%	$	1,499		64	%
	Customer Supply		140		14			142			22			565		23			537		23
	Global Commodities		201		20			(119	)		(18	)		222		9			312		13
	Total	$	989		100	%	$	649			100	%	$	2,453		100	%	$	2,348		100	%

Generation

The $22 million increase in Generation gross margin during the quarter ended September 30, 2009 compared to the same period of 2008 is primarily due to an increase of $29 million due to the timing and duration of planned and unplanned outages at our nuclear and fossil generating assets, partially offset by a $7 million decrease from lower energy prices on hedged gross margin with Global Commodities for the output of our generating assets in the PJM and New York regions based on prices established at the end of 2008 (see Global Commodities discussion below for impact of prices during 2009).

        The $167 million increase in generation gross margin during the nine months ended September 30, 2009 compared to the same period of 2008 is primarily due to the following:

•

$109 million due to the timing and duration of planned and unplanned outages at our nuclear and fossil generating plants, and

•

$84 million increase from higher energy prices on hedged gross margin with Global Commodities for the output of our generating assets in the PJM and New York regions based on prices established at the end of 2008 (see Global Commodities discussion below for impact of prices during 2009).

        These increases were partially offset by $26 million of lower gross margin primarily related to our investments in power projects.

Customer Supply

The $2 million decrease in Customer Supply gross margin during the quarter ended September 30, 2009 compared to the same period of 2008 is primarily due to $71 million of lower gross margin as a result of lower customer retention and unfavorable variable load risk associated with wholesale and retail power primarily due to variances from normal weather and lower demand during the quarter ended September 30, 2009.

        This decrease was partially offset by the following:

•

$45 million of higher gross margin related to the consolidation of a retail power supply variable interest entity (VIE) for which we became the primary beneficiary in December 2008, and

•

$14 million of higher mark-to-market results primarily in our retail gas operation. We discuss these results in more detail in the Mark-to-Market section beginning on page 53, and

•

$10 million related to higher realization of contracts executed in prior periods and higher margins on new business originated and realized during the quarter primarily in our wholesale and retail power supply operations, partially offset by lower volumes.

        The $28 million increase in customer supply gross margin during the nine months ended September 30, 2009 compared to the same period of 2008 is primarily due to:

•

$88 million of higher gross margin mostly related to the consolidation of a retail power supply VIE for which we became the primary beneficiary in December 2008, and

•

$10 million related to higher realization of contracts executed in prior periods and higher margins on new business originated and realized during the nine months ended September 30, 2009 primarily in our wholesale and retail power supply operations, partially offset by lower volumes.

        These increases were partially offset by the following:

•

$62 million of lower gross margin as a result of lower customer retention and unfavorable variable load risk associated with wholesale and retail power primarily due to variances from normal weather and lower demand, and

51

•

$8 million of lower mark-to-market results primarily in our retail gas operation. We discuss these results in more detail in the Mark-to-Market section beginning on page 53.

        During the quarter and nine months ended September 30, 2009, the higher margin related to the consolidated retail power supply VIE is fully attributable to noncontrolling interests.

Global Commodities

We present Global Commodities results in the following categories:

•

Portfolio Management and Trading—our centralized risk management service related to energy price risk associated with our generation fleet, wholesale and retail customer supply business, and our structured products portfolio.

•

Structured Products—customized risk management products in the power, gas, coal and freight markets (e.g., generation tolls, gas transport and storage, and global coal logistics). As of September 30, 2009, we have reduced our participation in the coal, freight and gas trading markets through the execution of our strategic initiatives.

•

Energy Investments—investments in energy assets that primarily include natural gas properties and a joint interest in an entity that owns dry bulk cargo vessels. As of September 30, 2009, we sold our investment in an entity that owns the dry bulk cargo vessels. We discuss this investment in more detail on page 14 of the Notes to Consolidated Financial Statements.

        Our portfolio de-risking and liquidity improving activities had a substantial impact on the comparability of results for the quarter and nine months ended September 30, 2009 as discussed below.

        The $320 million increase in gross margin from our Global Commodities activities during the quarter ended September 30, 2009 compared to the same period of 2008 is primarily due to $457 million of higher gross margin related to our portfolio management and trading operation. These changes are discussed further in the table below.

        This increase was partially offset by the following:

•

$74 million of lower gross margin from our energy investment operation primarily related to lower new business and backlog realized within the quarter including the absence of a $29 million gain on sale of a dry bulk vessel in the third quarter of 2008, and

•

$63 million of lower gross margin in our structured products portfolio primarily as a result of fewer terminations of in-the-money energy purchase and sales contracts during the quarter ended September 30, 2009.

        The $90 million decrease in gross margin from our Global Commodities operation for the nine months ended September 30, 2009 compared to the same period in 2008 is primarily due to:

•

$143 million of lower gross margin from our energy investments operation primarily related to lower new business and backlog realized within the nine months ended September 30, 2009.

•

$108 million of lower gross margin in our structured products portfolio primarily as a result of fewer terminations of in-the-money energy purchase and sales contracts during the nine months ended September 30, 2009 for a cash payment.

        These decreases were partially offset by an increase of $161 million in our portfolio management and trading operation. These changes are discussed further in the table below.

        Our portfolio management and trading operation gross margin increased $457 million and $161 million during the quarter and nine months ended September 30, 2009,

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respectively, compared to the same periods in 2008 primarily due to the following:

	Quarter Ended September 30,		Nine Months Ended September 30,
	2009 vs. 2008
	(In millions)
Increase in portfolio management of positions arising from hedges of accrual positions with Generation and Customer Supply activities due to the favorable impact of changes in prices of power, natural gas, and coal	$	327	$	484
Increase in gains recognized on hedges due to ineffectiveness and certain cash-flow hedges that no longer qualified for hedge accounting		6		160
Increase primarily due to write-downs of our emission allowance inventory recorded in 2008 that did not recur in the same periods of 2009		56		63
Increase (decrease) in earnings related to our portfolio of contracts subject to mark-to-market accounting. We discuss these results in more detail in the Mark-to-Market section below.		19		(543	)
Decrease due to loss reclassified from accumulated other comprehensive loss to earnings in connection with the closing of the sale of our international commodities operation as a result of hedged transactions that were probable of not occurring by the end of the specified contract period.		—		(166	)
Increase due to the absence of our international coal and freight operations, which were divested in March 2009, and assignment of certain contracts in the third quarter of 2009		49		108
Increase due to the absence of a loss as a result of the bankruptcy of one of our domestic coal suppliers. During the first quarter of 2008, as a result of a default by the supplier, we terminated our derivative contracts with the supplier, reclassified the related asset to accounts receivable and fully reserved the amount.		—		55
Total increase in portfolio management and trading gross margin	$	457	$	161

Mark-to-Market

Mark-to-market results include net gains and losses from origination, risk management, and trading activities for which we use the mark-to-market method of accounting. We discuss these activities and the mark-to-market method of accounting in more detail in the Critical Accounting Policies section of our 2008 Annual Report on Form 10-K.

        The nature of our operations and the use of mark-to-market accounting for certain activities create fluctuations in mark-to-market earnings. We cannot predict these fluctuations, but the impact on our earnings could be material. We discuss our market risk in more detail in the Risk Management section beginning on page 72. The primary factors that cause fluctuations in our mark-to-market results are:

•

changes in the level and volatility of forward commodity prices and interest rates,

•

counterparty creditworthiness,

•

the number and size of our open derivative positions, and

•

the number, size, and profitability of new transactions, including termination or restructuring of existing contracts.

        As discussed earlier, we are continuing to assess the ongoing capital requirements of the merchant energy business and are continuing to implement various alternative strategies. Additionally, we have focused our activities on reducing capital requirements, reducing long-term economic risk, and reducing short-term liquidity requirements. These actions may impact the future results of the merchant energy business, particularly the size of and potential for changes in fair value of activities subject to mark-to-market accounting.

        The primary components of mark-to-market results are origination gains and gains and losses from risk management and trading activities.

        Origination gains arise primarily from contracts that our Global Commodities operation structures to meet the risk management needs of our customers or relate to our trading activities. Transactions that result in origination gains may be unique and provide the potential for individually significant revenues and gains from a single transaction.

        Risk management and trading—mark-to-market represents both realized and unrealized gains and losses from changes in the value of our portfolio, including the effects of changes in valuation adjustments. In addition to our fundamental risk management and trading activities, we also use non-trading derivative contracts subject to mark-to-market accounting to manage our exposure to changes in market prices, while in general the underlying physical transactions related to these activities are accounted

53

for on an accrual basis. We discuss the changes in mark-to-market results below. We show the relationship between our mark-to-market results and the change in our net mark-to-market energy asset later in this section.

        Mark-to-market results were as follows:

			Quarter Ended September 30,						Nine Months Ended September 30,
			2009			2008			2009			2008
			(In millions)
Unrealized mark-to-market results
	Origination gains		$	—		$	5.3		$	—		$	73.8
	Risk management and trading—mark-to-market
		Unrealized changes in fair value		(16.2	)		(54.4	)		(233.2	)		243.1
		Changes in valuation techniques		—			—			—			—
		Reclassification of settled contracts to realized		(124.7	)		288.1			(282.6	)		141.2
	Total risk management and trading—mark-to-market			(140.9	)		233.7			(515.8	)		384.3
Total unrealized mark-to-market*				(140.9	)		239.0			(515.8	)		458.1
Realized mark-to-market				124.7			(288.1	)		282.6			(141.2	)
Total mark-to-market results**			$	(16.2	)	$	(49.1	)	$	(233.2	)	$	316.9

* Total unrealized mark-to-market is the sum of origination gains and total risk management and trading—mark-to-market.

** Includes gains (losses) on hedge ineffectiveness for fair value hedges recorded in gross margin.

        Total mark-to-market results increased $32.9 million during the quarter ended September 30, 2009 compared to the same period of 2008. This change was primarily due to a decrease in unrealized risk management and trading losses of $38.2 million, partially offset by a decrease in origination gains of $5.3 million. We discuss origination gains below.

        The increase in risk management and trading results of $38.2 million is primarily due to:

•

$147 million of higher results on open positions primarily due to the absence of losses in our power and transmission risk management activities primarily in the PJM, Northeast, and New York regions as a result of our de-risking and liquidity improving activities and a more favorable price environment in the third quarter of 2009,

•

$65 million of higher results in our international coal and freight operation primarily due to the absence of losses as a result of its divestiture in March 2009,

•

$36 million of higher results on open positions primarily related to a more favorable price environment in our domestic coal portfolio, and

•

$22 million of lower losses in our retail gas portfolio primarily due to a more favorable price environment in the third quarter of 2009.

        These increases were partially offset by the following:

•

$193 million of lower results in our wholesale natural gas risk management and trading operation primarily as a result of its divestiture in the beginning of April 2009, and

•

$39 million of lower results related to our emissions trading activities primarily as a result of a less favorable price environment.

        Total mark-to-market results decreased $550.1 million during the nine months ended September 30, 2009 compared to the same period of 2008. The period-to-period variance in unrealized changes in fair value was primarily due to increased unrealized risk management and trading losses of $476.3 million and the decrease in origination gains of $73.8 million. We discuss origination gains below.

        The decrease in risk management and trading results of $476.3 million is primarily due to:

•

$206 million of lower results on open positions in our power and transmission risk management activities primarily in the PJM, Northeast, and New York regions due to our de-risking and liquidity improving activities and a less favorable price environment and strong results in the second quarter of 2008 that did not recur in the same period of 2009,

•

$162 million of lower gains on open positions primarily related to less favorable prices in our domestic coal portfolio,

•

$71 million of lower gains in our wholesale natural gas risk management and trading operation primarily as a result of the divestiture of our gas trading operation in the beginning of April 2009, and

•

$37 million of lower results related to our emissions trading activities primarily as a result of a less favorable price environment.

        We did not record any origination gains during the nine months ended September 30, 2009. During the nine months ended September 30, 2008, our Global Commodities operation amended certain nonderivative contracts to mitigate counterparty performance risk under the existing contracts. As a result of these amendments, the revised contracts became derivatives subject to mark-to-market accounting. The change in accounting for these contracts from nonderivative to derivative resulted in substantially all of the origination gains for 2008 presented in the table above.

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Derivative Assets and Liabilities

Derivative assets and liabilities consisted of the following:

	September 30, 2009			December 31, 2008
	(In millions)
Current Assets	$	582.8		$	1,465.0
Noncurrent Assets		917.7			851.8
Total Assets		1,500.5			2,316.8
Current Liabilities		823.1			1,241.8
Noncurrent Liabilities		964.8			1,115.0
Total Liabilities		1,787.9			2,356.8
Net Derivative Position	$	(287.4	)	$	(40.0	)
Composition of net derivative position:
Hedges	$	(851.3	)	$	(1,837.6	)
Mark-to-market		738.6			1,485.9
Net cash collateral included in derivative balances		(174.7	)		311.7
Net Derivative Position	$	(287.4	)	$	(40.0	)

        As discussed in the Critical Accounting Policies section of our 2008 Annual Report on Form 10-K, our "Derivative assets and liabilities" include contracts accounted for as hedges and those accounted for on a mark-to-market basis. These amounts are presented in our Consolidated Balance Sheets after the impact of legally binding master netting agreements. Due to the impacts of commodity prices, the number of open positions, master netting arrangements, and offsetting risk positions on the presentation of our derivative assets and liabilities in our Consolidated Balance Sheets, we believe an evaluation of the net position is the most relevant measure, and is discussed in more detail below.

        The decrease in our net derivative liability subject to hedge accounting since December 31, 2008 of $986.3 million was due primarily to $1,338 million of realization of out-of-the-money cash-flow hedges, partially offset by $352 million of increases on our out-of-the-money cash-flow hedge positions primarily related to decreases in power, natural gas, and coal prices during the nine months ended September 30, 2009.

        The following are the primary sources of the change in the net mark-to-market derivative asset during the quarter and nine months ended September 30, 2009:

		Quarter Ended September 30, 2009						Nine Months Ended September 30, 2009
		(in millions)
Fair value beginning of period					$	801.2					$	1,485.9
Changes in fair value recorded in earnings
	Origination gains	$	—					$	—
	Unrealized changes in fair value		(16.2	)					(233.2	)
	Changes in valuation techniques		—						—
	Reclassification of settled contracts to realized		(124.7	)					(282.6	)
Total changes in fair value						(140.9	)					(515.8	)
Changes in value of exchange-listed futures and options						27.8						355.9
Net change in premiums on options						32.0						41.0
Contracts acquired						—						(35.8	)
Dedesignated contracts and other changes in fair value						18.5						(592.6	)
Fair value at end of period					$	738.6					$	738.6

        Changes in our net derivative asset that affected earnings were as follows:

•

Origination gains represent the initial unrealized fair value at the time these contracts are executed to the extent permitted by applicable accounting rules.

•

Unrealized changes in fair value represent unrealized changes in commodity prices, the volatility of options on commodities, the time value of options, and other valuation adjustments.

•

Changes in valuation techniques represent improvements in estimation techniques, including modeling and other statistical enhancements used

55

to value our portfolio to more accurately reflect the economic value of our contracts.

•

Reclassification of settled contracts to realized represents the portion of previously unrealized amounts settled during the period and recorded as realized revenues.

        The net derivative asset also changed due to the following items recorded in accounts other than in our Consolidated Statements of Income (Loss):

•

Changes in value of exchange-listed futures and options are adjustments to remove unrealized revenue from exchange-traded contracts that are included in risk management revenues. The fair value of these contracts is recorded in "Accounts receivable" rather than "Derivative assets" in our Consolidated Balance Sheets because these amounts are settled through our margin account with a third-party broker.

•

Net changes in premiums on options reflects the accounting for premiums on options purchased as an increase in the net derivative asset and premiums on options sold as a decrease in the net derivative asset.

•

Contracts acquired represents the initial fair value of acquired derivative contracts recorded in "Derivative assets and liabilities" in our Consolidated Balance Sheets. Substantially all of this activity for the nine months ended September 30, 2009 related to the divestiture of our international commodities operation, Houston-based gas trading operation, and certain other trading operations in order to transfer risk and reward to the buyers. We discuss these divestitures in more detail beginning on page 16 of the Notes to Consolidated Financial Statements.

•

Dedesignated contracts and other changes in fair value represent transfers of derivative contracts from cash flow hedges to mark-to-market treatment, transfers of derivative contracts from mark-to-market treatment to cash flow hedges, and those derivative contracts that did not meet the qualifications of cash flow hedge accounting. In the quarter and nine months ended September 30, 2009, substantially all of the activity related to dedesignations in connection with the strategic objective of restructuring and reducing the risk of our portfolio.

        The settlement terms of the portion of our net derivative asset subject to mark-to-market accounting and sources of fair value based on the fair value hierarchy are as follows as of September 30, 2009:

	Settlement Term
	2009			2010		2011			2012			2013			2014			Thereafter		Fair Value
	(In millions)
Level 1	$	(43.8	)	$	—	$	—		$	—		$	—		$	—		$	—	$	(43.8	)
Level 2		209.4			78.5		332.8			143.7			(26.7	)		(3.4	)		0.2		734.5
Level 3		115.6			285.7		(170.5	)		(200.5	)		(5.2	)		12.7			10.1		47.9
Total net derivative asset subject to mark-to-market accounting	$	281.2		$	364.2	$	162.3		$	(56.8	)	$	(31.9	)	$	9.3		$	10.3	$	738.6

        Management uses its best estimates to determine the fair value of commodity and derivative contracts 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. Additionally, because the depth and liquidity of the power markets varies substantially between regions and time periods, the prices used to determine fair value could be affected significantly by the volume of transactions executed. Future market prices and actual quantities will vary from those used in recording mark-to-market energy assets and liabilities, and it is possible that such variations could be material.

        We manage our mark-to-market risk on a portfolio basis based upon the delivery period of our contracts and the individual components of the risks within each contract. Accordingly, we manage the energy purchase and sale obligations under our contracts in separate components based upon the commodity (e.g., electricity or gas), the product (e.g., electricity for delivery during peak or off-peak hours), the delivery location (e.g., by region), the risk profile (e.g., forward or option), and the delivery period (e.g., by month and year).

        The electricity, fuel, and other energy contracts we hold have varying terms to maturity, ranging from contracts for delivery the next hour to contracts with terms of ten years or more. Because an active, liquid electricity futures market comparable to that for other commodities has not developed, many contracts are direct contracts between market participants and are not exchange-traded or financially settling contracts that can be readily offset in their entirety through an exchange or other market

56

mechanism. Consequently, we and other market participants generally realize the value of these contracts as cash flows become due or payable under the terms of the contracts rather than through selling or liquidating the contracts themselves.

        In order to realize the entire value of a long-term contract in a single transaction, we would need to sell or assign the entire contract. If we were to sell or assign any of our long-term contracts in their entirety, we may not realize the entire value reflected in the preceding table. However, based upon the nature of the global commodities operation, we expect to realize the value of these contracts, as well as any contracts we may enter into in the future to manage our risk, over time as the contracts and related hedges settle in accordance with their terms. Generally, we do not expect to realize the value of these contracts and related hedges by selling or assigning the contracts themselves in total.

Operating Expenses

Our merchant energy business operating expenses increased $74.8 million for the quarter ended September 30, 2009 as compared to the same period of 2008 primarily due to higher performance-based labor and benefit costs of $53.7 million and higher non-labor operating expenses of $21.1 million.

        Our merchant energy business operating expenses decreased $84.0 million for the nine months ended September 30, 2009 as compared to the same period of 2008 primarily due to lower performance-based labor and benefit costs of $69.5 million and lower non-labor operating expenses of $14.5 million.

Merger Termination and Strategic Alternatives Costs

We discuss costs related to the mergers and strategic alternatives in more detail on page 12 in Notes to Consolidated Financial Statements.

Impairment losses and Other Costs

Our impairment losses and other costs are discussed in more detail beginning on page 14 in Notes to Consolidated Financial Statements.

Workforce Reduction Costs

Our merchant energy business recognized expenses associated with our workforce reduction efforts as discussed in more detail on page 15 in Notes to Consolidated Financial Statements.

Amortization of Credit Facility Amendment Fees

Our merchant energy business incurred costs related to the amortization of credit facility amendment fees in connection with the EDF transaction. These costs are classified as interest expense in our Consolidated Statements of Income (Loss).

Depreciation, Depletion and Amortization Expense

Our merchant energy business incurred lower depreciation, depletion and amortization expenses of $9.5 million during the nine months ended September 30, 2009 compared to the same period of 2008 primarily due to the absence of depletion expenses of $27.1 million as a result of divestitures made in 2008 in our upstream gas operations, partially offset by an increase of $17.6 million in depreciation on our generating facilities.

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Regulated Electric Business

Our regulated electric business is discussed in detail in Item 1. Business—Electric Business section of our 2008 Annual Report on Form 10-K.

Results

	Quarter Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(In millions)
Revenues	$	788.3		$	822.4		$	2,250.8		$	1,980.5
Electricity purchased for resale expenses		(508.2	)		(556.6	)		(1,435.9	)		(1,416.2	)
Operations and maintenance expenses		(102.6	)		(99.0	)		(297.6	)		(291.9	)
Merger termination and strategic alternatives costs		—			(7.9	)		—			(7.9	)
Depreciation and amortization		(51.1	)		(39.4	)		(161.6	)		(138.0	)
Taxes other than income taxes		(36.5	)		(36.3	)		(109.8	)		(104.1	)
Income from Operations	$	89.9		$	83.2		$	245.9		$	22.4
Net Income (Loss)	$	42.3		$	34.3		$	109.8		$	(31.2	)
Net Income (Loss) attributable to common stock	$	39.8		$	31.7		$	102.2		$	(38.8	)
Other Items Included in Operations (after-tax):
Accrual of Maryland settlement credit	$	—		$	—		$	—		$	(125.3	)
Effective tax rate impact of Maryland settlement agreement		—			3.4			—			8.4
Merger termination and strategic alternatives costs*		—			(7.5	)		—			(7.5	)
Total Other Items	$	—		$	(4.1	)	$	—		$	(124.4	)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 20 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

* Recovery of these costs will not be sought in rates.

