-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RAmaqR6n6npv6sVaiow68/q5IP8z2Gk9B3UNipiYzBypz/8nDeKeMceoDAskiN7C yStAWXhtXxoH4pnlyTewmg== 0000950168-96-000150.txt : 19960207 0000950168-96-000150.hdr.sgml : 19960207 ACCESSION NUMBER: 0000950168-96-000150 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960205 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960206 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALTIMORE GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000009466 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 520280210 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01910 FILM NUMBER: 96511396 BUSINESS ADDRESS: STREET 1: GAS & ELECTRIC BLDG STREET 2: CHARLES CTR CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4107835920 8-K 1 BALTIMORE GAS AND ELECTRIC SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 5, 1996 BALTIMORE GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Maryland 1-1910 52-0280210 (State of incorporation) (Commission (IRS Employer File Number) Identification No.) 39 W. Lexington Street Baltimore, Maryland 21201 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code 410-783-5920 Not Applicable (Former name, former address and former fiscal year, if changed since last report) The term "Company" is used in this Current Report, except where otherwise specifically indicated by the context, to refer to Baltimore Gas and Electric Company ("BGE") and Subsidiaries. Item 5. OTHER EVENTS (pages 3 of 40 through 35 of 40) The following financial information for the Company for the year ended December 31, 1995 is set forth in this Form 8-K. Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Report of Management Report of Independent Accountants Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Common Shareholders' Equity Consolidated Statements of Capitalization Consolidated Statements of Income Taxes Notes to Consolidated Financial Statements 2 Selected Financial Data
Compound 1995 1994 1993 1992 1991 Growth - --------------------------------------------------------------------------------------------------------------------------- (Dollar amounts in thousands, except per share amounts) 5-year 10-Year Summary of Operations Total Revenues $2,934,799 $2,782,985 $2,741,385 $2,559,536 $2,514,631 5.47% 4.56% Expenses Other Than Interest and Income Taxes 2,239,107 2,147,726 2,124,993 2,024,227 2,026,910 3.10 4.93 - ---------------------------------------------------------------------------------------------------------------------------- Income From Operations 695,692 635,259 616,392 535,309 487,721 16.36 3.46 Other Income 8,819 32,365 20,310 22,132 28,095 (23.87) (4.60) - --------------------------------------------------------------------------------------------------------------------------- Income Before Interest and Income Taxes 704,511 667,624 636,702 557,441 515,816 14.33 3.30 Net Interest Expense 196,977 190,154 188,764 189,747 196,588 3.58 5.98 - ---------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 507,534 477,470 447,938 367,694 319,228 21.03 2.43 Income Taxes 169,527 153,853 138,072 103,347 85,547 53.41 1.11 - ---------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Method 338,007 323,617 309,866 264,347 233,681 14.01 3.17 Cumulative Effect of Change in the Method of Accounting for Income Taxes --- --- --- --- 19,745 --- --- - ---------------------------------------------------------------------------------------------------------------------------- Net Income 338,007 323,617 309,866 264,347 253,426 9.65 3.17 Preferred and Preference Stock Dividends 40,578 39,922 41,839 42,247 42,746 0.16 4.02 - ---------------------------------------------------------------------------------------------------------------------------- Earnings Applicable to Common Stock $ 297,429 $ 283,695 $ 268,027 $ 222,100 $ 210,680 11.45 3.06 ============================================================================================================================ Earnings Per Share of Common Stock Before Cumulative Effect of Change in Accounting Method $2.02 $1.93 $1.85 $1.63 $1.511 3.13 0.77 Cumulative Effect of Change in the Method of Accounting for Income Taxes --- --- --- --- .16 --- --- - ---------------------------------------------------------------------------------------------------------------------------- Total Earnings Per Share of Common Stock $2.02 $1.93 $1.85 $1.63 $1.67 7.61 0.77 ============================================================================================================================ Dividends Declared Per Share of Common Stock $1.55 $1.51 $1.47 $1.43 $1.40 2.06 3.40 Ratio of Earnings to Fixed Charges 3.21 3.14 3.00 2.65 2.27 12.52 (2.51) Ratio of Earnings to Fixed Charges and Preferred and Preference Stock Dividends Combined 2.52 2.47 2.34 2.08 1.82 11.38 (1.99) Financial Statistics at Year End Total Assets $8,316,663 $8,037,502 $7,829,613 $7,208,660 $6,963,547 4.39 6.88 ============================================================================================================================ Capitalization Long-term debt $2,598,254 $2,584,932 $2,823,144 $2,376,950 $2,390,115 3.44 5.69 Preferred stock 59,185 59,185 59,185 59,185 59,185 --- --- Redeemable preference stock 242,000 279,500 342,500 395,500 398,500 (7.89) 11.70 Preference stock not subject to mandatory redemption 210,000 150,000 150,000 110,000 110,000 13.81 1.84 Common shareholders' equity 2,812,682 2,717,866 2,620,511 2,534,639 2,153,306 6.29 6.33 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization $5,922,121 $5,791,483 $5,995,340 $5,476,274 $5,111,106 4.29 5.92 ============================================================================================================================ Book Value Per Share of Common Stock $19.07 $18.42 $17.94 $17.63 $17.00 2.84 3.98 Number of Common Shareholders 79,811 81,505 82,287 80,371 71,131 1.79 0.04
Certain prior-year amounts have been reclassified to conform with the current year's presentation. 3 Baltimore Gas and Electric Company and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations This annual report presents the financial condition and results of operations of Baltimore Gas and Electric Company (BGE) and its subsidiaries (collectively, the Company). Among other information, it provides Consolidated Financial Statements, Notes to Consolidated Financial Statements (Notes), Utility Operating Statistics, and Selected Financial Data. The following discussion explains factors that significantly affect the Company's results of operations, liquidity, and capital resources. Effective November 1, 1995, BGE formed a wholly owned subsidiary, BGE Energy Projects & Services, Inc. (EP&S). EP&S' revenues and expenses are included in diversified businesses revenues and diversified businesses selling, general, and administrative expenses, respectively. Results of Operations Earnings per Share of Common Stock Consolidated earnings per share were $2.02 for 1995 and $1.93 for 1994, an increase of $.09 and $.08 from prior-year amounts, respectively. The changes in earnings per share reflect a higher level of earnings applicable to common stock, offset partially by a larger number of outstanding common shares. The summary below presents the earnings-per-share amounts.
1995 1994 1993 - -------------------------------------------------------------------- Utility business $1.84 $1.81 $1.77 Diversified businesses .18 .12 .08 - -------------------------------------------------------------------- Total $2.02 $1.93 $1.85 ====================================================================
Earnings Applicable to Common Stock Earnings applicable to common stock increased $13.7 million in 1995 and $15.7 million in 1994. The increases reflect higher utility and diversified businesses earnings. Utility earnings increased in 1995 compared to the prior year due to higher electric system sales resulting from the extremely hot summer weather in 1995, and higher electric and gas sales resulting from the colder fall weather experienced in 1995. These factors were partially offset by lower electric and gas system sales resulting from the milder weather experienced during the first half of the year as compared to last year; lower net other income and deductions in 1995; and a decrease in the allowance for funds used during construction. Utility earnings increased in 1994 compared to the prior year due to three principal factors: lower operations and maintenance expenses; an increase in the allowance for funds used during construction; and greater sales of electricity. The higher sales of electricity were primarily due to an increased number of customers compared to 1993. Both 1995 and 1994 earnings increases were offset partially by higher depreciation and amortization expense, which includes the write-off of certain Perryman costs in both years (see discussion on page 7). The effect of weather on utility sales is discussed below. The following factors influence BGE's utility operations earnings: regulation by the Maryland Public Service Commission (PSC); the effect of weather and economic conditions on sales; and competition in the generation and sale of electricity. The gas base rate increase authorized by the PSC in November 1995 favorably affected utility earnings beginning in December 1995. The electric and gas base rate increases authorized by the PSC in April 1993 favorably affected utility earnings through April 1994. The electric fuel rate cases now pending before the PSC discussed in Notes 1 and 12 could affect future years' earnings. Future competition may also affect earnings in ways that are not possible to predict (see discussion on page 11). Earnings from diversified businesses, which primarily represent the operations of Constellation Holdings, Inc. (CHI) and its subsidiaries (collectively, the Constellation Companies), BGE Home Products & Services, Inc. and Subsidiary (HP&S), and EP&S, increased during both 1995 and 1994. The reasons for these changes are discussed in the "Diversified Businesses Earnings" section on pages 8 and 9. Effect of Weather on Utility Sales Weather conditions affect BGE's utility sales. BGE measures weather conditions using degree days. A degree day is the difference between the average daily actual temperature and the baseline temperature of 65 degrees. Hotter weather during the summer, measured by more cooling degree days, results in greater demand for electricity to operate cooling systems. Conversely, cooler weather during the summer, measured by fewer cooling degree days, results in less demand for electricity to operate cooling systems. Colder weather during the winter, as measured by greater heating degree days, results in greater demand for electricity and gas to operate heating systems. Conversely, warmer weather during the winter, measured by fewer heating degree days, results in less demand for electricity and gas to operate heating systems. The degree-days chart below presents information regarding cooling and heating degree days for 1995 and 1994. 4 Baltimore Gas and Electric Company and Subsidiaries
30-Year 1995 1994 Average - -------------------------------------------------------------------- Cooling degree days 1,056 949 804 Percentage change compared to prior year 11.3% 9.7% Heating degree days 4,601 4,670 4,901 Percentage change compared to prior year (1.5)% (5.8)%
BGE Utility Revenues and Sales Electric revenues changed during 1995 and 1994 because of the following factors:
1995 1994 - -------------------------------------------------------------------- (In millions) System sales volumes $43.4 $ 9.9 Base rates 23.2 1.4 Fuel rates (13.8) (21.5) - -------------------------------------------------------------------- Revenues from system sales 52.8 (10.2) Interchange and other sales 49.0 26.5 Other revenues 1.4 (1.9) - -------------------------------------------------------------------- Total electric revenues $103.2 $ 14.4 ====================================================================
Electric system sales represent volumes sold to customers within BGE's service territory at rates determined by the PSC. These amounts exclude interchange sales and sales to other utilities, discussed separately later. Following is a comparison of the changes in electric system sales volumes:
1995 1994 - -------------------------------------------------------------------- Residential 2.8% 0.5% Commercial 2.3 (0.4) Industrial 3.6 17.8 Total 2.7 2.5
The increase in sales to residential and commercial customers during 1995 reflects the extremely hot summer and colder fall weather during 1995 and an increase in the number of customers, offset partially by milder weather experienced during the first half of the year as compared to last year. Sales to industrial customers increased primarily due to an increase in the number of customers and the increased sale of electricity to Bethlehem Steel, offset partially by lower usage by other industrial customers. Bethlehem Steel has been purchasing its full electricity requirements from BGE since March of 1994 and is selling power produced with its own generating facilities to BGE rather than using the power to reduce its requirements. In 1994, sales to residential and commercial customers were essentially unchanged from the prior year due to three factors: the number of customers increased; higher sales from extreme weather conditions early in the year slightly exceeded lower sales from milder weather in the second half of the year; and usage-per-customer decreased. Sales to industrial customers reflect primarily an increase in the sale of electricity to Bethlehem Steel, which purchased more electricity from BGE due to increased steel production and the fact that Bethlehem Steel has been purchasing its full electricity requirements from BGE since March of 1994. Base rates are affected by two principal items: rate orders by the PSC and recovery of eligible electric conservation program costs through the energy conservation surcharge. Base rates increased in 1995 compared to 1994 due to recovery of a higher level of eligible electric conservation program costs and the ability to collect the full amount of energy conservation surcharge revenues, portions of which had been deferred subject to refund in 1994 as discussed below. Base rates increased slightly during 1994 due to the remaining effect of the PSC's April 1993 rate order, offset partially by the deferral of the portion of energy conservation surcharge billings subject to refund. Under the energy conservation surcharge, if the PSC determines that BGE is earning in excess of its authorized rate of return, BGE will have to refund (by means of lowering future surcharges) a portion of energy conservation surcharge revenues to its customers. The portion subject to the refund is compensation for foregone sales from conservation programs and incentives for achieving conservation goals and will be refunded to customers with interest beginning in the ensuing July when the annual resetting of the conservation surcharge rates occurs. BGE earned in excess of its authorized rate of return on electric operations for the period July 1, 1993 through June 30, 1994. As a result, BGE deferred the portion of electric energy conservation revenues subject to refund for the period December 1993 through November 1994. The deferral of these billings totaled $20.1 million. Changes in fuel rate revenues result from the operation of the electric fuel rate formula. The fuel rate formula is designed to recover the actual cost of fuel, net of revenues from interchange sales and sales to other utilities (see Notes 1 and 12). Changes in fuel rate revenues and interchange and other sales normally do not affect earnings. However, if the PSC were to disallow recovery of any part of these costs, earnings would be reduced as discussed in Note 12. Fuel rate revenues decreased during both 1995 and 1994 due to a lower fuel rate, offset partially by increased electric system sales volumes. The rate was lower in both years because of a less-costly twenty-four month generation mix resulting from greater generation at the Calvert Cliffs Nuclear Power Plant and Brandon Shores Power Plant compared to the previous year, as well as lower fuel costs. BGE expects electric fuel rate revenues to remain relatively constant through 1996. Interchange and other sales represent sales of BGE's energy to the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and other utilities. The PJM is a regional power pool of eight member companies including BGE. These sales occur after BGE has satisfied the demand for its own system sales of electricity, if BGE's available generation is the least costly available. Interchange and other sales increased during 1995 and 1994 because BGE had a less-costly generation mix than the other utilities. The less-costly mix reflects greater generation from the Brandon Shores Power Plant and the continued operation of the Calvert Cliffs Nuclear Power Plant, which generated a record level of electricity during 1995. 5 Baltimore Gas and Electric Company and Subsidiaries Gas revenues changed during 1995 and 1994 because of the following factors:
1995 1994 - -------------------------------------------------------------------- (In millions) Sales volumes $ 0.2 $ 3.6 Base rates 6.4 2.4 Gas cost adjustment revenues (27.4) (16.1) Other revenues 0.1 (1.8) - -------------------------------------------------------------------- Total gas revenues $(20.7) $(11.9) ====================================================================
The changes in gas sales volumes compared to the year before were:
1995 1994 - -------------------------------------------------------------------- Residential (0.2)% 0.6% Commercial 1.3 (3.4) Industrial 4.7 4.2 Total 1.9 0.7
Total gas sales increased during 1995 as a result of higher sales to commercial and industrial customers, while sales to residential customers were essentially the same as last year. Sales to commercial customers increased compared to last year due to an increase in the number of customers, increased usage per customer, and the colder fall weather in 1995, offset partially by milder weather during the first half of the year. Sales to industrial customers increased compared to last year due to greater usage of gas per customer. Total gas sales increased during 1994 because of higher sales to residential and industrial customers, offset partially by lower sales to commercial customers. Sales to industrial customers reflect primarily greater usage of natural gas by Bethlehem Steel. Sales to commercial and industrial customers were negatively impacted because delivery service customers either voluntarily switched their fuel source from natural gas to alternate fuels, or were involuntarily interrupted by BGE as a result of extreme winter weather conditions in the first quarter of 1994. Interruptible customers maintain alternate fuel sources and pay reduced rates in exchange for BGE's right to interrupt service during periods of peak demand. Base rates increased slightly during 1995 and 1994 due to an increased recovery of eligible gas conservation program costs through the energy conservation surcharge. In addition, base rates increased slightly during 1995 as a result of the PSC's November 1995 rate order, which increased annual base rate revenues by $19.3 million, including $2.4 million to recover higher depreciation expense. Future gas base rate revenues are expected to be impacted favorably as a result of this order. Changes in gas cost adjustment revenues result primarily from the operation of the purchased gas adjustment clause, commodity charge adjustment clause, and the actual cost adjustment clause, which are designed to recover actual gas costs (see Note 1). Changes in gas cost adjustment revenues normally do not affect earnings. Gas cost adjustment revenues decreased during 1995 and 1994 because of lower gas prices for purchased gas and lower sales volumes subject to gas cost adjustment clauses. Delivery service sales volumes are not subject to gas cost adjustment clauses because delivery service customers purchase their gas directly from third parties. BGE Utility Fuel and Energy Expenses Electric fuel and purchased energy expenses were as follows:
1995 1994 1993 - -------------------------------------------------------------------- (In millions) Actual costs $554.5 $541.2 $483.9 Net recovery of costs under electric fuel rate clause (see Note 1) 24.3 1.1 50.7 - -------------------------------------------------------------------- Total expense $578.8 $542.3 $534.6 ====================================================================
Total electric fuel and purchased energy expenses increased in 1995 as a result of the operation of the electric fuel rate clause and increased actual electric costs. Actual electric fuel and purchased energy costs increased during 1995 primarily due to a higher net output of electricity and higher purchased energy and capacity costs, offset partially by a less costly generation mix resulting primarily from a shorter refueling and maintenance outage at the Calvert Cliffs Nuclear Power Plant as compared to the prior year. Total electric fuel and purchased energy expenses increased in 1994 as a result of increased actual electric costs and the operation of the electric fuel rate clause. Actual electric fuel and purchased energy costs increased during 1994 as a result of a more costly generation mix and an increase in the net output of electricity generated to meet the demand of BGE's system and the PJM system. The cost of the generation mix increased due to higher purchased energy costs and scheduled outages at the Calvert Cliffs Nuclear Power Plant in 1994. Purchased gas expenses were as follows:
1995 1994 1993 - -------------------------------------------------------------------- (In millions) Actual costs $205.9 $222.7 $246.4 Net (deferral) recovery of costs under purchased gas adjustment clause (see Note 1) (7.8) 1.9 (3.7) - -------------------------------------------------------------------- Total expense $198.1 $224.6 $242.7 ====================================================================
Total purchased gas expenses decreased in 1995 due to significantly lower actual purchased gas costs and the operation of the purchased gas adjustment clause. Actual purchased gas costs 6 Baltimore Gas and Electric Company and Subsidiaries decreased in 1995 due to lower gas prices which reflect market conditions. This decrease would have been greater except for a take-or-pay refund which reduced actual costs in 1994. Total purchased gas expenses decreased in 1994 due to significantly lower actual purchased gas costs, offset partially by the operation of the purchased gas adjustment clause. Actual purchased gas costs decreased during 1994 for two reasons: lower gas prices and lower output associated with the decreased demand for BGE gas. The lower gas prices reflect market conditions and take-or-pay and other supplier refunds, offset by higher costs related to the implementation of Federal Energy Regulatory Commission (FERC) Order 636 and higher demand charges. Purchased gas costs exclude gas purchased by delivery service customers, including Bethlehem Steel, who obtain gas directly from third parties. Other Operating Expenses Operations and maintenance expenses were essentially unchanged in 1995 as compared to the prior year. Operations expense decreased during 1994 primarily due to labor savings achieved as a result of the Company's employee reduction programs discussed in Note 7 and continuing cost control efforts. These savings offset $18.1 million of expense from the amortization of the cost of the 1993 and 1992 Voluntary Special Early Retirement Programs (VSERP) and a $10.0 million charge for a bonus paid to employees in lieu of a general wage increase. In addition, operations expense for 1994 decreased because operations expense for 1993 included a $17.2 million charge for certain employee reduction programs, offset partially by a credit to expense equivalent to the $9.8 million cost of termination benefits associated with the Company's 1992 VSERP. Operations and maintenance expenses are expected to decline in 1996 due to ongoing cost control efforts of the Company. Maintenance expense decreased during 1994 due primarily to lower costs at the Calvert Cliffs Nuclear Power Plant. Depreciation and amortization expense increased during 1995 because of higher levels of depreciable plant in service and energy conservation program costs, and the completion of a facility-specific study of the cost to decommission the Calvert Cliffs Nuclear Power Plant. The higher level of depreciable plant in service, which is primarily due to certain capital additions at the Calvert Cliffs Nuclear Power Plant, resulted in an increase of approximately $12.9 million in depreciation and amortization expense during 1995. The facility-specific study resulted in a $9 million increase in depreciation expense. Depreciation and amortization expense increased during 1994 because of higher levels of depreciable plant in service and energy conservation program costs. The increase in depreciable plant in service resulted from the addition of electric transmission and distribution plant and certain capital additions at the Calvert Cliffs Nuclear Power Plant during 1994. Additionally, as discussed below, depreciation and amortization expense during 1995 and 1994 reflected the write-off of certain Perryman costs. Initially, BGE had planned to build two combined cycle generating units at its Perryman site with each unit consisting of two combustion turbines and a heat recovery steam generator. However, due to significant changes in the environment in which utilities operate, BGE decided in 1994 not to construct the second combined cycle unit and wrote off the construction work in progress costs associated with that unit. This write-off reduced after-tax earnings during 1994 by $11.0 million or 7 cents per share. As a result of the PSC's August 1995 Order requiring all new generation capacity needs to be competitively bid and BGE's September 1995 announcement that it will merge with Potomac Electric Power Company (PEPCO) which has some available generating capacity, BGE determined that it will not build the second combustion turbine for the first combined cycle unit. Therefore, during the third quarter of 1995, BGE wrote off the remaining work in progress costs associated with the first combined cycle unit. This write-off reduced after-tax earnings during 1995 by $9.7 million, or 7 cents per share. The construction of the first 140-megawatt combustion turbine at Perryman was completed, and the unit was placed in service, during June 1995. Taxes other than income taxes increased slightly during 1995 and 1994 due primarily to higher property taxes resulting from higher levels of utility plant in service. Inflation affects the Company through increased operating expenses and higher replacement costs for utility plant assets. Although timely rate increases can lessen the effects of inflation, the regulatory process imposes a time lag which can delay BGE's recovery of increased costs. There is a regulatory lag primarily because rate increases are based on historical costs rather than projected costs. The PSC has historically allowed recovery of the cost of replacing plant assets, together with the opportunity to earn a fair return on BGE's investment, beginning at the time of replacement. Other Income and Expenses The allowance for equity funds used during construction (AFC) decreased during 1995 because of a lower level of construction work in progress resulting from a decrease in new construction activity and the placement of several projects in service. AFC increased during 1994 because of a higher level of construction work in progress which was offset partially by the lower AFC rate established by the PSC in the April 1993 rate order. 7 Baltimore Gas and Electric Company and Subsidiaries Net other income and deductions decreased in 1995 primarily due to approximately $12.1 million in lower other interest and finance charge income, and a decrease of $3.8 million in the gain on the sale of receivables and property. Net other income and deductions increased in 1994 primarily due to a lower level of charitable contributions and $3.9 million of gains on the sale of receivables. Interest expense increased during 1995 due to a combination of higher levels of debt outstanding and higher short-term interest rates compared to 1994, offset partially by increased capitalized interest on the Constellation Companies' projects. Interest expense increased slightly during 1994 due primarily to lower capitalized interest on the Constellation Companies' power generation systems, offset partially by the accrual by BGE of carrying charges on electric deferred fuel costs excluded from rate base (see Note 5). Income tax expense increased during 1995 and 1994 due to higher taxable income from utility operations and the Constellation Companies. Diversified Businesses Earnings Earnings per share from diversified businesses were:
1995 1994 1993 - -------------------------------------------------------------------- Constellation Companies Power generation systems $ .13 $ .10 $ .07 Financial investments .08 .03 .10 Real estate development and senior living facilities (.02) (.03) (.04) Effect of 1993 Tax Act - - (.04) Other (.01) (.01) (.01) - -------------------------------------------------------------------- Total Constellation Companies .18 .09 .08 BGE Home Products & Services, Inc. and Subsidiary .00 .03 - BGE Energy Projects & Services, Inc. .00 - - - -------------------------------------------------------------------- Total diversified businesses $ .18 $ .12 $ .08 ====================================================================
The Constellation Companies' power generation systems business includes the development, ownership, management, and operation of wholesale power generating projects in which the Constellation Companies hold ownership interests, as well as the provision of services to power generation projects under operation and maintenance contracts. Power generation systems earnings increased during 1995 due primarily to higher equity earnings on the Constellation Companies' energy projects and a gain on the sale of certain operating and maintenance contracts. Power generation systems earnings increased in 1994 primarily due to payments for the curtailment of output at two wholesale power generating projects as discussed below. The Constellation Companies' investment in wholesale power generating projects includes $197 million representing ownership interests in 16 projects which sell electricity in California under Interim Standard Offer No. 4 power purchase agreements. Under these agreements, the projects supply electricity to purchasing utilities at a fixed rate for the first ten years of the agreements and thereafter at fixed capacity payments plus variable energy rates based on the utilities' avoided cost for the remaining term of the agreements. Avoided cost generally represents a utility's next lowest cost generation to service the demands on its system. These power generation projects are scheduled to convert to supplying electricity at avoided cost rates in various years beginning in late 1996 through the end of 2000. As a result of declines in purchasing utilities' avoided costs subsequent to the inception of these agreements, revenues at these projects based on current avoided cost levels would be substantially lower than revenues presently being realized under the fixed price terms of the agreements. If current avoided cost levels were to continue into 1996 and beyond, the Constellation Companies could experience reduced earnings or incur losses associated with these projects, which could be significant. The Constellation Companies are investigating and pursuing alternatives for certain of these power generation projects including, but not limited to, repowering the projects to reduce operating costs, changing fuels, renegotiating the power purchase agreements, restructuring financings, and selling its ownership interests in the projects. Two of these wholesale power generating projects, in which the Constellation Companies' investment totals $30 million, have executed agreements with Pacific Gas & Electric (PG&E) providing for the curtailment of output through the end of the fixed price period in return for payments from PG&E. The payments from PG&E during the curtailment period will be sufficient to fully amortize the existing project finance debt. However, following the curtailment period, the projects remain contractually obligated to commence production of electricity at the avoided cost rates, which could result in reduced earnings or losses for the reasons described above. The Company cannot predict the impact that these matters regarding any of the 16 projects may have on the Constellation Companies or the Company, but the impact could be material. Earnings from the Constellation Companies' portfolio of financial investments include capital gains and losses, dividends, income from financial limited partnerships, and income from financial guaranty insurance companies. Financial investment earnings were higher in 1995 due to favorable earnings on the Companies' marketable securities, increased gains from financial partnerships, and higher earnings from financial guaranty insurance companies. Financial investment earnings decreased during 1994 due to reduced earnings from the investment portfolio. Additionally, 1993 results reflected a $6.1 million gain from the sale of a portion of an investment in a financial guaranty insurance company. The Constellation Companies' real estate development business includes land under development; office buildings; retail pro-jects; commercial projects; an entertainment, dining and retail complex in Orlando, Florida; a mixed-use planned-unit-development; and senior living facilities. The majority of these projects are in the Baltimore-Washington corridor. They have been affected adversely by the oversupply of and limited demand for land and office space due to modest economic growth and corporate downsizings. 8 Baltimore Gas and Electric Company and Subsidiaries Earnings from real estate development and senior living facilities in 1995 were essentially unchanged from the prior year. Earnings from real estate development increased slightly during 1994 due to gains recognized from the sale of two retail centers, an office building, and interests in two senior living facilities. The increases in diversified businesses' revenues and in selling, general, and administrative expenses during 1994 reflect the proceeds of these sales and the cost of the facilities sold, respectively. The Constellation Companies' real estate portfolio has experienced continuing carrying costs and depreciation. Additionally, the Constellation Companies have been expensing rather than capitalizing interest on certain undeveloped land for which substantially all development activities have been suspended. These factors have affected earnings negatively and are expected to continue to do so until the levels of undeveloped land are reduced. Cash flow from real estate operations has been insufficient to cover the debt service requirements of certain of these projects. Resulting cash shortfalls have been satisfied through cash infusions from Constellation Holdings, Inc., which obtained the funds through a combination of cash flow generated by other Constellation Companies and its corporate borrowings. To the extent the real estate market continues to improve, earnings from real estate activities are expected to improve also. The Constellation Companies' continued investment in real estate projects is a function of market demand, interest rates, credit availability, and the strength of the economy in general. The Constellation Companies' Management believes that although the real estate market has improved, until the economy reflects sustained growth and the excess inventory in the market in the Baltimore-Washington corridor goes down, real estate values will not improve significantly. If the Constellation Companies were to sell their real estate projects in the current depressed market, losses would occur in amounts difficult to determine. Depending upon market conditions, future sales could also result in losses. In addition, were the Constellation Companies to change their intent about any project from an intent to hold to an intent to sell, applicable accounting rules would require a write-down of the project to market value at the time of such change in intent if market value is below book value. BGE Home Products & Services' earnings decreased during 1995 and increased during 1994 primarily due to higher gains from receivables sales in 1994. Environmental Matters The Company is subject to increasingly stringent federal, state, and local laws and regulations relating to improving or maintaining the quality of the environment. These laws and regulations require the Company to remove or remedy the effect on the environment of the disposal or release of specified substances at ongoing and former operating sites, including Environmental Protection Agency Superfund sites. Details regarding these matters, including financial information, are presented in Note 12 and in the Company's Annual Reports on Form 10-K under Item 1. Business - Environmental Matters. Liquidity and Capital Resources Capital Requirements The Company's capital requirements reflect the capital-intensive nature of the utility business. Actual capital requirements for the years 1993 through 1995, along with estimated amounts for the years 1996 through 1998, are reflected below. Certain prior-year amounts have been restated to conform with the current year's presentation.