        Net income attributable to common stock from the regulated electric business increased $8.1 million for the quarter ended September 30, 2009 compared to the same period of 2008, primarily due to an increase in revenues less electricity purchased for resale expenses of $9.0 million after-tax and the absence in 2009 of merger termination and strategic alternatives costs of $7.5 million after-tax, partially offset by increased depreciation and amortization of $7.4 million after-tax.

        Net income attributable to common stock from the regulated electric business for the nine months ended September 30, 2009 exceeded the net loss attributable to common stock from the regulated electric business for the nine months ended September 30, 2008 by $141.0 million, mostly due to increased revenues less electricity purchased for resale expenses of $151.9 million after-tax, which was due to the absence in 2009 of the impact of the accrual of the Maryland settlement credit of $125.3 million after-tax in 2008, and the absence in 2009 of merger termination and strategic alternatives costs of $7.5 million after-tax. These increases were partially offset by increased depreciation and amortization of $14.3 million after-tax and increased operations and maintenance expenses of $3.4 million after-tax.

Electric Revenues

The changes in electric revenues in 2009 compared to 2008 were caused by:

	Quarter Ended September 30, 2009 vs. 2008			Nine Months Ended September 30, 2009 vs. 2008
	(In millions)
Distribution volumes	$	(8.8	)	$	(8.1	)
Nuclear decommissioning charges		5.1			14.2
Smart energy savers programSM surcharges		10.2			21.3
Maryland settlement credit		0.6			188.8
Revenue decoupling		5.6			16.0
Standard offer service		(46.6	)		22.7
Rate stabilization recovery		(2.8	)		(0.5	)
Financing credits		1.3			2.4
Senate Bill 1 credits		(0.2	)		7.2
Total change in electric revenues from electric system sales		(35.6	)		264.0
Other		1.5			6.3
Total change in electric revenues	$	(34.1	)	$	270.3

Distribution Volumes

Distribution volumes are the amount of electricity that BGE delivers to customers in its service territory.

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        The percentage changes in our electric distribution volumes, by type of customer, in 2009 compared to 2008 were:

	Quarter Ended September 30, 2009 vs. 2008			Nine Months Ended September 30, 2009 vs. 2008
Residential		(0.5	)%		(2.2	)%
Commercial		(3.0	)		0.9
Industrial		(13.3	)		(9.8	)

        During the quarter ended September 30, 2009 compared to the same period of 2008, we distributed less electricity to commercial customers due to decreased usage per customer and milder weather, partially offset by an increased number of customers. We distributed less electricity to industrial customers primarily due to decreased usage per customer.

        During the nine months ended September 30, 2009 compared to the same period of 2008, we distributed less electricity to residential customers mostly due to decreased usage per customer, partially offset by colder weather and an increased number of customers. We distributed less electricity to industrial customers primarily due to decreased usage per customer.

Nuclear Decommissioning Charges

Effective January 1, 2009, BGE and Calvert Cliffs Nuclear Power Plant Inc. (Calvert Cliffs) mutually agreed to terminate the decommissioning funds collection agent agreement, which was effective from July 1, 2000 to December 31, 2008. As a result, BGE ceased transferring funds to provide for the decommissioning of Calvert Cliffs Unit 1 and Unit 2. Calvert Cliffs retains the obligation to provide adequate assurances of funding pursuant to Nuclear Regulatory Commission requirements. Under the 2008 Maryland settlement agreement, BGE will continue to provide certain credits to residential customers and assess certain charges to all customers relating to decommissioning.

Smart Energy Savers Program^SM Surcharges

Beginning in 2009, the Maryland PSC approved customer surcharges through which BGE recovers costs associated with certain programs designed to help BGE manage peak demand and encourage customer energy conservation.

Maryland Settlement Credit

In 2008, BGE entered into a settlement agreement with the State of Maryland and other parties, which provided residential electric customers a credit totaling $170 per customer. The total settlement of $188.2 million was accrued in the second quarter of 2008 and $188.8 million was credited to customers in the third quarter of 2008.

Revenue Decoupling

The Maryland PSC has allowed us to record a monthly adjustment to our electric distribution revenues from residential and small commercial customers since 2008 and for the majority of our large commercial and industrial customers since February 2009 to eliminate the effect of abnormal weather and usage patterns per customer on our electric distribution volumes, thereby recovering a specified dollar amount of distribution revenues per customer, by customer class, regardless of changes in consumption levels. This means BGE recognizes revenues at Maryland PSC-approved levels per customer, regardless of what actual distribution volumes were for a billing period. Therefore, while these revenues are affected by customer growth, they will not be affected by actual weather or usage conditions. We then bill or credit impacted customers in subsequent months for the difference between approved revenue levels under revenue decoupling and actual customer billings.

Standard Offer Service

BGE provides standard offer service for customers that do not select an alternative supplier. We discuss the provisions of Senate Bill 1 related to residential electric rates in the Item 7. Management's Discussion and Analysis—Business Environment—Regulation—Maryland—Senate Bills 1 and 400 section of our 2008 Annual Report on Form 10-K.

        Standard offer service revenues decreased during the quarter ended September 30, 2009 compared to the same period of 2008, mostly due to lower standard offer service volumes.

        Standard offer service revenues increased during the nine months ended September 30, 2009 compared to the same period of 2008, mostly due to an increase in the standard offer service rates, partially offset by lower standard offer service volumes.

Rate Stabilization Recovery

In late June 2007, BGE began recovering amounts deferred during the first rate deferral period that ended on May 31, 2007. The recovery of the first rate stabilization plan will occur over approximately ten years. In April 2008, BGE began recovering amounts deferred during the second rate deferral period that ended on December 31, 2007. The recovery of the second rate deferral will occur over a 21-month period that began April 1, 2008 and ends on December 31, 2009.

Financing Credits

Concurrent with the recovery of the deferred amounts related to the first rate deferral period, we are providing credits to residential customers to compensate them primarily for income tax benefits associated with the financing of the deferred amounts with rate stabilization bonds.

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Senate Bill 1 Credits

As a result of Senate Bill 1, beginning January 1, 2007, we were required to provide to residential electric customers a credit equal to the amount collected from all BGE electric customers for the decommissioning of Calvert Cliffs and to suspend collection of the residential return component of the administrative charge collected through residential standard offer service rates through May 31, 2007. Under an order issued by the Maryland PSC in May 2007, as of June 1, 2007, we were required to reinstate collection of the residential return component of the administration charge in rates and to provide all residential electric customers a credit for the residential return component of the administrative charge. Under the 2008 Maryland settlement agreement, BGE was allowed to resume collection of the residential return portion of the administrative charge from June 1, 2008 through May 31, 2010 without having to rebate it to residential customers.

        The increase in revenues during the nine months ended September 30, 2009 compared to the same period of 2008 is primarily due to the absence of the credit for the residential return component of the administrative charge which was suspended under the Maryland settlement agreement.

Electricity Purchased for Resale Expenses

Electricity purchased for resale expenses include the cost of electricity purchased for resale to our standard offer service customers. These costs do not include the cost of electricity purchased by delivery service only customers. The following table summarizes our regulated electricity purchased for resale expenses:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
	(In millions)
Actual costs	$	489.9	$	537.7	$	1,391.3	$	1,372.0
Recovery under rate stabilization plans		18.3		18.9		44.6		44.2
Electricity purchased for resale expenses	$	508.2	$	556.6	$	1,435.9	$	1,416.2

Actual Costs

BGE's actual costs for electricity purchased for resale decreased $47.8 million during the quarter ended September 30, 2009 compared to the same period of 2008, primarily due to lower volumes.

        BGE's actual costs for electricity purchased for resale increased $19.3 million during the nine months ended September 30, 2009 compared to the same period of 2008, primarily due to higher contract prices to purchase electricity for our customers, partially offset by lower volumes.

Recovery Under Rate Stabilization Plan

In late June 2007, we began recovering previously deferred amounts from customers. During the quarter and nine months ended September 30, 2009, $17.2 million and $41.5 million, respectively, of the amount recovered secures the payment of principal and interest and other ongoing costs associated with rate stabilization bonds issued by a subsidiary of BGE in June 2007.

Electric Operations and Maintenance Expenses

Regulated electric operations and maintenance expenses increased $5.7 million in the nine months ended September 30, 2009 compared to the same period of 2008, primarily due to increased uncollectible accounts receivable expense of $13.6 million, partially offset by the absence of $8.1 million in incremental distribution service restoration expenses associated with 2008 storms.

        We discuss the Allowance for Uncollectible Accounts Receivable in more detail on page 63.

Electric Depreciation and Amortization

Regulated electric depreciation and amortization expense increased $11.7 million during the quarter ended September 30, 2009, compared to the same period in 2008, primarily due to $17.2 million in increased amortization expense associated with the Smart Energy Savers Program^SM and additional property placed in service in 2009, partially offset by $5.7 million in lower depreciation expense as a result of revised depreciation rates which were implemented on June 1, 2008 for regulatory and financial reporting purposes as part of the Maryland settlement agreement.

        Regulated electric depreciation and amortization expense increased $23.6 million during the nine months ended September 30, 2009, compared to the same period in 2008, primarily due to $29.1 million in increased amortization expense associated with the Smart Energy Savers Program^SM and increased depreciation primarily due to additional property placed in service in 2009, partially offset by $17.1 million in lower depreciation expense as a result of revised depreciation rates which were implemented on June 1, 2008 for regulatory and financial reporting purposes as part of the Maryland settlement agreement.

        The Maryland settlement agreement is discussed in more detail in Note 2 to Consolidated Financial Statements of our 2008 Annual Report on Form 10-K.

Taxes Other Than Income Taxes

Taxes other than income taxes increased $5.7 million during the nine months ended September 30, 2009, respectively, compared to the same period in 2008, primarily due to the absence of the impact of the Maryland settlement agreement on franchise taxes.

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Regulated Gas Business

Our regulated gas business is discussed in detail in Item 1. Business—Gas Business section of our 2008 Annual Report on Form 10-K.

Results

	Quarter Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(In millions)
Revenues	$	78.2		$	155.5		$	576.8		$	740.0
Gas purchased for resale expenses		(31.2	)		(107.5	)		(340.9	)		(505.2	)
Operations and maintenance expenses		(40.0	)		(40.5	)		(120.9	)		(118.0	)
Merger termination and strategic alternatives costs		—			(3.2	)		—			(3.2	)
Depreciation and amortization		(10.6	)		(10.1	)		(32.7	)		(33.2	)
Taxes other than income taxes		(7.6	)		(7.8	)		(26.5	)		(26.6	)
(Loss) Income from operations	$	(11.2	)	$	(13.6	)	$	55.8		$	53.8
Net (Loss) Income	$	(10.5	)	$	(11.5	)	$	22.9		$	26.4
Net (Loss) Income attributable to common stock	$	(11.3	)	$	(12.2	)	$	20.6		$	24.1
Other Items Included in Operations (after-tax):
Effective tax rate impact of Maryland settlement agreement	$	—		$	(1.4	)	$	—		$	2.3
Merger termination and strategic alternatives costs*		—			(3.1	)		—			(3.1	)
Total Other Items	$	—		$	(4.5	)	$	—		$	(0.8	)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 20 provides a reconciliation of operating results by segment to our Consolidated Financial Statements

* Recovery of these costs will not be sought in rates.

        Net income attributable to common stock from the regulated gas business decreased $3.5 million during the nine months ended September 30, 2009, compared to the same period of 2008, primarily due to the absence in 2009 of the impact of reduced earnings in 2008 from the Maryland settlement agreement on our effective tax rate of $2.3 million.

Gas Revenues

The changes in gas revenues in 2009 compared to 2008 were caused by:

	Quarter Ended September 30, 2009 vs. 2008			Nine Months Ended September 30, 2009 vs. 2008
	(In millions)
Distribution volumes	$	(0.5	)	$	5.0
Conservation surcharge		0.1			0.7
Gas revenue decoupling		(0.1	)		(5.2	)
Gas cost adjustments		(26.5	)		(58.4	)
Total change in gas revenues from gas system sales		(27.0	)		(57.9	)
Off-system sales		(49.9	)		(103.7	)
Other		(0.4	)		(1.6	)
Total change in gas revenues	$	(77.3	)	$	(163.2	)

Distribution Volumes

The percentage changes in our distribution volumes, by type of customer, in 2009 compared to 2008 were:

	Quarter Ended September 30, 2009 vs. 2008			Nine Months Ended September 30, 2009 vs. 2008
Residential		(1.4	)%		5.9	%
Commercial		(14.5	)		(7.5	)
Industrial		0.8			4.9

        During the quarter ended September 30, 2009 compared to the same period in 2008, we distributed less gas to residential customers due to decreased usage per customer, partially offset by an increased number of customers. We distributed less gas to commercial customers compared to the same period of 2008, due to decreased usage per customer, partially offset by an increased number of customers.

        During the nine months ended September 30, 2009 compared to the same period in 2008, we distributed more gas to residential customers due to colder weather and an increased number of customers, partially offset by decreased usage per customer. We distributed less gas to commercial customers due to decreased usage per customer, partially offset by an increased number of customers and colder weather. We distributed more gas to industrial customers mostly due to increased usage per customer, partially offset by a decreased number of customers.

Conservation Surcharge

Beginning February 2009, the Maryland PSC approved a customer surcharge through which BGE recovers costs associated with certain programs designed to help BGE encourage customer conservation.

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Gas Revenue Decoupling

The Maryland PSC allows us to record a monthly adjustment to our gas distribution revenues to eliminate the effect of abnormal weather and usage patterns per customer on our gas distribution volumes, thereby recovering a specified dollar amount of distribution revenues per customer, by customer class, regardless of changes in consumption levels. This means BGE recognizes revenues at Maryland PSC-approved levels per customer, regardless of what actual distribution volumes were for a billing period. Therefore, while these revenues are affected by customer growth, they will not be affected by actual weather or usage conditions. We then bill or credit impacted customers in subsequent months for the difference between approved revenue levels under revenue decoupling and actual customer billings.

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 2008 Annual Report on Form 10-K. However, under the market-based rates mechanism approved by the Maryland PSC, 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.

        Customers who do not purchase gas from BGE are not subject to the gas cost adjustment clauses because we are not selling gas to them. However, these customers are charged base rates to recover the costs BGE incurs to deliver their gas through our distribution system, and are included in the gas distribution volume revenues.

        Gas cost adjustment revenues decreased $26.5 million and $58.4 million during the quarter and nine months ended September 30, 2009, respectively, compared to the same period of 2008, because we sold less gas at lower prices.

Off-System Gas Sales

Off-system gas sales are low-margin direct sales of gas to wholesale suppliers of natural gas. 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.

        Revenues from off-system gas sales decreased during the quarter and nine months ended September 30, 2009 compared to the same period of 2008 because we sold less gas at lower prices.

Gas Purchased For Resale Expenses

Gas purchased for resale expenses include the cost of gas purchased for resale to our customers and for off-system sales. These costs do not include the cost of gas purchased by delivery service only customers.

        Gas costs decreased $76.3 million and $164.3 million during the quarter and nine months ended September 30, 2009 compared to the same period of 2008 because we purchased less gas at lower prices.

Other Nonregulated Businesses

Results

	Quarter Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(In millions)
Revenues	$	60.2		$	50.2		$	169.1		$	175.5
Operating expense		(47.6	)		(29.4	)		(131.2	)		(128.4	)
Impairment losses and other costs		—			—			(6.7	)		—
Merger termination and strategic alternatives costs		—			(0.9	)		—			(0.9	)
Depreciation and amortization		(17.9	)		(16.2	)		(54.2	)		(45.5	)
Taxes other than income taxes		(1.1	)		(1.2	)		(3.1	)		(2.3	)
(Loss) Income from Operations	$	(6.4	)	$	2.5		$	(26.1	)	$	(1.6	)
Net (Loss) Income	$	(6.5	)	$	1.1		$	(17.0	)	$	0.4
Net (Loss) Income attributable to common stock	$	(6.9	)	$	0.8		$	(17.5	)	$	0.3
Other Items Included in Operations (after-tax):
Impairment losses and other costs	$	(0.8	)	$	—		$	(3.9	)	$	—
Merger termination and strategic alternatives costs		—			(0.9	)		—			(0.9	)
Total Other Items	$	(0.8	)	$	(0.9	)	$	(3.9	)	$	(0.9	)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 20 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

        Net loss attributable to common stock exceeded net income attributable to common stock during the quarter and nine months ended September 30, 2009 by $7.7 million and $17.8 million, respectively, compared to the same periods of 2008 primarily due to increased losses from UniStar Nuclear Energy, LLC and other nonregulated operations of $4.4 million and $11.1 million, respectively, increased impairment losses and other costs due to a

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write-off of an uncollectible advance to an affiliate of $0.8 million and $3.9 million after-tax, respectively, and depreciation and amortization expense as a result of increased property additions during 2008.

Consolidated Nonoperating Income and Expenses

Other Income (Expense)

In the quarter ended September 30, 2009, we had other income of $38.7 million and, in the quarter ended September 30, 2008, we had other expenses of $15.8 million. The $54.5 million increase in 2009 compared to 2008 is mostly due to a decrease in other-than-temporary impairment charges related to our nuclear decommissioning trust fund assets of $30.3 million.

        Other income decreased $18.9 million during the nine months ended September 30, 2009 compared to the same period of 2008 mostly due to a lower average cash balance offset by an increase in other-than-temporary impairment charges related to our nuclear decommissioning trust fund assets of $19.5 million.

Fixed Charges

Our fixed charges increased during the quarter and nine months ended September 30, 2009 compared to the same periods of 2008 mostly due to a higher level of interest expense associated with new debt issuances, primarily the Series A and Series B Preferred Stock issuances in 2008, and higher amortization of debt issuance and credit facility costs.

        Fixed charges at BGE increased during the nine months ended September 30, 2009 compared to the same period of 2008 mostly due to a higher level of interest expense associated with new debt issuances in 2008 and higher amortization of debt issuance and credit facility costs.

Income Taxes

Income tax expense exceeded income tax benefit by $410.0 million during the quarter ended September 30, 2009 compared to the same period of 2008 because we reported income before income taxes in 2009 as compared to a loss before income taxes in 2008. The income before income taxes for the quarter required us to change our estimated annual effective tax rate at September 30, 2009, requiring us to reduce the income tax benefit recognized in connection with losses and impairment charges recorded in the first half of 2009.

        Income tax expense increased $87.6 million during the nine months ended September 30, 2009 compared to the same period of 2008 mostly due to higher income before income taxes in 2009 compared to 2008. Additionally, a higher effective tax rate in 2009 increased income tax expense because it produced a higher income tax expense when applied to the income before income taxes.

        BGE's income tax expense increased $82.8 million during the nine months ended September 30, 2009 compared to the same period of 2008, mostly due to higher pre-tax income. In addition, for the nine months ended September 30, 2008, BGE had a lower effective tax rate. BGE projected a reduction in its 2008 taxable income as a result of the impact of certain provisions of the 2008 Maryland settlement agreement, which increased the relative impact of the favorable permanent tax adjustments on its effective tax rate.

Allowance for Uncollectible Accounts Receivable

Our allowance for uncollectible accounts receivable decreased $59.7 million from $240.6 million at December 31, 2008 to $180.9 million at September 30, 2009, primarily related to a decrease of $80.3 million in our merchant energy business, partially offset by an increase of $18.7 million at our regulated electric and gas businesses.

        The decrease in allowance for uncollectible accounts receivable from our merchant energy business is primarily driven by the write-off of accounts receivable balances of certain customers and the reversal of the related allowance for uncollectible accounts receivable that were established primarily during 2008 for certain counterparties that encountered financial difficulties. There was no earnings impact associated with these write-offs.

        The increase in allowance for uncollectible accounts receivable from our regulated electric and gas businesses is primarily driven by a Maryland PSC ruling in the second quarter of 2009 and the economic downturn which continues to cause a decreased ability of customers to pay their utility bills. The Maryland PSC ruling in the second quarter of 2009 delayed BGE's ability to terminate service to customers with arrearages and required BGE to offer those customers the option to enter into extended payment plans until September 25, 2009.

        If the current economic recession continues on a prolonged basis, our and BGE's bad debt expense could materially increase in the future despite our efforts to mitigate those risks. We discuss our credit risk in more detail in the Risk Management section of our 2008 Annual Report on Form 10-K.

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Financial Condition

Cash Flows

The following table summarizes our cash flows for 2009 and 2008, excluding the impact of changes in intercompany balances.

			2009 Segment Cash Flows									Consolidated Cash Flows
			Nine Months Ended September 30, 2009									Nine Months Ended September 30,
			Merchant			Regulated			Holding Company and Other			2009			2008
			(In millions)
Operating Activities
	Net (loss) income		$	(39.7	)	$	132.7		$	(17.0	)	$	76.0		$	102.3
	Non-cash merger termination and strategic alternatives costs			37.2			—			—			37.2			—
	Derivative contracts classified as financing activities1			1,007.0			—			—			1,007.0			(37.1	)
	Other non-cash adjustments to net (loss) income			573.6			542.3			78.5			1,194.4			810.5
	Changes in working capital:
		Derivative assets and liabilities, excluding collateral		118.3			—			6.7			125.0			(935.0	)
		Net collateral and margin		1,502.4			2.4			—			1,504.8			(568.6	)
		Other changes		366.9			(153.2	)		42.1			255.8			(358.6	)
	Defined benefit obligations2			—			—			—			(277.7	)		(34.2	)
	Other			(34.7	)		(45.3	)		133.1			53.1			6.6
Net cash provided by (used in) operating activities				3,531.0			478.9			243.4			3,975.6			(1,014.1	)
Investing Activities
	Investments in property, plant and equipment			(961.1	)		(265.5	)		(16.6	)		(1,243.2	)		(1,360.5	)
	Asset and business acquisitions, net of cash acquired			—			—			(20.8	)		(20.8	)		(316.5	)
	Contributions to nuclear decommissioning trust funds			(18.7	)		—			—			(18.7	)		(18.7	)
	Proceeds from sale of investments and other assets			49.9			—			31.2			81.1			241.2
	Contract and portfolio acquisitions			(2,153.7	)		—			—			(2,153.7	)		—
	Repayments of loans receivable			—			—			—			—			26.0
	Decrease (increase) in restricted funds3			(1.6	)		(22.4	)		1,003.9			979.9			8.3
	Other			(0.6	)		—			(15.2	)		(15.8	)		(4.1	)
Net cash used in investing activities				(3,085.8	)		(287.9	)		982.5			(2,391.2	)		(1,424.3	)
Cash flows from operating activities less cash flows from investing activities			$	445.2		$	191.0		$	1,225.9			1,584.4			(2,438.4	)
Financing Activities2
	Net (repayment) issuance of debt												(2,080.3	)		3,041.8
	Debt issuance costs												(67.8	)		(50.6	)
	Proceeds from issuance of common stock												24.4			17.6
	Common stock dividends paid												(179.6	)		(250.7	)
	BGE preference stock dividends paid												(9.9	)		(9.9	)
	Proceeds from contract and portfolio acquisitions												2,263.1			—
	Derivative contracts classified as financing activities1												(1,007.0	)		37.1
	Other												13.1			(8.8	)
Net cash (used in) provided by financing activities													(1,044.0	)		2,776.5
Net increase in cash and cash equivalents												$	540.4		$	338.1

1 All ongoing cash flows from derivative contracts deemed to contain a financing element at inception must be reclassified from operating activities to financing activities.

2 Items are not allocated to the business segments because they are managed for the company as a whole.

3 The decrease in restricted funds at our Holding Company and Other is primarily related to $1.0 billion of restricted cash related to the issuance of Series B Preferred Stock to EDF in December 2008. These funds were held at the holding company and were restricted for payment of the 14% Senior Notes held by MidAmerican. The 14% Senior Notes were repaid in full in January 2009.

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Cash Flows from Operating Activities

Cash provided by operating activities was $3,975.6 million in 2009 compared to cash used in operating activities of $1,014.1 million in 2008. This $4,989.7 million increase in cash flows was primarily due to $3,747.8 million of net favorable changes in working capital and a net increase of $1,044.1 million as a result of a reclassification of ongoing cash flows from derivative contracts deemed to contain a financing element at inception as financing activities rather than operating activities. We discuss the impact on cash flows from financing activities below. This increase was partially offset by an unfavorable change of $240.9 million primarily related to our pension contributions.

        The net favorable changes in working capital of $3,747.8 million included $1,060.0 million related to net derivative assets and liabilities. Changes in derivative assets and liabilities are driven by fluctuations in commodity prices and the realization of contracts at settlement within our merchant energy business. There was also $2,073.4 million more in net collateral and margin returned in 2009 as compared to 2008.

        We continue to improve our collateral position in 2009. Total net cash collateral posted in 2009 decreased compared to the balance as of December 31, 2008 as follows:

	(In millions)
Net collateral and margin posted, December 31, 2008	$	(1,445.6	)
Return of collateral held associated with nonderivative contracts		(14.9	)
Net return of collateral posted associated with nonderivative contracts		324.2
Return of initial and variation margin posted on exchange-traded transactions recorded in accounts receivable		709.1
Return of fair value net cash collateral posted (netted against derivative assets / liabilities)*		486.4
Change in net collateral and margin posted		1,504.8
Net collateral and margin held, September 30, 2009	$	59.2

* We discuss our netting of fair value collateral with our derivative assets / liabilities in more detail in Note 13 to Consolidated Financial Statements of our 2008 Annual Report on Form 10-K.

        The $1,504.8 million decrease in net collateral and margin posted during 2009 primarily reflects the following:

•

fewer contracts as a result of reducing the risk in our portfolio,

•

collateral returned/reduced as part of the divestiture of a majority of our international commodities operation and gas trading operation as well as the execution of a gas supply agreement with the buyer of the gas trading operation for the retail gas business,

•

the termination of in-the-money contracts, and

•

changes in commodity prices and the level of our open positions.

        We discuss all forms of collateral in terms of their impact on our net available liquidity in the Available Sources of Funding section.

Cash Flows from Investing Activities

Cash used in investing activities was $2,391.2 million in 2009 compared to $1,424.3 million in 2008. The $966.9 million increase in cash used in 2009 compared to 2008 was primarily due to $2,153.7 million for contract and portfolio acquisitions as a component of our strategic divestitures. As a result of the structure of the divestitures of a majority of our international commodities, Houston-based gas trading and other trading operations, we are required to present investing cash outflows for in-the-money contracts on a gross basis separate from financing cash inflows for out-of-the-money contracts executed simultaneously. We discuss our divestitures in more detail beginning on page 16 of the Notes to Consolidated Financial Statements. There was no such activity in 2008.

        This increase was partially offset by:

•

a $971.6 million decrease in restricted funds, primarily due to the release of funds for the repayment of the $1 billion of 14% Senior Notes to MidAmerican in January 2009, and

•

a $295.7 million decrease in cash used for acquisitions. $20.8 million was used in the nine months ended September 30, 2009 for the acquisition of CLT Efficient Technologies Group, an energy services company that provides energy performance contracting and energy efficiency engineering services, and $316.5 million was used in the nine months ended September 30, 2008 for the acquisition of the Hillabee Energy Center, a partially completed 774 MW gas-fired combined cycle power generation facility in Alabama, the West Valley Power Plant, a 200MW gas-fired peaking plant, and a uranium market participant.

Cash Flows from Financing Activities

Cash used in financing activities was $1,044.0 million in 2009 compared to cash provided of $2,776.5 million in

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2008. The increase in cash used for financing activities of $3,820.5 million was primarily due to:

•

$3,143.2 million net increase in cash used to repay short-term borrowings and long-term debt primarily due to the repayment of the $1 billion 14% Senior Notes to MidAmerican in January 2009, $1,728.3 million in repayments of short-term credit facilities, and a $500.0 million repayment of a 6.125% fixed rate note,

•

$1,978.9 million net decrease in cash received from the issuance of long-term debt, and

•

$1,044.1 million in cash outflows related to derivative contracts deemed to contain a financing element at inception that must be classified as financing activities rather than operating activities. These contracts primarily relate to transactions associated with the divestiture of our international commodities operation, Houston-based gas trading operation and certain other trading operations. During the nine months ended September 30, 2009, we executed derivatives as part of these divestiture transactions at prices that differed from then-current market prices. As a result, cash flows associated with the out-of-the money derivative transactions are deemed to contain a financing element, and we must record the ongoing cash flows related to these contracts as financing cash flows. We discuss our divestitures in more detail beginning on page 16 of the Notes to Consolidated Financial Statements.

        This increase in cash used for financing activities was partially offset by $2,263.1 million for contract and portfolio acquisitions as a component of our strategic divestitures. As a result of the structure of the divestitures of a majority of our international commodities, Houston-based gas trading and other trading operations, we are required to present financing cash inflows for out-of-the-money contracts on a gross basis separate from investing cash outflows for in-the-money contracts executed simultaneously. We discuss our divestitures in more detail beginning on page 16 of the Notes to Consolidated Financial Statements. There was no such activity in 2008.

Security Ratings

We discuss our security ratings in our 2008 Annual Report on Form 10-K.

        On July 31, 2009, Fitch Ratings downgraded Constellation Energy's senior unsecured debt rating from BBB to BBB-and BGE's senior unsecured debt rating from A- to BBB+. Fitch Ratings also updated both companies' ratings outlook from Watch Evolving to Stable.

        On August 19, 2009, Moody's Investor Service reaffirmed Constellation Energy's senior unsecured debt rating of Baa3 and issued a Stable ratings outlook.

        On November 2, 2009, S&P downgraded Constellation Energy's senior unsecured debt rating to BBB- with a Stable outlook from BBB on Watch Negative. As a result of this rating action, we were not required to post any additional collateral pursuant to our counterparty agreements. In addition, BGE's senior unsecured debt rating was upgraded to BBB+ with a Stable outlook from BBB on Watch Negative.

Available Sources of Funding

In addition to cash generated from business operations, we rely upon access to capital for our capital expenditure programs and for the liquidity required to operate and support our commercial businesses. Our liquidity requirements are funded by credit facilities and cash. We fund our short-term working capital needs with existing cash and with our credit facilities, many of which support direct cash borrowings and the issuance of commercial paper. We also use our credit facilities to support the issuance of letters of credit, primarily for our merchant energy business.

        The primary drivers of our use of liquidity have been our capital expenditure requirements and collateral requirements associated with hedging our generating assets and hedging our Customer Supply business in both power and gas. As part of our strategic initiatives, we have modified the structure of certain transactions and terminated others in order to reduce these collateral requirements. Significant changes in the prices of commodities, depending on hedging strategies we have employed, could require us to post additional letters of credit, and thereby reduce the overall amount available under our credit facilities or to post additional cash, and thereby reduce our available cash balance.

Constellation Energy

At September 30, 2009, we had approximately $5.8 billion in committed credit facilities available as shown below. We have included in the table below our credit facilities as of

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September 30, 2009 and pro forma following the completion of the transaction with EDF:

Facility Expiration		Facility Size as of September 30, 20092		Facility Size Pro Forma upon Completion of the EDF Transactions2
		(In billions)
July 2012		$	3.85	$	2.32
November 20091			1.23		—
September 2013			0.35		—
December 2009			0.15		—
September 2014			0.25		0.50
	Total	$	5.83	$	2.82

1 Size of facility may be reduced by proceeds received from certain securities offerings or asset sales.

2 Excludes commodity-linked credit facility discussed below due to its contingent nature.

        Collectively, these facilities currently support the issuance of letters of credit and/or cash borrowings up to approximately $5.8 billion as of September 30, 2009. At September 30, 2009, we had approximately $2.0 billion in letters of credit issued, and we had no commercial paper outstanding.

        During the third quarter of 2009, we executed a new committed five year bilateral credit facility that allows for a maximum capacity of $500 million. This facility can be used to issue letters of credit in support of our collateral obligations. At September 30, 2009 and November 3, 2009, we had committed capacity of $250 million and $500 million, respectively. The facility partially replaces a portion of our credit facilities that terminate upon closing of the transaction with EDF.

        During the third quarter of 2009, we also entered into a five year commodity-linked credit facility that allows for the issuance of letters of credit up to a maximum capacity of $500 million. We could increase the maximum facility size to $750 million or alternatively enter into an additional $250 million bilateral facility if certain conditions are met, including the closing of the transaction with EDF. This commodity-linked facility is designed to help manage our contingent collateral requirements associated with the hedging of our Customer Supply operations because its capacity increases as natural gas price levels decrease compared to a reference price that is adjusted periodically. As of September 30, 2009, there were no letters of credit outstanding under this facility.

        In connection with the Investment Agreement with EDF, EDF has provided us with up to $2 billion pre-tax, or approximately $1.4 billion after-tax, of additional liquidity pursuant to a put arrangement that will allow us to require EDF to purchase certain non-nuclear generation assets. The amount of after-tax proceeds will be impacted by the assets actually sold and the related tax impacts at that time.

        During April 2009, we received regulatory approvals and consents for the majority of the assets covered by the put arrangement. As of September 30, 2009, we have approximately $1.1 billion after-tax of liquidity available under the put arrangement. We expect to receive regulatory approval for an additional asset in the first quarter of 2010, which will increase the net after-tax liquidity from the put arrangement to approximately $1.4 billion. The put arrangement will expire at the earlier of December 31, 2010 or the termination of the Investment Agreement by EDF in the event of a breach of contract by us.

        Certain credit facilities of Constellation Energy contain a provision requiring Constellation Energy to maintain a ratio of debt to capitalization equal to or less than 65%. At September 30, 2009, the debt to capitalization ratios as defined in the credit agreements were no greater than 46%.

        Our $1.23 billion credit facility requires us to maintain consolidated earnings before interest, taxes, depreciation, and amortization to consolidated interest expense ratio of at least 2.75 when our Standard and Poors (S&P) senior unsecured debt rating is BBB- or lower and our Moody's senior unsecured debt rating is Baa3 or lower. Compliance with the covenant was not required as of September 30, 2009 as S&P's senior unsecured debt rating was above BBB-. Since the $1.23 billion credit facility expires upon the earlier of the closing of the EDF transaction or November 12, 2009, the recent change in rating by S&P to BBB- will not require compliance with this covenant.

        The terms of the Series B Preferred Stock allow us to issue debt without the consent of the holders of the majority of the Series B Preferred Stock only if, after issuance of such debt, we maintain a ratio of debt to capitalization equal to or less than 65%. Upon closing of our transaction with EDF, the Series B Preferred Stock will be redeemed.

        Upon closing of our transaction with EDF, under our $3.85 billion credit facility, we will grant a lien on certain generating facilities and pledge our ownership interests in our nuclear business to the lenders.

BGE

As of September 30, 2009, BGE has a $400.0 million five-year revolving credit facility expiring in 2011. BGE can use the facility to issue letters of credit or to issue short-term debt through the issuance of commercial paper or through direct borrowing against the facility. On October 29, 2009, BGE expanded its borrowing capacity to

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$575 million. The size of the facility may be increased up to $600 million with additional commitments by lenders. At September 30, 2009, BGE had $334.9 million outstanding on its $400 million credit facility to secure funds in advance of maturing commercial paper and other obligations.

        The credit agreement of BGE contains a provision requiring BGE to maintain a ratio of debt to capitalization equal to or less than 65%. At September 30, 2009, the debt to capitalization ratio for BGE as defined in this credit agreement was 52%.

Constellation Energy and BGE

Decreases in Constellation Energy's or BGE's credit ratings would not trigger an early payment on any of our, or BGE's, credit facilities.

        However, the impact of a credit ratings downgrade on our financial ratios associated with our credit facility covenants would depend on our financial condition at the time of such a downgrade and on the source of funds used to satisfy the incremental collateral obligation resulting from a credit ratings downgrade. For example, if we were to use existing cash balances or exercise the put option with EDF to fund the cash portion of any additional collateral obligations resulting from a credit ratings downgrade, we would not expect a material impact on our financial ratios. However, if we were to issue long-term debt or use our credit facilities to fund any additional collateral obligations, our financial ratios could be materially affected. Failure by Constellation Energy, or BGE, to comply with these covenants could result in the acceleration of the maturity of the borrowings outstanding and preclude us from issuing letters of credit under these facilities.

Net Available Liquidity

The following tables provide a summary of our net available liquidity at December 31, 2008 and September 30, 2009:

	As of December 31, 2008
	Constellation Energy			BGE			Total Consolidated
	(In billions)
Credit facilities	$	6.2		$	0.4		$	6.6
Less: Letters of credit issued		(3.6	)		—			(3.6	)
Less: Cash drawn on credit facilities		(0.5	)		(0.4	)		(0.9	)
Undrawn facilities		2.1			—			2.1
Less: Commercial paper outstanding		—			—			—
Net available facilities		2.1			—			2.1
Add: Cash		0.2			—			0.2
Net available liquidity	$	2.3		$	—		$	2.3

	As of September 30, 2009
	Constellation Energy			BGE			Total Consolidated
	(In billions)
Credit facilities1	$	5.8		$	0.4		$	6.2
Less: Letters of credit issued		(2.0	)		—			(2.0	)
Less: Cash drawn on credit facilities		—			—			—
Undrawn facilities		3.8			0.4			4.2
Less: Commercial paper outstanding		—			(0.3	)		(0.3	)
Net available facilities		3.8			0.1			3.9
Add: Cash		0.7			—			0.7
Add: EDF put arrangement		1.1			—			1.1
Net available liquidity	$	5.6		$	0.1		$	5.7

1 Excludes commodity-linked credit facility due to its contingent nature.

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        Net available liquidity increased from December 31, 2008 through September 30, 2009 by $3.4 billion as follows:

	(In billions)
Decrease in letters of credit issued	$	1.6
EDF put arrangement		1.1
Decrease in cash drawn on facilities		0.9
Increase in cash		0.5
Decrease in credit facilities		(0.4	)
Increase in commercial paper issued		(0.3	)
Increase in net available liquidity	$	3.4

        Through our efforts to reduce risk, we have significantly improved our liquidity. Specifically, we executed on our planned divestitures, significantly reduced the activities of our Global Commodities operation, and restructured and terminated existing transactions and amended certain agreements, all of which have led to lower collateral requirements. Through September 30, 2009, we received substantially all of the $1 billion of total net collateral expected to be returned as a result of the successful execution of our divestitures. The change in credit facilities and EDF put arrangement was due to the receipt of required regulatory approvals on the majority of assets covered by the EDF put arrangement, which resulted in the termination of the EDF interim backstop liquidity facility. Finally, cash flows from operating activities funded the repayment of all outstanding cash draws on our credit facilities, and BGE was able to issue $334.9 million of commercial paper, demonstrating an ability to access the capital market in a more traditional manner.

        Upon the close of the EDF transaction, the amount and composition of our liquidity will change due to the reduction in credit facilities discussed on page 67, as well as the receipt of net cash proceeds from the transaction.

        The net proceeds from this transaction are expected to be approximately $2.2 billion after repayment of the EDF preferred stock and the payment of taxes. We anticipate using these proceeds to reduce up to $850 million of our long-term debt, as well as for other general corporate purposes, including payments related to BGE under the Maryland PSC order dated October 30, 2009. These net proceeds will partially offset the reduction in credit facilities, although our net available liquidity will be reduced.

        Our liquidity needs vary as commodity prices change. We regularly evaluate the effects of changing price levels on our liquidity needs by estimating the impacts of volatile power, gas, and coal prices on our price sensitive sources and uses of liquidity. For example, energy contracts settling in the current year may impact our cash flows and changing price levels may impact our collateral requirements. Additionally, we consider the impact of other sources and uses of liquidity, including planned business divestitures, anticipated new business, capital expenditures, operating expenses and credit charges.

        We believe that the actions that we have taken and our current net available liquidity will be sufficient to support the ongoing liquidity requirements over the next 12 months. Our liquidity projections include assumptions for commodity price changes, which are subject to significant volatility, and we are exposed to certain operational risks that could have a significant impact on our liquidity. We discuss significant items that could negatively impact our liquidity in the Risk Factors section of our 2008 Annual Report on Form 10-K.

Collateral

Constellation Energy's collateral requirements arise from its merchant energy business' need to participate in certain organized markets, such as Independent System Operators (ISOs) or financial exchanges, as well as from our margining on over-the-counter (OTC) contracts.

        To support wholesale and retail power Customer Supply obligations, as well as some trading activities, Constellation Energy posts collateral to ISOs. Forward hedging of our Generation and Customer Supply obligations, as well as our Global Commodities trading activities, creates the need to transact with exchanges such as New York Mercantile Exchange and Intercontinental Exchange. We post initial margin based on exchange rules, as well as variation margin related to the change in value of the net open position with the exchange. Constellation Energy's initial margin requirements increased during the third quarter of 2008 as a result of changes in exchange rules and decreased during the fourth quarter of 2008 as a result of portfolio risk reduction and downsizing activities.

        During the nine months ended September 30, 2009, our initial margin requirements continued to decrease. In March 2009 and April 2009, we closed out our exchange positions related to our international commodities operation and Houston-based gas trading operation, respectively, which reduced our margin posted with each exchange with which we transact. Daily variation margin postings to each exchange depend on price moves in the underlying power, gas and coal exchange traded forward and option contracts.

        In addition to the collateral posted to ISOs and exchanges, we post collateral with certain OTC counterparties. These collateral amounts may be fixed or may vary with price levels.

        There are certain asymmetries relating to the use of collateral that create liquidity requirements for our merchant energy businesses. These asymmetries arise as a result of our actions to be economically hedged, as well as market conditions or conventions for conducting business

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that result in some transactions being collateralized while others are not, including:

•

In our Customer Supply operation, we generally do not receive collateral under contractual obligations to supply power or gas to our customers but our Global Commodities operation hedges these transactions through purchases of power and gas that generally require us to post collateral. By entering into a gas supply agreement with the buyer of our gas trading operation, we have reduced our collateral requirements to support our retail gas operation. We discuss this gas supply agreement in more detail on page 13 of the Notes to Consolidated Financial Statements.

•

In our Generation operation, we may have to post collateral on our power sale or fuel purchase contracts, but our generating plants are not a source of collateral.

        Customers of our merchant energy business rely on the creditworthiness of Constellation Energy. In this regard, we have certain agreements that contain provisions that would require us to post additional collateral upon a credit rating downgrade in the senior unsecured debt of Constellation Energy. Based on contractual provisions at September 30, 2009, we estimate that if Constellation Energy's senior unsecured debt were downgraded to one level below the investment grade threshold we would have the following additional collateral obligations:

Credit Ratings Downgraded to*	Level Below Current Rating		Additional Obligations**
	(In billions)
Below investment grade		1	$	1.2

* If there are split ratings among the independent credit-rating agencies, the lowest credit rating is used to determine our incremental collateral obligations.

** Includes $0.2 billion related to derivative contracts as discussed in Notes to Consolidated Financial Statements beginning on page 36.

        Based on market conditions and contractual obligations at the time of a downgrade, we could be required to post additional collateral in an amount that could exceed the obligation amounts specified above, which could be material. We discuss our credit facilities in the Available Sources of Funding section.

Capital Resources

Our estimated annual cash requirement amounts for the years 2009 and 2010 are shown in the table below.

        We will continue to have cash requirements for:

•

working capital needs,

•

payments of interest, distributions, and dividends,

•

capital expenditures, and

•

the retirement of debt and redemption of preference stock.

        Capital requirements for 2009 and 2010 include estimates of spending 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:

•

regulation, legislation, and competition,

•

BGE load requirements,

•

environmental protection standards,

•

the type and number of projects selected for construction or acquisition,

•

the effect of market conditions on those projects,

•

the cost and availability of capital,

•

the availability of cash from operations, and

•

business decisions to invest in capital projects.