1993 1994 1995 1996 1997 1998 (In millions) Utility Business: Construction expenditures (excluding AFC) Electric $ 365 $345 $223 $231 $205 $212 Gas 52 68 70 68 73 67 Common 41 42 51 41 47 46 - --------------------------------------------------------------------------------------------------------------------------- Total construction expenditures 458 455 344 340 325 325 AFC 23 34 22 11 10 10 Nuclear fuel (uranium purchases and processing charges) 47 42 46 45 45 44 Deferred energy conservation expenditures 33 41 46 34 25 27 Deferred nuclear expenditures 14 8 -- -- -- -- Retirement of long-term debt and redemption of preference stock 907 203 279 98 164 125 - --------------------------------------------------------------------------------------------------------------------------- Total utility business 1,482 783 737 528 569 531 Diversified Businesses: Retirement of long-term debt 222 37 55 49 135 138 Investment requirements 78 51 118 92 71 82 - --------------------------------------------------------------------------------------------------------------------------- Total diversified businesses 300 88 173 141 206 220 Total $1,782 $871 $910 $669 $775 $751 ===========================================================================================================================
9 Baltimore Gas and Electric Company and Subsidiaries BGE Utility Capital Requirements BGE's construction program is subject to continuous review and modification, and actual expenditures may vary from the estimates above. Electric construction expenditures include the installation of a 5,000 kilowatt diesel generator at the Calvert Cliffs Nuclear Power Plant which is scheduled to be placed in service in 1996, and improvements in BGE's existing generating plants and its transmission and distribution facilities. Future electric construction expenditures do not include additional generating units. During 1995, 1994, and 1993, the internal generation of cash from utility operations provided 100%, 72%, and 71% respectively, of the funds required for BGE's capital requirements exclusive of retirements and redemptions of debt and preference stock. In addition, in 1994, $70 million of cash was provided by the sale of certain BGE and HP&S receivables (see Note 12). During the three-year period 1996 through 1998, the Company expects to provide through utility operations 115% of the funds required for BGE's capital requirements, exclusive of retirements and redemptions. Utility capital requirements not met through the internal generation of cash are met through the issuance of debt and equity securities. During the three-year period ended December 31, 1995, BGE's issuances of long-term debt, preference stock, and common stock were $1,237 million, $190 million, and $92 million, respectively. During the same period, retirements and redemptions of BGE's long-term debt and preference stock totaled $1,148 million and $219 million, respectively, exclusive of any redemption premiums or discounts. The amount and timing of future issuances and redemptions will depend upon market conditions and BGE's actual capital requirements. BGE's fixed income securities are rated by various independent credit rating agencies. The ratings assigned reflect the rating agencies' current assessment of BGE's ability to pay interest, dividends, and principal on these securities. The ratings impact BGE's cost of raising fixed income capital in the public markets. At the date of this Report, BGE's securities ratings were as follows: Securities Ratings Table
- --------------------------------------------------------------------------- Standard Moody's & Poors Investors Duff & Phelps Rating Group Service Credit Rating Co. - --------------------------------------------------------------------------- Senior Secured Debt A+ A1 AA- (First Mortgage Bonds) Unsecured Debt A A2 A+ Preferred Stock A "a1" A+ Preference Stock A "a2" A
The Constellation Companies' capital requirements are discussed below in the section titled "Diversified Businesses Capital Requirements-Debt and Liquidity." The Constellation Companies are exploring expansion of their energy, real estate service, and senior living facility businesses. Expansion may be achieved in a variety of ways, including, without limitation, increased investment activity and acquisitions. The Constellation Companies plan to meet their capital requirements with a combination of debt and internal generation of cash from their operations. Additionally, from time to time, BGE may make loans to Constellation Holdings, Inc., or contribute equity to enhance the capital structure of Constellation Holdings, Inc. Historically, Constellation's energy projects have been in the United States. As of December 31, 1995, one of the Constellation Companies had invested approximately $10 million in a Bolivian power generation company. In addition, $10 million has been committed, of which $1.2 million has been funded, to a fund that will invest in and develop power projects in Latin America. Constellation's energy business expansion may include domestic and international projects. Diversified Businesses Capital Requirements Debt and Liquidity The Constellation Companies intend to meet capital requirements by refinancing debt as it comes due and through internally generated cash. These internal sources include cash that may be generated from operations, sale of assets, and cash generated by tax benefits earned by the Constellation Companies. In the event the Constellation Companies can obtain reasonable value for real estate properties, additional cash may become available through the sale of projects (for additional information see the discussion of the real estate business and market on pages 8 and 9). The ability of the Constellation Companies to sell or liquidate assets described above will depend on market conditions, and no assurances can be given that such sales or liquidations can be made. Also, to provide additional liquidity to meet interim financial needs, CHI has a $50 million revolving credit agreement. Investment Requirements The investment requirements of the Constellation Companies include its portion of equity funding to committed projects under development, as well as net loans made to project partnerships. Investment requirements for the years 1996 through 1998 reflect the Constellation Companies' estimate of funding for ongoing and anticipated projects and are subject to continuous review and modification. Actual investment requirements may vary significantly from the estimates on page 9 because of the type and number of projects selected for development, the impact of market conditions on those projects, the ability to obtain financing, and the availability of internally generated cash. The Constellation Companies have met their investment requirements in the past through the internal generation of cash and through borrowings from institutional lenders. 10 Baltimore Gas and Electric Company and Subsidiaries Response to Regulatory Change Electric utilities presently face competition in the construction of generating units to meet future load growth and in the sale of electricity in the bulk power markets. Electric utilities also face the future prospect of competition for electric sales to retail customers. As previously disclosed, BGE regularly considered various strategies designed to enhance its competitive position and to increase its ability to adapt to and anticipate regulatory changes in its utility business. In September 1995, BGE concluded that a merger with PEPCO would enhance two key factors regarding its competitive position--maintaining low-cost production and increasing in size. The merger is discussed in Note 12. Although BGE believes the merger will have a positive effect on its competitive position in future years, it is not possible to predict currently the ultimate effect competition will have on BGE's earnings in future years, or after the merger, on the earnings of the new company. In response to the competitive forces and regulatory changes, as discussed in Part 1 of BGE's Reports on Form 10-K under the heading Regulatory Matters and Competition, BGE (and after the merger the new company) from time to time will consider various strategies designed to enhance its competitive position and to increase its ability to adapt to and anticipate regulatory changes in its utility business. These strategies may include internal restructurings involving the complete or partial separation of its generation, transmission and distribution businesses, acquisitions of related or unrelated businesses, business combinations, and additions to or dispositions of portions of its franchised service territories. BGE may from time to time be engaged in preliminary discussions, either internally or with third parties, regarding one or more of these potential strategies. No assurances can be given as to whether any potential transaction of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of BGE. 11 Baltimore Gas and Electric Company and Subsidiaries REPORT OF MANAGEMENT The management of the Company is responsible for the information and representations in the Company's financial statements. The Company prepares the financial statements in accordance with generally accepted accounting principles based upon available facts and circumstances and management's best estimates and judgments of known conditions. The Company maintains an accounting system and related system of nternal controls designed to provide reasonable assurance that the financial records are accurate and that the Company's assets are protected. The Company's staff of internal auditors, which reports directly to the Chairman of the Board, conducts periodic reviews to maintain the effectiveness of internal control procedures. Coopers & Lybrand L.L.P., independent accountants, audit the financial statements and express their opinion about them. They perform their audit in accordance with generally accepted auditing standards. The Audit Committee of the Board of Directors, which consists of four outside Directors, meets periodically with Management, internal auditors, and Coopers & Lybrand L.L.P. to review the activities of each in discharging their responsibilities. The internal audit staff and Coopers & Lybrand L.L.P. have free access to the Audit Committee. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of Baltimore Gas and Electric Company We have audited the accompanying consolidated balance sheets and statements of capitalization of Baltimore Gas and Electric Company and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, cash flows, common shareholders' equity, and income taxes for each of the three years in the period ended December 31, 1995. These financial statements are the responsibililty of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Baltimore Gas and Electric Company and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/COOPERS & LYBRAND L.L.P. Coopers & Lybrand L.L.P. Baltimore, Maryland January 19, 1996 12 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Income
Year Ended December 31, 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) Revenues Electric $2,229,774 $2,126,581 $2,112,147 Gas 400,504 421,249 433,163 Diversified businesses 304,521 235,155 196,075 - -------------------------------------------------------------------------------------------------------------------- Total revenues 2,934,799 2,782,985 2,741,385 Expenses Other Than Interest and Income Taxes Electric fuel and purchased energy 578,801 542,314 534,628 Gas purchased for resale 198,069 224,590 242,685 Operations 550,811 552,817 574,073 Maintenance 168,269 164,892 181,208 Diversified businesses - selling, general, and administrative 220,573 167,430 143,654 Depreciation and amortization 317,417 295,950 253,913 Taxes other than income taxes 205,167 199,733 194,832 - -------------------------------------------------------------------------------------------------------------------- Total expenses other than interest and income taxes 2,239,107 2,147,726 2,124,993 Income from Operations 695,692 635,259 616,392 - -------------------------------------------------------------------------------------------------------------------- Other Income Allowance for equity funds used during construction 14,162 21,746 14,492 Equity in earnings of Safe Harbor Water Power Corporation 4,559 4,349 4,243 Net other income and deductions (9,902) 6,270 1,575 - -------------------------------------------------------------------------------------------------------------------- Total other income 8,819 32,365 20,310 Income Before Interest and Income Taxes 704,511 667,624 636,702 - -------------------------------------------------------------------------------------------------------------------- Interest Expense Interest charges 219,689 214,347 212,971 Capitalized interest (15,050) (12,427) (16,167) Allowance for borrowed funds used during construction (7,662) (11,766) (8,040) - -------------------------------------------------------------------------------------------------------------------- Net interest expense 196,977 190,154 188,764 Income Before Income Taxes 507,534 477,470 447,938 Income Taxes 169,527 153,853 138,072 - -------------------------------------------------------------------------------------------------------------------- Net Income 338,007 323,617 309,866 Preferred and Preference Stock Dividends 40,578 39,922 41,839 - -------------------------------------------------------------------------------------------------------------------- Earnings Applicable to Common Stock $ 297,429 $ 283,695 $ 268,027 ==================================================================================================================== Average Shares of Common Stock Outstanding 147,527 147,100 145,072 Earnings Per Share of Common Stock $2.02 $1.93 $1.85 ====================================================================================================================
See Notes to Consolidated Financial Statements. Certain prior-year amounts have been reclassified to conform with the current year's presentation. 13 Baltimore Gas and Electric Company and Subsidiaries Consolidated Balance Sheets
At December 31, 1995 1994 - -------------------------------------------------------------------------------------------------------- (In thousands) Assets Current Assets Cash and cash equivalents $ 23,443 $ 38,590 Accounts receivable (net of allowance for uncollectibles of $16,390 and $14,960, respectively) 400,005 314,842 Fuel stocks 59,614 70,627 Materials and supplies 145,900 149,614 Prepaid taxes other than income taxes 60,508 57,740 Deferred income taxes 36,831 43,358 Trading securities 47,990 24,337 Other 31,487 22,686 - -------------------------------------------------------------------------------------------------------- Total current assets 805,778 721,794 Investments and Other Assets Real estate projects 479,344 471,435 Power generation systems 358,629 311,960 Financial investments 205,841 224,340 Nuclear decommissioning trust fund 85,811 66,891 Safe Harbor Water Power Corporation 34,327 34,168 Senior living facilities 16,045 11,540 Net pension asset 60,077 --- Other 71,894 58,824 - -------------------------------------------------------------------------------------------------------- Total investments and other assets 1,311,968 1,179,158 Utility Plant Plant in service Electric 6,360,624 5,929,996 Gas 692,693 616,823 Common 522,450 511,016 - -------------------------------------------------------------------------------------------------------- Total plant in service 7,575,767 7,057,835 Accumulated depreciation (2,481,801) (2,305,372) - -------------------------------------------------------------------------------------------------------- Net plant in service 5,093,966 4,752,463 Construction work in progress 247,296 506,030 Nuclear fuel (net of amortization) 130,782 134,012 Plant held for future use 25,552 24,320 - -------------------------------------------------------------------------------------------------------- Net utility plant 5,497,596 5,416,825 Deferred Charges Regulatory assets (net) 637,915 623,639 Other 63,406 96,086 - -------------------------------------------------------------------------------------------------------- Total deferred charges 701,321 719,725 Total Assets $8,316,663 $8,037,502 ========================================================================================================
See Notes to Consolidated Financial Statements. Certain prior-year amounts have been reclassified to conform with the current year's presentation. 14 Baltimore Gas and Electric Company and Subsidiaries Consolidated Balance Sheets