        Our estimates are also subject to additional factors. Please see the Forward Looking Statements section on page 78 and Risk Factors section in our 2008 Annual Report on Form 10-K. We discuss the potential impact of environmental legislation and regulation in more detail in Business Environment section beginning on page 44 and Item 1. Business—Environmental Matters section of our 2008 Annual Report on Form 10-K.

Calendar Year Estimates			2009		2010
			(In billions)
Nonregulated Capital Requirements:
	Merchant energy
		Generation plants1	$	0.4	$	0.1
		Environmental controls		0.3		0.1
		Portfolio acquisitions/investments		0.1		0.1
		Technology/other		0.1		0.1
		Nuclear fuel1		0.2		—
	Total merchant energy capital requirements			1.1		0.4
	Other nonregulated capital requirements			0.1		—
	Total nonregulated capital requirements			1.2		0.4
Regulated Capital Requirements:
	Regulated electric			0.4		0.6
	Regulated gas			0.1		0.1
	Total regulated capital requirements			0.5		0.7
Total Capital Requirements			$	1.7	$	1.1

1 Reflects the closing of the Investment Agreement with EDF in the fourth quarter of 2009 and the deconsolidation of our nuclear generation and operation business. As a result, we are reflecting ten months of nuclear plant related and nuclear fuel capital requirements for 2009 and none for 2010.

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Capital Requirements

Merchant Energy Business

Our merchant energy business' capital requirements consist of its continuing requirements, including expenditures for:

•

improvements to generating plants,

•

nuclear fuel costs,

•

costs of complying with the EPA, Maryland, and Pennsylvania environmental regulations and legislation, and

•

enhancements to our information technology infrastructure.

Cost for Decommissioning Nuclear Facilities

Every two years, the U. S. Nuclear Regulatory Commission (NRC) requires us to demonstrate reasonable assurance that funds will be available to decommission our nuclear generating facilities after these facilities cease operation. In response to our March 2009 biennial report, the NRC notified us that they had identified a potential "shortfall" in the decommissioning fund balance for certain of our nuclear reactors. This condition was a result of declining market performance during the last two quarters of 2008 for the investments held by our decommissioning trusts.

        In July 2009, we submitted to the NRC a plan that we expect will enable us to demonstrate by December 2009 reasonable assurance for adequate decommissioning funding in accordance with NRC regulations. Our plan proposes the use of a safe storage approach which allows funds to grow during the extended safe storage period following license termination but prior to decommissioning. In the event the NRC requires additional funding assurance beyond consideration of the safe storage approach, we will provide parental guarantees which would be subject to review and updating as necessary, but which are expected to be less than $70 million in the aggregate as of December 2009. We discuss the costs for decommissioning our nuclear generating facilities in more detail in the Business Overview section of our 2008 Annual Report on Form 10-K.

Regulated Electric and Gas

Regulated electric and gas construction expenditures primarily include new business construction needs and improvements to existing facilities, including projects to improve reliability and support demand response and conservation initiatives.

        In July 2009, BGE filed with the Maryland PSC a proposal for a comprehensive smart grid initiative. The proposal includes the planned installation of 2 million residential and commercial electric and gas smart meters. We expect the total cost of the program to be approximately $480 million. In October 2009, the United States Department of Energy selected BGE as a recipient of $200 million in federal funding for our smart grid initiative. This grant allows BGE to be reimbursed for smart grid expenditures up to $200 million, substantially reducing the total cost of this initiative. However, the United States Department of Energy may withhold funding until approval is obtained from the Maryland PSC. If approved by the Maryland PSC, BGE plans to proceed with this proposal as soon as practical.

Funding for Capital Requirements

We discuss our funding for capital requirements in our 2008 Annual Report on Form 10-K.

Contractual Payment Obligations and Committed Amounts

We enter into various agreements that result in contractual payment obligations in connection with our business activities. These obligations primarily relate to our financing arrangements (such as long-term debt, preference stock, and operating leases), purchases of capacity and energy to support the growth in our merchant energy business activities, and purchases of fuel and transportation to satisfy the fuel requirements of our power generating facilities.

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        We detail our contractual payment obligations at September 30, 2009 in the following table:

			Payments
			2009			2010- 2011			2012- 2013			There- after			Total
			(In millions)
Contractual Payment Obligations
Long-term debt:1
	Nonregulated
		Principal	$	1,000.7		$	3.7		$	734.9		$	2,630.7		$	4,370.0
		Interest		84.2			376.0			260.7			3,002.1			3,723.0
	Total			1,084.9			379.7			995.6			5,632.8			8,093.0
	BGE
		Principal		38.4			138.2			639.1			1,422.8			2,238.5
		Interest		50.6			258.1			231.3			1,336.6			1,876.6
	Total			89.0			396.3			870.4			2,759.4			4,115.1
BGE preference stock				—			—			—			190.0			190.0
Operating leases2
	Operating leases, gross			42.0			419.9			385.0			571.0			1,417.9
	Sublease rentals			(13.1	)		(119.0	)		(77.5	)		(139.1	)		(348.7	)
	Operating leases, net			28.9			300.9			307.5			431.9			1,069.2
Purchase obligations:3
	Purchased capacity and energy4			140.7			352.4			188.6			229.9			911.6
	Fuel and transportation			222.5			1,122.0			564.0			2,176.3			4,084.8
	Other			120.8			166.7			50.8			37.2			375.5
Other noncurrent liabilities:
	Uncertain tax positions liability			—			240.0			(23.6	)		11.9			228.3
	Pension benefits5			6.1			291.6			283.9			43.7			625.3
	Postretirement and postemployment benefits6			13.1			83.0			95.9			289.9			481.9
Total contractual payment obligations			$	1,706.0		$	3,332.6		$	3,333.1		$	11,803.0		$	20,174.7

1 Amounts in long-term debt reflect the original maturity date and include $697.7 million of principal for the Zero Coupon Senior Notes, assuming the notes are not redeemed prior to June 19, 2023 and the original issue discount accrues until redemption. Investors may require us to repay $483.8 million early through remarketing and put features. Interest on variable rate debt is included based on the forward curve for interest rates.

2 Our operating lease commitments include future payment obligations under certain power purchase agreements as discussed further in Note 11 of our 2008 Annual Report on Form 10-K.

3 Contracts to purchase goods or services that specify all significant terms. Amounts related to certain purchase obligations are based on future purchase expectations, which may differ from actual purchases.

4 Our contractual obligations for purchased capacity and energy are shown on a gross basis for certain transactions, including both the fixed payment portions of tolling contracts and estimated variable payments under unit-contingent power purchase agreements.

5 Amounts related to pension benefits reflect our current 5-year forecast of contributions for our qualified pension plans and participant payments for our nonqualified pension plans. Refer to Note 7 of our 2008 Annual Report on Form 10-K for more detail on our pension plans.

6 Amounts related to postretirement and postemployment benefits are for unfunded plans and reflect present value amounts consistent with the determination of the related liabilities recorded in our Consolidated Balance Sheets.

Off-Balance Sheet Arrangements

We discuss our off-balance sheet arrangements in our 2008 Annual Report on Form 10-K.

        At September 30, 2009, Constellation Energy had a total face amount of $11.9 billion in guarantees outstanding, of which $10.5 billion related to our merchant energy business. These amounts do not represent incremental consolidated Constellation Energy obligations; rather, they primarily represent parental guarantees of certain subsidiary obligations to third parties in order to allow our subsidiaries the flexibility needed to conduct business with counterparties without having to post other forms of collateral. Our estimated net exposure for obligations under commercial transactions covered by these guarantees was approximately $2 billion at September 30, 2009, which represents the total amount the parent company could be required to fund based on September 30, 2009 market prices. For those guarantees related to our derivative liabilities, the fair value of the obligation is recorded in our Consolidated Balance Sheets. We believe it is unlikely that we would be required to perform or incur any losses associated with guarantees of our subsidiaries' obligations.

        We discuss our other guarantees in the Notes to Consolidated Financial Statements on page 25.

Risk Management

Market Risk

Economic Value at Risk (EVaR)

EVaR is a measure that attempts to estimate the sensitivity of our total portfolio economic value to changes in market prices. The EVaR measure includes all positions of our merchant energy business, including Generation, Customer Supply, and Global Commodities operations. Each business day, the Company undertakes EVaR calculations that include both its trading and its non-trading risks. EVaR for non-trading positions measures the amount of potential change in the fair values of the exposures related to accrual exposures. EVaR is a one-day measure calculated at a 95% confidence level on the portfolio through 2013. At September 30, 2009, our EVaR was approximately $67 million, which represents a 50% decline from its level of $136 million at December 31, 2008.

        Due to the inherent limitations of statistical measures such as EVaR and the seasonality of changes in market prices, the EVaR calculation may not reflect the full extent of our commodity price risk exposure. Additionally, because our EVaR methodology uses a linear approximation method, actual changes in the value of options in our portfolio resulting from significant price changes may differ from estimates generated using this methodology. As a result, actual changes in the fair value of derivative assets and liabilities subject to mark-to-market accounting could differ from the calculated EVaR, and such changes could have a material impact on our financial results.

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        While EVaR reflects the risk of loss under normal market conditions, stress testing captures Constellation Energy's exposure to unlikely but plausible events in abnormal markets. We regularly conduct economic value stress tests for our market activities using multiple scenarios that assume stressed changes in both price level and spreads. Additional scenarios focus on the risks predominant in individual portions of our business segments and include scenarios that focus on loss of generation, customer demand growth or demand destruction, or a shift in the composition of load serving customers.

        Along with EVaR, stress testing is important in measuring and controlling risk. Stress testing enhances the understanding of Constellation Energy's risk profile and loss potential, and stress losses are monitored against limits. We also use stress testing in approvals of non-standard transactions and for cross-business risk measurement, as well as an input to economic capital allocation. Stress test results, trends, and explanations are provided each month to Constellation Energy's senior management and to the lines of business to help them better measure and manage risks and to understand event risk-sensitive positions.

Value at Risk (VaR)

Where EVaR is a measure that attempts to estimate the sensitivity of our total portfolio economic value, VaR estimates the sensitivity of our mark-to-market energy contracts of our Global Commodities operation to potential changes in market prices. VaR is a statistical model designed to predict risk of loss based on historical market price volatility. We calculate VaR using a historical variance/covariance technique that models option positions using a linear approximation of their value. Additionally, we estimate variances and correlation using historical commodity price changes over the most recent rolling three-month period. Our VaR calculation includes all of our Global Commodities operation derivative assets and liabilities subject to mark-to-market accounting, including contracts for energy commodities and derivatives that result in physical settlement and contracts that require cash settlement. VaR is a statistical risk measurement model subject to limitations similar to those of EVaR.

        The VaR calculation does not include market risks associated with activities that are subject to accrual accounting, primarily our generating facilities and our customer supply load-serving activities.

        The VaR amounts below represent the potential pre-tax loss in the fair value of our Global Commodities operation derivative assets and liabilities subject to mark-to-market accounting, including both trading and non-trading activities, over one and ten-day holding periods.

Total Wholesale VaR		Quarter Ended September 30, 2009
		(In millions)
99% Confidence Level, One-Day Holding Period
	Average	$	11.9
	High		21.7
95% Confidence Level, One-Day Holding Period
	Average		9.1
	High		16.5
95% Confidence Level, Ten-Day Holding Period
	Average		28.7
	High		52.2

        Constellation Energy's proprietary trading activities are greatly reduced from previous years and are largely focused on price discovery. These activities continue to be managed with daily VaR limits, stop loss limits and liquidity guidelines and are immaterial relative to the overall portfolio VaR.

Credit Risk

We measure wholesale credit risk as the replacement cost for open energy commodity and derivative transactions (both mark-to-market and accrual) adjusted for amounts owed to or due from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses, where we have a legally enforceable right of setoff. We monitor and manage the credit risk of our Global Commodities operation through credit policies and procedures, which include an established credit approval process, daily monitoring of counterparty credit limits, the use of credit mitigation measures such as margin, collateral, or prepayment arrangements, and the use of master netting agreements.

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        As of September 30, 2009 and December 31, 2008, counterparties in the credit portfolio of our Global Commodities operation had the following public credit ratings:

		September 30, 2009			December 31, 2008
Rating
	Investment Grade1		61	%		52	%
	Non-Investment Grade		4			15
	Not Rated		35			33

1 Includes counterparties with an investment grade rating by at least one of the major credit rating agencies. If split rating exists, the lower rating is used.

        Our exposure to "Not Rated" counterparties was $0.9 billion at September 30, 2009 compared to $1.5 billion at December 31, 2008. This decrease was mostly due to a decrease in our portfolio's credit exposure to natural gas customers, international coal customers, and freight companies that do not have public credit ratings as a result of the divestiture of a majority of our international commodities operation.

        Many of our not rated counterparties are considered investment grade equivalent based on our internal credit ratings. We utilize internal credit ratings to evaluate the creditworthiness of our wholesale customers, including those companies that do not have public credit ratings. Based on internal credit ratings, approximately $535 million or 61% of the exposure to not rated counterparties was rated investment grade equivalent at September 30, 2009 and approximately $883.7 million or 60% was rated investment grade equivalent at December 31, 2008.

        The following table provides the breakdown of the credit quality of our wholesale credit portfolio based on our internal credit ratings:

	September 30, 2009			December 31, 2008
Investment Grade Equivalent		82	%		74	%
Non-Investment Grade		18			26

        Our total exposure, net of collateral, to counterparties across our entire wholesale portfolio is $2.5 billion as of September 30, 2009. The top ten counterparties account for 39% of our total exposure. As shown in the table below, no single counterparty concentration comprises more than 10% of the total exposure of the portfolio.

        If a counterparty were to default on its contractual obligations and we were to liquidate transactions with that entity, our potential credit loss would include all forward and settlement exposure plus any additional costs related to termination and replacement of the positions. This would include contracts accounted for using the mark-to-market, hedge, and accrual accounting methods, the amount owed or due from settled transactions, less any collateral held from the counterparty. In addition, if a counterparty were to default under an accrual contract that is currently favorable to us, we may recognize a material adverse impact on our results in the future delivery period to the extent that we are required to replace the contract that is in default with another contract at current market prices. To reduce our credit risk with counterparties, we attempt to enter into agreements that allow us to obtain collateral on a contingent basis, seek third-party guarantees of the counterparty's obligation, and enter into netting agreements that allow us to offset receivables and payables with forward exposure across many transactions.

        Our total exposure of $2.5 billion, net of collateral, includes accrual positions and derivatives. The portion of our wholesale credit risk related to transactions that are recorded in our Consolidated Balance Sheets, net of collateral, totals approximately $0.9 billion and primarily relates to open energy commodity positions from our Global Commodities operation that are accounted for using mark-to-market accounting, derivatives that qualify for designation as hedges, as well as amounts owed by wholesale counterparties for transactions that settled but have not yet been paid.

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        The following table highlights the credit quality and exposures related to these activities at September 30, 2009:

Rating	Total Exposure Before Credit Collateral		Credit Collateral		Net Exposure		Number of Counterparties Greater than 10% of Net Exposure		Net Exposure of Counterparties Greater than 10% of Net Exposure
	(In millions)
Investment grade	$	1,082	$	304	$	778		—	$	—
Split rating		3		—		3		—		—
Non-investment grade		95		43		52		—		—
Internally rated—investment grade		77		—		77		—		—
Internally rated—non-investment grade		10		—		10		—		—
Total	$	1,267	$	347	$	920		—	$	—

        Due to volatility in the prices of energy commodities and derivatives, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If such a counterparty were then to fail to perform its obligations under its contract (for example, fail to deliver the power our Global Commodities operation had contracted for), we could incur a loss that could have a material impact on our financial results.

        If a counterparty were to default and we were to liquidate all contracts with that entity, our credit loss would include the loss in value of derivative contracts recorded at fair value, the amount owed for settled transactions, and additional payments, if any, that we would have to make to settle unrealized losses on accrual contracts. In addition, if a counterparty were to default under an accrual contract that is currently favorable to us, we may recognize a material adverse impact in our results in the future delivery period to the extent that we are required to replace the contract that is in default with another contract at current market prices. These potential losses would be limited to the extent that the in-the-money amount exceeded any credit mitigants such as cash, letters of credit, or parental guarantees supporting the counterparty obligation.

        We also enter into various wholesale transactions through Independent System Operators (ISOs). These ISOs are exposed to counterparty credit risks. Any losses relating to counterparty defaults impacting the ISOs are allocated to and borne by all other market participants in the ISO. These ISOs have established credit policies and practices to mitigate the exposure of counterparty credit risks. As a market participant, we continuously assess our exposure to the credit risks of each ISO.

        BGE is exposed to wholesale credit risk of its suppliers for electricity and gas to serve its retail customers. BGE may receive performance assurance collateral to mitigate electricity suppliers' credit risks in certain circumstances. Performance assurance collateral is designed to protect BGE's potential exposure over the term of the supply contracts and will fluctuate to reflect changes in market prices. In addition to the collateral provisions, there are supplier "step-up" provisions, where other suppliers can step in if the early termination of a full-requirements service agreement with a supplier should occur, as well as specific mechanisms for BGE to otherwise replace defaulted supplier contracts. All costs incurred by BGE to replace the supply contract are to be recovered from the defaulting supplier or from customers through rates.

Interest Rate Risk, Retail Credit Risk, Foreign Currency Risk, Security Price Risk, and Operational Risk

We discuss our exposure to interest rate risk, retail credit risk, foreign currency risk, security price risk and operational risk in the Risk Management section of our 2008 Annual Report on Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We discuss the following information related to our market risk:

•

hedging activities in the Notes to Consolidated Financial Statements beginning on page 29,

•

activities of our Global Commodities operation in the Merchant Energy Business section of Management's Discussion and Analysis beginning on page 52,

•

evaluation of commodity and credit risk in the Risk Management section of Management's Discussion and Analysis beginning on page 72, and

•

changes to our business environment in the Business Environment section of Management's Discussion and Analysis beginning on page 44.

Items 4 and 4(T). Controls and Procedures

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Constellation Energy or BGE have been detected. These inherent limitations include errors by personnel in executing controls due to faulty judgment or simple mistakes, which could occur in situations such as when personnel performing controls are new to a job function or when inadequate resources are applied to a process. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people.

        The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no absolute assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or personnel, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Evaluation of Disclosure Controls and Procedures

The principal executive officer and principal financial officer of Constellation Energy have each evaluated the effectiveness of the disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the fiscal quarter covered by this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, Constellation Energy's disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed in the reports that Constellation Energy files and submits under the Exchange Act is recorded, processed, summarized, and reported when required and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure.

        The principal executive officer and principal financial officer of BGE have each evaluated the effectiveness of the disclosure controls and procedures as of the Evaluation Date. Based on such evaluation, such officers have concluded that, as of the Evaluation Date, BGE's disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed in the reports that BGE files and submits under the Exchange Act is recorded, processed, summarized, and reported when required and is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2009, there has been no change in either Constellation Energy's or BGE's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, either Constellation Energy's or BGE's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We discuss our Legal Proceedings in the Notes to Consolidated Financial Statements beginning on page 26.

Item 2. Issuer Purchases of Equity Securities

The following table discloses purchases of shares of our common stock made by us or on our behalf for the periods shown below.

Period	Total Number of Shares Purchased1		Average Price Paid for Shares		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Amounts of Shares that May Yet Be Purchased Under the Plans and Programs (at month end)2
July 1 – July 31, 2009		6,593	$	26.59		—	$	750 million
August 1 – August 31, 2009		131		28.78		—		750 million
September 1 – September 30, 2009		815		31.45		—		750 million
Total		7,539	$	27.16		—		—

1 Represents shares surrendered by employees to satisfy tax withholding obligations on vested restricted stock and restricted stock units.

2 In October 2007, our Board of Directors approved a common share repurchase program for up to $1 billion of our outstanding common shares over the 24 months following approval. This program expired in October 2009. Pursuant to the terms of our credit facilities, we are prohibited from engaging in a common share repurchase in an aggregate amount in excess of $100 million without the approval of the lenders.

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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," "anticipates," "expects," "intends," "plans," and other similar words. We also disclose non-historical information that represents management's expectations, which are based on numerous assumptions. These statements and projections 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:

•

the timing and extent of changes in commodity prices and volatilities for energy and energy related products including coal, natural gas, oil, electricity, nuclear fuel, freight, and emission allowances, and the impact of such changes on our liquidity requirements,

•

the liquidity and competitiveness of wholesale markets for energy commodities,

•

the conditions of the capital markets, interest rates, foreign exchange rates, availability of credit facilities to support business requirements, liquidity, and general economic conditions, as well as Constellation Energy Group's (Constellation Energy) and Baltimore Gas and Electric's (BGE) ability to maintain their current credit ratings,

•

the effectiveness of Constellation Energy's and BGE's risk management policies and procedures and the ability and willingness of our counterparties to satisfy their financial and performance commitments,

•

the ability to complete our strategic initiatives to improve our liquidity and the impact of such initiatives on our business and financial results,

•

losses on the sale or write-down of assets due to impairment events or changes in management intent with regard to either holding or selling certain assets,

•

the ability to successfully identify, finance, and complete acquisitions and sales of businesses and assets,

•

the effect of weather and general economic and business conditions on energy supply, demand, prices, and customers' and counterparties' ability to perform their obligations or make payments,

•

the ability to attract and retain customers in our Customer Supply activities and to adequately forecast their energy usage,

•

the timing and extent of deregulation of, and competition in, the energy markets, and the rules and regulations adopted in those markets,

•

uncertainties associated with estimating natural gas reserves, developing properties, and extracting natural gas,

•

regulatory or legislative developments federally, in Maryland, or in other states that affect deregulation, the price of energy, transmission or distribution rates and revenues, demand for energy, or increases in costs, including costs related to nuclear power plants, safety, or environmental compliance,

•

the ability of our regulated and nonregulated businesses to comply with complex and/or changing market rules and regulations,

•

the ability of BGE to recover all its costs associated with providing customers service,

•

operational factors affecting commercial operations of our generating facilities (including nuclear facilities) and BGE's transmission and distribution facilities, including catastrophic weather-related damages, unscheduled outages or repairs, unanticipated changes in fuel costs or availability, unavailability of coal or gas transportation or electric transmission services, workforce issues, terrorism, liabilities associated with catastrophic events, and other events beyond our control,

•

the actual outcome of uncertainties associated with assumptions and estimates using judgment when applying critical accounting policies and preparing financial statements, including factors that are estimated in determining the fair value of energy contracts, such as the ability to obtain market prices and, in the absence of verifiable market prices, the appropriateness of models and model inputs (including, but not limited to, estimated contractual load obligations, unit availability, forward commodity prices, interest rates, correlation and volatility factors),

•

changes in accounting principles or practices, and

•

cost and other effects of legal and administrative proceedings that may not be covered by insurance, including environmental liabilities.

        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 Securities and Exchange Commission (SEC) for more information on these factors. These forward looking statements represent our estimates and assumptions only as of the date of this report.

        Changes may occur after that date, and neither Constellation Energy nor BGE assumes responsibility to update these forward looking statements.

78

Item 6. Exhibits

Exhibit No. 2(a)	*	Amendment No. 1 to the Master Put Option and Membership Interest Purchase Agreement (Designated as Exhibit No. 2.1 to the Current Report on Form 8-K dated September 16, 2009, File No. 1-12869).
Exhibit No. 2(b)	*	Amendment No. 2 to the Master Put Option and Membership Interest Purchase Agreement (Designated as Exhibit No. 2.1 to the Current Report on Form 8-K dated September 22, 2009, File No. 1-12869).
Exhibit No. 2(c)	*	Amendment No. 3 to the Master Put Option and Membership Interest Purchase Agreement (Designated as Exhibit No. 2.1 to the Current Report on Form 8-K dated October 30, 2009, File No. 1-12869).
Exhibit No. 2(d)	*+	Investor Rights Agreement, dated as of December 17, 2008, by and among Constellation Energy Group, Inc. and EDF Development, Inc. (Designated as Exhibit No. 10.3 to the Current Report on Form 8-K dated December 17, 2008, File No. 1-12869).
Exhibit No. 2(e)	*	Stock Purchase Agreement, dated as of December 17, 2008, by and among Constellation Energy Group, Inc., EDF Development, Inc. and Electricite de France International, S.A. (Designated as Exhibit No. 10.2 to the Current Report on Form 8-K dated December 17, 2008, File No. 1-12869).
Exhibit No. 4(a)	*	Form of Junior Subordinated Debenture (Designated as Exhibit 4(e) to the Registration Statement on Form S-3 dated August 5, 2003, File No. 333-107681).
Exhibit No. 4(b)		Series Supplement to Indenture dated as of June 29, 2007 by and between RSB BondCo LLC and Deutsche Bank Trust Company Americas, as Trustee and Securities Intermediary.
Exhibit No. 4(c)		Supplemental Indenture No. 1, dated as of October 1, 2009, to the Indenture and Security Agreement dated as of July 9, 2009, between Baltimore Gas and Electric Company and Deutsche Bank Trust Company Americas, as trustee.
Exhibit No. 10(a)	*	Form of CENG Operating Agreement (Designated as Exhibit No. 10.1 to the Current Report on Form 8-K dated September 22, 2009, File No. 1-12869).
Exhibit No. 10(b)	*	Grantor Trust Agreement dated as of February 27, 2004 between Constellation Energy Group, Inc. and Citibank, N.A. (Designated as Exhibit No. 10(a) to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, File Nos. 1-12869 and 1-1910).
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. 31(a)		Certification of Chairman of the Board, President, and Chief Executive Officer of Constellation Energy Group, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 31(b)		Certification of Senior Vice President and Chief Financial Officer of Constellation Energy Group, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 31(c)		Certification of President and Chief Executive Officer of Baltimore Gas and Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 31(d)		Certification of Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32(a)		Certification of Chairman of the Board, President, and Chief Executive Officer of Constellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32(b)		Certification of Senior Vice President and Chief Financial Officer of Constellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32(c)		Certification of President and Chief Executive Officer of Baltimore Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32(d)		Certification of Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 101.INS		XBRL Instance Document
Exhibit No. 101.SCH		XBRL Taxonomy Extension Schema Document
Exhibit No. 101.PRE		XBRL Taxonomy Presentation Linkbase Document
Exhibit No. 101.LAB		XBRL Taxonomy Label Linkbase Document
Exhibit No. 101.CAL		XBRL Taxonomy Calculation Linkbase Document
Exhibit No. 101.DEF		XBRL Taxonomy Definition Linkbase Document

*

Incorporated by reference

+

Exhibits not filed will be furnished supplementally to the Securities and Exchange Commission upon request.

        In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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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)
Date: November 6, 2009	/s/ JONATHAN W. THAYER, Jonathan W. Thayer, Senior Vice President of Constellation Energy Group, Inc. and as Principal Financial Officer
	BALTIMORE GAS AND ELECTRIC COMPANY (Registrant)
Date: November 6, 2009	/s/ KEVIN W. HADLOCK, Kevin W. Hadlock, Senior Vice President of Baltimore Gas and Electric Company and as Principal Financial Officer

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EX-4.(B)

Exhibit No. 4(b)

SERIES SUPPLEMENT

This SERIES SUPPLEMENT dated as of June 29, 2007 (this “Series Supplement”), by and between RSB BONDCO LLC, a limited liability company formed under the laws of the State of Delaware (the “Issuer”), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a New York banking corporation (“Deutsche Bank”), in its capacity as indenture trustee (the “Indenture Trustee”) for the benefit of the Secured Parties under the Indenture dated as of June 29, 2007, by and between the Issuer and Deutsche Bank, in its capacity as Indenture Trustee and in its separate capacity as a securities intermediary (the “Indenture”).

PRELIMINARY STATEMENT

Section 2.02 of the Indenture provides, among other things, that the Issuer and the Indenture Trustee may at any time and from time to time enter into one or more Series Supplements for the purposes of authorizing the issuance by the Issuer of a Series of Rate Stabilization Bonds and establishing the terms thereof.  The Issuer has duly authorized the creation of a Series of Rate Stabilization Bonds with an initial aggregate principal amount of $623,200,000 to be known as RSB BondCo LLC Rate Stabilization Bonds, Series A (the “Series A Rate Stabilization Bonds”), and the Issuer and the Indenture Trustee are executing and delivering this Series Supplement in order to provide for the creation of the Series A Rate Stabilization Bonds.

All terms used in this Series Supplement that are defined in the Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined or modified in this Series Supplement or the context clearly requires otherwise.  In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Series Supplement shall govern.

GRANTING CLAUSE

With respect to the Series A Rate Stabilization Bonds, the Issuer hereby Grants to the Indenture Trustee, as Indenture Trustee for the benefit of the Secured Parties of the Series A Rate Stabilization Bonds, all of the Issuer’s right, title and interest (whether now owned or hereafter acquired or arising) in and to the following (collectively, the “Series A Rate Stabilization Bond Collateral”): (a) the Rate Stabilization Property created under and pursuant to the Applicable Qualified Rate Order, and transferred by the Seller to the Issuer pursuant to the Sale Agreement (including, to the fullest extent permitted by law, the right to impose, collect and receive Qualified Rate Stabilization Charges, all revenues, collections, claims, rights, payments, money or proceeds of or arising from the Qualified Rate Stabilization Charges authorized in the Applicable Qualified Rate Order and any Tariffs filed pursuant thereto and any contractual rights to collect such Qualified Rate Stabilization Charges from Customers and Third-Party Collectors), (b) all Qualified Rate Stabilization Charges related to such Rate Stabilization Property, (c) the Sale Agreement and each Bill of Sale executed in connection therewith and all property and interests in property transferred under the Sale Agreement and such Bills of Sale with respect to

such Rate Stabilization Property and the Series A Rate Stabilization Bonds, (d) the Servicing Agreement, the Administration Agreement and any subservicing, agency, administration, collection or other agreements executed in connection therewith, to the extent related to the foregoing Rate Stabilization Property and the Series A Rate Stabilization Bonds, (e) the Collection Account for such Series, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto, (f) all rights to compel the Servicer to file for and obtain adjustments to the Qualified Rate Stabilization Charges in accordance with Section 7-531 of the Rate Stabilization Law, the Applicable Qualified Rate Order or any Tariff filed in connection therewith, (g) all deposits, guarantees, surety bonds, letters of credit and other forms of credit support provided by or on behalf of Third-Party Collectors pursuant to such Applicable Qualified Rate Order or Tariff, including investment earnings thereon and all amounts on deposit in the TPC Deposit Accounts, (h) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute Rate Stabilization Property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property, (i) all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, and (j) all payments on or under, and all proceeds in respect of, any or all of the foregoing; it being understood that the following do not constitute Series A Rate Stabilization Bond Collateral: (i) following retirement of all Outstanding Series of Rate Stabilization Bonds, cash that has been released pursuant to Section 8.04(c) of the Indenture, (ii) amounts deposited with the Issuer on any Series Issuance Date, including the Closing Date, for payment of costs of issuance with respect to the related Series (together with any interest earnings thereon) and (iii) the Initial Capital Contribution by the Member to the Issuer pursuant to Section 2.01 of the LLC Agreement, it being understood that such amounts described in clauses (i), (ii) and (iii) above shall not be subject to Section 3.17 of the Indenture.

The foregoing Grant is made in trust to secure the payment of principal of and premium, if any, interest on, and any other amounts owing in respect of, the Series A Rate Stabilization Bonds and all fees, expenses, counsel fees and expenses and other amounts due and payable to the Indenture Trustee (collectively, the “Secured Obligations”) equally and ratably without prejudice, priority or distinction, except as expressly provided in the Indenture, to secure compliance with the provisions of the Indenture with respect to the Series A Rate Stabilization Bonds, all as provided in the Indenture and to secure the performance by the Issuer of all of its obligations under the Indenture.  The Indenture and this Series Supplement constitutes a security agreement within the meaning of the Rate Stabilization Law and under the UCC to the extent that the provisions of the UCC are applicable hereto.  In addition, the Issuer shall cause the filing of one or more financing statements to evidence the security interest of the Indenture Trustee in the Series A Rate Stabilization Bond Collateral.

The Indenture Trustee, as indenture trustee on behalf of the Secured Parties of the Series A Rate Stabilization Bonds, acknowledges such Grant and accepts the trusts under this Series Supplement and the Indenture in accordance with the provisions of this Series Supplement and the Indenture.

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SECTION 1. Designation.  The Series A Rate Stabilization Bonds shall be designated generally as the Rate Stabilization Bonds, Series A and further denominated as Tranches A-1 through A-3.

SECTION 2. Initial Principal Amount; Rate Stabilization Bond Interest Rate; Scheduled Final Payment Date; Final Maturity Date.  The Series A Rate Stabilization Bonds of each Tranche shall have the initial principal amount, bear interest at the rates per annum (as to each Tranche, the “Rate Stabilization Bond Interest Rate”) and shall have the Scheduled Final Payment Dates and the Final Maturity Dates set forth below:

Tranche	Initial Principal Amount		Rate Stabilization Bond Interest Rate		Scheduled Final Payment Date	Final Maturity Date
Tranche A-1	$	284,000,000	5.47	%	10/1/2012	10/1/2014
Tranche A-2	$	220,000,000	5.72	%	4/1/2016	4/1/2018
Tranche A-3	$	119,200,000	5.82	%	4/1/2017	6/28/2019

The Rate Stabilization Bond Interest Rate shall be computed on the basis of a 360-day year of twelve (12) 30-day months.

SECTION 3.  Authentication Date; Payment Dates; Expected Amortization Schedule for Principal; Periodic Interest; No Premium; Other Terms.

(a)           Authentication Date.  The Series A Rate Stabilization Bonds that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer on June 29, 2007 (the “Series Issuance Date”) shall have as their date of authentication June 29, 2007.

(b)           Payment Dates.  The Payment Dates for the Series A Rate Stabilization Bonds are April 1 and October 1 of each year or, if any such date is not a Business Day, the following Business Day, commencing on April 1, 2008 and continuing until the earlier of repayment of the Series A, Tranche A-3 Rate Stabilization Bonds in full and the Final Maturity Date for the Series A, Tranche A-3 Rate Stabilization Bonds.

(c)           Expected Amortization Schedule for Principal.  Unless an Event of Default shall have occurred and be continuing on each Payment Date, the Indenture Trustee shall distribute to the Holders of record as of the related Record Date amounts payable pursuant to Section 8.02(e) of the Indenture as principal, in the following order and priority: (1) to the holders of the Tranche A-1 Rate Stabilization Bonds, until the Outstanding Amount of such Tranche of Rate Stabilization Bonds thereof has been reduced to zero; (2) to the holders of the Tranche A-2 Rate Stabilization Bonds, until the Outstanding Amount of such Tranche of Rate Stabilization Bonds thereof has been reduced to zero; and (3) to the holders of the Tranche A-3 Rate Stabilization Bonds, until the Outstanding Amount of such Tranche of Rate Stabilization Bonds thereof has been reduced to zero; provided, however, that in no event shall a principal payment pursuant to this Section 3(c) on any Tranche on a Payment Date be greater than the amount necessary to reduce the Outstanding Amount of such Tranche of Rate Stabilization

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Bonds to the amount specified in the Expected Amortization Schedule which is attached as Schedule A hereto for such Tranche and Payment Date.

(d)Periodic Interest.  Periodic Interest will be payable on each Tranche of the Series A Rate Stabilization Bonds on each Payment Date in an amount equal to one-half of the product of (i) the applicable Rate Stabilization Bond Interest Rate and (ii) the Outstanding Amount of the related Tranche of Series A Rate Stabilization Bonds as of the close of business on the preceding Payment Date (or, with respect to the Initial Payment Date, the Outstanding Amount of the related Tranche of Series A Rate Stabilization Bonds on the Series Issuance Date) after giving effect to all payments of principal made to the Holders of the related Tranche of Series A Rate Stabilization Bonds on such preceding Payment Date.

(e)Book-Entry Rate Stabilization Bonds.  The Series A Rate Stabilization Bonds shall be Book-Entry Rate Stabilization Bonds and the applicable provisions of Section 2.11 of the Indenture shall apply to such Rate Stabilization Bonds.

(f)Waterfall Caps.

(i)            The amount payable with respect to the Series A Rate Stabilization Bonds pursuant to Section 8.02(e)(i) of the Indenture shall not exceed $850,000 annually.

(ii)           The amount payable with respect to the Series A Rate Stabilization Bonds pursuant to Section 8.02(e)(ii) of the Indenture shall not exceed on an annual basis (A) for so long as BGE is the Servicer, 0.05% of the aggregate initial principal amount of Series A Rate Stabilization Bonds, provided that BGE may seek approval from the PSC to recover from Customers, in accordance with the Financing Credit Order, any incremental costs it incurs to service the Rate Stabilization Property to the extent such incremental costs exceed 0.05% of the aggregate initial principal amount of Series A Rate Stabilization Bonds, and further provided that such excess amount shall neither be considered an Operating Expense nor be paid out of the Collection Account or included in the calculation of True-Up Adjustments, or (B) if BGE is not the Servicer, 1.25% of the aggregate initial principal amount of Series A Rate Stabilization Bonds, provided, however, that BGE may seek approval from the PSC for a higher fee to be payable under Section 8.02(e)(ii) of the Indenture if it can reasonably demonstrate to the PSC that the services cannot be obtained under then-current market conditions for a fee of 1.25% of the aggregate initial principal amount of Series A Rate Stabilization Bonds.

(iii)          The amount payable for the Series A Rate Stabilization Bonds pursuant to Section 8.02(e)(iii) of the Indenture, shall not exceed $100,000 in the aggregate annually, provided that BGE may seek approval from the PSC to recover from Customers, in accordance with the Financing Credit Order, any incremental costs it incurs to provide administrative support services to the Issuer to the extent such incremental costs exceed $100,000, and further provided that such excess amount shall neither be considered an Operating Expense nor be paid out of the Collection Account or included in the calculation of True-Up Adjustments.

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(iv)          The amount payable with respect to the ordinary periodic Operating Expenses not described above pursuant to Section 8.02(e)(iv) shall not exceed $250,000 in the aggregate annually.

SECTION 4.  Minimum Denominations.  The Series A Rate Stabilization Bonds shall be issuable in the Minimum Denomination and in integral multiples of $1,000 thereof.

SECTION 5.  Certain Defined Terms.  Article I of the Indenture provides that the meanings of certain defined terms used in the Indenture shall, when applied to the Rate Stabilization Bonds of a particular Series, be as defined in Appendix A to the Indenture.  Additionally, Article II of the Indenture provides that with respect to a particular Series of Rate Stabilization Bonds, certain terms will have the meanings specified in the related Series Supplement.  With respect to the Series A Rate Stabilization Bonds, the following definitions shall apply:

“Initial Payment Date” shall mean the first Payment Date for a Tranche of Series A Rate Stabilization Bonds specified in the Expected Amortization Schedule which is attached as Schedule A hereto.

“Minimum Denomination” shall mean $100,000, or integral multiples of $1,000 in excess thereof, except for one Rate Stabilization Bond of each Tranche which may be of a smaller denomination.

“Rate Stabilization Bond Interest Rate” has the meaning set forth in Section 2 of this Series Supplement.

“Payment Date” has the meaning set forth in Section 3(b) of this Series Supplement.

“Periodic Interest” has the meaning set forth in Section 3(d) of this Series Supplement.

“Series Issuance Date” has the meaning set forth in Section 3(a) of this Series Supplement.

SECTION 6.  Delivery and Payment for the Series A Rate Stabilization Bonds; Form of the Series A Rate Stabilization Bonds.  The Indenture Trustee shall deliver the Series A Rate Stabilization Bonds to the Issuer when authenticated in accordance with Section 2.03 of the Indenture.  The Series A Rate Stabilization Bonds of each Tranche shall be in the form of Exhibits A-1 through A-3 hereto.

SECTION 7.  Ratification of Agreement.  As supplemented by this Series Supplement, the Indenture is in all respects ratified and confirmed and the Indenture, as so supplemented by this Series Supplement, shall be read, taken, and construed as one and the same instrument.  This Series Supplement amends, modifies and supplements the Indenture only in so far as it relates to the Series A Rate Stabilization Bonds.

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SECTION 8.  Counterparts.  This Series Supplement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

SECTION 9.  GOVERNING LAW.  THIS SERIES SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN RATE STABILIZATION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH RATE STABILIZATION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

SECTION 10.  Issuer Obligation.  No recourse may be taken directly or indirectly, by the Holders with respect to the obligations of the Issuer on the Rate Stabilization Bonds, under the Indenture or under this Series Supplement or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a limited liability company interest in the Issuer (including BGE) or (iii) any shareholder, partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee, the Managers or any owner of a limited liability company interest in the Issuer (including BGE) in its individual capacity, or of any successor or assign of any of them in their respective individual or corporate capacities, except as any such Person may have expressly agreed (it being understood that none of the Indenture Trustee, the Managers and BGE have any such obligations in their respective individual or corporate capacities).

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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Series Supplement to be duly executed by their respective officers thereunto duly authorized as of the first day of the month and year first above written.

RSB BONDCO LLC, as Issuer
By:	/s/ Charles A. Berardesco
	Name:	Charles A. Berardesco
	Title:	Secretary

Issuer Signature Page to Series Supplement

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely in its capacity as Indenture Trustee
By:	/s/ Eileen Hughes
	Name:	Eileen Hughes
	Title:	Vice President
By:	/s/ Louis Bodi
	Name:	Louis Bodi
	Title:	Vice President

Trustee Signature Page to Series Supplement

SCHEDULE A

EXPECTED AMORTIZATION SCHEDULE

OUTSTANDING PRINCIPAL BALANCE PER TRANCHE

Payment Date	Tranche A-1		Tranche A-2		Tranche A-3
Series Issuance Date	$	284,000,000	$	220,000,000	$	119,200,000
4/1/2008	$	250,741,286	$	220,000,000	$	119,200,000
10/1/2008	$	225,198,598	$	220,000,000	$	119,200,000
4/1/2009	$	198,590,708	$	220,000,000	$	119,200,000
10/1/2009	$	171,674,318	$	220,000,000	$	119,200,000
4/1/2010	$	143,549,922	$	220,000,000	$	119,200,000
10/1/2010	$	115,131,815	$	220,000,000	$	119,200,000
4/1/2011	$	85,457,334	$	220,000,000	$	119,200,000
10/1/2011	$	55,423,848	$	220,000,000	$	119,200,000
4/1/2012	$	24,142,900	$	220,000,000	$	119,200,000
10/1/2012	$	0	$	212,419,156	$	119,200,000
4/1/2013	$	0	$	179,418,862	$	119,200,000
10/1/2013	$	0	$	145,855,662	$	119,200,000
4/1/2014	$	0	$	110,970,180	$	119,200,000
10/1/2014	$	0	$	75,433,398	$	119,200,000
4/1/2015	$	0	$	38,549,788	$	119,200,000
10/1/2015	$	0	$	925,060	$	119,200,000
4/1/2016	$	0	$	0	$	81,127,235
10/1/2016	$	0	$	0	$	41,269,298
4/1/2017	$	0	$	0	$	0

Exhibit A-1

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

REGISTERED NO. R-1 $284,000,000

CUSIP NO.                    