At December 31, 1995 1994 - ------------------------------------------------------------------------------------------------------- (In thousands) Liabilities and Capitalization Current Liabilities Short-term borrowings $ 279,305 $ 63,700 Current portions of long-term debt and preference stock 146,969 323,675 Accounts payable 177,092 181,931 Customer deposits 26,857 24,891 Accrued taxes 8,244 19,585 Accrued interest 56,670 60,348 Dividends declared 67,198 66,012 Accrued vacation costs 33,403 30,917 Other 39,417 30,857 - ------------------------------------------------------------------------------------------------------- Total current liabilities 835,155 801,916 Deferred Credits and Other Liabilities Deferred income taxes 1,311,530 1,199,787 Pension and postemployment benefits 148,594 138,835 Decommissioning of federal uranium enrichment facilities 43,695 45,836 Other 55,568 59,645 - ------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 1,559,387 1,444,103 Capitalization Long-term debt 2,598,254 2,584,932 Preferred stock 59,185 59,185 Redeemable preference stock 242,000 279,500 Preference stock not subject to mandatory redemption 210,000 150,000 Common shareholders' equity 2,812,682 2,717,866 - ------------------------------------------------------------------------------------------------------- Total capitalization 5,922,121 5,791,483 Commitments, Guarantees, and Contingencies - See Note 12 Total Liabilities and Capitalization $8,316,663 $8,037,502 =======================================================================================================
See Notes to Consolidated Financial Statements. Certain prior-year amounts have been reclassified to conform with the current year's presentation. 15 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Cash Flows From Operating Activities Net income $ 338,007 $ 323,617 $ 309,866 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 378,977 351,064 314,027 Deferred income taxes 103,494 79,278 53,057 Investment tax credit adjustments (8,088) (8,192) (8,444) Deferred fuel costs 5,565 11,461 51,445 Accrued pension and postemployment benefits (7,641) (41,113) (25,276) Allowance for equity funds used during construction (14,162) (21,746) (14,492) Equity in earnings of affiliates and joint ventures (net) (21,259) (20,225) (4,655) Changes in current assets other than sale of accounts receivable (107,392) (10,536) (37,252) Changes in current liabilities, other than short-term borrowings (7,293) (24,447) 71,153 Other 2,837 13,070 (4,020) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 663,045 652,231 705,409 Cash Flows From Financing Activities Proceeds from issuance of Short-term borrowings (net) 215,605 63,700 (11,900) Long-term debt 184,422 207,169 1,206,350 Preference stock 59,329 --- 128,776 Common stock 318 33,869 57,379 Proceeds from sale of receivables 2,000 70,000 --- Reacquisition of long-term debt (315,105) (240,853) (1,012,514) Redemption of preference stock (73,000) (4,406) (144,310) Common stock dividends paid (227,192) (220,152) (211,137) Preferred and preference stock dividends paid (40,087) (39,950) (42,425) Other 13 (437) (7,094) - --------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (193,697) (131,060) (36,875) Cash Flows From Investing Activities Utility construction expenditures (including AFC) (366,037) (488,976) (480,501) Allowance for equity funds used during construction 14,162 21,746 14,492 Nuclear fuel expenditures (46,330) (42,089) (47,329) Deferred nuclear expenditures --- (8,393) (13,791) Deferred energy conservation expenditures (45,503) (40,440) (32,909) Contributions to nuclear decommissioning trust fund (9,780) (9,780) (9,699) Purchases of marketable equity securities (18,447) (52,099) (46,820) Proceeds from sales of marketable equity securities 49,788 40,585 33,754 Other financial investments 9,423 2,469 19,589 Real estate projects (15,599) 14,926 (30,330) Power generation systems (37,446) (1,116) (26,841) Other (18,726) (3,650) 8,965 - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (484,495) (566,817) (611,420) Net Increase (Decrease) in Cash and Cash Equivalents (15,147) (45,646) 57,114 Cash and Cash Equivalents at Beginning of Year 38,590 84,236 27,122 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 23,443 $ 38,590 $ 84,236 =========================================================================================================================== Other Cash Flow Information Cash paid during the year for: Interest (net of amounts capitalized) $ 198,001 $ 184,441 $ 183,266 Income taxes $ 132,274 $ 112,923 $ 126,034
See Notes to Consolidated Financial Statements. Certain prior-year amounts have been reclassified to conform with the current year's presentation. 16 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Common Shareholders' Equity
Unrealized Gain (Loss) on Available Pension Common Stock Retained For Sale Liability Total Years Ended December 31, 1995, 1994, and 1993 Shares Amount Earnings Securities Adjustment Amount - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Balance at December 31, 1992 143,784 $1,335,002 $1,199,637 $ --- $ --- $2,534,639 Net income 309,866 309,866 Dividends declared Preferred and preference stock (41,839) (41,839) Common stock ($1.47 per share) (213,407) (213,407) Common stock issued 2,250 57,379 57,379 Other (917) (3,117) (4,034) Pension liability adjustment (33,990) (33,990) Deferred taxes on pension liability adjustment 11,897 11,897 - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 146,034 1,391,464 1,251,140 --- (22,093) 2,620,511 Net income 323,617 323,617 Dividends declared Preferred and preference stock (39,922) (39,922) Common stock ($1.51 per share) (222,180) (222,180) Common stock issued 1,493 33,869 33,869 Other 45 45 Net unrealized loss on securities (5,609) (5,609) Deferred taxes on net unrealized loss on securities 1,963 1,963 Pension liability adjustment 8,573 8,573 Deferred taxes on pension liability adjustment (3,001) (3,001) - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 147,527 1,425,378 1,312,655 (3,646) (16,521) 2,717,866 Net income 338,007 338,007 Dividends declared Preferred and preference stock (40,578) (40,578) Common stock ($1.55 per share) (228,667) (228,667) Common stock issued 318 318 Other 109 109 Net unrealized gain on securities 14,010 14,010 Deferred taxes on net unrealized gain on securities (4,904) (4,904) Pension liability adjustment 25,417 25,417 Deferred taxes on pension liability adjustment (8,896) (8,896) - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 147,527 $1,425,805 $1,381,417 $ 5,460 $ --- $2,812,682 ===========================================================================================================================
See Notes to Consolidated Financial Statements. 17 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Capitalization
At December 31, 1995 1994 - ----------------------------------------------------------------------------------------------------- (In thousands) Long-Term Debt First Refunding Mortgage Bonds of BGE 9-1/8% Series, due October l5, 1995 $ --- $ 188,014 5-1/8% Series, due April 15, 1996 26,187 26,454 6-1/8% Series, due August 1, 1997 24,935 24,935 Floating rate series, due April 15, 1999 125,000 125,000 8.40% Series, due October 15, 1999 91,200 96,225 5-1/2% Series, due July 15, 2000 125,000 125,000 8-3/8% Series, due August 15, 2001 122,427 122,430 7-1/8% Series, due January 1, 2002 39,698 49,957 7-1/4% Series, due July 1, 2002 124,609 124,850 5-1/2% Installment Series, due July 15, 2002 11,045 11,650 6-1/2% Series, due February 15, 2003 124,882 124,947 6-1/8% Series, due July 1, 2003 124,925 124,925 5-1/2% Series, due April 15, 2004 124,995 125,000 7-1/2% Series, due January 15, 2007 123,667 125,000 6-5/8% Series, due March 15, 2008 124,985 125,000 7-1/2% Series, due March 1, 2023 124,973 124,998 7-1/2% Series, due April 15, 2023 100,000 100,000 - ----------------------------------------------------------------------------------------------------- Total First Refunding Mortgage Bonds of BGE 1,538,528 1,744,385 Other long-term debt of BGE Term bank loan due March 29, 2001 50,000 --- Medium-term notes, Series A 10,500 10,500 Medium-term notes, Series B 100,000 100,000 Medium-term notes, Series C 200,000 173,050 Medium-term notes, Series D 28,000 --- Pollution control loan, due July 1, 2011 36,000 36,000 Port facilities loan, due June 1, 2013 48,000 48,000 Adjustable rate pollution control loan, due July 1, 2014 20,000 20,000 5.55% Pollution control revenue refunding loan, due July 15, 2014 47,000 47,000 Economic development loan, due December 1, 2018 35,000 35,000 6.00% Pollution control revenue refunding loan, due April 1, 2024 75,000 75,000 - ----------------------------------------------------------------------------------------------------- Total other long-term debt of BGE 649,500 544,550 Long-term debt of Constellation Companies Revolving credit agreement Variable rates based on LIBOR, due December 9, 1998 1,000 --- Mortgage and construction loans and other collateralized notes 7.6675%, due October 1, 1995 --- 13,000 7.50%, due October 9, 2005 9,989 --- Variable rates, due through 2009 110,018 116,613 7.357%, due March 15, 2009 5,896 6,152 Unsecured notes 420,000 440,000 - ----------------------------------------------------------------------------------------------------- Total long-term debt of Constellation Companies 546,903 575,765 Unamortized discount and premium (15,708) (17,593) Current portion of long-term debt (120,969) (262,175) - ----------------------------------------------------------------------------------------------------- Total long-term debt $2,598,254 $2,584,932
continued on page 37 See Notes to Consolidated Financial Statements. 18 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Capitalization
At December 31, 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- (In thousands) Preferred Stock Cumulative, $100 par value, 1,000,000 shares authorized Series B, 41/2%, 222,921 shares outstanding, callable at $110 per share $ 22,292 $ 22,292 Series C, 4%, 68,928 shares outstanding, callable at $105 per share 6,893 6,893 Series D, 5.40%, 300,000 shares outstanding, callable at $101 per share 30,000 30,000 - ----------------------------------------------------------------------------------------------------------------------- Total preferred stock 59,185 59,185 Preference Stock Cumulative, $100 par value, 6,500,000 shares authorized Redeemable preference stock 7.50%, 1986 Series, 425,000 and 455,000 shares outstanding. Callable at $105 per share prior to October 1, 1996 and at lesser amounts thereafter 42,500 45,500 6.75%, 1987 Series, 455,000 shares outstanding. Callable at $104.50 per share prior to April 1, 1997 and at lesser amounts thereafter 45,500 45,500 6.95%, 1987 Series, 500,000 shares redeemed at par on October 1, 1995 --- 50,000 7.80%, 1989 Series, 500,000 shares outstanding 50,000 50,000 8.25%, 1989 Series, 300,000 and 500,000 shares outstanding 30,000 50,000 8.625%, 1990 Series, 650,000 shares outstanding 65,000 65,000 7.85%, 1991 Series, 350,000 shares outstanding 35,000 35,000 Current portion of redeemable preference stock (26,000) (61,500) - ----------------------------------------------------------------------------------------------------------------------- Total redeemable preference stock 242,000 279,500 Preference stock not subject to mandatory redemption 7.78%, 1973 Series, 200,000 shares outstanding, callable at $101 per share 20,000 20,000 7.125%, 1993 Series, 400,000 shares outstanding, not callable prior to July 1, 2003 40,000 40,000 6.97%, 1993 Series, 500,000 shares outstanding, not callable prior to October 1, 2003 50,000 50,000 6.70%, 1993 Series, 400,000 shares outstanding, not callable prior to January 1, 2004 40,000 40,000 6.99%, 1995 Series, 600,000 shares outstanding, not callable prior to October 1, 2005 60,000 --- - ----------------------------------------------------------------------------------------------------------------------- Total preference stock not subject to mandatory redemption 210,000 150,000 Common Shareholders' Equity Common stock without par value, 175,000,000 shares authorized; 147,527,114 shares issued and outstanding at December 31, 1995 and 1994. (At December 31, 1995, 166,893 shares were reserved for the Employee Savings Plan and 3,277,656 shares were reserved for the Dividend Reinvestment and Stock Purchase Plan.) 1,425,805 1,425,378 Retained earnings 1,381,417 1,312,655 Unrealized gain (loss) on available for sale securities 5,460 (3,646) Pension liability adjustment --- (16,521) - ----------------------------------------------------------------------------------------------------------------------- Total common shareholders' equity 2,812,682 2,717,866 Total Capitalization $5,922,121 $5,791,483 =======================================================================================================================
See Notes to Consolidated Financial Statements. 19 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Income Taxes
Year Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------- (Dollar amounts in thousands) Income Taxes Current $ 74,121 $ 82,767 $ 93,459 - ------------------------------------------------------------------------------------------------------------------------- Deferred Change in tax effect of temporary differences 118,300 88,896 63,972 Change in income taxes recoverable through future rates (1,006) (8,580) (30,086) Deferred taxes credited (charged) to shareholders' equity (13,800) (1,038) 11,897 - ------------------------------------------------------------------------------------------------------------------------- Deferred taxes charged to expense 103,494 79,278 45,783 Effect on deferred taxes of enacted change in federal corporate income tax rate Increase in deferred tax liability --- --- 20,105 Income taxes recoverable through future rates --- --- (12,831) - ------------------------------------------------------------------------------------------------------------------------- Deferred taxes charged to expense --- --- 7,274 Investment tax credit adjustments (8,088) (8,192) (8,444) Income taxes per Consolidated Statements of Income $169,527 $153,853 $138,072 ========================================================================================================================= Reconciliation of Income Taxes Computed at Statutory Federal Rate to Total Income Taxes Income before income taxes $507,534 $477,470 $447,938 Statutory federal income tax rate 35% 35% 35% - --------------------------------------------------------------------------------------------------------------------------- Income taxes computed at statutory federal rate 177,637 167,115 156,778 Increases (decreases) in income taxes due to Depreciation differences not normalized on regulated activities 10,953 9,791 9,253 Allowance for equity funds used during construction (4,957) (7,611) (5,072) Amortization of deferred investment tax credits (8,088) (8,164) (8,444) Tax credits flowed through to income (521) (1,754) (9,736) Change in federal corporate income tax rate charged to expense --- --- 7,274 Amortization of deferred tax rate differential on regulated activities (2,013) (1,885) (5,789) Other (3,484) (3,639) (6,192) - --------------------------------------------------------------------------------------------------------------------------- Total income taxes $169,527 $153,853 $138,072 =========================================================================================================================== Effective federal income tax rate 33.4% 32.2% 30.8%
At December 31, 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- Deferred Income Taxes (Dollar amounts in thousands) Deferred tax liabilities Accelerated depreciation $ 878,470 $ 840,376 Allowance for funds used during construction 210,928 208,726 Income taxes recoverable through future rates 94,305 93,952 Deferred termination and postemployment costs 49,591 53,749 Deferred fuel costs 39,559 41,507 Leveraged leases 29,842 31,948 Percentage repair allowance 38,295 36,630 Energy conservation expenditures 28,121 --- Other 151,231 148,064 - -------------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 1,520,342 1,454,952 Deferred tax assets Alternative minimum tax 32,626 71,074 Accrued pension and postemployment benefit costs 31,707 51,163 Deferred investment tax credits 49,512 52,288 Capitalized interest and overhead 39,439 34,071 Contributions in aid of construction 34,404 32,707 Nuclear decommissioning liability 16,708 14,870 Other 41,247 42,350 - -------------------------------------------------------------------------------------------------------------------------- Total deferred tax assets 245,643 298,523 Deferred tax liability, net $1,274,699 $1,156,429 ==========================================================================================================================