SEE REVERSE FOR CERTAIN DEFINITIONS

THE PRINCIPAL OF THIS SERIES A, TRANCHE A-1 RATE STABILIZATION BOND (“THIS TRANCHEA-1RATE STABILIZATION BOND”) WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN.  ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS TRANCHE A-1 RATE STABILIZATION BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.  THE HOLDER OF THIS TRANCHE A-1 RATE STABILIZATION BOND HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE RATE STABILIZATION BOND COLLATERAL, AS DESCRIBED IN THE INDENTURE AND THE SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF, FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER.  ALL OBLIGATIONS OF THE ISSUER OF THIS TRANCHE A-1 RATE STABILIZATION BOND UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(b) OR ARTICLE IV OF THE INDENTURE.  THE HOLDER OF THIS TRANCHE A-1 RATE STABILIZATION BOND HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR AND ONE (1) DAY AFTER THE PAYMENT IN FULL OF THE SERIES A RATE STABILIZATION BONDS, IT WILL NOT ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE ISSUER OR ANY MANAGER TO INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR SUSTAINING AN INVOLUNTARY CASE AGAINST THE ISSUER

UNDER ANY INSOLVENCY LAW OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE ISSUER OR ANY SUBSTANTIAL PART OF ITS RESPECTIVE PROPERTY, OR ORDERING THE DISSOLUTION, WINDING UP OR LIQUIDATION OF THE AFFAIRS OF THE ISSUER.  NOTHING IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR THE LLC AGREEMENT OR (II) ANY INVOLUNTARY CASE OR PROCEEDING PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION WHICH IS NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE ISSUER OR ANY OF ITS PROPERTIES.

THE STATE OF MARYLAND AND ANY OTHER GOVERNMENTAL UNIT ARE NOT OBLIGED TO PAY THE PRINCIPAL OF OR INTEREST ON RSB BONDCO LLC RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-1RATE STABILIZATION BOND.  NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF MARYLAND OR ANY OTHER GOVERNMENTAL UNIT IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON RSB BONDCO LLC RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-1RATE STABILIZATION BOND.  THE STATE OF MARYLAND HAS PLEDGED, FOR THE BENEFIT AND PROTECTION OF THE HOLDERS OF RSB BONDCO LLCRATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-1RATE STABILIZATION BOND, THAT IT WILL NOT TAKE OR ALLOW ANY ACTION THAT WOULD IMPAIR THE VALUE OF THE RATE STABILIZATION PROPERTY, OR, EXCEPT AS ALLOWED BY APPLICABLE SECTIONS OF THE RATE STABILIZATION ACT, REDUCE, ALTER OR IMPAIR THE QUALIFIED RATE STABILIZATION CHARGES TO BE IMPOSED, COLLECTED AND REMITTED TO THE INDENTURE TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-1RATE STABILIZATION BOND, UNTIL THE PRINCIPAL, INTEREST AND PREMIUM, AND ANY OTHER CHARGES INCURRED AND CONTRACTS TO BE PERFORMED IN CONNECTION WITH THE RSB BONDCO LLCRATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-1RATE STABILIZATION BOND, HAVE BEEN PAID AND PERFORMED IN FULL.

RSB BONDCO LLC RATE STABILIZATION BONDS,

Series A, Tranche A-1

Interest Rate		Original Principal Amount		Final Maturity Date
5.47	%	$	284,000,000	October 1, 2014

RSB BONDCO LLC, a limited liability company formed under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to Cede & Co., or registered assigns, the Original Principal Amount shown above in semi-annual installments on the Payment Dates and in the amounts specified on the reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of the Indenture, in each year, commencing on the date determined as provided on the reverse hereof and ending on or before the Final Maturity Date shown above and to pay interest, at the Interest Rate shown above, on each April 1st and October 1st or if any such day is not a Business Day, the next succeeding Business Day, commencing on April 1, 2008 and continuing until the earlier of the payment in full of the principal hereof and the Final Maturity Date (each a “Payment Date”), on the principal amount of this Series A, Tranche A-1 Rate Stabilization Bond (hereinafter referred to as this “Tranche A-1 Rate Stabilization Bond”).  Interest on this Tranche A-1 Rate Stabilization Bond will accrue for each Payment Date from the most recent Payment Date on which interest has been paid to but excluding such Payment Date or, if no interest has yet been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year of twelve 30-day months.  Such principal of and interest on this Tranche A-1 Rate Stabilization Bond shall be paid in the manner specified on the reverse hereof.

The principal of and interest on this Tranche A-1 Rate Stabilization Bond are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.  All payments made by the Issuer with respect to this Tranche A-1 Rate Stabilization Bond shall be applied first to interest due and payable on this Tranche A-1 Rate Stabilization Bond as provided above and then to the unpaid principal of and premium, if any, on this Tranche A-1 Rate Stabilization Bond, all in the manner set forth in the Indenture.

Reference is made to the further provisions of this Tranche A-1 Rate Stabilization Bond set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Tranche A-1 Rate Stabilization Bond.

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Tranche A-1 Rate Stabilization Bond shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Responsible Officer.

Date:	RSB BONDCO LLC
	By:
		Name:
		Title:

Issuer Signature Page to Tranche A-1 Rate Stabilization Bond

INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

Dated:

This is one of the Series A, Tranche A-1 Rate Stabilization Bonds, designated above and referred to in the within-mentioned Indenture.

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Indenture Trustee and as Securities Intermediary
By:
	Name:
	Title:

Trustee Signature Page to Tranche A-1 Rate Stabilization Bond

REVERSE OF RATE STABILIZATION BOND

This Series A, Tranche A-1 Rate Stabilization Bond is one of a duly authorized issue of Rate Stabilization Bonds of the Issuer (herein called the “Rate Stabilization Bonds”), issued and to be issued in one or more Series, which Series are issuable in one or more Tranches, and the Series A Rate Stabilization Bonds consists of three Tranches, including this Tranche A-1 Rate Stabilization Bond (herein called the “Tranche A-1 Rate Stabilization Bonds”), all issued and to be issued under that certain Indenture dated as of June 29, 2007 (as supplemented by the Series Supplement (as defined below), the “Indenture”), between the Issuer and Deutsche Bank Trust Company Americas, in its capacity as indenture trustee (the “Indenture Trustee”, which term includes any successor indenture trustee under the Indenture) and in its separate capacity as a securities intermediary (the “Securities Intermediary”, which term includes any successor securities intermediary under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Rate Stabilization Bonds.  For purposes herein, “Series Supplement” means that certain Series Supplement dated as of June 29, 2007, between the Issuer and the Indenture Trustee.  All terms used in this Tranche A-1 Rate Stabilization Bond that are defined in the Indenture, as amended, restated, supplemented or otherwise modified from time to time, shall have the meanings assigned to such terms in the Indenture.

The Tranche A-1 Rate Stabilization Bonds, the other Tranches of Series A Rate Stabilization Bonds (all of such Tranches being referred to herein as “Series A Rate Stabilization Bonds”) and any other Series of Rate Stabilization Bonds issued by the Issuer are and will be equally and ratably secured by the Series Rate Stabilization Bond Collateral pledged as security therefor as provided in the Indenture.

The principal of this Tranche A-1 Rate Stabilization Bond shall be payable on each Payment Date only to the extent that amounts in the applicable Collection Account are available therefor, and only until the outstanding principal balance thereof on such Payment Date (after giving effect to all payments of principal, if any, made on such Payment Date) has been reduced to the principal balance specified in the Expected Amortization Schedule which is attached to the related Series Supplement as Schedule A, unless payable earlier because an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Bondholders representing not less than a majority of the Outstanding Amount of the Rate Stabilization Bonds of this Series have declared such Rate Stabilization Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture).  However, actual principal payments may be made in lesser than expected amounts and at later than expected times as determined pursuant to Section 8.02 of the Indenture.  The entire unpaid principal amount of this Tranche A-1 Rate Stabilization Bond shall be due and payable on the Final Maturity Date hereof.  Notwithstanding the foregoing, the entire unpaid principal amount of the Rate Stabilization Bonds shall be due and payable, if not then previously paid, on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders of the Rate Stabilization Bonds representing not less than a majority of the Outstanding Amount of the Rate Stabilization Bonds of this Series have

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declared the Rate Stabilization Bonds of this Series to be immediately due and payable in the manner provided in Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture).  All principal payments on the Tranche A-1 Rate Stabilization Bonds shall be made pro rata to the Tranche A-1 Holders entitled thereto based on the respective principal amounts of the Tranche A-1 Rate Stabilization Bonds held by them.

Payments of interest on this Tranche A-1 Rate Stabilization Bond due and payable on each Payment Date, together with the installment of principal or premium, if any, shall be made by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder of this Tranche A-1 Rate Stabilization Bond (or one or more Predecessor Rate Stabilization Bonds) on the Rate Stabilization Bond Register on the Record Date or in such other manner as may be provided in the Indenture or the related Series Supplement, except that (i) upon application to the Indenture Trustee by any Holder owning a Global Rate Stabilization Bond evidencing this Tranche A-1 Rate Stabilization Bond in the principal amount of $10,000,000 or more not later than the applicable Record Date payment will be made by wire transfer to an account maintained by such Holder and (ii) if this Tranche A-1 Rate Stabilization Bond is held in Book-Entry Form, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Rate Stabilization Bond evidencing this Tranche A-1 Rate Stabilization Bond unless and until such Global Rate Stabilization Bond is exchanged for Definitive Rate Stabilization Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to this Tranche A-1 Rate Stabilization Bond on a Payment Date which shall be payable as provided below.  Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Rate Stabilization Bond Register as of the applicable Record Date without requiring that this Tranche A-1 Rate Stabilization Bond be submitted for notation of payment.  Any reduction in the principal amount of this Tranche A-1 Rate Stabilization Bond (or any one or more Predecessor Rate Stabilization Bonds) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Tranche A-1 Rate Stabilization Bond and of any Rate Stabilization Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon.  If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Tranche A-1 Rate Stabilization Bond on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed no later than five (5) days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of this Tranche A-1 Rate Stabilization Bond and shall specify the place where this Tranche A-1 Rate Stabilization Bond may be presented and surrendered for payment of such installment.

The Issuer shall pay interest on overdue installments of interest at the Rate Stabilization Bond Interest Rate to the extent lawful.

This Rate Stabilization Bond is a “Rate Stabilization Bond” as such term is defined in the Rate Stabilization Law.  Principal and interest due and payable on this Rate

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Stabilization Bond are payable from and secured primarily by Rate Stabilization Property created and established by a Qualified Rate Order obtained from the Public Service Commission of Maryland pursuant to the Rate Stabilization Law.  Rate Stabilization Property consists of the rights and interests of the Seller in the relevant Qualified Rate Order, including the right to impose, collect and recover certain charges (defined in the Rate Stabilization Law as “Qualified Rate Stabilization Charges”) to be included in regular electric utility bills of existing and future residential electric delivery service customers within the service territory of BGE, a Maryland electric utility, or its successors or assigns, as more fully described in the Qualified Rate Order.

The Rate Stabilization Law provides that:  “The state pledges for the benefit and protection of financing parties and the electric company, that it will not take or allow any action that would impair the value of rate stabilization property, or, except as allowed in accordance with Sections 7-531, 7-533, and 7-534 [of the Rate Stabilization Law], reduce, alter, or impair the qualified rate stabilization charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related rate stabilization bonds have been paid and performed in full.  Any party issuing rate stabilization bonds is authorized to include this pledge in any documentation relating to those bonds.”

As a result of the foregoing pledge, the State of Maryland may not, except as provided in the succeeding sentence, in any way reduce, alter or impair the Qualified Rate Stabilization Charges until the Rate Stabilization Bonds, together with interest thereon, are fully paid and discharged.  Notwithstanding the immediately preceding sentence, the State of Maryland would be allowed to effect a temporary impairment of the Holders’ rights if it could be shown that such impairment was necessary to advance a significant and legitimate public purpose.

The Issuer and BGE hereby acknowledge that the purchase of this Rate Stabilization Bond by the Holder hereof or the purchase of any beneficial interest herein by any Person are made in reliance on the foregoing pledge.

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Tranche A-1 Rate Stabilization Bond may be registered on the Rate Stabilization Bond Register upon surrender of this Tranche A-1 Rate Stabilization Bond for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder hereof or such Holder’s attorney duly authorized in writing, with such signature guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent Medallion Program (STAMP); (ii)The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in such other guarantee program acceptable to the Indenture Trustee, and (b) such other documents as the Indenture Trustee may require, and thereupon one or more new Tranche A-1 Rate Stabilization Bonds of Minimum Denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees.  No service charge will be charged for any registration of transfer or exchange of this Tranche A-1 Rate Stabilization Bond, but the

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transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange, other than exchanges pursuant to Sections 2.04 or 2.06 of the Indenture not involving any transfer.

Each Rate Stabilization Bond holder, by acceptance of a Rate Stabilization Bond, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Rate Stabilization Bonds or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a limited liability company interest in the Issuer (including BGE) or (iii) any shareholder, partner, owner, beneficiary, agent, officer or employee of the Indenture Trustee, the Managers or any owner of a limited liability company interest in the Issuer (including BGE) in its respective individual or corporate capacities, or of any successor or assign of any of them in their individual or corporate capacities, except as any such Person may have expressly agreed in writing (it being understood that none of the Indenture Trustee, the Managers or BGE has any such obligations in their respective individual or corporate capacities).

Prior to the due presentment for registration of transfer of this Tranche A-1 Rate Stabilization Bond, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Tranche A-1 Rate Stabilization Bond is registered (as of the day of determination) as the owner hereof for the purpose of receiving payments of principal of and premium, if any, and interest on this Tranche A-1 Rate Stabilization Bond and for all other purposes whatsoever, whether or not this Tranche A-1 Rate Stabilization Bond be overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Rate Stabilization Bonds under the Indenture at any time by the Issuer with the consent of the Bondholders representing not less than a majority of the Outstanding Amount of all Rate Stabilization Bonds at the time outstanding of each Series or Tranche to be affected.  The Indenture also contains provisions permitting the Bondholders representing specified percentages of the Outstanding Amount of the Rate Stabilization Bonds of all Series, on behalf of the Holders of all the Rate Stabilization Bonds, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences.  Any such consent or waiver by the Holder of this Tranche A-1 Rate Stabilization Bond (or any one of more Predecessor Rate Stabilization Bonds) shall be conclusive and binding upon such Holder and upon all future Holders of this Tranche A-1 Rate Stabilization Bond and of any Rate Stabilization Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Tranche A-1 Rate Stabilization Bond.  The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Rate Stabilization Bonds issued thereunder.

The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Issuer on this Tranche A-1 Rate Stabilization Bond and (b) certain

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restrictive covenants and the related Events of Default, upon compliance by the Issuer with certain conditions set forth therein, which provisions apply to this Tranche A-1 Rate Stabilization Bond.

The term “Issuer” as used in this Tranche A-1 Rate Stabilization Bond includes any successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Bondholders under the Indenture.

The Tranche A-1 Rate Stabilization Bonds are issuable only in registered form in denominations as provided in the Indenture and the related Series Supplement subject to certain limitations therein set forth.

THIS TRANCHE A-1 RATE STABILIZATION BOND, THE INDENTURE AND THE RELATED SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN RATE STABILIZATION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH RATE STABILIZATION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

No reference herein to the Indenture and no provision of this Tranche A-1 Rate Stabilization Bond or of the Indenture shall alter or impair the obligation, which is absolute and unconditional, to pay the principal of and interest on this Tranche A-1 Rate Stabilization Bond at the times, place, and rate, and in the coin or currency herein prescribed.

The Holder of this Tranche A-1 Rate Stabilization Bond by the acceptance hereof agrees that, notwithstanding any provision of the Indenture or the related Series Supplement to the contrary, the Holder shall have no recourse against the Issuer, but shall look only to the Rate Stabilization Bond Collateral, with respect to any amounts due to the Holder under this Tranche A-1 Rate Stabilization Bond.

The Issuer and the Indenture Trustee, by entering into the Indenture, and the Holders and any Persons holding a beneficial interest in any Tranche A-1 Rate Stabilization Bond, by acquiring any Tranche A-1 Rate Stabilization Bond or interest therein, (i) express their intention that, solely for the purpose of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purpose of state, local and other taxes, the Tranche A-1 Rate Stabilization Bonds qualify under applicable tax law as indebtedness of the sole owner of the Issuer secured by the Rate Stabilization Bond Collateral and (ii) solely for purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other

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taxes, so long as any of the Tranche A-1 Rate Stabilization Bonds are outstanding, agree to treat the Tranche A-1 Rate Stabilization Bonds as indebtedness of the sole owner of the Issuer secured by the Rate Stabilization Bond Collateral unless otherwise required by appropriate taxing authorities.

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ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Tranche A-1 Rate Stabilization Bond, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	as tenants in common
TEN ENT	as tenants by the entireties
JT TEN	as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT		Custodian
	(Custodian)		(minor)
	Under Uniform Gifts to Minor Act   (			)
			(State)

Additional abbreviations may also be used though not in the above list.

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned(1) hereby sells, assigns and transfers unto

(name and address of assignee)

the within Tranche A-1 Rate Stabilization Bond and all rights thereunder, and hereby irrevocably constitutes and appoints                           , attorney, to transfer said Tranche A-1 Rate Stabilization Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated:
	Signature Guaranteed:

(1)           RATE STABILIZATION BOND:  The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Tranche A-1  Rate Stabilization Bond in every particular, without alteration, enlargement or any change whatsoever.

NOTE:  Signature(s) must be guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent Medallion Program (STAMP), (ii) The New York Stock Exchange Medallion Program (MSP), (iii) the Stock Exchange Medallion Program (SEMP) or (iv) such other guarantee program acceptable to the Indenture Trustee.

Exhibit A-2

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

REGISTERED NO. R-2 $220,000,000

CUSIP NO.

SEE REVERSE FOR CERTAIN DEFINITIONS

THE PRINCIPAL OF THIS SERIES A, TRANCHE A-2 RATE STABILIZATION BOND (“THIS TRANCHEA-2RATE STABILIZATION BOND”) WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN.  ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS TRANCHE A-2 RATE STABILIZATION BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.  THE HOLDER OF THIS TRANCHE A-2 RATE STABILIZATION BOND HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE RATE STABILIZATION BOND COLLATERAL, AS DESCRIBED IN THE INDENTURE AND THE SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF, FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER.  ALL OBLIGATIONS OF THE ISSUER OF THIS TRANCHE A-2 RATE STABILIZATION BOND UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(b) OR ARTICLE IV OF THE INDENTURE.  THE HOLDER OF THIS TRANCHE A-2 RATE STABILIZATION BOND HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR AND ONE (1) DAY AFTER THE PAYMENT IN FULL OF THE SERIES A RATE STABILIZATION BONDS, IT WILL NOT ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE ISSUER OR ANY MANAGER TO INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR SUSTAINING AN INVOLUNTARY CASE AGAINST THE ISSUER

UNDER ANY INSOLVENCY LAW OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE ISSUER OR ANY SUBSTANTIAL PART OF ITS RESPECTIVE PROPERTY, OR ORDERING THE DISSOLUTION, WINDING UP OR LIQUIDATION OF THE AFFAIRS OF THE ISSUER.  NOTHING IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR THE LLC AGREEMENT OR (II) ANY INVOLUNTARY CASE OR PROCEEDING PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION WHICH IS NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE ISSUER OR ANY OF ITS PROPERTIES.

THE STATE OF MARYLAND AND ANY OTHER GOVERNMENTAL UNIT ARE NOT OBLIGED TO PAY THE PRINCIPAL OF OR INTEREST ON RSB BONDCO LLC RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-2RATE STABILIZATION BOND.  NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF MARYLAND OR ANY OTHER GOVERNMENTAL UNIT IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON RSB BONDCO LLC RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-2RATE STABILIZATION BOND.  THE STATE OF MARYLAND HAS PLEDGED, FOR THE BENEFIT AND PROTECTION OF THE HOLDERS OF RSB BONDCO LLCRATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-2RATE STABILIZATION BOND, THAT IT WILL NOT TAKE OR ALLOW ANY ACTION THAT WOULD IMPAIR THE VALUE OF THE RATE STABILIZATION PROPERTY, OR, EXCEPT AS ALLOWED BY APPLICABLE SECTIONS OF THE RATE STABILIZATION ACT, REDUCE, ALTER OR IMPAIR THE QUALIFIED RATE STABILIZATION CHARGES TO BE IMPOSED, COLLECTED AND REMITTED TO THE INDENTURE TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-2RATE STABILIZATION BOND, UNTIL THE PRINCIPAL, INTEREST AND PREMIUM, AND ANY OTHER CHARGES INCURRED AND CONTRACTS TO BE PERFORMED IN CONNECTION WITH THE RSB BONDCO LLCRATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-2RATE STABILIZATION BOND, HAVE BEEN PAID AND PERFORMED IN FULL.

RSB BONDCO LLC RATE STABILIZATION BONDS,

Series A, Tranche A-2

Interest Rate		Original Principal Amount		Final Maturity Date
5.72	%	$	220,000,000	April 1, 2018

RSB BONDCO LLC, a limited liability company formed under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to Cede & Co., or registered assigns, the Original Principal Amount shown above in semi-annual installments on the Payment Dates and in the amounts specified on the reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of the Indenture, in each year, commencing on the date determined as provided on the reverse hereof and ending on or before the Final Maturity Date shown above and to pay interest, at the Interest Rate shown above, on each April 1st and October 1st or if any such day is not a Business Day, the next succeeding Business Day, commencing on April 1, 2008 and continuing until the earlier of the payment in full of the principal hereof and the Final Maturity Date (each a “Payment Date”), on the principal amount of this Series A, Tranche A-2 Rate Stabilization Bond (hereinafter referred to as this “Tranche A-2 Rate Stabilization Bond”).  Interest on this Tranche A-2 Rate Stabilization Bond will accrue for each Payment Date from the most recent Payment Date on which interest has been paid to but excluding such Payment Date or, if no interest has yet been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year of twelve 30-day months.  Such principal of and interest on this Tranche A-2 Rate Stabilization Bond shall be paid in the manner specified on the reverse hereof.

The principal of and interest on this Tranche A-2 Rate Stabilization Bond are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.  All payments made by the Issuer with respect to this Tranche A-2 Rate Stabilization Bond shall be applied first to interest due and payable on this Tranche A-2 Rate Stabilization Bond as provided above and then to the unpaid principal of and premium, if any, on this Tranche A-2 Rate Stabilization Bond, all in the manner set forth in the Indenture.

Reference is made to the further provisions of this Tranche A-2 Rate Stabilization Bond set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Tranche A-2 Rate Stabilization Bond.

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Tranche A-2 Rate Stabilization Bond shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Responsible Officer.

Date:	RSB BONDCO LLC
	By:
		Name:
		Title:

Issuer Signature Page to Tranche A-2 Rate Stabilization Bond

INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

Dated:

This is one of the Series A, Tranche A-2 Rate Stabilization Bonds, designated above and referred to in the within-mentioned Indenture.

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Indenture Trustee and as Securities Intermediary
By:
	Name:
	Title:

Trustee Signature Page to Tranche A-2 Rate Stabilization Bond

REVERSE OF RATE STABILIZATION BOND

This Series A, Tranche A-2 Rate Stabilization Bond is one of a duly authorized issue of Rate Stabilization Bonds of the Issuer (herein called the “Rate Stabilization Bonds”), issued and to be issued in one or more Series, which Series are issuable in one or more Tranches, and the Series A Rate Stabilization Bonds consists of three Tranches, including this Tranche A-2 Rate Stabilization Bond (herein called the “Tranche A-2 Rate Stabilization Bonds”), all issued and to be issued under that certain Indenture dated as of June 29, 2007 (as supplemented by the Series Supplement (as defined below), the “Indenture”), between the Issuer and Deutsche Bank Trust Company Americas, in its capacity as indenture trustee (the “Indenture Trustee”, which term includes any successor indenture trustee under the Indenture) and in its separate capacity as a securities intermediary (the “Securities Intermediary”, which term includes any successor securities intermediary under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Rate Stabilization Bonds.  For purposes herein, “Series Supplement” means that certain Series Supplement dated as of June 29, 2007, between the Issuer and the Indenture Trustee.  All terms used in this Tranche A-2 Rate Stabilization Bond that are defined in the Indenture, as amended, restated, supplemented or otherwise modified from time to time, shall have the meanings assigned to such terms in the Indenture.

The Tranche A-2 Rate Stabilization Bonds, the other Tranches of Series A Rate Stabilization Bonds (all of such Tranches being referred to herein as “Series A Rate Stabilization Bonds”) and any other Series of Rate Stabilization Bonds issued by the Issuer are and will be equally and ratably secured by the Series Rate Stabilization Bond Collateral pledged as security therefor as provided in the Indenture.

The principal of this Tranche A-2 Rate Stabilization Bond shall be payable on each Payment Date only to the extent that amounts in the applicable Collection Account are available therefor, and only until the outstanding principal balance thereof on such Payment Date (after giving effect to all payments of principal, if any, made on such Payment Date) has been reduced to the principal balance specified in the Expected Amortization Schedule which is attached to the related Series Supplement as Schedule A, unless payable earlier because an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Bondholders representing not less than a majority of the Outstanding Amount of the Rate Stabilization Bonds of this Series have declared such Rate Stabilization Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture).  However, actual principal payments may be made in lesser than expected amounts and at later than expected times as determined pursuant to Section 8.02 of the Indenture.  The entire unpaid principal amount of this Tranche A-2 Rate Stabilization Bond shall be due and payable on the Final Maturity Date hereof.  Notwithstanding the foregoing, the entire unpaid principal amount of the Rate Stabilization Bonds shall be due and payable, if not then previously paid, on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders of the Rate Stabilization Bonds representing not less than a majority of the Outstanding Amount of the Rate Stabilization Bonds of this Series have

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declared the Rate Stabilization Bonds of this Series to be immediately due and payable in the manner provided in Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture).  All principal payments on the Tranche A-2 Rate Stabilization Bonds shall be made pro rata to the Tranche A-2 Holders entitled thereto based on the respective principal amounts of the Tranche A-2 Rate Stabilization Bonds held by them.

Payments of interest on this Tranche A-2 Rate Stabilization Bond due and payable on each Payment Date, together with the installment of principal or premium, if any, shall be made by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder of this Tranche A-2 Rate Stabilization Bond (or one or more Predecessor Rate Stabilization Bonds) on the Rate Stabilization Bond Register on the Record Date or in such other manner as may be provided in the Indenture or the related Series Supplement, except that (i) upon application to the Indenture Trustee by any Holder owning a Global Rate Stabilization Bond evidencing this Tranche A-2 Rate Stabilization Bond in the principal amount of $10,000,000 or more not later than the applicable Record Date payment will be made by wire transfer to an account maintained by such Holder and (ii) if this Tranche A-2 Rate Stabilization Bond is held in Book-Entry Form, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Rate Stabilization Bond evidencing this Tranche A-2 Rate Stabilization Bond unless and until such Global Rate Stabilization Bond is exchanged for Definitive Rate Stabilization Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to this Tranche A-2 Rate Stabilization Bond on a Payment Date which shall be payable as provided below.  Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Rate Stabilization Bond Register as of the applicable Record Date without requiring that this Tranche A-2 Rate Stabilization Bond be submitted for notation of payment.  Any reduction in the principal amount of this Tranche A-2 Rate Stabilization Bond (or any one or more Predecessor Rate Stabilization Bonds) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Tranche A-2 Rate Stabilization Bond and of any Rate Stabilization Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon.  If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Tranche A-2 Rate Stabilization Bond on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed no later than five (5) days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of this Tranche A-2 Rate Stabilization Bond and shall specify the place where this Tranche A-2 Rate Stabilization Bond may be presented and surrendered for payment of such installment.

The Issuer shall pay interest on overdue installments of interest at the Rate Stabilization Bond Interest Rate to the extent lawful.

This Rate Stabilization Bond is a “Rate Stabilization Bond” as such term is defined in the Rate Stabilization Law.  Principal and interest due and payable on this Rate

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Stabilization Bond are payable from and secured primarily by Rate Stabilization Property created and established by a Qualified Rate Order obtained from the Public Service Commission of Maryland pursuant to the Rate Stabilization Law.  Rate Stabilization Property consists of the rights and interests of the Seller in the relevant Qualified Rate Order, including the right to impose, collect and recover certain charges (defined in the Rate Stabilization Law as “Qualified Rate Stabilization Charges”) to be included in regular electric utility bills of existing and future residential electric delivery service customers within the service territory of BGE, a Maryland electric utility, or its successors or assigns, as more fully described in the Qualified Rate Order.

The Rate Stabilization Law provides that:  “The state pledges for the benefit and protection of financing parties and the electric company, that it will not take or allow any action that would impair the value of rate stabilization property, or, except as allowed in accordance with Sections 7-531, 7-533, and 7-534 [of the Rate Stabilization Law], reduce, alter, or impair the qualified rate stabilization charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related rate stabilization bonds have been paid and performed in full.  Any party issuing rate stabilization bonds is authorized to include this pledge in any documentation relating to those bonds.”

As a result of the foregoing pledge, the State of Maryland may not, except as provided in the succeeding sentence, in any way reduce, alter or impair the Qualified Rate Stabilization Charges until the Rate Stabilization Bonds, together with interest thereon, are fully paid and discharged.  Notwithstanding the immediately preceding sentence, the State of Maryland would be allowed to effect a temporary impairment of the Holders’ rights if it could be shown that such impairment was necessary to advance a significant and legitimate public purpose.

The Issuer and BGE hereby acknowledge that the purchase of this Rate Stabilization Bond by the Holder hereof or the purchase of any beneficial interest herein by any Person are made in reliance on the foregoing pledge.

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Tranche A-2 Rate Stabilization Bond may be registered on the Rate Stabilization Bond Register upon surrender of this Tranche A-2 Rate Stabilization Bond for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder hereof or such Holder’s attorney duly authorized in writing, with such signature guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent Medallion Program (STAMP); (ii)The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in such other guarantee program acceptable to the Indenture Trustee, and (b) such other documents as the Indenture Trustee may require, and thereupon one or more new Tranche A-2 Rate Stabilization Bonds of Minimum Denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees.  No service charge will be charged for any registration of transfer or exchange of this Tranche A-2 Rate Stabilization Bond, but the

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transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange, other than exchanges pursuant to Sections 2.04 or 2.06 of the Indenture not involving any transfer.

Each Rate Stabilization Bond holder, by acceptance of a Rate Stabilization Bond, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Rate Stabilization Bonds or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a limited liability company interest in the Issuer (including BGE) or (iii) any shareholder, partner, owner, beneficiary, agent, officer or employee of the Indenture Trustee, the Managers or any owner of a limited liability company interest in the Issuer (including BGE) in its respective individual or corporate capacities, or of any successor or assign of any of them in their individual or corporate capacities, except as any such Person may have expressly agreed in writing (it being understood that none of the Indenture Trustee, the Managers or BGE has any such obligations in their respective individual or corporate capacities).

Prior to the due presentment for registration of transfer of this Tranche A-2 Rate Stabilization Bond, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Tranche A-2 Rate Stabilization Bond is registered (as of the day of determination) as the owner hereof for the purpose of receiving payments of principal of and premium, if any, and interest on this Tranche A-2 Rate Stabilization Bond and for all other purposes whatsoever, whether or not this Tranche A-2 Rate Stabilization Bond be overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Rate Stabilization Bonds under the Indenture at any time by the Issuer with the consent of the Bondholders representing not less than a majority of the Outstanding Amount of all Rate Stabilization Bonds at the time outstanding of each Series or Tranche to be affected.  The Indenture also contains provisions permitting the Bondholders representing specified percentages of the Outstanding Amount of the Rate Stabilization Bonds of all Series, on behalf of the Holders of all the Rate Stabilization Bonds, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences.  Any such consent or waiver by the Holder of this Tranche A-2 Rate Stabilization Bond (or any one of more Predecessor Rate Stabilization Bonds) shall be conclusive and binding upon such Holder and upon all future Holders of this Tranche A-2 Rate Stabilization Bond and of any Rate Stabilization Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Tranche A-2 Rate Stabilization Bond.  The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Rate Stabilization Bonds issued thereunder.

The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Issuer on this Tranche A-2 Rate Stabilization Bond and (b) certain

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restrictive covenants and the related Events of Default, upon compliance by the Issuer with certain conditions set forth therein, which provisions apply to this Tranche A-2 Rate Stabilization Bond.

The term “Issuer” as used in this Tranche A-2 Rate Stabilization Bond includes any successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Bondholders under the Indenture.

The Tranche A-2 Rate Stabilization Bonds are issuable only in registered form in denominations as provided in the Indenture and the related Series Supplement subject to certain limitations therein set forth.

THIS TRANCHE A-2 RATE STABILIZATION BOND, THE INDENTURE AND THE RELATED SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN RATE STABILIZATION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH RATE STABILIZATION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

No reference herein to the Indenture and no provision of this Tranche A-2 Rate Stabilization Bond or of the Indenture shall alter or impair the obligation, which is absolute and unconditional, to pay the principal of and interest on this Tranche A-2 Rate Stabilization Bond at the times, place, and rate, and in the coin or currency herein prescribed.

The Holder of this Tranche A-2 Rate Stabilization Bond by the acceptance hereof agrees that, notwithstanding any provision of the Indenture or the related Series Supplement to the contrary, the Holder shall have no recourse against the Issuer, but shall look only to the Rate Stabilization Bond Collateral, with respect to any amounts due to the Holder under this Tranche A-2 Rate Stabilization Bond.

The Issuer and the Indenture Trustee, by entering into the Indenture, and the Holders and any Persons holding a beneficial interest in any Tranche A-2 Rate Stabilization Bond, by acquiring any Tranche A-2 Rate Stabilization Bond or interest therein, (i) express their intention that, solely for the purpose of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purpose of state, local and other taxes, the Tranche A-2 Rate Stabilization Bonds qualify under applicable tax law as indebtedness of the sole owner of the Issuer secured by the Rate Stabilization Bond Collateral and (ii) solely for purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other

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taxes, so long as any of the Tranche A-2 Rate Stabilization Bonds are outstanding, agree to treat the Tranche A-2 Rate Stabilization Bonds as indebtedness of the sole owner of the Issuer secured by the Rate Stabilization Bond Collateral unless otherwise required by appropriate taxing authorities.

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ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Tranche A-2 Rate Stabilization Bond, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	as tenants in common
TEN ENT	as tenants by the entireties
JT TEN	as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT		Custodian
	(Custodian)		(minor)
	Under Uniform Gifts to Minor Act   (			)
			(State)

Additional abbreviations may also be used though not in the above list.

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned(2) hereby sells, assigns and transfers unto

(name and address of assignee)

the within Tranche A-2 Rate Stabilization Bond and all rights thereunder, and hereby irrevocably constitutes and appoints                           , attorney, to transfer said Tranche A-2 Rate Stabilization Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated:
	Signature Guaranteed:

(2)           RATE STABILIZATION BOND:  The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Tranche A-2 Rate Stabilization Bond in every particular, without alteration, enlargement or any change whatsoever.

NOTE:  Signature(s) must be guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent Medallion Program (STAMP), (ii) The New York Stock Exchange Medallion Program (MSP), (iii) the Stock Exchange Medallion Program (SEMP) or (iv) such other guarantee program acceptable to the Indenture Trustee.

Exhibit A-3

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

REGISTERED NO. R-3 $119,200,000

CUSIP NO.

SEE REVERSE FOR CERTAIN DEFINITIONS

THE PRINCIPAL OF THIS SERIES A, TRANCHE A-3 RATE STABILIZATION BOND (“THIS TRANCHEA-3RATE STABILIZATION BOND”) WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN.  ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS TRANCHE A-3 RATE STABILIZATION BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.  THE HOLDER OF THIS TRANCHE A-3 RATE STABILIZATION BOND HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE RATE STABILIZATION BOND COLLATERAL, AS DESCRIBED IN THE INDENTURE AND THE SERIES SUPPLEMENT REFERRED TO ON THE REVERSE HEREOF, FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER.  ALL OBLIGATIONS OF THE ISSUER OF THIS TRANCHE A-3 RATE STABILIZATION BOND UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(b) OR ARTICLE IV OF THE INDENTURE.  THE HOLDER OF THIS TRANCHE A-3 RATE STABILIZATION BOND HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR AND ONE (1) DAY AFTER THE PAYMENT IN FULL OF THE SERIES A RATE STABILIZATION BONDS, IT WILL NOT ACQUIESCE, PETITION OR OTHERWISE INVOKE OR CAUSE THE ISSUER OR ANY MANAGER TO INVOKE THE PROCESS OF ANY COURT OR GOVERNMENTAL AUTHORITY FOR THE PURPOSE OF COMMENCING OR SUSTAINING AN INVOLUNTARY CASE AGAINST THE ISSUER

UNDER ANY INSOLVENCY LAW OR APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR OR OTHER SIMILAR OFFICIAL OF THE ISSUER OR ANY SUBSTANTIAL PART OF ITS RESPECTIVE PROPERTY, OR ORDERING THE DISSOLUTION, WINDING UP OR LIQUIDATION OF THE AFFAIRS OF THE ISSUER.  NOTHING IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR THE LLC AGREEMENT OR (II) ANY INVOLUNTARY CASE OR PROCEEDING PERTAINING TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT TO ANY SUCH LAW, OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION WHICH IS NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE ISSUER OR ANY OF ITS PROPERTIES.

THE STATE OF MARYLAND AND ANY OTHER GOVERNMENTAL UNIT ARE NOT OBLIGED TO PAY THE PRINCIPAL OF OR INTEREST ON RSB BONDCO LLC RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-3RATE STABILIZATION BOND.  NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF MARYLAND OR ANY OTHER GOVERNMENTAL UNIT IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON RSB BONDCO LLC RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-3RATE STABILIZATION BOND.  THE STATE OF MARYLAND HAS PLEDGED, FOR THE BENEFIT AND PROTECTION OF THE HOLDERS OF RSB BONDCO LLCRATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-3RATE STABILIZATION BOND, THAT IT WILL NOT TAKE OR ALLOW ANY ACTION THAT WOULD IMPAIR THE VALUE OF THE RATE STABILIZATION PROPERTY, OR, EXCEPT AS ALLOWED BY APPLICABLE SECTIONS OF THE RATE STABILIZATION ACT, REDUCE, ALTER OR IMPAIR THE QUALIFIED RATE STABILIZATION CHARGES TO BE IMPOSED, COLLECTED AND REMITTED TO THE INDENTURE TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF RATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-3RATE STABILIZATION BOND, UNTIL THE PRINCIPAL, INTEREST AND PREMIUM, AND ANY OTHER CHARGES INCURRED AND CONTRACTS TO BE PERFORMED IN CONNECTION WITH THE RSB BONDCO LLCRATE STABILIZATION BONDS, INCLUDING THIS TRANCHE A-3RATE STABILIZATION BOND, HAVE BEEN PAID AND PERFORMED IN FULL.

RSB BONDCO LLC RATE STABILIZATION BONDS,

Series A, Tranche A-3

Interest Rate		Original Principal Amount		Final Maturity Date
5.82	%	$	119,200,000	June 28, 2019

RSB BONDCO LLC, a limited liability company formed under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to Cede & Co., or registered assigns, the Original Principal Amount shown above in semi-annual installments on the Payment Dates and in the amounts specified on the reverse hereof or, if less, the amounts determined pursuant to Section 8.02 of the Indenture, in each year, commencing on the date determined as provided on the reverse hereof and ending on or before the Final Maturity Date shown above and to pay interest, at the Interest Rate shown above, on each April 1st and October 1st or if any such day is not a Business Day, the next succeeding Business Day, commencing on April 1, 2008 and continuing until the earlier of the payment in full of the principal hereof and the Final Maturity Date (each a “Payment Date”), on the principal amount of this Series A, Tranche A-3 Rate Stabilization Bond (hereinafter referred to as this “Tranche A-3 Rate Stabilization Bond”).  Interest on this Tranche A-3 Rate Stabilization Bond will accrue for each Payment Date from the most recent Payment Date on which interest has been paid to but excluding such Payment Date or, if no interest has yet been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year of twelve 30-day months.  Such principal of and interest on this Tranche A-3 Rate Stabilization Bond shall be paid in the manner specified on the reverse hereof.

The principal of and interest on this Tranche A-3 Rate Stabilization Bond are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.  All payments made by the Issuer with respect to this Tranche A-3 Rate Stabilization Bond shall be applied first to interest due and payable on this Tranche A-3 Rate Stabilization Bond as provided above and then to the unpaid principal of and premium, if any, on this Tranche A-3 Rate Stabilization Bond, all in the manner set forth in the Indenture.

Reference is made to the further provisions of this Tranche A-3 Rate Stabilization Bond set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Tranche A-3 Rate Stabilization Bond.

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Tranche A-3 Rate Stabilization Bond shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Responsible Officer.

Date:	RSB BONDCO LLC
	By:
		Name:
		Title:

Issuer Signature Page to Tranche A-3 Rate Stabilization Bond

INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

Dated:

This is one of the Series A, Tranche A-3 Rate Stabilization Bonds, designated above and referred to in the within-mentioned Indenture.

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Indenture Trustee and as Securities Intermediary
By:
	Name:
	Title:

Trustee Signature Page to Tranche A-3 Rate Stabilization Bond

REVERSE OF RATE STABILIZATION BOND

This Series A, Tranche A-3 Rate Stabilization Bond is one of a duly authorized issue of Rate Stabilization Bonds of the Issuer (herein called the “Rate Stabilization Bonds”), issued and to be issued in one or more Series, which Series are issuable in one or more Tranches, and the Series A Rate Stabilization Bonds consists of three Tranches, including this Tranche A-3 Rate Stabilization Bond (herein called the “Tranche A-3 Rate Stabilization Bonds”), all issued and to be issued under that certain Indenture dated as of June 29, 2007 (as supplemented by the Series Supplement (as defined below), the “Indenture”), between the Issuer and Deutsche Bank Trust Company Americas, in its capacity as indenture trustee (the “Indenture Trustee”, which term includes any successor indenture trustee under the Indenture) and in its separate capacity as a securities intermediary (the “Securities Intermediary”, which term includes any successor securities intermediary under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Rate Stabilization Bonds.  For purposes herein, “Series Supplement” means that certain Series Supplement dated as of June 29, 2007, between the Issuer and the Indenture Trustee.  All terms used in this Tranche A-3 Rate Stabilization Bond that are defined in the Indenture, as amended, restated, supplemented or otherwise modified from time to time, shall have the meanings assigned to such terms in the Indenture.

The Tranche A-3 Rate Stabilization Bonds, the other Tranches of Series A Rate Stabilization Bonds (all of such Tranches being referred to herein as “Series A Rate Stabilization Bonds”) and any other Series of Rate Stabilization Bonds issued by the Issuer are and will be equally and ratably secured by the Series Rate Stabilization Bond Collateral pledged as security therefor as provided in the Indenture.

The principal of this Tranche A-3 Rate Stabilization Bond shall be payable on each Payment Date only to the extent that amounts in the applicable Collection Account are available therefor, and only until the outstanding principal balance thereof on such Payment Date (after giving effect to all payments of principal, if any, made on such Payment Date) has been reduced to the principal balance specified in the Expected Amortization Schedule which is attached to the related Series Supplement as Schedule A, unless payable earlier because an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Bondholders representing not less than a majority of the Outstanding Amount of the Rate Stabilization Bonds of this Series have declared such Rate Stabilization Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture).  However, actual principal payments may be made in lesser than expected amounts and at later than expected times as determined pursuant to Section 8.02 of the Indenture.  The entire unpaid principal amount of this Tranche A-3 Rate Stabilization Bond shall be due and payable on the Final Maturity Date hereof.  Notwithstanding the foregoing, the entire unpaid principal amount of the Rate Stabilization Bonds shall be due and payable, if not then previously paid, on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders of the Rate Stabilization Bonds representing not less than a majority of the Outstanding Amount of the Rate Stabilization Bonds of this Series have

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declared the Rate Stabilization Bonds of this Series to be immediately due and payable in the manner provided in Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture).  All principal payments on the Tranche A-3 Rate Stabilization Bonds shall be made pro rata to the Tranche A-3 Holders entitled thereto based on the respective principal amounts of the Tranche A-3 Rate Stabilization Bonds held by them.