See Notes to Consolidated Financial Statements. 20 Baltimore Gas and Electric Company and Subsidiaries Notes to Consolidated Financial Statements Note 1. Significant Accounting Policies Nature of the Business Baltimore Gas and Electric Company (BGE) and Subsidiaries (collectively, the Company) is primarily an electric and gas utility serving a territory which encompasses Baltimore City and all or part of ten Central Maryland counties. The Company is also engaged in diversified businesses as described further in Note 3. Principles of Consolidation The consolidated financial statements include the accounts of BGE and all subsidiaries in which BGE owns directly or indirectly a majority of the voting stock. Intercompany balances and transactions have been eliminated in consolidation. Under this policy, the accounts of Constellation Holdings, Inc. and its subsidiaries (collectively, the Constellation Companies), BGE Home Products & Services, Inc. and Subsidiary (HP&S), BGE Energy Projects & Services, Inc. (EP&S), and BNG, Inc. are consolidated in the financial statements, and Safe Harbor Water Power Corporation is reported under the equity method. Corporate joint ventures, partnerships, and affiliated companies in which a 20% to 50% voting interest is held are accounted for under the equity method, unless control is evident, in which case the entity is consolidated. Investments in which less than a 20% voting interest is held are accounted for under the cost method, unless significant influence is exercised over the entity, in which case the investment is accounted for under the equity method. Regulation of Utility Operations BGE's utility operations are subject to regulation by the Maryland Public Service Commission (PSC). The accounting policies and practices used in the determination of service rates are also generally used for financial reporting purposes in accordance with generally accepted accounting principles for regulated industries. See Note 5. Utility Revenues BGE recognizes utility revenues as service is rendered to customers. Fuel and Purchased Energy Costs Subject to the approval of the PSC, the cost of fuel used in generating electricity, net of revenues from interchange sales, and the cost of gas sold may be recovered through zero-based electric fuel rate (see Note 12) and purchased gas adjustment clauses, respectively. The difference between actual fuel costs and fuel revenues is deferred on the balance sheet to be recovered from or refunded to customers in future periods. The electric fuel rate formula is based upon the latest twenty-four-month generation mix and the latest three-month average fuel cost for each generating unit. The fuel rate does not change unless the calculated rate is more than 5% above or below the rate then in effect. The purchased gas adjustment is based on recent annual volumes of gas and the related current prices charged by BGE's gas suppliers. Any deferred under-recoveries or overrecoveries of purchased gas costs for the twelve months ended November 30 each year are charged or credited to customers over the ensuing calendar year. Income Taxes The deferred tax liability represents the tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. It is measured using presently enacted tax rates. The portion of BGE's deferred tax liability applicable to utility operations which has not been reflected in current service rates represents income taxes recoverable through future rates. It has been recorded as a regulatory asset on the balance sheet. Deferred income tax expense represents the net change in the deferred tax liability and regulatory asset during the year, exclusive of amounts charged or credited to common shareholders' equity. Current tax expense consists solely of regular tax less applicable tax credits. In certain prior years, tax expense included an alternative minimum tax (AMT) that can be carried forward indefinitely as tax credits to future years in which the regular tax liability exceeds the AMT liability. Current income tax for the year ended December 31, 1995 reflects utilization of AMT credits of $40 million. Deferred income taxes related to the remaining AMT credit carryforward of $33 million have been classified as current assets at December 31, 1995. Prior-year amounts have been reclassified to conform with the current year's presentation. The investment tax credit (ITC) associated with BGE's regulated utility operations has been deferred (see Note 5) and is amortized to income ratably over the lives of the subject property. ITC and other tax credits associated with nonregulated diversified businesses other than leveraged leases are flowed through to income. BGE's utility revenue from system sales is subject to the Maryland public service company franchise tax in lieu of a state income tax. The franchise tax is included in taxes other than income taxes in the Consolidated Statements of Income. Inventory Valuation Fuel stocks and materials and supplies are generally stated at average cost. Real Estate Projects Real estate projects consist of the Constellation Companies' investment in rental and operating properties and properties under development. Rental and operating properties are held for investment. Properties under development are held for future development and sale. Costs incurred in the acquisition and active development of such properties are capitalized. Rental and operating properties and properties under development are stated at cost unless the amount invested exceeds the amounts expected to be recovered through operations and sales. In these cases, the projects are written down to the amount estimated to be recoverable. 21 Baltimore Gas and Electric Company and Subsidiaries Investments and Other Assets Investments in debt and equity securities subject to the requirements of Statement of Financial Accounting Standards No. 115 (Statement No. 115) are reported at fair value. Certain of Constellation Companies' marketable equity securities and financial partnerships are classified as trading securities. Unrealized gains and losses on these securities are included in diversified businesses revenues. The investments comprising the nuclear decommissioning trust fund and certain marketable equity securities of CHI are classified as available for sale. Unrealized gains and losses on these securities, as well as CHI's portion of unrealized gains and losses on securities of equity-method investees, are recorded in shareholders' equity. The Company utilizes specific identification to determine the cost of these securities in computing realized gains or losses. Utility Plant, Depreciation and Amortization, and Decommissioning Utility plant is stated at original cost, which includes material, labor, and, where applicable, construction overhead costs and an allowance for funds used during construction. Additions to utility plant and replacements of units of property are capitalized to utility plant accounts. Utility plant retired or otherwise disposed of is charged to accumulated depreciation. Maintenance and repairs of property and replacements of items of property determined to be less than a unit of property are charged to maintenance expense. Depreciation is generally computed using composite straight-line rates applied to the average investment in classes of depreciable property. Vehicles are depreciated based on their estimated useful lives. As a result of the PSC's November 1995 gas rate order, BGE revised its gas utility plant depreciation rates to reflect the results of a detailed depreciation study. The new rates are expected to result in an increase in depreciation accruals of approximately $2.4 million annually. Depreciation expense for 1995 and 1994 includes the write-off of certain costs at BGE's Perryman site. Initially, BGE had planned to build two combined cycle generating units at its Perryman site with each unit consisting of two combustion turbines. However, due to significant changes in the environment in which utilities operate, BGE decided in 1994 not to construct the second combined cycle generating unit and wrote off the construction work in progress costs associated with that unit. This write-off reduced after-tax earnings during 1994 by $11.0 million or 7 cents per share. As a result of the PSC's August 1995 Order requiring all new generation capacity needs to be competitively bid and BGE's September 1995 announcement that it will merge with Potomac Electric Power Company (PEPCO), BGE determined that it will not build the second combustion turbine for the first combined cycle unit. Therefore, during the third quarter of 1995, BGE wrote off the remaining construction work in progress costs associated with the first combined cycle unit. This write-off reduced after-tax earnings during 1995 by $9.7 million, or 7 cents per share. The construction of the first 140-megawatt combustion turbine at Perryman was completed, and the unit was placed in service, during June 1995. BGE owns an undivided interest in the Keystone and Conemaugh electric generating plants located in western Pennsylvania, as well as in the transmission line which transports the plants' output to the joint owners' service territories. BGE's ownership interest in these plants is 20.99% and 10.56%, respectively, and represents a net investment of $150 million as of December 31, 1995. Financing and accounting for these properties are the same as for wholly owned utility plant. Nuclear fuel expenditures are amortized as a component of actual fuel costs based on the energy produced over the life of the fuel. Fees for the future disposal of spent fuel are paid quarterly to the Department of Energy and are accrued based on the kilowatt-hours of electricity sold. Nuclear fuel expenses are subject to recovery through the electric fuel rate. Nuclear decommissioning costs are accrued by and recovered through a sinking fund methodology. In a 1995 order, the PSC authorized BGE to record decommissioning expense based on a facility-specific cost estimate in order to accumulate a decommissioning reserve of $521 million in 1993 dollars by the end of Calvert Cliffs' service life in 2016, adjusted to reflect expected inflation, to decommission the radioactive portion of the plant. The total decommissioning reserve of $136.7 million and $109.8 million at December 31, 1995 and 1994, respectively, is included in accumulated depreciation in the Consolidated Balance Sheets. In accordance with Nuclear Regulatory Commission (NRC) regulations, BGE has established an external decommissioning trust to which a portion of accrued decommissioning costs have been contributed. The NRC requires utilities to provide financial assurance that they will accumulate sufficient funds to pay for the cost of nuclear decommissioning based upon either a generic NRC formula or a facility-specific decommissioning cost estimate. The Company plans to use the facility-specific cost estimate for funding these costs and providing the requisite financial assurance. Allowance for Funds Used During Construction and Capitalized Interest The allowance for funds used during construction (AFC) is an accounting procedure which capitalizes the cost of funds used to finance utility construction projects as part of utility plant on the balance sheet, crediting the cost as a noncash item on the income statement. The cost of borrowed and equity funds is segregated between interest expense and other income, respectively. BGE recovers the capitalized AFC and a return thereon after the related utility plant is placed in service and included in depreciable assets and rate base. Prior to April 23, 1993, the Company accrued AFC at a pre-tax rate of 9.94%. Effective April 24, 1993, a rate order of the PSC reduced the pre-tax AFC rate to 9.40%. Effective November 20, 1995, a rate order of the PSC reduced the pre-tax gas plant and common plant AFC rates to 9.04% and 9.36%, respectively. AFC is compounded annually. The Constellation Companies capitalize interest on qualifying real estate and power generation development projects. BGE capitalizes interest on carrying charges accrued on certain deferred fuel costs as discussed in Note 5. 22 Baltimore Gas and Electric Company and Subsidiaries Long-Term Debt The discount or premium and expense of issuance associated with long-term debt are deferred and amortized over the original lives of the respective debt issues. Gains and losses on the reacquisition of debt are amortized over the remaining original lives of the issuances. Cash Flows For the purpose of reporting cash flows, highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. Use of Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates involve judgments with respect to, among other things, various future economic factors which are difficult to predict and are beyond the control of the Company. Therefore, actual amounts could differ from these estimates. Accounting Standards Issued The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121, regarding accounting for asset impairments, effective January 1, 1996. Adoption of this statement is not expected to have a material impact on the Company's financial statements. Note 2. Segment Information
1995 1994 1993 - -------------------------------------------------------------------------------------------------------- (In thousands) Electric Nonaffiliated revenues $2,229,774 $2,126,581 $2,112,147 Affiliated revenues 1,337 840 --- - -------------------------------------------------------------------------------------------------------- Total revenues 2,231,111 2,127,421 2,112,147 Income from operations 574,299 539,739 534,185 Depreciation and amortization 276,285 252,273 219,735 Construction expenditures (including AFC) 288,509 412,885 421,923 Identifiable assets at December 31 6,195,722 5,981,634 5,867,725 Gas Total revenues (nonaffiliated) $ 400,504 $ 421,249 $ 433,163 Income from operations 48,104 27,801 34,738 Depreciation and amortization 29,637 32,478 23,875 Construction expenditures (including AFC) 77,528 76,091 58,578 Identifiable assets at December 31 748,462 726,759 677,857 Diversified Businesses Nonaffiliated revenues $ 304,521 $ 235,155 $ 196,075 Affiliated revenues 6,609 8,245 6,825 - -------------------------------------------------------------------------------------------------------- Total revenues 311,130 243,400 202,900 Income from operations 73,289 67,719 47,469 Depreciation and amortization 11,495 11,199 10,303 Identifiable assets at December 31 1,266,049 1,200,551 1,166,997 Total Nonaffiliated revenues $2,934,799 $2,782,985 $2,741,385 Affiliated revenues 7,946 9,085 6,825 Intercompany eliminations (7,946) (9,085) (6,825) - -------------------------------------------------------------------------------------------------------- Total revenues 2,934,799 2,782,985 2,741,385 Income from operations 695,692 635,259 616,392 Depreciation and amortization 317,417 295,950 253,913 Construction expenditures (including AFC) 366,037 488,976 480,501 Identifiable assets at December 31 8,210,233 7,908,944 7,712,579 Other assets at December 31 106,430 128,558 117,034 - -------------------------------------------------------------------------------------------------------- Total assets at December 31 8,316,663 8,037,502 7,829,613
Certain prior-year amounts have been reclassified to conform with the current year's presentation. 23 Baltimore Gas and Electric Company and Subsidiaries Note 3. Subsidiary Information Diversified businesses consist of the operations of the Constellation Companies, HP&S, EP&S, and BNG, Inc. The Constellation Companies include Constellation Holdings, Inc., a wholly owned subsidiary which holds all of the stock of three other subsidiaries, Constellation Real Estate Group, Inc., Constellation Power, Inc. (formerly "Constellation Energy, Inc."), and Constellation Investments, Inc. These companies are engaged in real estate development and ownership of senior living facilities; development, ownership, and operation of power generation systems; and financial investments, respectively. HP&S is a wholly owned subsidiary which engages predominantly in the businesses of appliance and consumer electronics sales and service; heating, ventilation, and air conditioning system sales, installation and service; as well as, home improvements and services, primarily in Central Maryland. Effective November 1, 1995, BGE formed a wholly owned subsidiary, EP&S, which provides a broad range of customized energy services to major customers, including industrial, institutional, and government customers in commercial office buildings, warehouses, educational, healthcare, and retail facilities. These energy services include customer electrical system improvements, lighting and mechanical engineering services, campus and multi-building systems, brokering and associated financial contracts, and district chilled water systems. BNG, Inc. is a wholly owned subsidiary which engages in natural gas brokering. BGE's investment in Safe Harbor Water Power Corporation, a producer of hydroelectric power, represents two-thirds of Safe Harbor's total capital stock, including one-half of the voting stock, and a two-thirds interest in its retained earnings. The following is condensed financial information for Constellation Holdings, Inc. and its subsidiaries. The condensed financial information does not reflect the elimination of intercompany balances or transactions which are eliminated in the Company's consolidated financial statements.