Payments of interest on this Tranche A-3 Rate Stabilization Bond due and payable on each Payment Date, together with the installment of principal or premium, if any, shall be made by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder of this Tranche A-3 Rate Stabilization Bond (or one or more Predecessor Rate Stabilization Bonds) on the Rate Stabilization Bond Register on the Record Date or in such other manner as may be provided in the Indenture or the related Series Supplement, except that (i) upon application to the Indenture Trustee by any Holder owning a Global Rate Stabilization Bond evidencing this Tranche A-3 Rate Stabilization Bond in the principal amount of $10,000,000 or more not later than the applicable Record Date payment will be made by wire transfer to an account maintained by such Holder and (ii) if this Tranche A-3 Rate Stabilization Bond is held in Book-Entry Form, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Rate Stabilization Bond evidencing this Tranche A-3 Rate Stabilization Bond unless and until such Global Rate Stabilization Bond is exchanged for Definitive Rate Stabilization Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to this Tranche A-3 Rate Stabilization Bond on a Payment Date which shall be payable as provided below.  Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Rate Stabilization Bond Register as of the applicable Record Date without requiring that this Tranche A-3 Rate Stabilization Bond be submitted for notation of payment.  Any reduction in the principal amount of this Tranche A-3 Rate Stabilization Bond (or any one or more Predecessor Rate Stabilization Bonds) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Tranche A-3 Rate Stabilization Bond and of any Rate Stabilization Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon.  If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Tranche A-3 Rate Stabilization Bond on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Registered Holder hereof as of the Record Date preceding such Payment Date by notice mailed no later than five (5) days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of this Tranche A-3 Rate Stabilization Bond and shall specify the place where this Tranche A-3 Rate Stabilization Bond may be presented and surrendered for payment of such installment.

The Issuer shall pay interest on overdue installments of interest at the Rate Stabilization Bond Interest Rate to the extent lawful.

This Rate Stabilization Bond is a “Rate Stabilization Bond” as such term is defined in the Rate Stabilization Law.  Principal and interest due and payable on this Rate

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Stabilization Bond are payable from and secured primarily by Rate Stabilization Property created and established by a Qualified Rate Order obtained from the Public Service Commission of Maryland pursuant to the Rate Stabilization Law.  Rate Stabilization Property consists of the rights and interests of the Seller in the relevant Qualified Rate Order, including the right to impose, collect and recover certain charges (defined in the Rate Stabilization Law as “Qualified Rate Stabilization Charges”) to be included in regular electric utility bills of existing and future residential electric delivery service customers within the service territory of BGE, a Maryland electric utility, or its successors or assigns, as more fully described in the Qualified Rate Order.

The Rate Stabilization Law provides that:  “The state pledges for the benefit and protection of financing parties and the electric company, that it will not take or allow any action that would impair the value of rate stabilization property, or, except as allowed in accordance with Sections 7-531, 7-533, and 7-534 [of the Rate Stabilization Law], reduce, alter, or impair the qualified rate stabilization charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related rate stabilization bonds have been paid and performed in full.  Any party issuing rate stabilization bonds is authorized to include this pledge in any documentation relating to those bonds.”

As a result of the foregoing pledge, the State of Maryland may not, except as provided in the succeeding sentence, in any way reduce, alter or impair the Qualified Rate Stabilization Charges until the Rate Stabilization Bonds, together with interest thereon, are fully paid and discharged.  Notwithstanding the immediately preceding sentence, the State of Maryland would be allowed to effect a temporary impairment of the Holders’ rights if it could be shown that such impairment was necessary to advance a significant and legitimate public purpose.

The Issuer and BGE hereby acknowledge that the purchase of this Rate Stabilization Bond by the Holder hereof or the purchase of any beneficial interest herein by any Person are made in reliance on the foregoing pledge.

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Tranche A-3 Rate Stabilization Bond may be registered on the Rate Stabilization Bond Register upon surrender of this Tranche A-3 Rate Stabilization Bond for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder hereof or such Holder’s attorney duly authorized in writing, with such signature guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent Medallion Program (STAMP); (ii)The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in such other guarantee program acceptable to the Indenture Trustee, and (b) such other documents as the Indenture Trustee may require, and thereupon one or more new Tranche A-3 Rate Stabilization Bonds of Minimum Denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees.  No service charge will be charged for any registration of transfer or exchange of this Tranche A-3 Rate Stabilization Bond, but the

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transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange, other than exchanges pursuant to Sections 2.04 or 2.06 of the Indenture not involving any transfer.

Each Rate Stabilization Bond holder, by acceptance of a Rate Stabilization Bond, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Rate Stabilization Bonds or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Managers in their respective individual capacities, (ii) any owner of a limited liability company interest in the Issuer (including BGE) or (iii) any shareholder, partner, owner, beneficiary, agent, officer or employee of the Indenture Trustee, the Managers or any owner of a limited liability company interest in the Issuer (including BGE) in its respective individual or corporate capacities, or of any successor or assign of any of them in their individual or corporate capacities, except as any such Person may have expressly agreed in writing (it being understood that none of the Indenture Trustee, the Managers or BGE has any such obligations in their respective individual or corporate capacities).

Prior to the due presentment for registration of transfer of this Tranche A-3 Rate Stabilization Bond, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Tranche A-3 Rate Stabilization Bond is registered (as of the day of determination) as the owner hereof for the purpose of receiving payments of principal of and premium, if any, and interest on this Tranche A-3 Rate Stabilization Bond and for all other purposes whatsoever, whether or not this Tranche A-3 Rate Stabilization Bond be overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Rate Stabilization Bonds under the Indenture at any time by the Issuer with the consent of the Bondholders representing not less than a majority of the Outstanding Amount of all Rate Stabilization Bonds at the time outstanding of each Series or Tranche to be affected.  The Indenture also contains provisions permitting the Bondholders representing specified percentages of the Outstanding Amount of the Rate Stabilization Bonds of all Series, on behalf of the Holders of all the Rate Stabilization Bonds, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences.  Any such consent or waiver by the Holder of this Tranche A-3 Rate Stabilization Bond (or any one of more Predecessor Rate Stabilization Bonds) shall be conclusive and binding upon such Holder and upon all future Holders of this Tranche A-3 Rate Stabilization Bond and of any Rate Stabilization Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Tranche A-3 Rate Stabilization Bond.  The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Rate Stabilization Bonds issued thereunder.

The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Issuer on this Tranche A-3 Rate Stabilization Bond and (b) certain

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restrictive covenants and the related Events of Default, upon compliance by the Issuer with certain conditions set forth therein, which provisions apply to this Tranche A-3 Rate Stabilization Bond.

The term “Issuer” as used in this Tranche A-3 Rate Stabilization Bond includes any successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Bondholders under the Indenture.

The Tranche A-3 Rate Stabilization Bonds are issuable only in registered form in denominations as provided in the Indenture and the related Series Supplement subject to certain limitations therein set forth.

THIS TRANCHE A-3 RATE STABILIZATION BOND, THE INDENTURE AND THE RELATED SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED THAT THE CREATION, ATTACHMENT AND PERFECTION OF ANY LIENS CREATED UNDER THE INDENTURE IN RATE STABILIZATION PROPERTY, AND ALL RIGHTS AND REMEDIES OF THE INDENTURE TRUSTEE AND THE HOLDERS WITH RESPECT TO SUCH RATE STABILIZATION PROPERTY, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

No reference herein to the Indenture and no provision of this Tranche A-3 Rate Stabilization Bond or of the Indenture shall alter or impair the obligation, which is absolute and unconditional, to pay the principal of and interest on this Tranche A-3 Rate Stabilization Bond at the times, place, and rate, and in the coin or currency herein prescribed.

The Holder of this Tranche A-3 Rate Stabilization Bond by the acceptance hereof agrees that, notwithstanding any provision of the Indenture or the related Series Supplement to the contrary, the Holder shall have no recourse against the Issuer, but shall look only to the Rate Stabilization Bond Collateral, with respect to any amounts due to the Holder under this Tranche A-3 Rate Stabilization Bond.

The Issuer and the Indenture Trustee, by entering into the Indenture, and the Holders and any Persons holding a beneficial interest in any Tranche A-3 Rate Stabilization Bond, by acquiring any Tranche A-3 Rate Stabilization Bond or interest therein, (i) express their intention that, solely for the purpose of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purpose of state, local and other taxes, the Tranche A-3 Rate Stabilization Bonds qualify under applicable tax law as indebtedness of the sole owner of the Issuer secured by the Rate Stabilization Bond Collateral and (ii) solely for purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other

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taxes, so long as any of the Tranche A-3 Rate Stabilization Bonds are outstanding, agree to treat the Tranche A-3 Rate Stabilization Bonds as indebtedness of the sole owner of the Issuer secured by the Rate Stabilization Bond Collateral unless otherwise required by appropriate taxing authorities.

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ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Tranche A-3 Rate Stabilization Bond, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	as tenants in common
TEN ENT	as tenants by the entireties
JT TEN	as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT		Custodian
	(Custodian)		(minor)
	Under Uniform Gifts to Minor Act   (			)
			(State)

Additional abbreviations may also be used though not in the above list.

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned(3) hereby sells, assigns and transfers unto

(name and address of assignee)

the within Tranche A-3 Rate Stabilization Bond and all rights thereunder, and hereby irrevocably constitutes and appoints                           , attorney, to transfer said Tranche A-3 Rate Stabilization Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated:
	Signature Guaranteed:

(3)           RATE STABILIZATION BOND:  The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Tranche A-3 Rate Stabilization Bond in every particular, without alteration, enlargement or any change whatsoever.

NOTE:  Signature(s) must be guaranteed by an institution which is a member of one of the following recognized Signature Guaranty Programs:  (i) The Securities Transfer Agent Medallion Program (STAMP), (ii) The New York Stock Exchange Medallion Program (MSP), (iii) the Stock Exchange Medallion Program (SEMP) or (iv) such other guarantee program acceptable to the Indenture Trustee.

EX-4.(C)

Exhibit No. 4(c)

BALTIMORE GAS AND ELECTRIC COMPANY,

Issuer

TO

DEUTSCHE BANK TRUST COMPANY AMERICAS,

Trustee

Supplemental Indenture No. 1

Dated as of October 1, 2009

Supplemental to the Indenture and Security Agreement
dated as of July 9, 2009

Amendment

Supplemental Indenture No. 1

Supplemental Indenture No. 1, dated as of October 1, 2009 made by and between BALTIMORE GAS AND ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Maryland (hereinafter sometimes called the “Company”), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a banking corporation organized and existing under the laws of the State of New York (hereinafter sometimes called the “Trustee”), as Trustee under the Indenture and Security Agreement, dated as of July 9, 2009 (hereinafter called the “Original Indenture”), this Supplemental Indenture No. 1 being supplemental thereto.  The Original Indenture and any and all indentures and instruments supplemental thereto are hereafter sometimes collectively called the “Indenture.”

Recitals of the Company

As contemplated by Section 1301(l) of the Original Indenture, the Company wishes to delete the last paragraph of Section 103 of the Original Indenture.  This change does not adversely affect the interests of the Holders of Securities of any series or Tranche in any material respect because no Securities have been issued under the Indenture.

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE NO. 1 WITNESSETH, that, for and in consideration of the premises and other good and valuable consideration, it is mutually covenanted and agreed, as follows:

ARTICLE ONE.

Amendment

SECTION 1.  The last paragraph of Section 103 of the Original Indenture is hereby deleted.

ARTICLE TWO.

Miscellaneous Provisions

SECTION 1. This Supplemental Indenture No. 1 is a supplement to the Original Indenture. As supplemented by this Supplemental Indenture No. 1, the Indenture is in all respects ratified, approved and confirmed, and the Original Indenture and this Supplemental Indenture No. 1 shall together constitute the Indenture.

SECTION 2. The recitals contained in this Supplemental Indenture No. 1 shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness and makes no representations as to the validity or sufficiency of this Supplemental Indenture No. 1.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

2

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 1 to be duly executed as of the day and year first above written.

	BALTIMORE GAS AND ELECTRIC COMPANY
	By:	/s/ Christopher J. Budzynski
		Name:	Christopher J. Budzynski
		Title:	Vice President and Treasurer
Executed by Baltimore Gas and Electric Company in the presence of:
/s/ Sean J. Klein
/s/ Kim Poor

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	DEUTSCHE BANK TRUST COMPANY AMERICAS
		as Trustee
	By:	/s/ Annie V. Jaghatspanyan
		Name:  Annie V. Jaghatspanyan
		Title: Vice President
	And:	/s/ Wanda Camacho
		Name: Wanda Camacho
		Title: Vice President
Executed by Deutsche Bank Trust Company Americas in the presence of:
Signature illegible
Signature illegible

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STATE OF MARYLAND	)
	)    SS.:
CITY/COUNTY OF ANNE ARUNDEL	)

On this 1st day of October, 2009, before me, a Notary Public within and for said City/County, personally appeared Christopher J. Budzynski, to me personally known to be Vice President and Treasurer of BALTIMORE GAS AND ELECTRIC COMPANY, a Maryland corporation, the corporation which executed the within instrument, and who, being by me duly sworn, did say that he is Vice President and Treasurer of BALTIMORE GAS AND ELECTRIC COMPANY, the corporation named in the foregoing instrument; that said instrument was signed in behalf of said corporation by authority of its Board of Directors; and said Christopher J. Budzynski acknowledged to me said instrument to be the free act and deed of said corporation, and that said corporation executed the same.

/s/ Cathy Lynn Crouse

Notary Public, State of Maryland

Commission Expires: 1/1/2010

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STATE OF NEW YORK	)
	)    ss.:
COUNTY OF NEW YORK	)

On this 2nd day of October, 2009, before me, a notary public, the undersigned officer, personally appeared Annie V. Jaghatspanyan and Wanda Camacho, each of whom acknowledges that she is a Vice President of DEUTSCHE BANK TRUST COMPANY AMERICAS and that she, as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by herself as such officer.

In witness whereof, I hereunto set my hand and official seal.

/s/ Michael N. Schoenfeld

Notary Public, State of New York

New York County

Lic. #01SC6179122

Commission Expires 12/24/2011

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EX-12.(A)

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Exhibit 12(a)

CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

		9 Months Ended			12 Months Ended
		September 2009			December 2008			December 2007			December 2006			December 2005			December 2004
		(In millions)
Income (Loss) from Continuing Operations (Before Extraordinary Loss and Cumulative Effects of Changes in Accounting Principles)		$	76.0		$	(1,318.4	)	$	834.5		$	762.5		$	548.1		$	511.0
Net (Income) Loss Attributable to Noncontrolling Interests and BGE Preference Stock Dividends			(53.8	)		4.0			(12.1	)		(13.9	)		(12.2	)		(12.6	)
Taxes on Income (Loss), Including Tax Effect for BGE Preference Stock Dividends			(165.3	)		(83.6	)		419.2			343.1			155.4			110.2
Adjusted (Loss) Income		$	(143.1	)	$	(1,398.0	)	$	1,241.6		$	1,091.7		$	691.3		$	608.6
Fixed Charges:
	Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness, net of amounts capitalized	$	343.1		$	350.5		$	292.8		$	315.9		$	297.6		$	315.9
	Earnings Required for BGE Preference Stock Dividends		16.2			23.9			22.3			21.1			21.6			21.4
	Capitalized Interest and Allowance for Funds Used During Construction		65.7			50.0			19.4			13.7			9.9			9.7
	Interest Factor in Rentals		56.5			96.5			96.7			4.5			6.1			4.1
	Total Fixed Charges	$	481.5		$	520.9		$	431.2		$	355.2		$	335.2		$	351.1
Amortization of Capitalized Interest		$	3.0		$	3.3		$	3.5		$	4.3		$	3.7		$	2.8
Earnings (Loss) (1)		$	275.7		$	(923.8	)	$	1,656.9		$	1,437.5		$	1,020.3		$	952.8
Ratio of Earnings to Fixed Charges			N/A			N/A			3.84			4.05			3.04			2.71

(1)

Earnings (loss) are deemed to consist of income (loss) from continuing operations (before extraordinary items, cumulative effects of changes in accounting principles, and income (loss) from discontinued operations) that includes earnings of Constellation Energy's consolidated subsidiaries, equity in the net income of unconsolidated subsidiaries, income taxes (including deferred income taxes, investment tax credit adjustments, and the tax effect of BGE's preference stock dividends), and fixed charges (including the amortization of capitalized interest but excluding the capitalization of interest).

N/A

For the nine months ended September 30, 2009, the ratio coverage was less than 1:1. We would have needed to generate additional earnings of $205.8 million to achieve a ratio coverage of 1:1.

Due to the loss for the twelve months ended December 31, 2008, the ratio coverage was less than 1:1. We would have needed to generate additional earnings of $1,444.7 million to achieve a ratio coverage of 1:1.

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Exhibit 12(a)

EX-12.(B)

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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

		9 Months Ended		12 Months Ended
		September 2009		December 2008		December 2007		December 2006		December 2005		December 2004
		(In millions)
Income from Continuing Operations (Before Extraordinary Loss)		$	133.3	$	51.5	$	139.8	$	170.3	$	189.0	$	166.3
Taxes on Income			84.7		20.7		96.0		102.2		119.9		102.5
Adjusted Income		$	218.0	$	72.2	$	235.8	$	272.5	$	308.9	$	268.8
Fixed Charges:
	Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness, net of amounts capitalized	$	108.6	$	144.2	$	127.9	$	104.6	$	95.6	$	97.3
	Interest Factor in Rentals		0.2		0.3		0.3		0.3		0.3		0.5
	Total Fixed Charges	$	108.8	$	144.5	$	128.2	$	104.9	$	95.9	$	97.8
Preferred and Preference Dividend Requirements: (1)
	Preferred and Preference Dividends	$	9.9	$	13.2	$	13.2	$	13.2	$	13.2	$	13.2
	Income Tax Required		6.3		5.3		9.1		8.0		8.4		8.1
	Total Preferred and Preference Dividend Requirements	$	16.2	$	18.5	$	22.3	$	21.2	$	21.6	$	21.3
Total Fixed Charges and Preferred and Preference Dividend Requirements		$	125.0	$	163.0	$	150.5	$	126.1	$	117.5	$	119.1
Earnings (2)		$	326.8	$	216.7	$	364.0	$	377.4	$	404.8	$	366.6
Ratio of Earnings to Fixed Charges			3.00		1.50		2.84		3.60		4.22		3.75
Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements			2.61		1.33		2.42		2.99		3.45		3.08

(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 items) that includes earnings of BGE's consolidated subsidiaries, income taxes (including deferred income taxes and investment tax credit adjustments), and fixed charges other than capitalized interest.

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Exhibit 12(b)

EX-31.(A)

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Exhibit 31(a)

CONSTELLATION ENERGY GROUP, INC.

CERTIFICATION

        I, Mayo A. Shattuck III, certify that:

1.

I have reviewed this report on Form 10-Q of Constellation Energy Group, Inc.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2009

/s/ MAYO A. SHATTUCK III
Chairman of the Board, President, and Chief Executive Officer

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Exhibit 31(a)

EX-31.(B)

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Exhibit 31(b)

CONSTELLATION ENERGY GROUP, INC.

CERTIFICATION

I, Jonathan W. Thayer, certify that:

1.

I have reviewed this report on Form 10-Q of Constellation Energy Group, Inc.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2009

/s/ JONATHAN W. THAYER
Senior Vice President and Chief Financial Officer

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Exhibit 31(b)

EX-31.(C)

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Exhibit 31(c)

BALTIMORE GAS AND ELECTRIC COMPANY

CERTIFICATION

I, Kenneth W. DeFontes, Jr., certify that:

1.

I have reviewed this report on Form 10-Q of Baltimore Gas and Electric Company;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2009

/s/ KENNETH W. DEFONTES, JR.
President and Chief Executive Officer

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Exhibit 31(c)

EX-31.(D)

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Exhibit 31(d)

BALTIMORE GAS AND ELECTRIC COMPANY

CERTIFICATION

I, Kevin W. Hadlock, certify that:

1.

I have reviewed this report on Form 10-Q of Baltimore Gas and Electric Company;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2009

/s/ KEVIN W. HADLOCK
Senior Vice President and Chief Financial Officer

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Exhibit 31(d)

EX-32.(A)

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Exhibit 32(a)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mayo A. Shattuck III, Chairman of the Board, President, and Chief Executive Officer of Constellation Energy Group, Inc., certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Constellation Energy Group, Inc.

/s/ MAYO A. SHATTUCK III
Mayo A. Shattuck III
Chairman of the Board, President, and
Chief Executive Officer

Date: November 6, 2009

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Exhibit 32(a)

EX-32.(B)

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Exhibit 32(b)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jonathan W. Thayer, Senior Vice President and Chief Financial Officer of Constellation Energy Group, Inc., certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Constellation Energy Group, Inc.

/s/ JONATHAN W. THAYER
Jonathan W. Thayer
Senior Vice President and Chief Financial Officer

Date: November 6, 2009

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Exhibit 32(b)

EX-32.(C)

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Exhibit 32(c)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kenneth W. DeFontes, Jr., President and Chief Executive Officer of Baltimore Gas and Electric Company, certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Baltimore Gas and Electric Company.

/s/ KENNETH W. DEFONTES, JR.
Kenneth W. DeFontes, Jr.
President and Chief Executive Officer

Date: November 6, 2009

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Exhibit 32(c)

EX-32.(D)

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Exhibit 32(d)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin W. Hadlock, Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company, certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Baltimore Gas and Electric Company.

/s/ KEVIN W. HADLOCK
Kevin W. Hadlock
Senior Vice President and Chief Financial Officer

Date: November 6, 2009

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Exhibit 32(d)