1995 1994 1993 (In thousands, except per share amounts) Income Statements Revenues Real estate projects $ 108,414 $ 106,915 $ 77,598 Power generation systems 57,734 41,301 24,971 Financial investments 25,201 12,126 21,195 - ------------------------------------------------------------------------------------------------------------ Total revenues 191,349 160,342 123,764 Expenses other than interest and income taxes 114,479 107,267 80,427 - ------------------------------------------------------------------------------------------------------------ Income from operations 76,870 53,075 43,337 Minority interest (2,348) --- (280) Interest expense (46,673) (45,782) (47,845) Capitalized interest 13,582 10,776 14,702 Income tax benefit (expense) (14,355) (4,305) 1,984 - ------------------------------------------------------------------------------------------------------------ Net income $ 27,076 $ 13,764 $ 11,898 ============================================================================================================ Contribution to the Company's earnings per share of common stock $ .18 $ .09 $ .08 ============================================================================================================ Balance Sheets Current assets $ 98,526 $ 92,814 $ 54,039 Noncurrent assets 1,102,528 1,055,056 1,036,507 - ------------------------------------------------------------------------------------------------------------ Total assets $1,201,054 $1,147,870 $1,090,546 Current liabilities $ 70,393 $ 70,670 $ 24,201 Noncurrent liabilities 778,505 758,626 759,048 Shareholder's equity 352,156 318,574 307,297 - ------------------------------------------------------------------------------------------------------------ Total liabilities and shareholder's equity $1,201,054 $1,147,870 $1,090,546 ============================================================================================================
24 Baltimore Gas and Electric Company and Subsidiaries Note 4. Real Estate Projects and Financial Investments Real estate projects consist of the following investments held by the Constellation Companies:
At December 31, 1995 1994 - -------------------------------------------------------------------- (In thousands) Properties under development $270,678 $267,483 Rental and operating properties (net of accumulated depreciation) 207,666 203,000 Other real estate ventures 1,000 952 - -------------------------------------------------------------------- Total $479,344 $471,435 ====================================================================
Financial investments consist of the following investments held by the Constellation Companies:
At December 31, 1995 1994 - -------------------------------------------------------------------- (In thousands) Insurance companies $ 77,792 $ 87,700 Marketable equity securities 41,475 51,175 Financial limited partnerships 51,023 48,014 Leveraged leases 35,551 37,451 - -------------------------------------------------------------------- Total $205,841 $224,340 ====================================================================
The Constellation Companies' marketable equity securities and BGE's investments comprising the nuclear decommissioning trust fund are classified as available for sale. The fair values, gross unrealized gains and losses, and amortized cost bases for available for sale securities, exclusive of $3.2 million of unrealized net gains on securities of equity-method investees, are as follows:
Amortized Unrealized Unrealized Fair At December 31, 1995 Cost Basis Gains Losses Value - --------------------------------------------------------------------------- (In thousands) Marketable equity securities $ 38,520 $2,998 $ (43) $ 41,475 U.S. government agency 14,177 141 --- 14,318 State municipal bonds 50,411 2,056 (74) 52,393 - --------------------------------------------------------------------------- Total $103,108 $5,195 $ (117) $108,186 ===========================================================================
Amortized Unrealized Unrealized Fair At December 31, 1994 Cost Basis Gains Losses Value - --------------------------------------------------------------------------- (In thousands) Marketable equity securities $ 51,758 $1,276 $(1,859) $ 51,175 U.S. government agency 5,215 --- (113) 5,102 State municipal bonds 59,704 929 (2,599) 58,034 - --------------------------------------------------------------------------- Total $116,677 $2,205 $(4,571) $114,311 ===========================================================================
Gross and net realized gains and losses on available for sale securities were as follows:
1995 1994 1993 - --------------------------------------------------------------------------- (In thousands) Gross realized gains $5,470 $ 1,108 $2,437 Gross realized losses (2,446) (3,150) (1,389) - --------------------------------------------------------------------------- Net realized gains (losses) $3,024 $(2,042) $1,048 ===========================================================================
Contractual maturities of debt securities:
Amount - --------------------------------------------------------------------------- (In thousands) Less than 1 year $ --- 1-5 years 10,975 5-10 years 52,920 More than 10 years 4,850 - --------------------------------------------------------------------------- Total $68,745 ===========================================================================
Note 5. Regulatory Assets (net) As discussed in Note 1, BGE's utility operations are subject to regulation by the PSC. Except for differences in the timing of the recognition of certain utility expenses and credits, the ratemaking process utilized by the PSC generally is based upon the same accounting principles applied by nonregulated entities. Under the PSC's ratemaking process, these utility expenses and credits are deferred on the balance sheet as regulatory assets and liabilities and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers in utility revenues. The following table sets forth BGE's regulatory assets and liabilities:
At December 31, 1995 1994 - -------------------------------------------------------------------- (In thousands) Income taxes recoverable through future rates $269,442 $268,436 Deferred fuel costs 113,026 118,591 Deferred nuclear expenditures 86,519 90,937 Deferred postemployment benefit costs 81,616 73,591 Deferred energy conservation expenditures 73,297 45,534 Deferred termination benefit costs 60,073 79,979 Deferred cost of decommissioning federal uranium enrichment facilities 51,104 52,748 Deferred environmental costs 38,371 35,015 Deferred investment tax credits (141,463) (149,394) Other 5,930 8,202 - -------------------------------------------------------------------- Total $637,915 $623,639 ====================================================================
25 Baltimore Gas and Electric Company and Subsidiaries Income taxes recoverable through future rates represent principally the tax effect of depreciation differences not normalized and the allowance for equity funds used during construction, offset by unamortized deferred tax rate differentials and deferred taxes on deferred ITC. These amounts are amortized as the related temporary differences reverse. See Note 1 for a further discussion of income taxes. Deferred fuel costs represent the difference between actual fuel costs and the fuel rate revenues under BGE's fuel clauses (see Note 1). Deferred fuel costs are reduced as they are collected from customers. The underrecovered costs deferred under the fuel clauses were as follows:
At December 31, 1995 1994 - -------------------------------------------------------------------- (In thousands) Electric Costs deferred $130,399 $152,815 Reserve for possible disallowance of replacement energy costs (see Note 12) (35,000) (35,000) - -------------------------------------------------------------------- Net electric 95,399 117,815 Gas 17,627 776 - -------------------------------------------------------------------- Total $113,026 $118,591 ====================================================================
Deferred nuclear expenditures represent the net unamortized balance of certain operations and maintenance costs which are being amortized over the remaining life of the Calvert Cliffs Nuclear Power Plant in accordance with orders of the PSC. These expenditures consist of costs incurred from 1979 through 1982 for inspecting and repairing seismic pipe supports, expenditures incurred from 1989 through 1994 associated with nonrecurring phases of certain nuclear operations projects, and expenditures incurred during 1990 for investigating leaks in the pressurizer heater sleeves. Deferred postemployment benefit costs represent the excess of such costs recognized in accordance with Statements of Financial Accounting Standards No. 106 and No. 112 over the amounts reflected in utility rates. These costs will be amortized over a 15-year period beginning in 1998 (see Note 6). Deferred energy conservation expenditures represent the net unamortized balance of certain operations costs which are being amortized over five years in accordance with orders of the PSC. These expenditures consist of labor, materials, and indirect costs associated with the conservation programs approved by the PSC. Deferred termination benefit costs represent the net unamortized balance of the cost of certain termination benefits (see Note 7) applicable to BGE's regulated operations. These costs are being amortized over a five-year period in accordance with rate actions of the PSC. Deferred cost of decommissioning federal uranium enrichment facilities represents the unamortized portion of BGE's required contributions to a fund for decommissioning and decontaminating the Department of Energy's (DOE) uranium enrichment facilities. The Energy Policy Act of 1992 requires domestic utilities to make such contributions, which are generally payable over a 15-year period with escalation for inflation and are based upon the amount of uranium enriched by DOE for each utility. These costs are being amortized over the contribution period as a cost of fuel. Deferred environmental costs represent the estimated costs of investigating contamination and performing certain remediation activities at contaminated Company-owned sites (see Note 12). In November 1995, the PSC issued a rate order in the Company's gas base rate proceeding which authorized the Company to amortize over a 10-year period $21.6 million of these costs, the amount which had been incurred through October 1995. Deferred investment tax credits represents investment tax credits associated with BGE's regulated utility operations as discussed in Note 1. Previously, the Company reported deferred investment tax credits on the Consolidated Balance Sheets as Deferred Credits and Other Liabilities. In 1995, the Company reclassified those credits as a reduction of Regulatory Assets because they are deferred solely because of the regulatory treatment. Prior year amounts have been reclassified to conform with the current year's presentation. Electric deferred fuel costs in excess of $72.8 million are excluded from rate base by the PSC for ratemaking purposes. Effective April 24, 1993, BGE has been authorized by the PSC to accrue carrying charges on deferred fuel costs in excess of $72.8 million, net of related deferred income taxes. These carrying charges are accrued prospectively at the 9.40% authorized rate of return. The income effect of the equity funds portion of the carrying charges is being deferred until such amounts are recovered in utility service rates subsequent to the completion of the fuel rate proceeding examining the 1989-1991 outages at Calvert Cliffs Nuclear Power Plant as discussed in Note 12. Deferred investment tax credits are not deducted from rate base in accordance with federal income tax normalization requirements. The foregoing regulatory assets and liabilities are recorded on BGE's Consolidated Balance Sheets in accordance with Statement of Financial Accounting Standards (SFAS) No. 71. If BGE were required to terminate application of SFAS No. 71 for all of its regulated operations, all such amounts deferred would be recognized in the income statement at that time, resulting in a charge to earnings, net of applicable income taxes. 26 Baltimore Gas and Electric Company and Subsidiaries Note 6. Pension and Postemployment Benefits Pension Benefits The Company sponsors several noncontributory defined benefit pension plans, the largest of which (the Pension Plan) covers substantially all BGE employees and certain employees of its subsidiaries. The other plans, which are not material in amount, provide supplemental benefits to certain non-employee directors and key employees. Benefits under the plans are generally based on age, years of service, and compensation levels. Prior service cost associated with retroactive plan amendments is amortized on a straight-line basis over the average remaining service period of active employees. The Company's funding policy is to contribute at least the minimum amount required under Internal Revenue Service regulations using the projected unit credit cost method. Plan assets at December 31, 1995 consisted primarily of marketable equity and fixed income securities, and group annuity contracts. The following tables set forth the combined funded status of the plans and the composition of total net pension cost. At December 31, 1994, the accumulated benefit obligation was greater than the fair value of the Pension Plan's assets. As a result, the Company recorded an additional pension liability, a portion of which was charged to shareholders' equity. Net pension cost shown below does not include the cost of termination benefits described in Note 7.
At December 31, 1995 1994 (In thousands) Vested benefit obligation $688,084 $622,445 Nonvested benefit obligation 15,668 8,838 - ---------------------------------------------------------------------------------------------------- Accumulated benefit obligation 703,752 631,283 Projected benefits related to increase in future compensation levels 122,539 82,815 - ---------------------------------------------------------------------------------------------------- Projected benefit obligation 826,291 714,098 Plan assets at fair value (744,645) (614,284) - ---------------------------------------------------------------------------------------------------- Projected benefit obligation less plan assets 81,646 99,814 Unrecognized prior service cost (24,357) (23,863) Unrecognized net loss (118,361) (112,546) Pension liability adjustment --- 52,177 Unamortized net asset from adoption of FASB Statement No. 87 995 1,586 - ---------------------------------------------------------------------------------------------------- Accrued pension (asset) liability $ (60,077) $ 17,168 ====================================================================================================
Year Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- (In thousands) Components of net pension cost Service cost-benefits earned during the period $11,407 $15,015 $11,645 Interest cost on projected benefit obligation 58,433 58,723 51,183 Actual return on plan assets (150,510) 7,932 (56,225) Net amortization and deferral 94,674 (60,071) 6,591 - ------------------------------------------------------------------------------------------------------------------- Total net pension cost 14,004 21,599 13,194 Amount capitalized as construction cost (1,422) (2,578) (1,800) - ------------------------------------------------------------------------------------------------------------------- Amount charged to expense $12,582 $19,021 $11,394 ===================================================================================================================
The Company also sponsors a defined contribution savings plan covering all eligible BGE employees and certain employees of its subsidiaries. Under this plan, the Company makes contributions on behalf of participants. Company contributions to this plan totaled $8.5 million, $8.7 million, and $9.0 million in 1995, 1994, and 1993, respectively. Postretirement Benefits The Company sponsors defined benefit postretirement health care and life insurance plans which cover substantially all BGE employees and certain employees of its subsidiaries. Benefits under the plans are generally based on age, years of service, and pension benefit levels. The postretirement benefit (PRB) plans are unfunded. Substantially all of the health care plans are contributory, and participant contributions for employees who retire after June 30, 1992 are based on age and years of service. Retiree contributions increase commensurate with the expected increase in medical costs. The postretirement life insurance plan is noncontributory. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, which requires a change in the method of accounting for postretirement benefits other than pensions from the pay-as-you-go method used prior to 1993 to the accrual method. The transition obligation existing at the beginning of 1993 is being amortized over a 20-year period. 27 Baltimore Gas and Electric Company and Subsidiaries In April 1993, the PSC issued a rate order authorizing BGE to recognize in operating expense one-half of the annual increase in PRB costs applicable to regulated operations as a result of the adoption of Statement No. 106 and to defer the remainder of the annual increase in these costs for inclusion in BGE's next base rate proceeding. In accordance with the April 1993 Order, the increase in annual PRB costs applicable to regulated operations for the period January through April 1993, net of amounts capitalized as construction cost, has been deferred. This amount, which totaled $5.7 million, as well as all amounts to be deferred prior to completion of BGE's next base rate proceeding, will be amortized over a 15-year period beginning in 1998 in accordance with the PSC's Order. In November 1995, the PSC issued a rate order in BGE's gas base rate proceeding providing for full recognition in operating expense of PRB and other postemployment benefits (discussed below) costs attributable to gas operations, and affirming its previous decision on amortization of deferred PRB costs. This phase-in approach meets the guidelines established by the Emerging Issues Task Force of the Financial Accounting Standards Board for deferring PRB costs as a regulatory asset. Accrual-basis PRB costs applicable to nonregulated operations are charged to expense. The following table sets forth the components of the accumulated PRB obligation and a reconciliation of these amounts to the accrued PRB liability.
At December 31, 1995 1994 Life Life Health Care Insurance Health Care Insurance (In thousands) Accumulated postretirement benefit obligation: Retirees $157,804 $44,769 $161,134 $45,146 Fully eligible active employees 20,942 84 15,777 101 Other active employees 63,782 18,515 44,371 12,597 - --------------------------------------------------------------------------------------------------------------------------- Total accumulated postretirement benefit obligation 242,528 63,368 221,282 57,844 Unrecognized transition obligation (149,907) (43,521) (158,725) (46,081) Unrecognized net gain (loss) (12,767) (5,764) 1,238 (2,141) - --------------------------------------------------------------------------------------------------------------------------- Accrued postretirement benefit liability $ 79,854 $ 14,083 $ 63,795 $ 9,622 ===========================================================================================================================
The following table sets forth the composition of net PRB cost. Such cost does not include the cost of termination benefits described in Note 7.
Year ended December 31, 1995 1994 - ------------------------------------------------------------------------ (In thousands) Net postretirement benefit cost: Service cost--benefits earned during the period $ 3,918 $ 5,035 Interest cost on accumulated post- retirement benefit obligation 21,203 23,037 Amortization of transition obligation 11,378 11,700 Net amortization and deferral (86) 646 - ------------------------------------------------------------------------ Total net postretirement benefit cost 36,413 40,418 Amount capitalized as construction cost (5,299) (5,773) Amount deferred (8,025) (10,213) - ------------------------------------------------------------------------ Amount charged to expense $23,089 $24,432 ========================================================================
Other Postemployment Benefits The Company provides health and life insurance benefits to employees of BGE and certain employees of its subsidiaries who are determined to be disabled under BGE's Disability Insurance Plan. The Company also provides pay continuation payments for employees determined to be disabled before November 1995. Such payments for employees determined to be disabled after that date are paid by an insurance company, and the cost of such insurance is paid by employees. The Company adopted Statement of Financial Accounting Standards No. 112, which requires a change in the method of accounting for these benefits from the pay-as-you-go method to an accrual method, as of December 31, 1993. The liability for these benefits totaled $52 million and $48 million as of December 31, 1995 and 1994, respectively. The portion of the December 31, 1993 liability attributable to regulated activities was deferred. Consistent with the PSC's November 1995 order, the amounts deferred will be amortized over a 15-year period beginning in 1998. The adoption of Statement No. 112 did not have a material impact on net income. Assumptions The pension, postretirement, and other postemployment benefit liabilities were determined using the following assumptions.
At December 31, 1995 1994 - -------------------------------------------------------------- Assumptions: Discount rate Pension and postretirement benefits 7.5% 8.5% Other postemployment benefits 6.0% 8.5% Average increase in future compensation levels 4.0% 4.0% Expected long-term rate of return on assets 9.0% 9.0%
The health care inflation rates for 1995 are assumed to be 8.7% for Medicare-eligible retirees and 11.8% for retirees not covered by Medicare. The health care inflation rates for 1996 are assumed to be 8.0% for Medicare-eligible retirees and 10.5% for retirees not covered by Medicare. After 1996, both rates are assumed to decrease by 0.5% annually to an ultimate rate of 5.5% in the years 2001 and 2006, respectively. A one percentage point increase in the health care inflation rate from the assumed rates would increase the accumulated postretirement benefit obligation by approximately $40 million as of December 31, 1995 and would increase the aggregate of the service cost and interest cost components of postretirement benefit cost by approximately $4 million annually. 28 Baltimore Gas and Electric Company and Subsidiaries Note 7. Termination Benefits BGE offered a Voluntary Special Early Retirement Program (the 1992 VSERP) to eligible employees who retired during the period February 1, 1992 through April 1, 1992. In accordance with Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the one-time cost of termination benefits associated with the 1992 VSERP, which consisted principally of an enhanced pension benefit, was recognized in 1992 and reduced net income by $6.6 million, or 5 cents per common share. In April 1993, the PSC authorized BGE to amortize this charge over a five-year period for ratemaking purposes. Accordingly, BGE established a regulatory asset and recorded a corresponding credit to operating expense for this amount. The reversal of the 1992 VSERP in April 1993 increased net income by $6.6 million, or 5 cents per common share. BGE offered a second Voluntary Special Early Retirement Program (the 1993 VSERP) to eligible employees who retired as of February 1, 1994. The one-time cost of the 1993 VSERP consisted of enhanced pension and postretirement benefits. In addition to the 1993 VSERP, further employee reductions have been accomplished through the elimination of certain positions, and various programs have been offered to employees impacted by the eliminations. In accordance with Statement No. 88, the one-time cost of termination benefits associated with the 1993 VSERP and various programs, which totaled $105.5 million, was recognized in 1993. The $88.3 million portion of 1993 VSERP attributable to regulated activities was deferred and is being amortized over a five-year period for ratemaking purposes, beginning in February 1994, consistent with previous rate actions of the PSC. The $17.2 million remaining cost of termination benefits was charged to expense in 1993. Note 8. Short-Term Borrowings Information concerning short-term borrowings is set forth below. Short-term borrowings include bank loans, commercial paper notes, and bank lines of credit. The Company pays commitment fees in support of lines of credit. Borrowings under the lines are at the banks' prime rates, base interest rates, or at various money market rates.
1995 1994 1993 (Dollar amounts in thousands) BGE's Bank Loans Borrowings outstanding at December 31 $ 3,845 $ - $ - Weighted average interest rate of borrowings outstanding at December 31 4.74% - % - % Maximum borrowings during the year $ 3,845 $ - $ - BGE's Commercial Paper Notes Borrowings outstanding at December 31 $275,300 $ 63,700 $ - Weighted average interest rate of notes outstanding at December 31 5.92% 6.10% - % Unused lines of credit supporting commercial paper notes at December 31* $238,000 $148,000 $ 208,000 Maximum borrowings during the year $339,100 $187,500 $ 96,900 Constellation Companies' Lines of Credit Borrowings outstanding at December 31 $ 160 $ - $ - Weighted average interest rate of borrowings outstanding at December 31 -% - % - % Unused lines of credit at December 31 $ --- $ - $ 20,000 Maximum borrowings during the year $ 160 $ - $ -
*Exclusive of $150 million of revolving credit agreements undrawn at year-end (see Note 9). 29 Baltimore Gas and Electric Company and Subsidiaries Note 9. Long-Term Debt First Refunding Mortgage Bonds of BGE Substantially all of the principal properties and franchises owned by BGE, as well as the capital stock of Constellation Holdings, Inc., Safe Harbor Water Power Corporation, HP&S, EP&S, and BNG, Inc., are subject to the lien of the mortgage under which BGE's outstanding First Refunding Mortgage Bonds have been issued. On August 1 of each year, BGE is required to pay to the mortgage trustee an annual sinking fund payment equal to 1% of the largest principal amount of Mortgage Bonds outstanding under the mortgage during the preceding twelve months. Such funds are to be used, as provided in the mortgage, for the purchase and retirement by the trustee of Mortgage Bonds of any series other than the 5-1/2% Installment Series of 2002, the 8.40% Series of 1999, the 5-1/2% Series of 2000, the 8-3/8% Series of 2001, the 7-1/4% Series of 2002, the 6-1/2% Series of 2003, the 6-1/8% Series of 2003, the 5-1/2% Series of 2004, the 7-1/2% Series of 2007, and the 6-5/8% Series of 2008. Other Long-Term Debt of BGE BGE maintains revolving credit agreements that expire at various times during 1998. Under the terms of the agreements, BGE may, at its option, obtain loans at various interest rates. A commitment fee is paid on the daily average of the unborrowed portion of the commitment. At December 31, 1995, BGE had no borrowings under these revolving credit agreements and had available $150 million of unused capacity under these agreements. On December 29, 1995 BGE entered into a $50 million term bank loan which matures on March 29, 2001. Under the terms of the loan, the bank has a one-time option to cancel the loan on December 29, 1997. Until that date, the interest rate on the loan is 5.22%. If the bank does not cancel the loan on December 29, 1997, the interest rate for the remaining term will reset to 6.11%. Following is information regarding BGE's Medium-term Notes outstanding at December 31, 1995:
Weighted-Average Series Interest Rate Maturity Dates - -------------------------------------------------------------------- A 8.22% 1996 B 8.43% 1998-2006 C 7.04% 1996-2003 D 6.12% 1998-2005
The principal amounts of the 5-1/2% Installment Series Mortgage Bonds payable each year are as follows:
Year - -------------------------------------------------------------------- (In thousands) 1996 through 1997 $ 605 1998 and 1999 690 2000 and 2001 865 2002 6,725
Long-Term Debt of Constellation Companies The Constellation Companies entered into an unsecured revolving credit agreement on December 9, 1994 in the amount of $50 million. This agreement matures December 9, 1998 and will be used to provide liquidity for general corporate purposes. As of December 31, 1995, the Constellation Companies had $1 million outstanding under this agreement. The mortgage and construction loans and other collateralized notes have varying terms. The $9.9 million, 7.50% mortgage note requires monthly principal and interest payments through October 9, 2005. The $110 million of variable rate mortgage notes require periodic payment of principal and interest with various maturities from January 1996 through July 2009. The $5.9 million, 7.357% mortgage note requires quarterly principal and interest payments through March 15, 2009. The unsecured notes outstanding as of December 31, 1995 mature in accordance with the following schedule:
Amount - -------------------------------------------------------------------- (In thousands) 8.71%, due August 28, 1996 $ 23,000 6.19%, due September 9, 1996 10,000 8.93%, due August 28, 1997 52,000 6.65%, due September 9, 1997 15,000 8.23%, due October 15, 1997 30,000 7.05%, due April 22, 1998 25,000 7.06%, due September 9, 1998 20,000 8.48%, due October 15, 1998 75,000 7.30%, due April 22, 1999 90,000 8.73%, due October 15, 1999 15,000 7.55%, due April 22, 2000 35,000 7.43%, due September 9, 2000 30,000 - -------------------------------------------------------------------- Total $420,000 ====================================================================
Weighted Average Interest Rates for Variable Rate Debt The weighted average interest rates for variable rate debt during 1995 and 1994 were as follows:
1995 1994 - -------------------------------------------------------------------- BGE Floating rate series mortgage bonds 6.30% 4.91% Pollution control loan 3.79 2.80 Port facilities loan 4.06 3.02 Adjustable rate pollution control loan 3.75 3.13 Economic development loan 4.01 3.00 Constellation Companies Mortgage and construction loans and other collateralized notes 8.99 7.27 Loans under credit agreements 6.74 -
Aggregate Maturities The combined aggregate maturities and sinking fund requirements for all of the Company's long-term borrowings for each of the next five years are as follows:
Constellation Year BGE Companies - -------------------------------------------------------------------- (In thousands) 1996 $ 71,659 $ 49,310 1997 80,657 134,970 1998 92,328 138,351 1999 246,420 118,175 2000 251,441 85,521
30 Baltimore Gas and Electric Company and Subsidiaries Note 10. Redeemable Preference Stock The 7.80%, 1989 Series is subject to mandatory redemption in full at par on July 1, 1997. The following series are subject to an annual mandatory redemption of the number of shares shown below at par beginning in the year shown below. At BGE's option, an additional number of shares, not to exceed the same number as are mandatory, may be redeemed at par in any year, commencing in the same year in which the mandatory redemption begins. The 8.25%, 1989 Series, the 8.625%, 1990 Series, and the 7.85%, 1991 Series listed below are not redeemable except through operation of a sinking fund.
Beginning Series Shares Year - -------------------------------------------------------------------- 7.50%, 1986 Series 15,000 1992 6.75%, 1987 Series 15,000 1993 8.25%, 1989 Series 100,000 1995 8.625%, 1990 Series 130,000 1996 7.85%, 1991 Series 70,000 1997
The combined aggregate redemption requirements for all series of redeemable preference stock for each of the next five years are as follows:
Year - -------------------------------------------------------------------- (In thousands) 1996 $26,000 1997 83,000 1998 33,000 1999 23,000 2000 23,000
With regard to payment of dividends or assets available in the event of liquidation, preferred stock ranks prior to preference and common stock; all issues of preference stock, whether subject to mandatory redemption or not, rank equally; and all preference stock ranks prior to common stock. Note 11. Leases The Company, as lessee, contracts for certain facilities and equipment under lease agreements with various expiration dates and renewal options. Consistent with the regulatory treatment, lease payments for utility operations are charged to expense. Lease expense, which is comprised primarily of operating leases, totaled $12.2 million, $12.7 million, and $13.8 million for the years ended 1995, 1994, and 1993, respectively. The future minimum lease payments at December 31, 1995 for long-term noncancelable operating leases are as follows:
Year - -------------------------------------------------------------------- (In thousands) 1996 $ 4,485 1997 4,398 1998 3,681 1999 1,712 2000 1,537 Thereafter 4,214 - -------------------------------------------------------------------- Total minimum lease payments $20,027 ====================================================================
Certain of the Constellation Companies, as lessor, have entered into operating leases for office and retail space. These leases expire over periods ranging from 1 to 21 years, with options to renew. The net book value of property under operating leases was $147 million at December 31, 1995. The future minimum rentals to be received under operating leases in effect at December 31, 1995 are as follows:
Year - -------------------------------------------------------------------- (In thousands) 1996 $ 14,412 1997 12,134 1998 10,883 1999 10,130 2000 9,459 Thereafter 66,660 - -------------------------------------------------------------------- Total minimum rentals $123,678 ====================================================================
31 Baltimore Gas and Electric Company and Subsidiaries Note 12. Commitments, Guarantees, and Contingencies Commitments BGE has made substantial commitments in connection with its construction program for 1995 and subsequent years. In addition, BGE has entered into three long-term contracts for the purchase of electric generating capacity and energy. The contracts expire in 2001, 2013, and 2023. Total payments under these contracts were $68.4, $69.4, and $68.7 million during 1995, 1994, and 1993, respectively. At December 31, 1995, the estimated future payments for capacity and energy that BGE is obligated to buy under these contracts are as follows:
Year - -------------------------------------------------------------------- (In thousands) 1996 $ 62,989 1997 60,355 1998 78,950 1999 90,224 2000 91,365 Thereafter 902,432 - -------------------------------------------------------------------- Total payments $1,286,315 ====================================================================
Certain of the Constellation Companies have committed to contribute additional capital and to make additional loans to certain affiliates, joint ventures, and partnerships in which they have an interest. As of December 31, 1995, the total amount of investment requirements committed to by the Constellation Companies is $44 million. In December, 1994, BGE and HP&S entered into agreements with a financial institution whereby BGE and HP&S can sell on an ongoing basis up to an aggregate of $40 million and $50 million, respectively, of an undivided interest in a designated pool of customer receivables. Under the terms of the agreements, BGE and HP&S have limited recourse on the receivables and have recorded a reserve for credit losses. At December 31, 1995, BGE and HP&S had sold $30 million and $42 million of receivables, respectively, under these agreements. Guarantees BGE has agreed to guarantee two-thirds of certain indebtedness of Safe Harbor Water Power Corporation. The total amount of indebtedness that can be guaranteed is $45 million, of which $30 million represents BGE's share of the guarantee. As of December 31, 1995, outstanding indebtedness of Safe Harbor Water Power Corporation was $33 million, of which $22 million is guaranteed by BGE. BGE has also agreed to guarantee up to $20 million of obligations and indebtedness of BNG, Inc. As of December 31, 1995, there were no outstanding obligations under this guarantee. BGE assesses that the risk of material loss on the loans guaranteed is minimal. As of December 31, 1995, the total outstanding loans and letters of credit of certain power generation and real estate projects guaranteed by the Constellation Companies were $35 million. Also, the Constellation Companies have agreed to guarantee cer-tain other borrowings of various power generation and real estate projects. The Company has assessed that the risk of material loss on the loans guaranteed and performance guarantees is minimal. Pending Merger With Potomac Electric Power Company BGE, Potomac Electric Power Company, a District of Columbia and Virginia corporation (PEPCO) and Constellation Energy Corporation (formerly named "RH Acquisition Corp."), a Maryland corporation which will also be incorporated in Virginia (CEC), have entered into an Agreement and Plan of Merger, dated as of September 22, 1995. CEC was formed to accomplish the merger and its outstanding capital stock is owned 50% by BGE and 50% by PEPCO. The Agreement and Plan of Merger provides for a strategic business combination that will be accomplished by merging both BGE and PEPCO into CEC (the Transaction). The Transaction, which was unanimously approved by the Boards of Directors of BGE and PEPCO, is expected to close during 1997 after shareholder approval is obtained and all other conditions to the consummation of the Transaction, including obtaining applicable regulatory approvals, are met or waived. In connection with the Transaction, BGE common shareholders will receive one share of CEC common stock for each BGE share and PEPCO common shareholders will receive 0.997 share of CEC common stock for each PEPCO share. Further details about the proposed merger are provided in the report on Form 8-K dated September 22, 1995 and the Registration Statement on Form S-4 (Registration No. 33-64799). Environmental Matters The Clean Air Act of 1990 (the Act) contains two titles designed to reduce emissions of sulfur dioxide and nitrogen oxide (NOx) from electric generating stations. Title IV contains provisions for compliance in two separate phases. Phase I of Title IV became effective January 1, 1995, and Phase II of Title IV must be implemented by 2000. BGE met the requirements of Phase I by installing flue gas desulfurization systems and fuel switching and through unit retirements. BGE is currently examining what actions will be required in order to comply with Phase II of the Act. However, BGE anticipates that compliance will be attained by some combination of fuel switching, flue gas desulfurization, unit retirements, or allowance trading. At this time, plans for complying with NOx control requirements under Title I of the Act are less certain because all implementation regulations have not yet been finalized by the government. It is expected that by the year 1999 these regulations will require additional NOx controls for ozone attainment at BGE's generating plants and at other BGE facilities. The controls will result in additional expenditures that are difficult to predict prior to the issuance of such regulations. Based on existing and proposed ozone nonattainment regulations, BGE currently estimates that the NOx controls at BGE's generating plants will cost approximately $90 million. BGE is currently unable to predict the cost of compliance with the additional requirements at other BGE facilities. BGE has been notified by the Environmental Protection Agency and several state agencies that it is being considered a potentially responsible party (PRP) with respect to the cleanup of certain 32 Baltimore Gas and Electric Company and Subsidiaries environmentally contaminated sites owned and operated by third parties. In addition, a subsidiary of Constellation Holdings, Inc. has been named as a defendant in a case concerning an alleged environmentally contaminated site owned and operated by a third party. Cleanup costs for these sites cannot be estimated, except that BGE's 15.79% share of the possible cleanup costs at one of these sites, Metal Bank of America, a metal reclaimer in Philadelphia, could exceed amounts recognized by up to approximately $7 million based on the highest estimate of costs in the range of reasonably possible alternatives. Although the cleanup costs for certain of the remaining sites could be significant, BGE believes that the resolution of these matters will not have a material effect on its financial position or results of operations. Also, BGE is coordinating investigation of several former gas manufacturing plant sites, including exploration of corrective action options to remove coal tar. However, no formal legal proceedings have been instituted. BGE has recognized estimated environmental costs at these sites totaling $38.6 million as of December 31, 1995. These costs, net of accumulated amortization, have been deferred as a regulatory asset (see Note 5). The technology for cleaning up such sites is still developing, and potential remedies for these sites have not been identified. Cleanup costs in excess of the amounts recognized, which could be significant in total, cannot presently be estimated. Nuclear Insurance An accident or an extended outage at either unit of the Calvert Cliffs Nuclear Power Plant could have a substantial adverse effect on BGE. The primary contingencies resulting from an incident at the Calvert Cliffs plant would involve the physical damage to the plant, the recoverability of replacement power costs, and BGE's liability to third parties for property damage and bodily injury. BGE maintains various insurance policies for these contingencies. The costs that could result from a major accident or an extended outage at either of the Calvert Cliffs units could exceed the coverage limits. In addition, in the event of an incident at any commercial nuclear power plant in the country, BGE could be assessed for a portion of any third party claims associated with the incident. Under the provisions of the Price Anderson Act, the limit for third party claims from a nuclear incident is $8.92 billion. If third party claims relating to such an incident exceed $200 million (the amount of primary insurance), BGE's share of the total liability for third party claims could be up to $159 million per incident, that would be payable at a rate of $20 million per year. BGE and other operators of commercial nuclear power plants in the United States are required to purchase insurance to cover claims of certain nuclear workers. Other non-governmental commercial nuclear facilities may also purchase such insurance. Coverage of up to $400 million is provided for claims against BGE or others insured by these policies for radiation injuries. If certain claims were made under these policies, BGE and all policyholders could be assessed, with BGE's share being up to $6.08 million in any one year. For physical damage to Calvert Cliffs, BGE has $2.75 billion of property insurance from industry mutual insurance companies. If an outage at Calvert Cliffs is caused by an insured physical damage loss and lasts more than 21 weeks, BGE has up to $473.2 million per unit of insurance, provided by an industry mutual insurance company, for replacement power costs. This amount can be reduced by up to $94.6 million per unit if an outage to both units at Calvert Cliffs is caused by a singular insured physical damage loss. If accidents at any insured plants cause a short-fall of funds at the industry mutuals, BGE and all policyholders could be assessed, with BGE's share being up to $44.1 million. Recoverability of Electric Fuel Costs By statute, actual electric fuel costs are recoverable so long as the PSC finds that BGE demonstrates that, among other things, it has maintained the productive capacity of its generating plants at a reasonable level. The PSC and Maryland's highest appellate court have interpreted this as permitting a subjective evaluation of each unplanned outage at BGE's generating plants to determine whether or not BGE had implemented all reasonable and cost effective maintenance and operating control procedures appropriate for preventing the outage. Effective January 1, 1987, the PSC authorized the establishment of the Generating Unit Performance Program (GUPP) to measure, annually, utility compliance with maintaining the productive capacity of generating plants at reasonable levels by establishing a system-wide generating performance target and individual performance targets for each base load generating unit. In future fuel rate hearings, actual generating performance after adjustment for planned outages will be compared to the system-wide target and, if met, should signify that BGE has complied with the requirements of Maryland law. Failure to meet the system-wide target will result in review of each unit's adjusted actual generating performance versus its performance target in determining compliance with the law and the basis for possibly imposing a penalty on BGE. Parties to fuel rate hearings may still question the prudence of BGE's actions or inactions with respect to any given generating plant outage, which could result in the disallowance of replacement energy costs by the PSC. Since the two units at BGE's Calvert Cliffs Nuclear Power Plant utilize BGE's lowest cost fuel, replacement energy costs associated with outages at these units can be significant. BGE cannot estimate the amount of replacement energy costs that could be challenged or disallowed in future fuel rate proceedings, but such amounts could be material. In October 1988, BGE filed its first fuel rate application for a change in its electric fuel rate under the GUPP program. The resultant case before the PSC covers BGE's operating performance in calendar year 1987, and BGE's filing demonstrated that it met the system-wide and individual nuclear plant performance targets for 1987. In November 1989, testimony was filed on behalf of Maryland People's Counsel alleging that seven outages 33 Baltimore Gas and Electric Company and Subsidiaries at the Calvert Cliffs plant in 1987 were due to management imprudence and that the replacement energy costs associated with those outages should be disallowed by the PSC. Total replacement energy costs associated with the 1987 outages were approximately $33 million. On January 23, 1995, the Hearing Examiner issued his decision in the 1987 fuel rate proceeding and found that the Company had met the GUPP standard which establishes a presumption that BGE had operated the Plant at a reasonably productive capacity level. However, the Order found that the presumption of reasonableness would be overcome by a showing of mismanagement and that such a showing was made with respect to the environmental qualifications outage time. In mitigation for meeting the GUPP standard, the Hearing Examiner disallowed replacement energy costs recovery for 15.5 days of the 66-day outage time. The Hearing Examiner's Order was appealed to the PSC by both BGE and People's Counsel. If the PSC upholds the Hearing Examiner, the Company's earnings would be impacted by approximately $4.5 million. In May 1989, BGE filed its fuel rate case in which 1988 performance was to be examined. BGE met the system-wide and nuclear plant performance targets in 1988. People's Counsel alleges that BGE imprudently managed several outages at Calvert Cliffs, and BGE estimates that the total replacement energy costs associated with these 1988 outages were approximately $2 million. On November 14, 1991, a Hearing Examiner at the PSC issued a proposed Order, which became final on December 17, 1991 and concluded that no disallowance was warranted. The Hearing Examiner found that BGE maintained the productive capacity of the Plant at a reasonable level, noting that it produced a near record amount of power and exceeded the GUPP standard. Based on this record, the Order concluded there was sufficient cause to excuse any avoidable failures to maintain productive capacity at higher levels. During 1989, 1990, and 1991, BGE experienced extended outages at its Calvert Cliffs Nuclear Power Plant. In the Spring of 1989, a leak was discovered around the Unit 2 pressurizer heater sleeves during a refueling outage. BGE shut down Unit 1 as a precautionary measure on May 6, 1989 to inspect for similar leaks and none were found. However, Unit 1 was out of service for the remainder of 1989 and 285 days of 1990 to undergo maintenance and modification work to enhance the reliability of various safety systems, to repair equipment, and to perform required periodic surveillance tests. Unit 2, which returned to service on May 4, 1991, remained out of service for the remainder of 1989, 1990, and the first part of 1991 to repair the pressurizer, perform maintenance and modification work, and complete the refueling. The replacement energy costs associated with these extended outages for both units at Calvert Cliffs, concluding with the return to service of Unit 2, is estimated to be $458 million. In a December 1990 Order issued by the PSC in a BGE base rate proceeding, the PSC found that certain operations and maintenance expenses incurred at Calvert Cliffs during the test year should not be recovered from ratepayers. The PSC found that this work, which was performed during the 1989-1990 Unit 1 outage and fell within the test year, was avoidable and caused by BGE actions which were deficient. The Commission noted in the Order that its review and findings on these issues pertain to the reasonableness of BGE's test-year operations and maintenance expenses for purposes of setting base rates and not to the responsibility for replacement power costs associated with the outages at Calvert Cliffs. The PSC stated that its decision in the base rate case will have no res judicata (binding) effect in the fuel rate proceeding examining the 1989-1991 outages. The work characterized as avoidable significantly increased the duration of the Unit 1 outage. Despite the PSC's statement regarding no binding effect, BGE recognizes that the views expressed by the PSC make the full recovery of all of the replacement energy costs associated with the Unit 1 outage doubtful. Therefore, in December 1990, BGE recorded a provision of $35 million against the possible disallowance of such costs. BGE cannot determine whether replacement energy costs may be disallowed in the present fuel rate proceedings in excess of the provision, but such amounts could be material. Note 13. Fair Value of Financial Instruments The following table presents the carrying amounts and fair values of financial instruments included in the Consolidated Balance Sheets.
At December 31, 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value (In thousands) Cash and cash equivalents $ 23,443 $ 23,443 $ 38,590 $ 38,590 Net accounts receivable 400,005 400,005 314,842 314,842 Other current assets 54,070 54,070 29,344 29,344 Investments and other assets for which it is: Practicable to estimate fair value 149,645 150,170 138,978 137,782 Not practicable to estimate fair value 73,042 --- 69,514 --- Short-term borrowings 279,305 279,305 64,205 64,205 Current portions of long-term debt and preference stock 146,969 146,969 323,675 323,675 Accounts payable 177,092 177,092 181,931 181,931 Other current liabilities 193,992 193,992 191,121 191,121 Long-term debt 2,598,254 2,694,858 2,584,932 2,417,625 Redeemable preference stock 242,000 254,809 279,500 281,478
34 Baltimore Gas and Electric Company and Subsidiaries Financial instruments included in other current assets include trading securities and miscellaneous loans receivable of the Constellation Companies. Financial instruments included in other current liabilities represent total current liabilities from the Consolidated Balance Sheets excluding short-term borrowings, current portions of long-term debt and preference stock, accounts payable, and accrued vacation costs. The carrying amount of current assets and current liabilities approximates fair value because of the short maturity of these instruments. Investments and other assets include investments in common and preferred securities, which are classified as financial investments in the Consolidated Balance Sheets, and the nuclear decommissioning trust fund. The fair value of investments and other assets is based on quoted market prices where available. It was not practicable to estimate the fair value of the Constellation Companies' investments in 23 financial partnerships which invest in nonpublic debt and equity securities or investments in four partnerships which own solar powered energy production facilities because the timing and magnitude of cash flows from these investments are difficult to predict. These investments are carried at their original cost in the Consolidated Balance Sheets. The investments in financial partnerships totaled $50 million and $47 million at December 31, 1995 and 1994, respectively, representing ownership interests up to 10%. The aggregate assets of these partnerships totaled $6.3 billion at December 31, 1994. The investments in solar powered energy production facility partnerships totaled $23 million at December 31, 1995 and 1994, representing ownership interests up to 12%. The aggregate assets of these partnerships totaled $83 million at December 31, 1994. The fair value of fixed-rate long-term debt and redeemable preference stock is estimated using quoted market prices where available or by discounting remaining cash flows at the current market rate. The carrying amount of variable-rate long-term debt approximates fair value. BGE and the Constellation Companies have loan guarantees on outstanding indebtedness totaling $22 million and $35 million, respectively, at December 31, 1995 and $23.3 million and $17.0 million, respectively, at December 31, 1994 for which it is not practicable to determine fair value. It is not anticipated that these loan guarantees will need to be funded. Note 14. Quarterly Financial Data (Unaudited) The following data are unaudited but, in the opinion of Management, include all adjustments necessary for a fair presentation. BGE's utility business is seasonal in nature with the peak sales periods generally occurring during the summer and winter months. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.
Quarter Ended Year Ended March 31 June 30 September 30 December 31 December 31 - ------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per-share amounts) 1995 Revenues $717,806 $642,500 $848,781 $725,712 $2,934,799 Income from operations 148,222 120,920 299,744 126,806 695,692 Net income 70,854 50,889 163,335 52,929 338,007 Earnings applicable to common stock 60,902 40,937 153,104 42,486 297,429 Earnings per share of common stock 0.41 0.28 1.04 0.29 2.02 ============================================================================================================================== 1994 Revenues $767,686 $651,152 $753,878 $610,269 $2,782,985 Income from operations 162,559 136,778 232,472 103,450 635,259 Net income 82,145 66,708 126,616 48,148 323,617 Earnings applicable to common stock 72,114 56,687 116,714 38,180 283,695 Earnings per share of common stock 0.49 0.39 0.79 0.26 1.93 ==============================================================================================================================
Results for the first quarter of 1994 reflect a $10.0 million one-time bonus paid to employees in lieu of a general increase. Results for the third quarters of 1995 and 1994 reflect the $9.7 and $11.0 million write-offs, respectively, of certain Perryman costs (see Note 1). Certain prior-quarter amounts have been reclassified to conform with the current presentation. 35 Baltimore Gas and Electric Company and Subsidiaries ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibit No. 12 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. 23 Consent of Coopers & Lybrand L.L.P., Independent Certified Public Accountants. Exhibit No. 27 Financial Data Schedule. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BALTIMORE GAS AND ELECTRIC COMPANY ---------------------------------- (Registrant) Date February 5, 1996 /s/C.W. Shivery ---------------------------------- C. W. Shivery, Vice President on behalf of the Registrant and as Principal Financial Officer 36 EXHIBIT INDEX Exhibit Number 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements. 23 Consent of Coopers & Lybrand L.L.P., Independent Certified Public Accountants. 27 Financial Data Schedule. 37 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
12 Months Ended December December December December December 1995 1994 1993 1992 1991 (In Thousands of Dollars) Net Income $338,007 $323,617 $309,866 $264,347 $233,681 Taxes on Income 172,388 156,702 140,833 105,994 88,041 Adjusted Net Income $510,395 $480,319 $450,699 $370,341 $321,722 Fixed Charges: Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness $206,666 $204,206 $199,415 $200,848 $213,616 Capitalized Interest 15,050 12,427 16,167 13,800 20,953 Interest Factor in Rentals 2,099 2,010 2,144 2,033 1,801 Total Fixed Charges $233,815 $218,643 $217,726 $216,681 $236,370 Preferred and Preference Dividend Requirements:(1) Preferred and Preference Dividends $ 40,578 $ 39,922 $ 41,839 $ 42,247 $ 42,746 Income Tax Required 20,434 19,074 18,763 16,729 15,916 Total Preferred and Preference Dividend Requirements $ 61,012 $ 58,996 $ 60,602 $ 58,976 $ 58,662 Total Fixed Charges and Preferred and Preference Dividend Requirements $284,827 $277,639 $278,328 $275,657 $295,032 Earnings(2) $719,160 $686,535 $652,258 $573,222 $537,139 Ratio of Earnings to Fixed Charges 3.21 3.14 3.00 2.65 2.27 Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements 2.52 2.47 2.34 2.08 1.82
(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 net income that includes earnings of BGE's consolidated subsidiaries, equity in the net income of BGE's unconsolidated subsidiary, income taxes (including deferred income taxes and investment tax credit adjustments), and fixed charges other than capitalized interest. 38 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Prospectuses prepared in accordance with the requirements of Forms S-3 (File Nos. 33-50331, 33-61297, 33-57658, 33-49801, 33-33559 and 33-45260), and Forms S-8 (File Nos. 33-56084 and 33-59545) of our report dated January 19, 1996, on our audits of the consolidated financial statements of Baltimore Gas and Electric Company and Subsidiaries (the "Company"), as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993, included in this Form 8-K dated February 5, 1996 of the Company. /s/COOPERS & LYBRAND L.L.P. Coopers & Lybrand L.L.P. Baltimore, Maryland February 5, 1996 39 EX-27 2 FDS --
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BGE'S DECEMBER 31, 1995 CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 5,497,596 1,311,968 805,778 701,321 0 8,316,663 1,425,805 0 1,381,417 2,812,682 242,000 269,185 2,598,254 0 0 279,305 120,969 26,000 0 0 1,968,268 8,316,663 2,934,799 169,527 2,239,107 2,408,634 695,692 8,819 704,511 196,977 338,007 40,578 297,429 227,192 219,689 663,045 $2.02 $2.02
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